Even before the COVID-19 pandemic, retail malls were waging an uphill battle against the rising trend of store closures. Simon Property Group, the largest mall owner in the U.S., has been pivoting and seeing some success by replacing empty stores with services, such as restaurants, entertainment, and fitness centers, to attract more consumers.
But the wave of store closures, especially by some mall anchors entering bankruptcy, has been too much to overcome. Not to mention how the pandemic-induced shutdown has hit restaurants and indoor exercise places as well. So why not try to make some lemonade out of lemons?
Simon is reportedly talking with Amazon about utilizing empty mall stores as warehouses for online order fulfillment. As e-commerce surges, Amazon needs to expand its distribution centers and many malls are ideally located close to high density population centers. Last mile delivery of online orders is expensive and being closer to customers saves on logistics costs. Simon would then see some rental income from Amazon on what would otherwise be empty store space. This solution will not happen overnight, but sounds like we may be seeing some Amazon distribution activity at a mall near you.
The following Wall St. Journal article reports more on the topic:
The largest mall owner in the U.S. has been in talks with Amazon.com Inc., the company many retailers denounce as the mall industry’s biggest disrupter, to take over space left by ailing department stores. Simon Property Group Inc. has been exploring with Amazon the possibility of turning some of the property owner’s anchor department stores into Amazon distribution hubs, according to people familiar with the matter. Amazon typically uses these warehouses to store everything from books and sweaters to kitchenware and electronics until delivery to local customers.
The talks have focused on converting stores formerly or currently occupied by J.C. Penney Co. Inc. and Sears Holdings Corp., these people said. The department-store chains have both filed for chapter 11 bankruptcy protection and as part of their plans have been closing dozens of stores across the country. Simon malls have 63 Penney and 11 Sears stores, according to its most recent public filing in May.
Overview by Raymond Pucci, Director, Merchant Services at Mercator Advisory Group