Are malls still viable? Coronavirus may be a death blow to a struggling business model
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A sheet of white paper taped to the Concord Mall's glass entranceway notes the building's indefinite closure. The paper is crumpled and a piece is torn off the top left corner — the type of tear you make to get rid of a chewed stick of gum.
A light shining from the corridor behind it is one of the mall's only signs of life.
On this night, every parking lot light is out. The lot's sea foam green and worn blue traffic signs have no cars to direct. The building's marquee is fixed black.
The Concord Mall, like hundreds of nonessential Delaware businesses, has been ordered closed by Gov. John Carney as part of a stay-at-home order intended to limit the spread of the coronavirus, a disease so easily transmitted officials recommend you don't leave home without a mask.
No one knows when customers will be allowed back in. But more frightening for the industry, no one knows if customers will want to come back.
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Before social distancing, stay-at-home and shelter-in-place became part of our everyday vernacular, the prognosis for brick and mortar retailers was already grim.
Now experts say the unprecedented shutdown will accelerate trends in the industry, most notably the shift to online shopping as customers make purchases from the safety of their homes, leading to a sooner-than-expected watershed moment for mid-sized shopping destinations such as the Concord Mall.
"This is a black swan event," said Venkatesh Shankar, director of research at the center for retailing studies at Texas A&M University. "This is like a once in a century event, so nobody was prepared for this kind of damage.
"Owners will have to rethink whether malls are viable anymore."
At the top of the mangled printer paper is the logo for Namdar Realty Group. When the New-York based company assumed ownership of the Concord Mall three months ago, acquiring it out of foreclosure, no one predicted it would find itself in this situation — at least not this soon.
After losing Sears, Planet Fitness and the sports memorabilia store AB Sports, roughly 3 of every 10 stores in the Concord Mall were vacant before the coronavirus hit. The mall's vacancy rate was about three times the national average, which hit an all-time high in 2019 according to most analysts.
The mall already needed an answer to the question that's dogged the retail industry for more than a decade: Why leave the house when you can order almost everything online?
Now the question is more pressing than ever.
Tiers of shopping malls
After being down more than 10% in March and with more losses expected in April, nationwide retail sales are projected to be down more than $150 billion, according to the retail consultancy firm GlobalData.
Last week alone, nearly one million retail workers were furloughed by major brands such as Macy's and J.C. Penney. Even before the coronavirus pandemic both companies faced uncertainty, joining other mall-based retailers such as Forever 21, Charlotte Russe and Gamestop in closing dozens of locations.
"Even in the financial crisis we didn't see these kinds of declines," said Neil Saunders, managing director of GlobalData.
Experts believe the coronavirus pandemic will have a lasting impact on consumer habits, as more people become wary of going to crowded places. The biggest effect: online sales will grow in almost every category.
A large group of shoppers will discover online alternatives and delivery services to replace their routine trips to the store during the pandemic, while already savvy online shoppers will see even less reason to shop in-person, experts say.
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Some stores will reimagine how they distribute their products. To appease social distancing guidelines some stores will alter their layouts to reduce touch points.
Shorter-term projections, which see declines in sales almost across the board, also factor in record-high unemployment. The retail sector at large enjoyed multiple years of steady growth as unemployment rates fell to record lows.
As retail transforms on a macro level, experts say the short-term effect of the pandemic on individual properties will likely vary.
To discuss these impacts retail observers often split shopping malls into three categories:
- The A-list super-regional hub: the mall at or near capacity that has repurposed lost businesses successfully and completed at least one wide-ranging redevelopment
- The B-level mid-tier: the mall in need of new life after losing an anchor or two
- The bottom barrel C mall: a mall that was small to begin with, but is now almost completely dark
The Christiana Mall is still Delaware's greatest draw for in- and out-of-state shoppers, and experts suggest its business will remain relatively steady. It's the A-mall.
"The flagship malls are fine," said Charles Lindsey, associate professor of marketing at the University at Buffalo School of Management. "We all know what mall that is in our area because they’re just doing fine."
The Concord Mall, existing on the fringes of Christiana's orbit, is a class or more down and faces a challenging path to survival, with its anchors Macy's and J.C. Penney inching closer to bankruptcy every day their doors are closed.
