Say hello to life at the mall. 

The classic American mall is undergoing a dramatic transformation as real estate developers swap out dying department stores for apartments, ushering in an era where living at the mall could soon become a new norm.

Some U.S. developers are knocking down department stores like Macy’s or JCPenney and using the spaces and their parking lots to put up apartment buildings next to the mall or connected to it via walkways and green spaces. In other cases, they’ve built apartments inside of shuttered storefronts and other shopping center properties or gutted them altogether to make way for a mix of housing, retail, restaurants, outdoor spaces and experiences. 

“The mall is becoming cool again,” said Jacob Knudsen, the vice president of development for Macerich, which is currently redeveloping the FlatIron Crossing Mall in Broomfield, Colorado to add housing. “So being able to live by it, work by it, play by it, go to restaurants by it, we’re definitely seeing this as a trend.” 

This new version of the American mall comes as shopping centers across the country fight for survival and look to transformation to avoid extinction. It’s clear that consumers still enjoy shopping in person after the Covid pandemic, but the traditional anchor department store has been in decline since 2001 and is no longer the draw it once was.

As companies like Macy’s, JCPenney and Sears shrink or cease to exist altogether, real estate developers have been forced to get creative to repurpose those spaces, which typically take up at least half of a mall’s footprint. 

Amazon distribution centers, pickleball courts and even an NHL training facility have all replaced big-box stores at American malls. But as the country contends with a housing crisis, the fastest growing use of these spaces is apartment complexes, real estate developers said. As of January 2022, at least 192 U.S. malls planned to add housing to their footprint, and at least 33 had constructed apartments since the pandemic began, according to Realogic, a real estate consulting firm. At least a dozen more apartment projects are underway at malls across the country, including in California, Florida, Arizona and Texas. 

“There’s just too much retail in the U.S,” said Oscar Parra, the principal of Pacific Retail Capital Partners’ Special Situations Group. “[It’s] like four times higher than any other nation … I don’t know of a market that needs a million square foot mall.”

Parra, whose firm is building housing at the site of a former Carson’s department store at a mall outside of Chicago, pointed to a similar project underway at Westfield’s Garden State Plaza in Paramus, New Jersey — one of the largest and most lucrative malls in the U.S.

“They have excess land, instead of using it for retail, they’re putting in apartments,” said Parra. “They didn’t see value in adding more retail to one of the most productive malls on the planet and that’s a signal.”

For mall owners, the numbers make sense. While top-tier malls continue to be in high demand, nearly 34 million square feet of U.S. mall space is vacant and off the market. Most Americans live within an hour of a mall with a high vacancy rate or low consumer traffic — or is abandoned altogether.

Add in the nationwide housing deficit of 4.5 million homes and it makes a trend that experts say is poised to continue. For developers, adding apartments can not only fill a need, but also bring people closer to their remaining retail stores and restaurants.

“Malls are an opportunity,” said Knudsen. “This is an opportunity to find land and have a built in customer base to get people into the mall.”

While living at the mall is a unique opportunity, it comes with challenges and hurdles. Construction costs are high, and developers need to navigate a maze of zoning laws and antiquated lease agreements to get projects off the ground because malls aren’t typically zoned for multifamily developments. Plus, the shape of a typical mall and department store almost always requires a complete teardown to bring in housing.

It might seem easy enough to transform an old Macy’s store into a few dozen apartments, but given the shape of the building, it’s difficult to do in a way that gives every apartment access to natural light and air.

“What we’ve learned is it’s better to disconnect it from the mall, not in every case, right? If you’re very dense urban retail, then you might want to integrate [apartments] into the property itself and we’ve seen some examples of that,” said Parra. “But mostly the idea is, tear the box down… scrape it, get rid of it, and then create a little bit of a buffer between the mall and the [apartment building].”

American Eagle shares dropped about 13% in extended trading Wednesday after the company reported third-quarter earnings in which it issued weak holiday guidance and cut its full-year forecast. The company said it’s contending with value-seeking consumers who are only willing to spend during key shopping moments. 

The apparel retailer narrowly missed Wall Street’s expectations on the top line, but beat on the bottom line. 

Here’s how American Eagle performed during its fiscal third quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

• Earnings per share: 48 cents adjusted vs. 46 cents expected
• Revenue: $1.29 billion vs. $1.30 billion expected

The company’s reported net income for the three-month period that ended Nov. 2 was $80 million, or 41 cents per share, compared with $96.7 million, or 49 cents per share, a year earlier. Excluding one-time charges related to restructuring and impairment costs, American Eagle posted an adjusted profit of 48 cents per share. 

