The Demise Of The Mall

Trading and investing for a half-century, I have noticed that most managers are backward looking, betting that existing trends will continue forever. As a result, their returns are mediocre at best and terrible at worst. Truly brilliant managers make big bets on what is going to happen next. They are constantly on the lookout for trend reversals, new technologies, and epochal structural changes to our rapidly evolving modern economy. I am one of those kinds of managers.

These are not your father’s malls. It turns out the best quality malls are booming, while second and third-tier ones are dying the slow painful death that Mr. Gates outlined. It is all a reflection of the ongoing American concentration of wealth at the top. If you are selling to the top 1% of wealth owners in the country, business is great. In fact, if you cater even to the top 20%, things are pretty damn fine. You can see this in the top income-producing tenants in the “class A” malls. In 2000, they comprised J.C. Penney. Sears, and Victoria’s Secret. Now Apple, L Brands, and Foot Locker are sought after renters. Put an Apple store in a mall, and it is golden.

And what about that online thing? After 20 years of online commerce, the business has become so cutthroat and competitive that profit margins have been beaten to death. You can bleed yourself white watching Google AdWords empty out your bank account. I know, because I’ve tried it. Many online-only businesses are now losing money, desperately searching for that perfect algorithm that will bail them out, going head to head against the geniuses at Amazon.

I open my email account every morning and find hundreds of solicitations for everything from discount deals on 7 For All Mankind jeans, to the new hot day trading newsletter, to the latest male enhancement vitamins (although why they think I need the latter is beyond me). Needless to say, it is tough to get noticed in such an environment. It turns out that the most successful consumer products these days have a very attractive tactile and physical element to them. Look no further than Apple products, which are sleek, smooth, and have an almost sexual attraction to them.

I know Steve Jobs drove his team relentlessly to achieve exactly this effect. No surprise then that Apple is the most successful company in history and can pay astronomical rents for the most prime of prime retail spaces. It turns out that “Clicks to Bricks” is becoming a dominant business strategy.

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