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Should retailers open stores in malls or look outside for better results?

February 27, 2023Written by Tom Ryan

Photo: RetailWire

Bath & Body Works, among several chains reorienting their footprint away from malls, added 95 off-mall North American stores in 2022 and plans to open approximately 90 more in 2023. Forty-five of the stores Bath & Body Works closed in 2022 were principally in-mall locations. Among other mall mainstays, Macy’s has earned the most attention with its off-mall push around its smaller Market by Macy's and Bloomie’s concepts. On its quarterly call in December, CEO Jeff Gennette said off-mall enables Macy’s to reach new markets, fill in existing ones and replace locations that were in exited enclosed shopping malls. He said 60 percent of the U.S. brick-and-mortar retail is conducted outside malls, where Macy's remains significantly underpenetrated. Gap has set a goal of having 80 percent of its namesake Gap locations outside of malls by early 2024. Journeys, Foot Locker, Sephora and Victoria’s Secret are all also emphasizing off-mall expansion. On a quarterly call last December, Martin Waters, Victoria's Secret's CEO, said the chain has been “very pleased” with its newer off-mall locations and indicated off-mall “could be a very good backfill to downward pressure that there will be on some D and E malls across the United States.” Mall traffic, however, has recovered strongly over the last two years. Simon Property Group, the largest mall owner in the U.S., ended the year with an occupancy rate of 94.9 percent for malls and outlets, up from 93.4 percent last year and just behind the 95.1 percent rate seen at pre-pandemic 2019’s close. CEO David Simon last fall fretted about the “so-called negative mall narrative” given the ongoing improvement. In its “Retail Trends Forecast 2023” study, Placer.ai found top-tier malls “thriving” with retailers and non-traditional tenants, such as gyms, co-working spaces and medical practices, fighting for limited space. The competition is creating opportunities for second-tier malls. Placer.ai stated, “Retailers that had struggled to stand out within a packed top-tier mall may find that their role in a lower-class mall is actually elevated, giving them a stronger position within the market and more sales. And if these malls shift their focus from competing with the regional supermalls to focusing on specific audiences or providing differentiated experiences, the potential symbiosis can be powerful.”

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