Sales dropped to $1.29 billion, down about 1% from $1.3 billion a year earlier. 

While it was narrow, Wednesday’s miss is the third quarter in a row that American Eagle has not met Wall Street’s sales targets.

In a statement, CEO Jay Schottenstein touted a “strong” back-to-school shopping season but said demand remains inconsistent between major shopping events. 

“We have entered the holiday season well positioned, with our leading brands offering high-quality merchandise, great gifts and an outstanding shopping experience across channels,” Schottenstein said. “Key selling periods have seen a positive customer response, yet we remain cognizant of potential choppiness during non-peak periods.” 

Consumers coming out for key shopping moments followed by sales sharply dropping off has been a consistent theme across the retail industry. Foot Locker cited a similar dynamic when reporting earnings earlier Wednesday, as did Dollar Tree.

For its holiday quarter, American Eagle is expecting comparable sales to be up around 1%, with total sales down about 4%, including an $85 million impact from having one less selling week and a later start to the holiday shopping season. The outlook is below the 2.2% comparable sales growth StreetAccount was looking for and the 1% sales decline LSEG had expected. 

As a result, American Eagle is now expecting comparable sales to grow by 3% for the full year, down from prior guidance of 4% growth and below StreetAccount’s estimate of 4.1%. It’s now expecting full-year sales to be up 1%, down from previous guidance of between 2% and 3% and below LSEG expectations of 2.5% growth. 

Similar to other retailers, American Eagle had taken a cautious approach to the back half of the year as it contended with uncertainty around the 2024 election and the overall macroeconomic environment. But unlike its competitors, it has kept that cautious tone.

Both Abercrombie & Fitch and Dick’s Sporting Goods, which issued cautious outlooks earlier this year, reversed their previous mood when reporting earnings earlier this month. 

Despite the underwhelming outlook and sales miss, American Eagle is seeing strong demand for its Aerie brand. Third-quarter revenue for Aerie came in at an all-time high for the company, and comparable sales grew 5%, on top of 12% growth from the year-ago period.

Foot Locker slashed its full-year guidance Wednesday after reporting a rough set of quarterly results that could be a warning sign for its largest brand partner Nike.

The sneaker giant fell short of Wall Street’s expectations on the top and bottom lines and blamed the miss on soft consumer demand and elevated promotions across the marketplace. The company also saw “softness” at Nike, CEO Mary Dillon told CNBC in an interview. 

“There are definitely some brands that we’re seeing comp gains, and then, you know, we’re also contending with some more recent softness out of Nike,” said Dillon. “Given their size and scale, it kind of makes sense that it would have an impact.” 

Foot Locker shares were down nearly 18% in early trading Wednesday.

Here’s how Foot Locker did in its fiscal third quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

• Earnings per share: 33 cents adjusted vs. 41 cents expected
• Revenue: $1.96 billion vs. $2.01 billion expected

In the three months ended Nov. 2, Foot Locker swung to a loss of $33 million, or 34 cents per share, compared with earnings of $28 million, or 30 cents per share, a year earlier. Excluding one-time items related to impairment charges for its atmos brand and other expenses, Foot Locker reported earnings of $31 million, or 33 cents per share. 

Sales dropped to $1.96 billion, down about 1.4% from $1.99 billion a year earlier. 

Dillon explained that consumers are showing up for key shopping moments, such as back-to-school and the recent stretch between Thanksgiving and Cyber Monday, but pulling back in between those events, making the peaks and valleys sharper than expected. Foot Locker is also dealing with slow demand for Nike, which is trying to turn around its business after relying too heavily on the same styles to drive sales. 

Nike veteran Elliott Hill took the helm of the company less than a month ago, and Wall Street has not yet heard his strategy. Given Foot Locker’s performance during its third quarter, Nike could post another set of less-than-stellar quarterly results when it reports on Dec. 19.

Nike is Foot Locker’s largest brand partner, accounting for about 60% of sales. If Nike is struggling, Foot Locker will inevitably suffer, too. 

“It’s not like across the board with all brands. Frankly … I would just say that there’s some that are more promotional, but in total, the category is pretty promotional,” said Dillon. “There’s an elevated promotional level in this category that we hadn’t forecasted to be as it is.” 

She reiterated that Foot Locker’s relationship with Nike and its new CEO is “very strong” and expects the slow demand to be a blip as Hill gets his footing. 

“We have a great relationship with him [and] feel very confident about where he and his team are going,” said Dillon. “I think we’re going to work through all that, that’s the thing.”