It should be no shock to hear that brick-and-mortar retailers are a dying breed. So far in 2019, roughly 6,000 stores have announced closures with only 2,641 new stores opening (3,353 net closures). This store closure figure is expected to double by the end of the year, according to Coresight Research. In 2018 brick-and-mortar retailers actually saw a small bounce back in foot-traffic with these retailers enticing consumers with attractive promotions. Data analytics firm Thasos tracked mobile phones to analyze this foot traffic and discovered a surge in 2018 that peaked in August but has declined since. Retailers can only sell products at a loss for so long and unfortunately once winter hit foot-traffic fell for most retailers and hasn’t recovered.
The ability for a consumer to buy whatever they need or don’t need without getting off the couch is why we are seeing an increasing number of “dead malls” in America today. Online retailers like Amazon AMZN, Alibaba BABA and eBay EBAY are perpetuating this problem for retailers, giving consumers a seamless platform to satisfy their needs and wants at the click of a button. Brick-and-mortar retail closures are accelerating, and so are the number of abandoned malls.
Now the question is what to do with all these abandoned malls, how can they be put to good use short of demolition? These dead malls are being converted into office spaces to be utilized by businesses and educational institutes. They also make a perfect shell for a large corporation to use as a warehouse and/or distribution center.
Amazon is buying out abandoned malls, the same malls that they put out of business, and converting them into fulfillment centers. These “ghost malls” provide many advantages to Amazon’s fulfillment centers conversions.
Malls provide the fulfillment center with sufficient size needed to run their extensive operations. The malls are usually located in residential areas allowing Amazon to get its goods out to consumers quicker and more efficiently.
Malls are typically built close to highways to make it easier/quicker for consumers to make it there in a timely fashion. This is useful to Amazon’s converted fulfillment centers for obvious logistical reasons, goods are able to come and go from the distribution centers seamlessly.
These abandoned malls all have the necessary infrastructure already in place, such as sewage, electrical lines, gas lines, and water. Having this infrastructure already established makes Amazon’s conversion quicker and allowing the fulfillment center to be up and running sooner.
Amazon is able to transition these forsaken voids in communities into productive business centers that create quality jobs for residence. This shift in retail from brick-and-mortar to e-commerce is precisely that: just a shift. These malls are still being used to fulfill consumer needs, it is just done in a different way.
The world is always changing and the key for any business to maintain its ability to get in front and ride the wave till it comes to an end, then paddle back out and ride the next one. Amazon is undoubtedly in front of this wave.
Amazon’s Latest Earnings
Amazon destroyed earnings this quarter, beating EPS estimates by over 50% and showing year-over-year growth of 117%. AMZN is only up half a percentage point since this earnings release a week and a half ago (April 25th). Sell-side analysts have reduced EPS estimates for the next couple quarters but increased estimates for the full year by a marginal percentage. AMZN has been battling to reach a $1 trillion market cap and is only about 4% short of that milestone.
AMZN has a beta of 1.62 meaning that this stock is extremely sensitive to the broader market’s performance. Today AMZN is down 2% amidst reignited concerns over the China-US trade dispute. Negotiations are set to resume on Thursday of this week and how they conclude could have a substantial material effect on AMZN.
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