"The draw that was the specialty mix is diminishing and the anchor tenants are disappearing," said Mark Cohen, director of retail studies at Columbia Business School. "I don’t see any sunshine in the forecast for these B, typically C malls."
The mall model has 'seen its best days'
In the mid-afternoon, days before officials announced Delaware's first coronavirus case, the long dimly lit Concord Mall corridor leading to Sears already looked deserted.
The fountain marking the end of the walkway was dry, safe for a few drops around its circular centerpiece. Its guts — the lights and hoses that fueled amusement for decades of children — were completely exposed.
If the signs advertising sales of 60% off weren't enough to remind you of Sears' looming closure, the gated Payless ShoeSource to its left would do the trick.
The sprawling shopping mall, anchored by department stores and bolstered by boutiques, dominated the retail landscape for decades. It brought together the disparate American downtown, while offering people a place to meet in a world that hadn't yet tethered an always-on connection.
Cohen said developers built too many malls during the mid-20th century, an issue later compounded by mall owners' failure to adapt. As malls became ubiquitous, Cohen said a feeling that each was the "same old" thing set in. These are some of the malls now struggling in overcrowded areas.
"I think the great American shopping mall has seen its best days," Cohen said.
Many retail experts interviewed by Delaware Online/The News Journal said a significant investment would be needed to revive the Concord Mall. Others said it's time to rethink the property, suggesting it could be converted to a fulfillment center or a data center in the short term.
In statements made since acquiring the Concord Mall, Namdar and its affiliate Mason Asset Management have assured guests and store owners of its commitment to revitalizing the mall. It floated the idea of adding "mixed-use" features to the property, but hasn't released any specific details.
The group has earned a reputation for rarely making significant investments and often running already troubled malls on tight budgets, according to various media reports, including a January story in the Delaware Business Times.
In response to a request for comment for this story, Namdar offered the following statement:
"The reopening plan for the Concord Mall will be centered around providing strong support and fostering stronger relationships with each of our tenants. One example of that includes running marketing campaigns on social media and our digital platforms, as many tenants will be running promotions to attract foot traffic once again."
Betting on 'experiential retail'
Prior to the coronavirus outbreak, developers pinned their hopes on "experiential retail," the idea that adding businesses not traditionally found in malls like gyms, grocery stores, health care clinics and gaming centers could lure shoppers from their homes.
Some took the idea to another level by adding luxury apartments or townhomes, building so-called "live and play" communities. Maybe you'll come out to eat and shop if the businesses are in your front yard.
The newly developed Promenade at Granite Run in Media, Pennsylvania, is close to fully leased, two years after developers knocked down almost every store in the 40-year-old Granite Run Mall and built a mixed-use center from its ashes.
The property features luxury apartments, an Edge Fitness center, an Acme supermarket and a bevy of national restaurant brands.
Similar developments have taken root at the King of Prussia Town Center next to the famous mall, and the Plymouth Meeting Mall, which features a Whole Foods, 5 Wits entertainment venue, Legoland and Edge Fitness, among other shopping destinations.
It's unclear what the future holds for these properties, as most haven't been around long enough to judge whether the additions grant the property extra staying power, but many in the industry are encouraged by their high occupancy rates.
The Concord Mall hasn't had a major renovation since 1994. Experts say it will be even more difficult for lower-tier mall owners like Namdar to to pour money into expensive redevelopments as their reserves are tapped during the pandemic.
"They will be under tremendous strain," Shankar said. "In the short term it’s going to be really messy ... Those experience-type places will have to be reexamined."
When asked about potential redevelopment plans in a follow-up message, Namdar said its current focus is on "managing the impact of COVID-19." They said more updates on long-term plans would be available once "we begin to regain a bit of normalcy and clarity on what things look like post-coronavirus."
Allied Properties, a Delaware-based group that operated the mall previously, announced plans to completely redevelop the mall in 2017 but abandoned them midway through 2019.
With a high number of vacancies and the strong potential for more store closures, Lindsey described a cycle many lower-tier malls could soon find themselves in.
Malls will find it difficult to transition to other uses as stores struggle, and stores will continue to struggle if malls don't find other attractions. It's a problem that is now amplified.
"This is just going to accelerate that," he said. "The longer this continues, we're going to see some bankruptcies and additional store closings ... It will put pressure on malls because occupancy will go down."