Despite a relatively healthy U.S. economy with record-busting equity market performance by benchmark indices, an alarming trend of rising brick-and-mortar store closures has hogged the limelight in the retail space. Dwindling sales by several underperforming stores have led to a surge in retail sector bankruptcies, threatening the sustainability of real estate properties that primarily cater to malls and shopping complexes.
As the mall landlords seek alternative options to replace lost tenants, esports and gym chains have emerged as saviors, gobbling up the vacant spaces and helping the beleaguered properties to remain relevant to customers. Before we tread on these uncharted territories, let us dig a little deep into the seemingly closed chapters of the retail sector.
Brick-and-Mortar Retail Stores on the Wane
In 2018, the retail sector reportedly witnessed 5,864 store closures as low customer footfall generated soft turnover, rendering most brick-and-mortar stores financially unviable. With online shopping fast becoming the preferred mode of transaction, about 5,994 store closures are in the cards this year as retail sector bankruptcies are piling up. Notably, online shopping is likely to swell from 16% of retail sales at present to 25% by 2026, bringing on the chopping block an estimated 75,000 stores.
Various specialty retailers and discount stores such as Payless, Gymboree, Charlotte Russe and Shopko have filed for bankruptcies this year with a combined store closure of 3,720. Department stores like Nordstrom, Inc. JWN, Kohl's Corporation KSS and Macy's, Inc. M have reduced their store footprint as the battle for survival become murkier with intense price wars.
Reinventing Malls for Higher Customer Connect
With increasing vacancy, mall owners were forced to reinvent malls to cover the operational and real estate costs by engaging tenants who encouraged more customer connect and social interaction. Leading by example, Simon Property Group Inc. SPG – the largest publicly traded retail real estate firm with a diverse portfolio of shopping malls – has taken recourse to esports to transform its shopping centers into in-game locations.
Esports, a billion-dollar business, has fast emerged as the latest craze among sporting buffs with engaging content and challenges. Simon intends to capitalize on this trend and has collaborated with entertainment firm Allied Esports to create 10,000- to 15,000-square-foot esports lounges for competitive video game events. The events are likely to generate additional sales opportunities for niche entertainment categories, food, drink, apparels and accessories, bringing a fresh lease of life to the struggling retail destinations.
Gym Chains Drive Additional Customer Traffic
In addition to esports, gym chains and fitness centers have lent support to increase mall occupancy, and cashed in on the increased health awareness of U.S. customers. A case in point is Planet Fitness, Inc. PLNT that aims to open about 225 gyms this year. With a tally of 1,800 gym centers across the country, Planet Fitness has been on growth streak in recent years with majority of its new gyms cropping up in locations that were vacated by retailers like Toys "R" Us. In the past three years, this fitness chain recorded a stellar return of 280.9%, making it is one of the hottest stocks in retail space.
Mall owners are increasingly preferring gyms and grocery stores as they increase customer footfall even on weekdays when it is often tough to draw physical traffic. Moreover, customers often tend to combine their gym visits with shopping to save time and shop either before or after their workouts. Per data from real estate firm CoStar Group, the number of gym tenants in shopping centers has more than doubled over the past decade to more than 14,000 last year.
Time to flex muscles? Game on.
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Planet Fitness, Inc. (PLNT) : Free Stock Analysis Report
Nordstrom, Inc. (JWN) : Free Stock Analysis Report
Macy's, Inc. (M) : Free Stock Analysis Report
Kohl's Corporation (KSS) : Free Stock Analysis Report
Simon Property Group, Inc. (SPG) : Free Stock Analysis Report
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