Rhetoric vs. reality (part one)
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US consumer tail wind augurs well for A and B grade malls

The US retail sector is proving a difficult landscape to navigate as competing forces jostle for dominance.  Tailwinds from a strong U.S. economy are up against the e-commerce headwind, as well as department store malaise and industry consolidation.

This paper quantifies both tailwinds and headwinds across the sector, and which force is strongest. Our results show that despite the headwinds, a consolidated retail sector can look forward to robust growth over the coming 10 years.

Indeed, the consensus of professional economic forecasters is that US consumer spending over the coming decade will outstrip its average of the preceding decade by around one percentage point each year. In contrast to this buoyant outlook for overall consumer spending, is a less optimistic view on the U.S. retail sector, where disruption is rife as the ongoing shift towards e-commerce, retailer bankruptcies and rationalisation of department stores dominate headlines.

Current debate on the sector tends to be partial in focus, concentrating on single aspects of the narrative, one-at-a-time, without tying the disparate strands together into a complete picture. In our research, presented here, we draw together the macro-and sector-specific trends that are impacting the retail sector, and specifically, the prospects for sales from US. shopping malls.

To understand the forces shaping the outlook over the next decade, we focus on several key questions:

  • What is the outlook for the US consumer?
  • How fast will retail sales grow?
  • How will retail sales be distributed between e-commerce and brick and mortar stores?
  • Given the outlook for brick and mortar stores, how will U.S. shopping malls perform?
  • How will different quality malls fare?
  • How will inline sales perform vs. department store sales?
Our approach is to draw together the pieces of the US mall puzzle in a holistic analysis. We apply macro and micro analysis to gain an overarching picture of the outlook for the sector.

Moreover, we forecast sales growth rates for US shopping malls considering sector-specific factors, such as e-commerce penetration and department store vs. inline sales, while ensuring that our estimates are consistent with the outlook for overall consumer spending; both at brick and mortar stores and online.

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