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After Christmas your mall might vanish — but it may also be reborn

Brian Sozzi
·6 min read

After a brutal year for most malls — capped off by a weak holiday shopping season thanks to the deadly COVID-19 pandemic — many that have struggled financially for years may finally vanish in 2021 as their tenants close up shop.

“Bankruptcies and store closings will accelerate again,” veteran retail executive Jan Rogers Kniffen said in a new missive to clients this week.

Of the roughly 1,100 malls left in America, Kniffen believes only 278 are viable in the post pandemic world where online shopping will reign even more supreme. These would be the best of the best malls — or “A” malls as experts call them — that are in densely populated areas and target higher income shoppers.

The thinning of the herd next year could get ugly.

The pandemic has just sped up the day of reckoning for vast stretches of zombie retail real estate. America had a glut of retail space before COVID-19, with twice as many square feet dedicated to shopping as any other country in the world. Retail is oversupplied by six square feet per capita compared to Europe, according to the International Council of Shopping Centers for U.S. merchants, a New York-based retail trade group.

A near empty food Pentagon City Mall is seen in Arlington, Virginia on March 17, 2020. - The coronavirus outbreak has transformed the US virtually overnight from a place of boundless consumerism to one suddenly constrained by nesting and social distancing.The crisis tests all retailers, leading to temporary store closures at companies like Apple and Nike, manic buying of food staples at supermarkets and big-box stores like Walmart even as many stores remain open for business -- albeit in a weirdly anemic consumer environment. (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images)
A near empty food Pentagon City Mall is seen in Arlington, Virginia on March 17, 2020. - The coronavirus outbreak has transformed the US virtually overnight from a place of boundless consumerism to one suddenly constrained by nesting and social distancing. (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images)

About 300 of America’s 1,100 malls are in distress right now, according to John Schupp, principal at Avison Young, a Toronto-based commercial real estate services firm. In fact, one key player in the mall space succumbed to the inevitable before Black Friday.

CBL & Associates Properties — which operated 100 properties across 26 states — filed for bankruptcy on Nov. 2. The company’s biggest tenants such as J.C. Penney and Ascena filed for bankruptcy in the summer, putting more pressure on CBL’s financials.

“It’s gonna be bad. The mall industry and the tenants that are in malls came into this already precariously positioned on a knife’s edge, and the [COVID-19] shutdown has pushed them over the edge. Department stores will fold. They are vulnerable — they can’t go a month or two without sales,” said Scott Crowe, CIO and portfolio manager of CenterSquare Investment Management, a Pennsylvania-based investment management firm.

Numbers on the aftermath for malls are stunning.

In the U.S., 20%-25% of retail spaces will become vacant in the next few years due to the pandemic, Crowe estimates. Half of the malls in America will disappear over time, said Najla Kayyem, senior vice president of marketing for Pacific Retail Capital Partners, a California-based retail investment and management company.

“A meaningful percent of space will be vacant. In certain instances, those malls that were struggling before may never reopen. The pandemic is an inflection point, bringing together and accelerating the trends we were observing in the industry before,” said Pam Boneham, managing director and head of capital strategies for Barings Real Estate.

Some malls will be reborn, however

For those malls that do manage to make it out the other side of the pandemic, consumers should expect a vastly improved shopping experience. Mall owners realize they will have to do a great deal more to get people from shopping on Amazon.

Jackie Soffer, chairman and CEO of real estate development company Turnberry, tells Yahoo Finance you could see sports arcade player TopGolf become an anchor tenant. Bowling alleys in malls are also possible — but not the traditional kind seen in internet images from 1985. Think one with only 25 lanes and a large amount of space devoted to a bar and club. In other words, Dave & Busters (another possible mall tenant, people tell Yahoo Finance) on steroids.

Upstart fitness equipment player Mirror (now owned by athletic apparel retailer Lululemon) and Gwyneth Paltrow’s lifestyle brand Goop could also make a push into the mall, Soffer thinks. In this case, the mall would help bring cool new brands to shoppers — ones that are more interactive than a traditional apparel store.

On the other hand, parts of some malls could be completely bulldozed to reset the experience. Experts tell Yahoo Finance hotels and mixed-use residential communities could appear in former anchor stores. That would be welcome news to mall tenants as it provides a built in set of shoppers.

Large retail centers will add parks and plazas to set the mood. Common gathering spaces draw shoppers to the Avalon Shopping Center in Alpharetta, Ga. and Market Street shopping center in Woodlands, Texas. Pop-up stores, art installations and programming like yoga and barre classes will be a part of malls that succeed in the next few years, experts say.

But experiential retail can come in conflict with clinical, contactless coronavirus management tools. So expect the shopping experience to be a bit clunky, if not annoying at first. Malls are trying to find ways to balance customer service and safety.

“Retailers that succeed are prioritizing safety measures that don’t feel scary and clinical. They are layering in surprise and delight — clinical measures should be secondary,” said Melissa Gonzalez, Lionesque Group and shareholder of global architect firm MG2.

Curbside pick-up at the mall is among the new normal right now at the likes of Macy’s (M), Coach (TPR), and Dick’s Sporting Goods (DKS). One could expect the mall to better cater to the 24/7 shopper in the years ahead.

SANTA CLARITA, CALIFORNIA - MAY 21: Macy's at Valencia Town Center Mall opens for curbside pickup service during COVID-19 outbreak on May 21, 2020 in Santa Clarita, California. The coronavirus (COVID-19) pandemic worldwide has claimed over 180,000 lives and infected over 2.5 million people. (Photo by Robin L Marshall/Getty Images)
Macy's at Valencia Town Center Mall opens for curbside pickup service during COVID-19 outbreak in Santa Clarita, California. (Photo by Robin L Marshall/Getty Images)

Empty stores will be used as warehouses by retail brands to serve online orders. A multi-level Macy’s could be a “perfect distribution hub” for last-mile retailers, said Boneham.

Retailers are even imagining a hybrid scenario, where customers can come in and try things on at a store that has been converted to a distribution center, so they can still touch and feel a product before buying, according to Terrell Gates, founder and CEO of Virtus Real Estate Capital, an investment management firm based in Austin, Texas.

In the end, the concept of a community gathering place known as a mall still makes sense, experts believe. But the days of malls simply being stuffed with pizza places, apparel stores and various kiosks are over. COVID-19 hasn’t killed the mall, rather accelerated its rebirth into something far more useful for the modern era.

“These malls that have Macy's, Sears or J.C. Penney that are going away... A lot of those malls just won’t have anchors,” Kniffen opines.

Sad, but the new reality.

A version of this story was originally published on August 25, 2020.

Sarah Paynter, a real estate reporter for Yahoo Finance, contributed to this story.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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