7 Years for 7 Reasons: The Decline of the Power Center

By Doug Stephens

From its inception as a commercial real estate concept in the 1980’s, the long-term viability of the power center has been a topic of running debate.  Many have wondered how something so aesthetically displeasing could possibly survive the test of time.   And while they are clearly not great achievements in design, the decline of the power center will have much less to do with aesthetics and much more to do with powerful social and economic forces beyond their walls.

The power center will begin to decline in 7 years for the following 7 reasons:

1. The Aging of the Baby Boomer:  In 7 years the youngest baby boomers will reach 52 years of age and what most marketers consider the threshold for declining consumerism.  They will begin spending progressively less on household and personal items with each subsequent year.  While they’ll remain a significant economic force through the next decade, the unprecedented “boom” of population and subsequent spending that gave birth to “the box” 30 years earlier will wane.  Despite their relative good health and youthfulness as a generation, the sheer size of many big box stores will begin to present real physical challenges to baby boomers.  Navigating these cavernous spaces will be undesirable and increasingly less possible for them with each passing year.  As a result, they will turn to more pleasant and comfortable shopping venues; the majority of which have not yet been built.   Furthermore, as eyesight begins to wane, reflexes slow and hearing diminishes, driving becomes less desirable and perhaps impossible.  Look for boomers to shop close to home whenever they can, favoring pedestrian shopping venues, Main Street type business areas and mixed-use retail development.   Those who can afford to will pay a premium for easy walking access to retail.
2. The Gen X Deficit:  In his 2008 book The Age Curve, How to Profit From the Coming Economic Storm, author Kenneth Gronbach points out that Generation X (those born between 1965-1984) is significantly smaller in number than their boomer cohorts.  He points to an 11 million person (16%) deficit that he maintains will simply devastate many large retailers.  Their smaller size as a generation makes it virtually impossible for Gen X to rise to Baby Boomer levels of consumption.  Therefore, until Generation Y moves into the driver’s seat, there will likely be a general decline in consumption of many categories of goods and services.
3. E-commerce, M-commerce and In-home Service Will Grow:  On-line shopping will steadily increase as a percentage of total retail sales due to improved technology, pervasiveness of high speed connections and the added buying power of Gen X and Gen Y consumers.  In addition, improved hand-held browser technology will make mobile commerce progressively more comfortable, trusted and intuitive, further reducing reliance on immense bricks and mortar stores.   In-home service and product delivery will blossom.  PetSmart recently announced that it is considering offering in-home pet grooming and other services.  Look for this trend to continue as retailers search for means of adapting to the aging consumers’ needs and becoming more convenient.   Therefore, with fewer sales being transacted in-store, the need for enormous retail outlets will diminish and so too will power center tenancy.
4. Conspicuous consumption isn’t cool:  “Frugal chic” has replaced the unbridled spending that fed the growth of power centers over the last twenty-five years.  Home equity financing is now a bad taste in many mouths.  Necessities continue to account for larger percentages of household spending than luxuries.  Expect this trend to continue well beyond the point of economic recovery as consumers look to increase savings, lower debt and improve their financial security.
5. Rising fuel costs will hurt everyone:  The big box business model is predicated on buying vast amounts of product and shipping it via boat, truck and train across the globe.  They do this in an effort to sell at the lowest possible price.  Rising fuel costs will strain the efficiency of this supply chain model, if not cause it to implode.  The point at which the model collapses under high fuel costs is debatable but few dispute its inevitability.  Rising prices at the pump will also take a bite out of already pressured household discretionary budgets, leaving fewer dollars for power center purchases.
6. Generation Y: In 7 years, the oldest Gen Y will be 32 and entering the prime of their consumer lives.  The bad news for power centers is that Gen Y will not fit the model that big box retailers like Wal Mart are built on – the 40 year old suburban mom with young kids.   In fact, when you look at Wal Mart products, you’ll notice that they seemingly love licensed brands like Disney.  Why?  Because Disney plans all product changes well in advance, targets enormously broad audiences and looks to get many months, if not years of mileage out of each new release.  This keeps the “cheap and deep” supply chain philosophy intact.  The big box buying model is predicated on steady, dependable demand, annual line-reviews and minimal assortment change, whereas Generation Y will seek out retailers that respond to new and exciting product trends.  As a generation that has always been plugged into what’s new, they will not simply accept the “stack it high and watch it fly” mentality of many mass merchants.   They will seek out smaller, more agile and connected retailers who understand their needs and react to changes in fashion and design.  In an effort to adjust to this new pattern of demand, mass retailers will have to experiment with new and likely smaller formats that operate on a completely different buying model.
7. Environmental Pressure:  Unless power centers can turn their parking lots into enormous solar panels, acres of asphalt just doesn’t say “green”.  The stripping of land for the development of these centers will be met with increasing resistance by municipalities and citizens alike.  Already we are seeing increased resistance on the part of planning committees and citizen coalitions to thoughtless and irresponsible commercial development.

As for the buildings themselves, author Julia Christensen points out in her 2008 book Big Box Reuse, most will be re-purposed by developers and local governments.  Lifestyle centers, community services centers and sports complexes are only a few of the potential uses for them.

And what about the retailers that currently call the power center home?  I would look to brands like Wal Mart, Home Depot and Best Buy among others to start playing with smaller footprint concepts outside the power center and big box formats.   With smaller stores and at least a partial return to domestic supply, they will work to become more responsive to changing fashion and styles in an effort to capture a younger consumer base.  Whether or not they’ll succeed in in these attempts remains to be seen.

These are smart and aggressive companies that will not simply go away but they’ll have to institute new business models in order to survive.  They will also have to reconsider the sustainability of their relationships with city planners, domestic suppliers, the environment and perhaps most importantly their employees.  They’ll become more reliant on each of these relationships for their  future success.

Perhaps the greatest irony of all is that for some big box retailers, the next 20 years will be a matter of learning how to succeed in the very place they started…on Main St.