Amazon goes shopping at the mall

Photo: Getty Images/ollo
Apr 07, 2021 has been on a buying spree that provides further proof that Americans have changed their shopping habits in recent years and, most notably, since the novel coronavirus pandemic hit the U.S. What has Amazon been buying? The answer in a word — malls.

NBC News reports that the retail and technology giant received approvals last month in Baton Rouge, LA, and Knoxville, TN, to transform malls in those locations into distribution facilities. Amazon also got the okay to do the same at a mall in Worcester, MA, in December.

These recent real estate pickups for Amazon are not anything new. NBC, citing Coresight Research, reports that Amazon converted 25 malls into fulfillment centers between 2016 and 2019.

The acquisitions are not happenstance. Malls, specifically second and third tier properties, have struggled in recent years as consumers have opted to buy more of the products they use online. This situation grew more acute as the pandemic hit and stores were first ordered to close by health officials and then struggled to attract shoppers after restrictions were lifted due to concerns about contracting COVID-19.

Amazon has seen its business grow by significantly in recent years, a trend that intensified in 2020. It experienced challenges meeting demand in the early months of the pandemic and has sought to ramp up its distribution capabilities to serve a growing market including more than 100 million Prime members.

Amazon’s mall conversions meet the company’s need for facilities that are close to population centers. The properties offer ample space for Amazon’s trucks to bring goods in and out.

The Wall Street Journal reported last August that Amazon held talks with Simon Property Group, the nation’s largest mall operator, about leasing anchor locations on some of its properties that were currently and formerly occupied by J.C. Penney or Sears. Simon later went on to acquire Penney out of bankruptcy, likely signaling that at least some of those spaces were now off the table.

A new client note by UBS estimates between 80,000 and 150,000 stores, primarily mall-based, will be shuttered by the end of 2026. UBS analysts Michael Lasser and Jay Sole based the 80,000 estimate on the expectation that online sales will represent 27 percent of all goods purchased at retail, up from 18 percent today.

DISCUSSION QUESTIONS: Do you expect to see more second and third tier malls around the U.S. converted into distribution centers? Will other large retailers with growing online sales such as Target and Walmart also look to convert shopping centers into fulfillment facilities?

Please practice The RetailWire Golden Rule when submitting your comments.
"Malls as distribution facilities beats the alternative – closing them down."
"Yes, absolutely. As e-commerce continues to grow post-pandemic, we will see a continuation of the expansion of hundreds of millions of square feet of distribution space."
"Target and Walmart may also look at this option, but they have the benefit of existing store locations to use as fulfillment centers."

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29 Comments on "Amazon goes shopping at the mall"

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Mark Ryski

Converting low tier malls into distribution centers makes good sense. Malls are close to shoppers, have ample parking and have facilities for the movement of a large amount of goods with shipping bays, etc. While I’m not certain that this same strategy fits for Target or Walmart, since their stores are distribution facilities, I suspect that both are looking at the possibility. In any event, malls as distribution facilities beats the alternative – closing them down.

Gary Sankary

There a saying in military strategy about having “cement” in an area. It refers to putting bases in strategic locations. I think of that when I hear about Amazon purchasing these sorts of facilities. Having “cement” in a neighborhood gives instant access and presence. Critical in retail.

DeAnn Campbell

I think cement in a neighborhood is great for Amazon, but makes for a terrible neighbor to the community.

Dick Seesel

It will take a lot of re-engineering to convert even a tertiary mall into a distribution center (assuming that all of the tenants have vacated) but Amazon is up to the task. I can foresee a situation where a former regional mall becomes a combination of “last mile” distribution center alongside a pickup center and even a collection of Amazon’s brick-and-mortar concepts — but only if retail sales volume is viable in malls that failed in the first place.

Xavier Lederer

You are making a great point; it is not clear how a building designed for shopping can be turned into an efficient warehouse. Think of the need for loading docks that need to be at a certain height from the ground outside, but at floor level on the inside, the need for same-level floor (without stairs, elevators, second floor…), ceiling height requirements…. Unless the goal is simply to eliminate the current buildings and design something new.

Gene Detroyer

Location. Location. Location. The bywords that one starts with when you talk about real estate. Location brings the same value to retail stores as it does to distribution centers. And the location is often worth more than the physical properties on it.

