BETTER FOOD

CAN A REVOLUTION IN THE FOOD COURT SAVE THE DYING SHOPPING MALL?

T O R O N T O • Canadian shopping malls, battered by the pandemic and struggling to bring back customers who have been ignoring them for years, need to transform their food courts if they’re going to survive, according to a new report from Deloitte Canada.

The report on the future of the mall, published Monday, focused on developing new reasons to go to the mall, since the draw of traditional fashion retailers is fading. The recommendations include adding offices or residential units, and loosening lease terms to allow for pop-ups and exhibitions. But Deloitte believes one of the most surefire ways to boost traffic is to make mall food a lot better.

The Canadian retail landscape has been rocked by the pandemic, but malls have been the most affected businesses — they were among the first to close, and the last to reopen — and they are now suffering the stigma associated with spending prolonged periods indoors.

In the middle of the crisis, some Canadian mall owners reported collecting as little as 20 per cent of their rent payments.

“There absolutely are going to be malls that are not going to survive this,” Marty Weintraub, Deloitte’s national retail lead, said in an interview. “And they’re more likely to be in the smaller areas where they’re just truly operating like it’s 1995. Not every mall is coming into this pandemic world from the same starting point.”

In its report, Deloitte noted that most malls were in trouble before the coronavirus hit. Traffic levels at the country’s top 10 malls were down 42 per cent in February this year compared to a year earlier, and down 22 per cent in 2019 compared to 2018.

Now, after an entire season of shutdowns, mall operators and their tenants are asking existential questions about whether they’ve “lost customers forever,” Deloitte found after interviewing the major mall operators in Canada and 14 national retailers.

“Other than the odd one ... nobody has built a mall in 25 years. There’s a reason,” said Ed Sonshine, chief executive at RioCan Real Estate Investment Trust, whose shopping mall business makes up less than 10 per cent of its portfolio.

“You need huge sales per square foot ... They’re very expensive. You’ve got to air condition them. The taxes are extremely high and they take up an awful lot of space,” he told Financial Post last week, explaining the decades-long shift in retail real estate toward open air shopping centres.

Sonshine said the top 20 malls in Canada, such as the Eaton Centre in Toronto and Pacific Mall in Vancouver, are the most likely to survive.

“The truth is, anything other than those top 20 have been struggling for the last 10, 15 years,” he said, but he added that “once this pandemic is gone, people will like hanging around malls. People love food courts.”

The common food court, however, is “a tired and broken model,” according to the Deloitte report.

Historically, fashion retailers were the main attraction for malls, while food courts were just a place to get a snack between store visits. But the shift to e-commerce, which has sped up considerably in the pandemic, has made clothes a less effective traffic driver for malls.

“This means that malls will need to find something else to fulfil the role of main attraction. One of those somethings is food,” the Deloitte report said. “A renaissance is coming.”

Malls have already started experimenting with new models to feed the masses, such as food halls that feature more local food merchants and restaurant groups, rather than national fast food chains.

Deloitte also noted that some malls have clusters of restaurant tenants, outside the typical food court area, all using a common kitchen.

But the Deloitte report cautioned that landlords will have to rethink the traditional mall lease if they want to rely on local chefs, artisans and restaurateurs, since restaurants operate on notoriously thin margins and won’t be able to afford the kind of premium rent that fashion tenants pay.