Jordyn Holman and Lauren Coleman -Lochner
Mar 2, 3 2021 – 3.49pm
Quintessential mall stores from Macy’s to Kay Jewelers to Gap are plotting out a post COVID-19 future – and traditional shopping centres will not play as much of a role in it.
Signet Jewelers, which owns chains such as Kay and Zales said it will expand in off- mall locations.
The move brings “an opportunity for a better economic model” Joan Hilson. “The foot traffic for off- mall locations is better than what we’re seeing in the mall, certainly in this time. It’s really important, and we see that shift continuing.
Almost a third of retail CFOs plan to scale back their mall presence, according to a recent survey from consulting firm BDO USA. That is throwing into question the future of hundreds of traditional malls, already financially struggling before the pandemic, as they grapple with expensive real estate and fewer tenants who want to be there.
“Even the ones that haven’t been distressed are being hurt by the lack of foot traffic in the mall,” said David Berliner, head of the restructuring and turnaround practice at BDO.
Some are talking about relocating stores from malls to nearby centres anchored by merchants such as Walmart, “because they’re going to get more foot traffic than they’re getting at the mall now”.
Signet exemplifies that kind of shift. The company closed 395 stores last year, mostly in malls, and plans to shut another 100 this year. At the same time, it has shifted 33 mall stores to off-mall locations.
Some of its outlet stores, primarily Zales locations, are now in so called lifestyle centres – open-air markets with dining and other activities – and in locations next to popular stores like Ross Dress for Less. Signets Kay bridal business, in particular, is doing better in off-mall locations than the enclosed shopping centres.
Similarly, Gap said in October it was pulling back from malls, where it brands have long been staples, due to high rent and weaker performance. The company, which owns Banana Republic and Old Navy in addition to its namesake chain, wants 80 per cent of its stores to be outside of enclosed centres by 2023.
Department store chain Macy’s said it was testing off-mall locations in Dallas, Atlanta and the Washington metro areas; Bath & Body Works is also looking to add more off-mall locations. Beauty retailer Sephora plans to open dozens of freestanding stores in addition to 200 shops this year inside Kohl’s, which operates almost entirely off-mall.
For retailers, there are many advantages to leaving the old-school shopping centres. Rent can be “substantially lower elsewhere, the hours of operation are more flexible, customer parking is easier and building costs are lower, said Ivan Friedman, Chief executive of RCS Real Estate Advisors.
Bath & Body Works also cited “significantly higher conversion rates”- a reference to the proportion of shoppers who make a purchase- in a recent earnings call. Same- store sales, a key metric, were about twice as high in its off-mall locations last year, it said.
That is hurting malls disproportionally. Occupancy rates in the third quarter were about 87 pr cent at malls- meaning roughly one in every eight storefronts was empty- compared with about 92 percent oat off-mall locations, according to a report from real estate data firm Green Street.
Landlords in 2020 also collected a higher proportion of rents from tenants at off mall centres, suggesting their better financial health.
Enclosed malls have already seen a pullback in specialty shops such as record and card stores, making them overly concentrated in apparel, a category that has struggled during the pandemic. As Friedman put it: “How many different shoe stores can you go to?”
That feeling of sameness is driving shoppers instead to a newer generation of open- air centres that include housing or office space, BDO’s Mr Berliner said.