“Malled” to Death: Long Live the Shopping Mall
Everyone knows shopping has changed forever. Online shopping is in, bricks-and-mortar stores are out.
Maybe not forever, but with cities, counties, and states prone to stay-at-home orders, no thanks to the coronavirus pandemic, shopping in physical stores is less appealing than ever.
Shopping malls, with their higher density, which get closed quicker than standalone stores and take longer to open, have been hit even harder by the pandemic and changing consumer habits.
For malls, suffering systemically, it’s the end of an era and the end of the line for many of them.
Breaking Records – and Not in the Good Way
Even before COVID-19, even before the next recession decimates consumer discretionary spending, which may be upon us, malls were in trouble. To start with, there were too many of them.
According to Statista, there were 30,000 malls in the U.S. in 1970. There were 116,000 in 2017. That count includes all “covered” shopping centers, strip malls, and malls with 25-50 or more retail stores and restaurants.
Green Street Advisors, a real estate analytics powerhouse known for its REIT research, advisory and consulting work, says there are 1,000 large malls remaining in the U.S. And many of them are in trouble.
Whether it’s the chicken or egg that comes first, malls are losing both customers and retailers.
Coresight Research estimates there will be 25,000 retail store closures this year, 55%-60% of them in malls. That beats the record for any one year, by a longshot. That record, by the way, was 2019, just last year, when 9,800 retail stores were shuttered, for good.
Macy’s Inc. (NYSE:M), which had already slated 125 locations for closures over the next three years, now says there could be more in light of COVID-19, even as it announced the reopening of several stores.
Nordstrom Inc. (NYSE:JWN) just announced the permanent closure of 16 stores nationwide. Lord & Taylor is reportedly preparing to liquidate all stores, and, along with J.C. Penney and Neiman Marcus, is likely headed into bankruptcy. Hundreds of Sears stores are already gone.
Many of the big stores that have closed and are closing are mall “anchors,” while smaller footprint retailers within malls are falling like flies.
Specialty retailer J. Crew filed for bankruptcy recently. The Gap Inc. (NYSE:GPS), Abercrombie & Fitch Co. (NYSE:ANF), American Eagle Outfitters Inc. (NYSE:AEO), and Victoria’s Secret, among others, are closing hundreds of stores, according to Lee Peterson, executive vice president of thought leadership and marketing at WD Partners.
Losing Down at the Bottom Line
The current national mall vacancy rate, measured in the first quarter of 2020 by Moody’s Analytics, is 9.7%. The highest in a decade.
Before the COVID-19 pandemic led to temporary closures of nearly all retail, traffic at America’s malls for years had been diminishing, sending vacancies up and rents down.
When malls lose anchors, it’s even worse. Smaller retail mall tenants almost always have co-tenancy clauses in their lease contracts. In-line mall tenants, as they’re called, can lower their rents, or exit leases when anchors close.
In-line retailers triggering such clauses causes an immediate “knockdown” effect throughout the mall.
Several chains, including the brands at The Gap, L Brands, Urban Outfitters, Francesca’s and others, have told landlords that they wouldn’t be paying rent, at all, as long at their closed, or at risk of being closed.
Not being able to collect rent may be the last straw for many malls, and for some of the companies that manage and own them.
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