I see malls being repurposed. Some as distribution centers, others to be totally knocked down with something else being built in their place. There is nothing sacred in making business decisions to keep the physical facilities in traditional mall layouts.

Suresh Chaganti

Coincidentally, I wrote on LinkedIn on similar topic.

The fact is, the U.S. is way too overstored at 23 square feet of retail space per capita. That is 40 percent more than Canada and nearly five times more than the U.K.!

The vacancies will likely increase even more, or they will go the direction of mixed use. Buying distressed malls to convert to alternative/mixed-use is an excellent strategy and Amazon will probably get many at fire-sale prices.

It has been a problem of volume and mix for retail space – having too many stores in an absolute sense and of unwanted type.

Neil Saunders

Second and third tier malls will need to adapt. Some may transform to industrial, including fulfillment. But this isn’t the only pivot. There are other possibilities which will be pursued. Here in Arizona, one of our older malls – Paradise Valley Mall – is being demolished and turned into a new mixed use scheme with retail, leisure and residential. It will likely be successful as there is demand for housing and that housing will support a new customer base for the businesses. Sadly, in other cases, some older malls may lie dormant as owners and developers struggle to find a new purpose for them.

Bob Phibbs

This is a deal with the devil as no sales taxes will be collected which was one of the big draws for everyone to have a mall in the ’80s. All those perks and jobs local officials got in exchange for destroying their downtowns were for naught. This is not sustainable for local areas. Find a way to adapt, rather than throwing in the towel.

Christine Russo

Fulfillment is the new oil. (I’m not sure that analogy works!) My point is that if you can fulfill online orders as close as possible to the end-customer – that is a major component to a winning digital strategy. We may not be far from mall owners consolidating space and leasing it back out to retailers, who have switched to a stronger digital format during the pandemic. The reuse of mall space for fulfillment could be upon us as opposed to (or in addition to) actual brick-and-mortar shopping.

Bob Amster

The location of malls makes the repurposing into distribution/fulfillment centers one of many attractive uses for ex-malls. All of the second and third-tier malls cannot be converted to DCs because there are probably too many such malls. Other uses are available such as schools, municipal buildings, medical clinics and more.

Brandon Rael

The mitigation of the last mile of fulfillment may lead to Amazon, Target, and Walmart acquiring closed mall locations and converting them into dark stores and micro-fulfillment centers. This is not a new development. However not every failed mall location is an ideal place to convert to a micro-fulfillment center.

If the demands and economies justify it, we could potentially see these mall locations reborn as fulfillment centers for same-day delivery, curbside pickup, and other potential options. With that said, it will take a significant investment in infrastructure to re-engineer these locations into distribution centers.

Lisa Goller

Yes, this wave of repurposing malls is just the start. Fast local fulfillment, property bargains and salvaging real estate means consumers, Amazon and mall owners win.

While Target and Walmart use their stores for e-commerce orders, they may very well ramp up their own fulfillment with larger dedicated facilities. Omnichannel investments aren’t cheap but they are absolutely essential to stay competitive.

Oliver Guy
Oliver Guy
Global Industry Architect, Microsoft Retail
1 year 5 months ago

Large shopping centers/malls have a number of attributes that make them very appealing for evolving retail formats. Proximity to population centers, a great deal of space and good road access make them potentially very useful for online fulfillment, click and collect centers or even centers of experience based retail. Stores are a huge asset for any incumbent retailer and re-purposing stores to become fulfillment centers — or even buying locations specifically for this purpose — has huge potential.

Kathleen Fischer

It makes sense as many of these malls have reached the end of their lives as traditional malls so they are available for conversion. Target and Walmart may also look at this option, but they have the benefit of existing store locations to use as fulfillment centers.

Lee Peterson

Absolutely. Who doesn’t like cheap real estate in good locations with plenty of parking? We have a closing B center here that would make a perfect distribution location. It is surrounded by well-off suburbs. Talk about taking a bite out of last-mile cost AND improving speed to target customers; it’s a no-brainer. I expect a big smile on that old J.C. Penney location any day now.

Richard Hernandez
Richard Hernandez
Director of Commerce
1 year 5 months ago

We have had this discussion before and yes it does make sense to repurpose unused mall space as distribution or fulfillment centers for Amazon customers. As the demand for quicker delivery increases, I can see the validity of building a lot of these.

