FORTUNE — These are rough times for America’s brick-and-mortar retailers. This week, it was Radio Shack (RSH) announcing plans to close 20% of its stores and Staples (SPLS) shuttering 12% in North America. Last week, it was Best Buy (BBY), announcing plans to cut 2,000 managers. Before that, Blockbuster going out of business, or J.C. Penney (JCP) reporting another round of bad, bad news. Battered by the economy and then the growth of e-commerce, the signs of decline of the American retailer have been many and hard to miss. (Just turn your browser to deadmalls.com to see these fallen soldiers of suburban retail.)
Yet Mall of America, that veritable orgy of bricks and mortar in the Minneapolis suburbs, took steps this week to actually get bigger. On Monday, the megamall — second in size only to the Philadelphia-area King of Prussia mall — confirmed it had closed financing and will break ground on an expansion project later this month. In the next decade, the mall has plans and potential to double its size — future development that has been rooted on by the Minnesota legislature, which granted the megamall up to $250 million in tax breaks last year. (The current project is mostly privately financed.)
Given the times (and the fact that the American mall was pronounced as good as dead back in 2009), is this a complete folly or a harbinger of things to come?
“The future of malls is about experience, creating a destination,” says Maureen Bausch, executive vice president of business development for Mall of America. “It’s about giving the customer an experience they’ll leave their laptop for.”
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Indeed, with 40 million annual visitors each year — 35 to 40% of whom are tourists, from Scandinavians making long-weekend trips for tax-free clothes to Chinese on the “Minneapolis” leg of their America tour — Mall of America has always been a destination. And with the nation’s largest indoor theme park, a 10,000-sea creature-aquarium, and attractions that range from “CSI: The Experience” to Barbie’s Dreamhouse, experience, as much as shopping, has always been Mall of America’s M.O. But Bausch says visitors can expect even more of this in the future.
While Bausch is coy about the specifics of the expansion — plans include a J.W. Marriott, an office tower, lots of retail (stores and attractions tbd,) and an “exciting” food hall that uses “real plates”– she remarks that “anything you enjoy and can imagine — there’s a way to make a brick-and-mortar experience.” Verizon Wireless’s 9,715 square foot Mall of America store, where shoppers can take virtual hikes and play rounds of virtual mini golf, for example has become an improbable attraction at the complex.
Brad Doremus, an Associate at REIS, a commercial real estate research firm, says the focus on experience is increasingly common among mall owners across the country trying to stem the tide of e-commerce.
He also notes that regional malls, like Mall of America, and high-end shopping centers have fared better than others in recent years. (Mall of America weathered the recession particularly well through strategic marketing, says Bausch.) Another real estate research firm, Green Street Advisors issued a U.S. Mall outlook in January that predicts continued struggles for lower-end malls and a period of “robust growth,” in terms of net operating income, for the more posh complexes that have benefitted from the faster economic recovery of high-income earners.
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Malls are accordingly gravitating toward higher-end stores and retail categories that have, so far, been better insulated from the effects of e-commerce. Such categories include jewelry, apparel, home improvement, and sporting goods, and indeed, Bausch, at Mall of America, anticipates adding home goods and apparel (particularly men’s) retailers as part of the mall’s expansion.
By Green Street’s reckoning, the mall is not dead so much as being tested by a particularly brutal period of “survival of the fittest.” Those with an attractive store mix and compelling experience are the most likely to endure in a world where retail is increasingly conducted online. Bausch and Mall of America are certainly making a big bet that that’s the case. Are they right? Only time — the new stores, that fancy food hall, and who knows what else will open for business August 2015 — will tell.
