With department stores JCPenney and Sears facing closure at dozens of locations, the country’s most prominent mall operator and e-commerce giant Amazon have come together with a plan to convert those spaces from empty to full.
Amazon, which often is credited with contributing to the downfall of malls and brick-and-mortar retailers, plans to partner with Simon Property Group, which owns 50 shopping malls in Georgia and abroad, to turn those former anchor stores into Amazon distribution centers, sources close to the deal told The Wall Street Journal. Amazon already runs about 175 centers across the world. Those centers typically serve as storage areas for books, clothing, kitchenware and electronics as they await delivery to customers in local areas.
Simon, like all retailers and mall operators earlier this year, suffered major financial declines when stores were forced to close in the spring due to the COVID-19 outbreak. Months later, JCPenney, typically an anchor retailer at malls, was forced to begin closing its more than 150 stores across the country and lay off thousands of employees after filing Chapter 11 bankruptcy. Sears for the last few years had gradually been closing locations across the country, related to the increasing decline in department store shopping and rise of e-commerce.
Credit: undefined
Credit: undefined
A look back at the American mall’s prominence
Malls became a common part of the American shopping experience in the 1950s when the country was experiencing an economic boom. With middle class families seeing growing coffers, the growth of the suburbs also came along. Many workers had significant commutes from their workplaces to home, and developers at the time found an opportunity there.
Victor Gruen, who would later become the “king of retail” for the era, had begun introducing boutiques and storefronts across the country, and he eventually designed the mall as we know it, according to Business Insider. On Oct. 8, 1956, America’s first indoor mall, the Southdale Center in Edina, Minnesota, opened its doors, which would be the first step toward the mall industries’ decades-long reign. By 1975, malls and shopping centers accounted for 33% of all retail sales in America.
Fast forward to the new millennium: The shopping standard increasingly became one that occurred digitally or at smaller discount stores and single-store retailers including Target and Walmart. As tastes and the economy changed, malls became less traveled by the average shopper, with a 2017 Credit Suisse report predicting that one in four U.S. malls would close by 2022.
Malls respond to changes
A number of U.S. malls, in light of the gradual changes and immediate impact of COVID-19, had already begun doing business with Amazon, providing services including renting parking lots to Amazon’s huge van fleets. Still, Simon’s move to lease well-located indoor locations to retail space for Amazon will be a rare, larger-scale deal between the two competing retailing industries.
“To replace department stores, mall owners considered schools, medical offices and senior living,” Camille Renshaw, chief executive officer of B+E, a real-estate investment brokerage firm, told The Wall Street Journal. “With the current pandemic, industrial is the only thing left now.”
Several retailers use their stores as mini-fulfillment centers to speed delivery of online purchases, particularly since the pandemic reduced in-person shopping and curbside pickup became a new alternative. Amazon would possibly begin using department store space for a smaller version of its huge distribution centers, relying on vans to navigate suburban streets, analysts said.
Simon would likely rent the space at a significant discount to what it could charge another retailer. Warehouse rents are typically less than $10 a square foot, while restaurant rents can be multiples of that. Depending on when the leases were signed and their locations, department store rents can be as low as $4 a square foot or as high as $19 a square foot.
Simon and Brookfield Property Partners LP plan to put in a joint bid for JCPenney, which filed for bankruptcy in May. Taking over the department store chain would give them control over the store space and certain rights such as making changes to the parking structure, exits and access to shared space and roads.
About the Author
