Malls transition to new models to thrive in the changing market

Service providers, co-working spaces and digital connections all offer value

Mall formats and layouts have been evolving since the ‘90s. The declining relevance of big-box stores, changing consumer shopping trends and movement toward ecommerce have all taken a bite in recent years.

The COVID-19 pandemic isn’t necessarily driving new trends as much as speeding up trends that were already happening, says Robin Trantham, a consultant with CoStar Advisory Services.

“Heading into the pandemic, malls were already seeing rising vacancies and were in a precarious position,” Trantham says. “For a while retailers were taking a ‘wait and see’ approach, but in the last month we’ve seen an acceleration in permanent closures.”

Mall of America entrance

‘A domino effect’

Several prominent mall tenants have announced closures, financial troubles and bankruptcies in recent months. The closure of major anchor stores can create a domino effect including a loss of foot traffic, especially in malls where prominent entrances flow through the anchor tenants’ doorways.

It also can motivate many inline tenants to utilize their co-tenancy clauses to break their leases. “A tenant with that large of a footprint is going to have a big impact and it will have a ripple effect moving forward,” Trantham says.

All this comes at a time when malls are facing additional costs related to increased air purification, sanitizing surfaces and providing PPE equipment for employees. In addition, many state laws mandate reduced capacity and the enforcement of social distancing and mask-wearing.

Even malls that can open face higher overhead with less revenues and a consumer base likely to have less discretionary income once unemployment benefits run out, says Mark Cohen, director of retail studies at Columbia Business School. As financial pressures mount and malls scramble to reduce costs, some might cut back on things like maintenance and security — which makes them less attractive to other shoppers and tenants.

“There are malls facing an increasing drumbeat of business failures,” Cohen say. “In my opinion, we have a couple of years of tiered crisis that have to be overcome.”

Repurposing the space

Malls might be in a tough situation, but they offer shopping and socialization opportunities that make them attractive in the long-term, says Amit Shah, chief strategy officer and U.S. general manager at VTEX.

While consumers are currently cautious about public spaces, they will eventually return to their social instincts and see the value of having many retailers in one location.

One trend likely to continue is the repurposing of mall spaces to include more “live/work/play” amenities with a mix of retail, restaurants, entertainment, apartments and office space. As many facilities repurpose as “lifestyle spaces,” some are leasing out space to providers like doctors and insurance companies, Cohen says.

“There are many big AAA malls that will continue to be viable because customers still want to shop there,” Cohen says.

In addition, the surge in remote work is driving more interest in co-working spaces, says Deborah Weinswig, CEO and founder of Coresight Research. Co-working spaces were already starting to sprout up in malls and shopping centers prior to the pandemic, as they offered prime attractive space to expand into suburbs.

In 2019, co-working company Industrious secured 40,000 square feet at a former Barney’s location in the Fashion Square Mall in Scottsdale, Ariz. Many malls offer not only space but established amenities like dining, entertainment and nearby fitness centers, Weinswig says.

“We’re hearing from some of the leaders of the shared workspaces who are already in talks with mall landlords,” she says. “This is in progress.”

Connecting with digital

As malls continue to repurpose their spaces, many are looking to technology to make their properties more attractive and better connect with digital consumers. Services like digital concierges, mobile apps and mapping along with curbside pickup can support safer shopping, and help retailers offer a more Amazon-like experience with instant fulfillment.

“Can they create an online shopping experience that enables consumers to buy across all the stores, go to the mall and pick up their purchases?” Shah says. “It’s another way of creating convenience and helping the customer.”

In June, Tanger Outlets released a virtual shopper app that connects consumers with a personal Tanger associate who recommends selections from each store, gathers the merchandise and makes it available for pickup.

“With the well-being of our customers being a top priority, we wanted to provide more options for those who may not be ready to visit us in-person but still want to experience the fun and savings Tanger has to offer,” says Stephan Yalof, COO and president.

Within malls, the most successful brands are investing in digital initiatives and upgrading the in-store experience. Many are using their locations as mini-distribution hubs and fulfillment centers for online orders. Other strategies to entice customers into stores include flash sales, deals and in-store specials. Some are also offering VIP experiences where customers can schedule appointments to try on apparel.

“Investing and spending the time to make that in-store experience better and more personalized is one way to get people to appreciate the store as opposed to online,” Shah says.

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