Dave Bruno

I do expect this trend to continue, as it’s a straight line for converting real estate into cash. However I expect that people are underestimating the dramatic long-term impacts to the surrounding communities including, as Bob Phibbs astutely notes here, the loss of that tax revenue.

Steve Montgomery

Converting underperforming malls to fulfillment centers has several advantages. They have the square footage needed, parking space for a truck fleet and are located in populated areas making many of their future deliveries local. The issue this process faces is that no one wants to live near a fulfillment center with the truck traffic and 24-hour operation they bring. I expect the trend will continue but, in each case, there will be strong local opposition.

Ryan Mathews

Cheap real estate will always appeal to growing retailers so yes, I assume we will see more conversions. That said, the world only needs so many distribution centers and Amazon and other retailers may want distribution centers in specific geographies as opposed to where certain malls are located. Depending on sales there’s no reason why other retailers wouldn’t emulate Amazon’s strategy.

Jeff Sward

Watching Amazon buy up second and third tier malls and convert them into fulfillment centers is not a head snapping development. It’s smart and efficient — financially and logistically. The real head snapping move will be when Amazon goes into a mall as an actual retailer. I have long hoped that Amazon would take over Sears or J.C. Penney and reinvent what a department store could stand for in this day and age. If Amazon acted as an anchor store they would have an amazing ability to offer a curated assortment like never before possible. With an on-site fulfillment/pickup/delivery system like never before possible. They would be bringing a whole new meaning to the term “treasure hunt” and completely change the dynamic of mall shopping.

Bindu Gupta

This makes total sense for Amazon and given that they have done it in the past, I anticipate quicker set-up and execution.

DeAnn Campbell

While this is a logical step for Amazon, communities may soon have regrets about allowing these shopping centers to be transformed into distribution hubs. I feel for owners who are desperate for relief, but this is short term thinking. Zoning changes will reduce rent rates and property values at surrounding buildings. Lower tax rates for this type of use could force increases in other taxes to make up the loss. And this means the center is no longer a service to the local community, it’s a service to Amazon. I would much rather see city officials require Amazon to fund mixed uses at these centers and limit square footage allowed for warehousing and trucking in exchange for the privilege of sticking a busy, noisy distribution center in the heart of a community that could very well limit future growth. You rarely see thriving communities adjacent to industrial parks. With Amazon’s size and resources, extra care needs to be taken to ensure they don’t crush these local communities in their wake.

Ben Ball

This is natural and will continue to happen until Amazon saturates their need for local fulfillment centers. My guess is another three to five years and well over 100 locations. Perhaps as many as 500.

Jennifer Bartashus

Converting older malls to distribution centers may only work in certain circumstances. If there are still retailers present, they may not necessarily want an anchor spot converted to a fulfillment center that doesn’t bring desired traffic onto the property. And even though properties may be in good locations, transportation considerations like entrance and egress for large trucks and proximity to major roads and shipping lanes are also important.

Doug Garnett

While I like the idea of malls being useful in a second life, I am not so sure about Amazon here. Perhaps Amazon is the only company able to do this. I am more suspicious, though, that Amazon is heavily influenced by the fact that buying up a few malls under this theory could be a way to make a very public claim that they have won and retail is dead.

Since we know that’s a wrong conclusion, I am skeptical.

Brian Cluster

Yes, absolutely. As e-commerce continues to grow post-pandemic, we will see a continuation of the expansion of hundreds of millions of square feet of distribution space. These second and third tier locations may be hard to come by in denser suburbs or urban settings and therefore are very attractive to the major e-commerce and third-party logistics companies and retailers.

According to a study by CBRE research on the top markets in the U.S. and with properties of over 200,000 in space, e-commerce only players contributed to 27.1 percent of the transactions while general retail and warehouse was third, contributing to 24.7 percent share in 2020.

Demand for super quick delivery times and challenges in the extended global supply chain will likely also require higher safety stock and therefore more inventory space demanded as global shipping challenges and trade-related shocks don’t seem to wane anytime soon. It is safe to expect a tremendous shift in usage from large properties, malls, and/or office buildings into distribution centers over the coming years.