It's do-or-die time for malls

A crippling sales year has already pushed one operator to the brink of bankruptcy. A disastrous holiday season could take more out in 2009.

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By Parija B. Kavilanz, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- In five short days, it could be the beginning of the end for some of the nation's malls.

"Certainly malls are going to be very damaged by Christmas. It could be all over for some of them very soon," said Britt Beemer, founder and chairman of America's Research Group.

Black Friday - or the day after Thanksgiving - is traditionally one of the busiest shopping days of the year.

Retailers typically mark the start of the holiday gift shopping period with much fanfare and gimmicks, all in an effort to bag big sales on that day.

This year, there's a much more serious undertone to Black Friday. For malls, it's not about holiday festivities but about survivability by year-end.

It's already been a very crippling year for retail sales. A worsening economy has forced more Americans to seriously retrench their discretionary purchases.

As store sales fell at record levels last month, more retailers have either filed for bankruptcy or shuttered their business for good. Since several of these retailers have stores in malls, mall vacancies have increased by the most since early 2002, according to the real estate research firm Reis.

At the same time, Americans are forgoing mall trips in favor of shopping at discount stores closer to home.

This downward spiral has already claimed one notable name - No. 2 mall operator General Growth Properties (GGP) - which has said it is on the brink of bankruptcy.

Beemer said his surveys of consumers going into the holiday shopping season indicate that there's not much respite ahead for malls or their retail tenants.

He expects holiday sales for November and December combined will fall 1% or more this year. The two-month period can account for as much as 50% of retailers' annual profit and sales.

"I predict that no more than 38% of Americans will walk into a mall over the coming weeks. But that doesn't mean they will buy something," he said.

Instead, he said he's confident saying that another 40% of Americans will go to Wal-Mart (WMT, Fortune 500) where "90% of them will complete their Christmas shopping."

"I think Wal-Mart will get more of the shopping traffic and sales than all the malls combined," Beemer said.

To his point, ShopperTrak, which tracks traffic at more than 50,000 malls, estimates that holiday shopping traffic will fall 9.9% this year.

"Currently we're anticipating the lowest retail sales and total U.S. traffic numbers we've seen since we started compiling this data in 2001," said Bill Martin, co-founder of ShopperTrak.

[This] will most likely leave retailers scrambling to entice consumers into their stores early and often during the holidays," Martin said.

Eat turkey, then get to work

Some malls are opening for business on Thanksgiving Day this year because their retail tenants don't want to wait until Black Friday to jumpstart sales.

For the first time in its history, all of the 11 shopping centers owned by Craig Realty will open at 11 p.m. on Thanksgiving Day.

At one of those centers - Los Angeles-based Citadel Outlets - the Old Navy store is opening as early as 9 p.m. Thursday and both the Tommy Hilfiger and Guess stores are opening at 10 p.m., according to spokeswoman Anita Boeker.

"The earliest that we've opened our centers is midnight. But our tenants are much more aggressive this year. They are nervous," she said.

Michigan-based mall operator Taubman Centers is hoping to pull in wary gift shoppers by offering them inducements such as free breakfast, "relaxation lounges" with free massages, and even giving away Nintendo Wiis to early bird shoppers at some of its locations.

"These are challenging economic times. Everyone is feeling it and we want to be the [shopping] destination of choice on Black Friday," said spokeswoman Karen MacDonald.

Steve Tanger, president of Tanger Outlets, said all of the company's centers are opening at the stroke of midnight, as Friday begins. Tanger said he's "reasonably optimistic" about the holiday season even though traffic at Tanger centers has been flat to slightly down so far this year.

"We're 27 years in this business. People are worried about their economic situation this year, but I think they will still give gifts," Tanger said, adding that he's hopeful that the pullback in gas prices should give consumers a little more money in the pocket.

Garo Kholamian, owner and president of mall developer GK Development, said that his centers are holding up well so far because they are located in smaller, regional markets.

"People don't want to drive far to bigger malls. That's working to our advantage," he said. He said all of GK's retail centers "will be going all out for Christmas."

"We're not too worried about traffic, but how much people will be spending," Kholamian said.

There's a good reason for Kholamian to worry, said Beemer.

"If people don't spend money in malls, stores can't pay the high rent," he said. "If more stores close, what we'll have next year are more dead malls." To top of page

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