What will retail look like if half of department stores close?
Many department stores and malls were struggling well before most Americans became familiar with the term coronavirus. A new report, however, says that the situation is in the process of going from bad to worse with a dire forecast for both retailers and landlords.
More than 50 percent of department stores in malls across the country will be shuttered by the end of next year, according to a recent Green Street Advisors webinar. Around 60 percent of U.S. malls currently have department store anchors.
“A lot of the disruption we were expecting to see over the next five to 10 years, is being pulled forward to the next two years,” said Vince Tibone, senior analyst, retail at the commercial real estate advisory firm.
Department store operators with high debt levels (Neiman Marcus and J.C. Penney) are most frequently mentioned as candidates for bankruptcy, while even those typically considered to be in stronger financial positions (Macy’s and Nordstrom) are struggling in the face of mass store closures.
One of the possible “knock-ons” that Mr. Tibone sees from anchor stores closing is that it will trigger co-tenancy clauses in lease deals with other retailers operating in malls. These provide non-anchor tenants with rent relief or a lease opt-out in the case of anchor space going unfilled for an extended period of time.
Mr. Tibone said filling anchor space becomes incredibly challenging in an environment “where demand for space (from retail and non-retail sources) is virtually non-existent.”
Many retailers have withheld rent payments as they try to maintain liquidity as stores sit idle. Empire State Realty Trust, which owns the Empire State Building and 13 other properties, collected only 46 percent of its retail rents in April, according to a Wall Street Journal report. SL Green Realty, the largest office building landlord in New York, collected only 65 percent of its retail rent during the month.
The decisions by some states to lift stay-at-home restrictions offer some hope at a period of time when stores and landlords share a sense of urgency in getting back to business. Simon Property Group, the largest mall operator in the U.S., is set to reopen 49 of its properties in 10 states between May 1 and May 4.
- U.S. Cross-Sector Update: Navigating Today’s Uncertainty – Green Street Advisors
- Two Big New York City Landlords Highlight Rent-Collection Woe – The Wall Street Journal
- Will shoppers go to the mall because Simon says it’s okay? – RetailWire
- Are retailers and landlords destined to head to court over rents? – RetailWire
DISCUSSION QUESTIONS: What do you think will be the repercussions if half of all department stores close the end of 2021? What will the greater retailing industry look like five years from now?