Are malls better off without department stores?

Discussion
Photo: Simon Property Group
May 03, 2017
Tom Ryan

According to research from JLL Retail, many malls are finding few challenges replacing department stores as anchors. What’s more, the new tenants generally pay much higher rent.

The shopping center owner noted that, historically, rents paid by department stores have been “extremely low,” usually less than $10 per square foot. In the case of Seritage Growth Properties, Sears was leasing 266 properties, paying on average about $4.40-per-square-foot. Repurposing many of those Sears and Kmart locations, Seritage has attracted new tenants paying on average $18.55-per-square-foot.

Overall, JLL Retail’s report explored what happened to recently vacated department stores and found that many were repurposed to some unorthodox tenants:

  • Restaurants: Pointing to a Nobu and Fig & Olive that’s replacing a portion of a Saks Fifth Avenue at the Galleria in Houston, JLL Retail said restaurants are “becoming destinations, and anchors in their own right.” An Outback Steakhouse and Yard House leased part of a former Sears at King of Prussia Mall in suburban Philadelphia.
  • Supermarkets:A Wegmans will soon be taking over a J.C. Penney location at Natick Mall in Massachusetts; a Whole Foods recently opened in the first level of a former Sears at a mall in Clearwater, FL; and a Fresh Market opened in a portion of a Sears in Virginia Beach, VA.
  • Entertainment: A growing number of theaters are moving into former department store spaces including two that recently opened in a former Saks Fifth Avenue and Nordstrom. Concepts like Main Event Entertainment and Dave and Busters, which offer bowling, laser tag, arcade games and karaoke, have opened in former Sears locations. At the Florida Mall in Orlando, a Crayola Experience opened in a portion of a former Nordstrom.

Beyond dining and entertainment, categories including fast-fashion, cosmetics, sporting goods, and home furnishings are taking space in former anchor locations. In some cases, off-price chains (Nordstrom Rack, Saks Off Fifth, Ross Dress for Less, etc.) have replaced Sears.

JLL Retail noted that re-leasing or redevelopment of an empty anchor is often dictated by the demographics and lifestyles of the surrounding community. Privately-owned shopping centers may be reluctant to invest the sufficient capital for redevelopment or improvements required to attract new tenants.

DISCUSSION QUESTIONS: Do you see ample options for malls looking to replace department store anchors at all levels of mall properties (Class A, Class B, Class C)? Which non-traditional anchors make the most and least sense?

Braintrust
"The new mall is really more about mixed use than anchors — food, music, entertainment and, oh-by-the-way, retail."
"Malls should see themselves as the center of a community — a destination to satisfy the personal, family and collective needs..."
"Maybe a corollary question here should be, “Are Department Stores Better off Without Malls?”"

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20 Comments on "Are malls better off without department stores?"

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Max Goldberg
BrainTrust

There are ample options for replacing department stores in malls if the mall operators think about creating an experience and reposition their properties accordingly. That, however, is not going to solve the problem of America having too much retail space, so not every mall is going to survive no matter how hard the developers try to create retail-tainment.

Lyle Bunn (Ph.D. Hon)
BrainTrust

Malls should see themselves as the center of a community — a destination to satisfy the personal, family and collective needs for shopping, entertainment, hospitality, entertainment, health care, learning and even worship. Looking beyond anchor department stores to health services, fitness/sports, entertainment, special events, education and business facilities leverages the physical infrastructure and property size while adding more reasons to visit.

Charles Dimov
BrainTrust

Agreed. Malls have gravitated toward becoming exclusively retail and eatery locations. However, malls need to evolve toward building communities where people want to spend time or visit for an event or service. Becoming more of an ecosystem, community or almost a small town center is a step in the right direction.

James Tenser
BrainTrust

Very creative thinking, Lyle. I’m especially intrigued by the suggestion that vast anchor spaces might be repurposed into classroom space. How many community colleges could benefit from a satellite campus, for example?

Indoor recreation facilities also have potential in our experience-trending economy.

Both would be boons for the food-court operators.

Anchor lease commitments with excess square footage are an albatross for department store operators too. They create inertia against evolving the format, which makes malls seem moribund. Maybe a corollary question here should be, “Are Department Stores Better off Without Malls?”

Phil Masiello
BrainTrust

Wegmans took over a mall location near my office. What transpired was the start of a revitalization. The entire center is no longer an indoor mall. It has turned into a lifestyle center of outdoor shopping and restaurants.

Several of our clients are mall-based omnichannel retailers. The mall transitions are creating a predicament for these non-anchor retailers. The inconvenience of walking into an indoor mall is not working for consumers. I don’t see the non-anchors as a strong enough draw for consumers to make the time trade off.

Re-thinking the space in total and creating a revitalized multi-use space will be the mall’s salvation. I don’t think there is one specific answer or one specific style. I have seen the vacant anchor spaces become indoor trampoline parks, indoor sky diving facilities, supermarkets and warehouse clubs. The mall operators need to get creative and seek out opportunities.

Lee Kent
BrainTrust

Yes, there are plenty of options. I drove past a mall recently that is now all things pediatric. Dentists, doctors, pharmacies, etc. plus play areas. Perhaps we are over-stored but if mall owners get creative, there are options that just might work for their demographics. It doesn’t have to be retail. Consumers today are looking for convenience and experiences and these can come in many forms.

And that’s my 2 cents.

