Can pandemic-surviving shopping malls actually thrive?
Tuesday, May 05, 2020
The coronavirus pandemic has hit U.S. shopping malls particularly hard. Shopping malls — by definition and function — have numerous stores in close proximity to each other. Typically, that creates a convenient shopping experience, as consumers can easily travel from one store to the next.
But in our current environment, proximity is a negative attribute. Can shopping malls survive the pandemic and actually prosper on the other side?
The perfect storm
“The COVID-19 pandemic has dealt a big blow to shopping malls, which have already been struggling in recent years,” says Jie Zhang, Ph.D., professor of marketing, and Harvey Sanders Fellow of Retail Management at the University of Maryland’s Robert H. Smith School of Business.
Shopping malls are nonessential businesses, and as such, many local and state governments ordered them shuttered. “As many mall-based retailers struggle with cash flow, even a few months of business closing could push some out of business,” Zhang explains. “In fact, some already have to defer their rent payments, which is causing an immediate impact on shopping mall operators.”
Some malls remained open, although many individual tenants were closed. And now, many malls around the country are cautiously reopening. “While I expect many shopping malls will eventually weather the storm, unfortunately some of them will not be able to survive, let alone, recover,” Zhang says.
Her view is shared by Patrick Carroll, CEO and founder of CARROLL Org, a billion-dollar real estate investment company headquartered in Atlanta. “I think shopping malls will be very lucky if they can make it through this pandemic — and most will not make it,” he says. “The smaller tenants that filled a good portion of the malls will be hardest hit, but the bigger risk will be the loss of key anchors such as Neiman Marcus and Macy’s.”
Carroll thinks it will be a long time before shopping in an enclosed environment will be appealing to consumers.
Malls and department stores were already in trouble. In 2019, over 9,300 retailers closed stores, according to Coresight Research. And a Credit Suisse report projected store closures would cause up to 25% of malls to go out of business by 2022. Also, pre-COVID-19 data from the U.S. Bureau of Labor Statistics predicted at least a 2% decline in job demand for retail sales workers.
The way back
However, Zhang doesn’t consider the situation to be entirely dismal. “Those retailers and shopping malls that use the current crisis as a catalyst to transform themselves are much more likely to bounce back and thrive,” she says. “For example, the unique nature of this pandemic has created unprecedented demand for online shopping and home deliveries, which forces many retailers to quickly enhance their e-commerce and logistic capabilities.”
And making improvements to their e-commerce infrastructure could be quite beneficial in the long term. “It would enable them to embrace the online shopping trend and incorporate that into omnichannel strategies that would also benefit their brick-and-mortar stores and shopping malls,” Zhang explains. “Those shopping malls that are already putting innovative measures in place to enhance their appeals are also more likely to benefit from pent-up demand, especially for entertainment and hedonic products, once the coronavirus situation subsides.”
She says malls need both short-term and long-term plans to lure customers back. “In the short term, shopping malls need to implement strong measures to ensure the health and safety of shoppers and their employees, and effectively communicate to customers about those measures.”
In the longer term, Zhang recommends that malls continue to enhance their amenities, and she says it’s a good idea to strengthen the entertainment and recreational appeals of their facilities. “Leveraging the social and experiential aspects of customer experiences will be the key for shopping malls to succeed in competing with online retailing and free-standing discount retailers.”
Kevin McGowan is the president of McGowan Corporate Real Estate Advisors in Allentown, Pennsylvania. He predicts that there will continue to be grocery-anchored retail centers — but drive-thru pickup might become the norm instead of the exception.
“For the other retail centers that are not grocery-anchored but are anchored by retailers that will not survive being crushed by Amazon, there will be repurposing,” he says. “Recently I read about a shopping center in Georgia that was rezoned to be a warehouse for last mile delivery.” He predicts more shopping centers will become online fulfillment centers.
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