Could Franchises Be the Ultimate Beneficiary of the Death of the Shopping Mall?

As shopping malls across the country face closures due to shifting consumer habits and the rise of e-commerce, franchises are finding new opportunities in the wake of these closures. With declining rents, access to high-traffic locations, and a growing demand for convenience-based retail, franchises are adapting to the transformed landscape. Franchise businesses are leveraging mall closures and changes in consumer habits to reach new markets and strengthen their foothold in the evolving retail world.

The American shopping mall was perhaps the most important economic development for retailers throughout the 20th century. From the creation of the original shopping outlet, the Southdale Mall in Edina, Minnesota, through the next 70-plus years, nearly every urban and suburban center across the country saw at least one shopping mall pop up. Not only were they convenient, but they were readily accessible and filled with any type of store, short of a grocery store, that a person could possibly need in their day-to-day life.

After building nearly 2,000 malls following the development of the Southdale Mall, by 2020, that number had dropped to below 1,000 malls that remained operational. It isn’t hard to see that number dwindling even further in the years to come.

Many developers have seized on this dead space to reinvent spaces and properties into mixed-use developments typically featuring a grocery store anchor for retail, but countless other small shops for consumers to visit. Needless to say, those developers are not looking to big box retailers to fill those small spaces. JLL forecasts that leasing activity by goods-based tenants will be largely outpaced by the growth of service-based tenants in 2025.

The International Franchise Association expects the U.S. will add nearly 20,000 franchise units in 2025, an increase of 2.5 percent over last year, resulting in more than 851,000 total units across the country. Personal services, including wellness, beauty, specialized fitness, and pet services, appear to be the biggest beneficiary from this increase by nearly 4.3 percent, with retail food, products, and services not far behind at 3.5 percent.

The expected increase in personal services franchises will result in roughly 132,000 locations and total nearly $49 billion in output while creating more than 625,000 new jobs. Beauty services are thought of as the leader in this industry, thanks in large part to Gen Z coming into the consumer population and a growing number of male customers. On the other end of the spectrum, physical therapy franchises are seeing a boom due to the wealthier aging populations.

The same data set analyzed by the IFA expects the Southeast and Southwest to outpace the rest of the country, with output growing somewhere between 6.2 and 8.5 percent, respectively. Unsurprisingly, the IFA expects most of this franchise growth to occur in the Georgia, South Carolina, North Carolina, and Virginia corridor. That area of the country also contains the fastest-growing populations, with Georgia increasing its population by nearly 5 percent over the past five years and North Carolina increasing by more than 150,000 last year alone.

Across the Southeast, there are already countless examples of developers redeveloping areas and relying on franchises to occupy the retail spaces. In Columbia, South Carolina, the Beach Company, out of Charleston, developed the Cardinal Crossing. That company currently includes franchises from Cyclebar, Crumbl Cookies, Handel’s Ice Cream, and Stretchlab, among others.

Developers trying to key on the mixed-use developments popping up across the country are obviously hopeful these services and retail food tenants will provide the experiences to entice residents to visit the space and keep coming back. The recent wave of retail closures provides an opportunity for those service-based franchises that many expect to increase and continue for years to come.

Sarah Bangs is counsel, and Will Campbell is an associate with Burr & Forman’s Real Estate practice group.