Malls fight to survive against online market
In the 1980s, shopping malls were the go-to destination. But a glut of building, the rise in online shopping and weakened anchor department stores have chipped away at that heyday at a pace quickened by the COVID-19 pandemic.
“For a long time now, one of my comments to audiences that I give speeches on this is to say we’re not overbuilt, we’re under demolished,” said R. Michael Goman, a principal at Goman + York, a commercial real estate advisory firm. “We have to take some of this stuff down or it’s got to be converted to other uses.”
Shopping centers and malls — already duking it out for survival — found their bottom lines taking a big hit in the coronavirus outbreak as sales migrated online.
A new report from Coresight Research makes a grim forecast that the coronavirus outbreak is expected to increase U.S. store closings this year from an earlier estimate of 15,000 to as many as 25,000. As many as 60% of the closed locations will be in malls, Coresight predicts.
The closures would be more than double the record 9,821 in 2019, according to Coresight.
Goman said shopping centers and malls are moving to respond to changing shopping patterns, some considering converting vacant anchor store space to delivery centers where shoppers can buy online from one or more mall tenants and pick it up in one place.
“You’re starting to see mall operators look at whether they can reconfigure their parking lots to include a drive-thru lane for parcel pick up, which makes a lot of sense to me,” Goman said. “A common delivery point, I think customers will respond well to that.”
Shopping malls also may further shift to more entertainment options, well beyond the traditional movie theater, responding to growing consumer preference for experiences over buying products.
Topgolf, where players score points by driving balls into targets, and Urban Air indoor trampoline centers are gaining popularity, and there is even the possibility of indoor skateboarding or skiing, given a large enough space and a big enough budget, experts say.
Whereas department stores once drew shoppers to the mall , the draw could become the entertainment and, perhaps, the higher-end dining the mall offers, Goman said.
The pandemic is at the heart of why shopping center giant Simon Property Group is backing away from its $3.6 billion acquisition of Taubman Centers.
James Sullivan, managing director at New York investment and research firm BTIG, said it is widely believed that Simon wants to renegotiate the price it had agreed to pay.
Taubman’s malls are largely enclosed, a concern as the coronavirus lingers without a clear timetable for a vaccine, Sullivan said. And Taubman also focuses on upscale shops, which are more likely to take a hit amid high unemployment, he said.
Sullivan said this year’s AprilJune
quarter is expected to be the worst earnings quarter of the year, “but the timing and strength of any recovery is very uncertain, so clearly Taubman as a company will be weakened by the significant anticipated losses in the second quarter and perhaps thereafter.”
Namdar Realty Group and Mason Asset Management, who own dozens of malls and shopping centers around the country, acknowledged the pandemic has made shopping centers and malls vulnerable, but they still remain optimistic about the future.
“Malls are adapting, and vacant blocks are being repurposed with new and different tenants that seek to diversify the property’s offering,” the company said in an email.
While the challenges for malls loom, some say the strongest will survive because they adapted to the new marketplace.
“There are some malls that are still doing very well and definitely have seen a bit of a renaissance,” said Neil Saunders, managing director for GlobalData’s retail research division. “But malls as a whole across America aren’t seeing a revival because a lot of them, quite frankly, look exactly as they did in the 1980s, and they’ve really not moved on in terms of being an attractive destination.”