Photo: RetailWire
Should retailers open stores in malls or look outside for better results?
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.”
- Bath & Body Works, Inc. (BBWI) Q4 2022 Earnings Call Transcript – Seeking Alpha
- Macy’s (M) Q3 2022 Earnings Call Transcript – The Motley Fool
- Victoria’s Secret & Company’s Third Quarter 2022 Earnings Conference Call – Reuters
- Simon Property Group (SPG) Q3 2022 Earnings Call Transcript – The Motley Fool
- Simon Reports Fourth Quarter and Full Year 2022 Results – Simon Property Group
- Simon: Malls don’t suck. In fact, they’re doing well – TheRealDeal
- Retail Trends Forecast 2023 – Placer.ai
Discussion Questions
DISCUSSION QUESTIONS: Does the growth opportunity for traditional mall-based chains still appear bigger off-mall or is the view of enclosed shopping malls overly pessimistic? How would you grade the pros and cons of mall and off-mall locations for retailers that have traditionally operated stores in malls?
Poll
Loading …BrainTrust
Carol Spieckerman
President, Spieckerman Retail
Jeff Sward
Founding Partner, Merchandising Metrics
The nature and offering of malls is evolving for the better. The traditional mall of yesteryear will be replaced, therefore it is not a bad move for some retailers to return to the malls. However it has to be the retailer’s pick as into which malls they move.
Comparing mall traffic to what it was during the depths of the pandemic is not a cause for celebration. “A” malls and some “B” malls are the healthiest but the fate of many other regional malls was sealed long before 2020. The massive amount of anchor closings (starting with Sears and J.C. Penney) hasn’t made things easier, despite developers’ efforts to “reinvent” them with workout spaces, movie theaters and restaurants.
Off-mall has been “the future” for a long time, especially as consumers search for convenience and as they do more of their shopping online anyway.
My home in DC is three blocks away from two shuttered malls, and my house in Florida is three blocks away from a shuttered mall. Any questions?
The hot concept is the town center. An outside shopping destination with a non-traditional anchor like a Whole Foods or a Wegmans that draws shoppers constantly. In town centers, the variety of restaurants and other traffic magnets is greater, too. This, coupled with a move for smaller footprints in urban settings, gives this trend a big boost. An “A” or “B” mall location is still a safe bet, but it is the outlier “C and D” locations that are a problem. The high occupancy rate and fight for limited space in malls is mostly due to all the mall closings over the past few years. Newer malls are all built with smaller-footprint stores, as most of the SKUs are only available online anyway. So why open smaller-footprint stores in malls when retailers are seeing better results for them elsewhere?
The answer is a firm “it depends.” If reasonable rent with a lot of flex in the terms can be had then enclosed malls are still a good play for retailers who have a strong multi-channel presence. Getting into these spaces now when the tenant has more negotiating power can position a retailer well when these enclosed malls complete the transformation they are currently figuring out.
I agree DeAnn, it really depends on the mall and the opportunity. “A” and “B” rated malls are still a great opportunity to drive traffic to your stores. However, lower scale malls are often not worth the investment. There is also a growing segment of consumers that are convenience-driven and would rather visit a strip-mall or town center retail environment that is easier to park and shop with minimal walking.
Some old-school malls are still around but most are being repurposed or renovated into lifestyle centers. Speaking with developers, turning malls “inside-out” has become a trend, along with clustering restaurants as a gateway. The closed, department store-anchored model of the past is no longer viable, and the malls of tomorrow will be well thought out. Simon and other mall owners are thinking of these properties as brands, not just spaces that hold brands, and are bringing digital upgrades that unify shoppers’ experiences.
I love a town center, but there is nothing like a good mall in Chicago in the winter. Which seems to go on indefinitely!
So true. Increasingly weird weather (and winter) definitely dampen lifestyle centers’ potential. The mall-as-refuge approach might start making more sense (Minneapolis Skyway system, anyone?).
And yet downtown retail in the Twin Cities has largely died. When I first visited, 30 years ago, Minneapolis had four — count ’em four! — anchor stores (this at a time when many cites had none) and a correspondingly generous amount of other retail. Today, none of the former, and few of the latter, remain.
Not all malls are created equal. The same goes for shopping districts, outdoor centers and strip malls. I think Simon is 100 percent accurate in evaluating the “brand” signature of every shopping center. As pointed out, not every mall is dead. Those that have adapted their offer to include entertainment options, in many cases, are thriving. And on the other hand there are examples of outlets and outdoor shopping centers that are dead.
