New stores are opening in malls, inflation or no
Some say a recession is on the way; others say it is already here, but according to the biggest owner of U.S. shopping malls, the threat of an economic downturn is not deterring retailers from opening new mall locations.
Simon Property Group (SPG) said on a conference call that they have not seen retailers backing out of deals to open up stores, according to CNBC. Its tenant occupancy rate is even up year-over-year, currently at 93.9 percent over 2021’s 91.8 percent.
Contributing to the ongoing opening of mall locations are factors such as the movement of online brands into brick-and-mortar retail, retailers following customers leaving U.S. cities for the suburbs and retailers that are traditionally known for their anchor stores testing smaller formats. In terms of customer spending, while lower-income mall shoppers appear to be pulling back on spending, those shopping luxury-focused retailers like SPG-owned Brooks Brothers have not.
Despite SPG’s reassurances about the well-being of its shopping malls, a recent study from Placer.ai shows results that are more mixed. Visits to indoor malls were down 9.5 percent in June compared to pre-pandemic numbers, even though visits were up 1.5 percent compared to June of the previous year.
If retailers are still signing up for space at the mall, however, a part of their incentive could be being able to lock down more favorable deals than what was on the table pre-pandemic. In 2021, shopping malls began offering more short-term leases to retail tenants that allow greater flexibility in case of a foot traffic downturn.
Outside of malls, some major retailers have continued to pursue aggressive footprint expansions despite inflation. Off-price grocer Aldi, for instance, announced in February that it would be opening 150 new stores throughout 2022 to make it the third largest grocer in the U.S.
Recent counts are consistent with the position that store openings are not slowing. So far this year there has been a net increase of 2,478 stores in the U.S., with 4,432 openings and only 1,945 closings, according to Coresight Research as reported by CNBC.
- Mall owners say retailers are still opening stores in spite of recession fears – CNBC
- Are short term leases here to stay? – RetailWire
- Aldi moves closer to becoming America’s third largest grocery retailer – RetailWire
- Placer.ai Mall Index – June 2022 Update – Placer.ai
DISCUSSION QUESTIONS: How likely is it that mall occupancy rates will remain at the current level or higher over the next two years? Will retailers that are opening new stores in malls be happy with this decision after five years?