Will the coronavirus kill off shopping malls?

future of malls
Photo via Shane Gorski/Flickr (CC BY ND 2.0)

In the era of Amazon and the rise of online shopping, malls were already fighting to stay relevant. Thanks to the pandemic, their relevance is in question more than ever. So, what exactly is the future of malls?

According to CoStar Group, in the second quarter of 2020, mall occupancy rates hit 94.4%—the lowest in at least a decade. 

In May, Northgate Mall in Durham, North Carolina, became the first regional mall to close permanently during the pandemic—and experts worry there are many more closures to come, especially if people continue to worry about whether they’re actually safe places to shop.

Analysts at Coresight Research, which tracks retail closures, told USA Today that it projects that about 25% of malls in the U.S. could be gone within the next three to five years. Coresight CEO Deborah Weinswig said it could be as many as 50% of malls if they continue in the same trajectory they’re currently on. 

Experts say malls have been hit harder than traditional retail stores, like Walmart, Target, and Home Depot, because of the very changes they made to adapt to compete with digital stores. 

Neil Saunders, managing director of consultant GlobalData Retail, told USA Today that malls that shifted to more experiential services to combat revenue loss from people moving to online shopping are taking a hit during the pandemic. 

“A lot of the things that malls have built-in like gyms, movie theaters and restaurants, food service are just not able to operate and pull in customers the way they once did,” Saunders said. “They’re either having to shut down or limit capacity or customers are very reluctant to go there.”

Although malls might count on experiential services to attract foot traffic, they still rely on “anchor stores” for revenue, according to Quartz. Anchor stores include J.C. Penney, Macy’s, Dillard’s, and Nordstrom. 

A chart from CoStar published in May shows that Macy’s and J.C. Penney each make up 6% of mall space in the U.S, the largest amount of all stores. According to CNBC, J.C. Penney filed for bankruptcy in May and plans to close at least 240 locations. Meanwhile, Macy’s plans to close at least 125 locations. Additionally, Neiman Marcus, Stage Stores, Brooks Brothers, and J.Crew have also filed for bankruptcy. 

As major anchor stores close, malls also have to worry about losing smaller stores on the concourse. According to USA Today, many malls have clauses in their leases that allow those smaller stores to leave if anchor tenants drop out. That leaves the future of malls in an uncertain position.

Some malls, though, could continue to pivot to fill the void of extra space. CNBC suggested malls might rent to storage facilities and warehouses. USA Today said other creative options include hotels, apartments, or online product fulfillment centers. 

But not every mall will survive the pandemic, especially those in impoverished areas or malls that are entirely enclosed. 

Sources: USA Today, Quartz, CNBC 

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