Mall owner Simon Property Group and Amazon are in talks to turn J.C. Penney and Sears stores into distribution centers, according to The Wall Street Journal. Both department store chains filed for Chapter 11 bankruptcy and closed stores across the country. Simon malls have 63 J.C. Penney stores and 11 Sears, according to the company’s May public filing. The number of stores Amazon is interested in has not been reported.
A potential deal falls in line with Amazon’s plans to create more distribution hubs close to residential to accelerate deliveries. It goes against Simon’s and other malls’ business model however, which is rely on anchor department stores to attract foot traffic that will also head to smaller stores as well as restaurants.
Unfortunately, the mall model has struggled in recent years. Many department stores have suffered the same fate as J.C. Penney and Sears—Lord & Taylor filed for bankruptcy in August and Neiman Marcus Group filed in May. Meanwhile, Nordstrom closed 16 stores in the last few months.
Department stores’ loss is Amazon’s gain
When big box department stores close, they often leave behind more than 100,000 square feet on multiple levels. Their closure also hurts smaller mall tenants who count on the department store foot traffic to stop into their stores as well. A lot of the smaller stores have clauses that allow for lower rents or complete lease breaks if the anchor store remains vacant.
An Amazon fulfillment center taking the department stores’ place could possibly keep those clauses in place, but some landlords believe that situation beats keeping such a big space empty. Other mall tenants might not be as excited about an Amazon deal however. A lot of brick and mortar retailers blame the company for hurting their businesses. A neighboring Amazon fulfillment center could make competition that much steeper for local retail stores.
Plus Amazon would not bring much, if any, of the foot traffic that a store like J.C. Penney or Sears would. Landlords mike prefer the empty spaces be leased to an actual retailer, gym, theater or entertainment operator, according to Industry sources.The problem of course is a lot of these tenants are having their own issues because of the COVID-19 pandemic. Amazon on the other hand continues to grow and has a consistent revenue streams. That combination would make it a reliable tenant at a time when other businesses are skipping rent payments or trying to break their leases.
Amazon is already in the mall game
Several U.S. mall owners are already doing business with Amazon on a smaller basis. One business relationship includes renting parking lot space to Amazon’s delivery van fleets. However, the proposed deal with Simon would be somewhat new, as major mall operators don’t typically lease anchor retail space to Amazon.
“To replace department stores, mall owners considered schools, medical offices and senior living,” Camille Renshaw, CEO of B+E, a real-estate investment brokerage firm told The Wall Street Journal. “With the current pandemic, industrial is the only thing left now.”
A lot of retailers use their stores as smaller fulfillment centers to expedite their online purchase deliveries; analysts believe Amazon would do something similar with department store space. Meanwhile, the retail giant would use its fleet of vans to deliver to suburban areas. Amazon has already purchased sites at failed malls and turned them into fulfillment centers. Other companies like FedEx and DHL International have done the same.
Where all this goes is anyone’s guess but it is pretty certain that mall owners will have challenges for some time to come. Out of the box thinking is the best weapon for now but as the pandemic subsides and the return to normalcy begins, it’s clear that people will want to leave home and shop again in malls and shopping areas. After all, humans can be kept cooped up for only so long and working from home and shopping from home will not last forever.
Joe Dyton can be reached at firstname.lastname@example.org.