Property managers need to understand who their customers are and have the right mix of stores, restaurants, and entertainment options that will keep them relevant and interesting to visitors. The old model of tired anchors and irrelevant shops is what’s dead. Shoppertainment centers are thriving.
The honest answer here is: it depends. There are many malls which are highly successful and which are pulling in large numbers of people who are spending money. Many of these locations are also evolving, integrating new retailers and services. Then there are malls which are in terminal decline and which have no future. The general trajectory is towards off-mall, but that doesn’t mean all malls should not be of interest to retailers.
There is a subset of malls that will still drive considerable traffic and do a good job of transforming the experience. Off-mall will thrive and prosper for at least the next decade. However the new dynamic that worries me from a retailer’s point of view is that Simon is now also a significant stakeholder of retailers via its ownership of SPARC. Will those retailers be given preferential rent allowing them to maintain lower prices? If you are a retailer, why operate in an unfair real estate position?
Isn’t the answer here very market specific? And then mall specific? The demise of many C and D malls is well chronicled. As is the revived stature of many A and B malls. It’s not a simple “if you build it…” formula anymore. Now it’s the right store in the right market at the right location with the right population density with the right demographics. How about that — 5R!
The opportunity for growth is definitely off-mall, due to many macro factors like WFH and e-commerce dominance, plus the whittling of B and C malls is happening very rapidly AND people would rather shop near their homes anyway. BUT retailers need to get used to the idea that these off-mall stores will not produce the kind of revenue that stores once produced in the ’80s, ’90s, and ’00s — they will cost less, but the majority of their business will come from online sales. Two factors — well-placed stores and e-commerce — will show the true right-sizing of their companies.
The selection of mall vs off-mall location is subjective and depends on many factors such as customer base, easy access, neighborhood, competitor’s brand presence, store visibility, sufficient parking, co-tenants, foot traffic, legal, rent, mall management vision and overall demographic. Many locations have flourished, with retail brands competing for space while many malls have declined. Off-mall location (free standing store) success will totally be the retailer’s responsibility to drive traffic, keep its customer engaged, ensure repeat visits and get new walk-ins. Successful malls do have positive impact from co-tenants, competition, diverse retailers and mall-based promotion.
The answer is, of course, a very strong “It depends”! Sure, “A” malls are generally seeing a return to healthy mall traffic. As are some “B” malls, but nothing has change since the pre-pandemic days to restore the long ago success of many “B” malls, and nearly all “C” malls and below.
The trend of going off-mall is not going to stop and will continue as large retailers realize that their chances of attracting customers are better by being near a Target, Walmart, Best Buy, etc. or other more lifestyle oriented destinations. Sure, many mall operators are transforming their malls into such destinations but this isn’t going to happen overnight, and the fact is those “C” and “D” malls just don’t have any life left in them at all.
In my region, many people are still working from home and like to shop close by. The nearest malls have either already closed or have pretty anemic brands inside. In fact, the one mall closest to me relies on a DSW, a Value City Furniture, a Barnes & Noble, and a DICK’S Sporting Goods as its anchor stores. I’m sure any of us can guess which stores are getting the benefit of any customer traffic. On any given day you can see good traffic in those anchors, but barely anyone inside the mall. And those that are, can be seen carrying very few shopping bags!
I am equally sure other regions, and more urban locations will tell a completely different story, so there is no blanket statement that can be made here other than, again, the trend of going off-mall will continue, even if it varies by region.
It may well be true that growth opportunities are better off-mall, but that’s mostly because so much of the existing store base is already in malls; which is to say, stores that have most of their locations currently in mall will continue to do so for the foreseeable future.
There’ve always been stores outside malls, of course — Kohl’s built much of its identity by not being in them — and for stores that can be destinations by themselves, the benefits of stand-alone locations — be they reduced congestion, more attractive lease rates, or whatever — may prove decisive; but I don’t think that describes most retailers (that are mall based). So “yes,” I largely agree with Simon’s claim, self-serving as it may be.
In all my years of retail, our discussions surrounding locations largely depended on other tenants, general demographics of who frequents the location, and geographic location if this were a national brand. For example, if you could find an off-mall location close to Starbucks or Panera, your foot traffic typically increased with very little advertising.
Shopping at the mall for convenience has never changed along with the sensory benefit of touching/feeling the merchandise before buying. Time is our most precious commodity, and the mall experience satisfies that drive to achieve efficiency plus speed. Certainly, the exponential growth of e-commerce will not slow down anytime soon, but retailers will always have a real estate department seeking prime locations at an efficient cost/square foot ratio. I think adapting the store concept to what is available vs. custom build is a smart trend to watch. So is multi-brand environments — one host and many brands housed within the same footprint.