Adrian Weidmann
BrainTrust

Between the ever-growing utilization of online shopping (across all categories) and the glut of retail space across the U.S., malls will not be able to attract and secure sustainable tenants unless the entire shopping experience is addressed. The mall itself needs to reestablish itself as a valued and sought-after destination. Additionally, retailers and brands need to create experiences and workflows that cater to today’s digitally-empowered shopper. What can you do to give your shoppers a reason to visit you as opposed to simply shopping online? That is the challenging question facing all physical store retailers and brands. Without solving or addressing this challenge, the cost of the square footage is irrelevant. To put this in context — PIRCH, a high-end appliance and plumbing retailer focused on customer service and a sensory immersive shopping experience, is being rewarded by revenue exceeding $3,000 per square foot.

Ron Margulis
BrainTrust

I’m surprised there isn’t anything healthcare-related in the list of potential mall tenants. I know fitness centers are going into malls as anchors or sub-anchors all around the New York metropolitan area and beyond. And while there are certain zoning issues related to clinics, rehab centers, nursing homes and the like in many areas, these laws are bound to change in time.

Lee Peterson
BrainTrust

No doubt. If you want to see the future of the mall, just spend some time in LA: visit older department store-less versions like Third Street Promenade or the newer ones like The Platform or Pacifica, or even The Grove (with only a Nordstrom) where Nike is really the anchor. With tenants like the ones they have, who needs the old model?

The new mall is really more about mixed use than anchors — food, music, entertainment and oh-by-the-way, retail.

Ricardo Belmar
BrainTrust

Malls need to think creatively about becoming a true destination experience that people want to come to, not just to shop but to experience a fun afternoon. This means malls need to rely on more than traditional anchor stores. Entertainment options should grow in popularity as a driver for foot traffic. Stores, restaurants and other service types of amenities should be included in the overall makeup of the modern mall. If malls think of themselves as community destinations they will start to identify new tenants and begin to see a new kind of foot traffic. This may not be a fix for all malls — the lowest performing malls might not have a way to be saved as we still may have too many malls in the U.S. — but this new destination approach may save many of them.

As a proof point to this new way of thinking, look no further than the plans Apple has for their stores — they won’t even call them stores much longer as they fully embrace the concept of community destination.

Brandon Rael
BrainTrust

In an experienced digital native economy, there are ample opportunities for other stores, fitness outlets, restaurants and entertainment businesses to thrive. Simply put, for a long time now department stores have been unable to generate excitement and provide a reason for customers to shop in their outdated and stale formats.

Not all of the malls are fated to survive. There are plenty of malls that will simply close due to many factors. If all the revenue KPIs are in place and the circumstances are right, then a thriving mall can evolve, survive and succeed in an experience-based economy where families are seeking new adventures. The department stores, as they are currently constituted, are unable to provide this.

Perhaps this is the opening that the sharing economy can take advantage of in the suburban landscape. Without the pressures of long-term investments and leases maybe a retail pop-up based business model can take over these spaces and bring curated and unique smaller local vendor assortments for a limited time. This would create the excitement, uniqueness and exclusivity that department stores used to be known for.

Harley Feldman
BrainTrust

Malls can provide an ideal location for a new non-traditional tenant as the malls are typically well known locations and provide a gathering place for consumers of a variety of destination activities. Restaurants, home furnishings, cosmetics, spas and small businesses of all sorts would be willing to take space in these malls at the right price because of the attraction created by the mall reputation and diversity of stores.

Art Suriano
BrainTrust
Years ago, a department store had many departments, thus the name. But soon, one by one, they stopped selling toys, appliances, furniture and more and more of them became large fashion stores with jewelry, cosmetics, housewares and a few other small categories. Eliminating merchandise categories helped the specialty stores because customers not only walked the malls to see what the specialty stores had to offer, they were also looking for what the department stores no longer carried. Today customers have so many choices the department store is no longer in demand. So the question is, can malls survive without them? The answer is, “absolutely!” The mall has always been a place to go for shopping, browsing, walking, killing time, dining and, more recently, entertainment such as movies. And there are other opportunities like fashion shows, exhibits, food expos and more. The goal though is to always think about what will bring in mall traffic. How do we get customers to walk the mall and visit the specialty shops? As the mall reinvents itself, I see that as a primary goal. Through the years, adding kiosks, pop-ups and push carts held shoppers’ interest as they walked the mall. Perhaps now malls… Read more »
Dick Seesel
BrainTrust

There is still room for traditional department stores as mall anchors, but they need to be relevant to the consumer as well as consistent with the profile of the overall tenant mix. The old paradigm of two traditional stores, Sears and J.C. Penney, just doesn’t cut it anymore and is undergoing well-deserved “creative destruction.”

Part of the challenge for the anchors that remain is to spend some money on new paint, floor treatments and lighting! Even at a showplace mall like University Town Center in La Jolla, where Nordstrom is relocating to a brand-new building this fall, Macy’s in particular stands out as a bad example of lack of capital spending. You can only go so far blaming the “death of brick-and-mortar” on e-commerce if you’re not willing to keep your house in order.

Gene Detroyer
BrainTrust

The problem with malls is that they evolved in a different time and a different culture. They were part of great suburbanizing of the country. Things have changed. The automobile was the driving force. It is no longer. There are enlightening statistics on how young people are no longer in a hurry to get their driver’s license (down to 60 percent from my day when it was 100 percent). Real estate developments for young folks are specifically designed to provide all the access they need without stepping in an automobile.

Demographic changes are not going to be kind to the mall. That being said, if they are are going to change they must focus on attractions other than shopping like restaurants, movie theaters and activity centers. In the long run, they have to revert to a Main Street feel, as several of my colleagues noted — a community.

Peter Charness
BrainTrust

If department stores are going to be in the vanguard of store closings, which it appears they will be, it’s a lot of square footage to re-purpose. Add in some big box office supply and sporting good stores and the story gets more interesting. Yes some restaurants and fitness centers make sense — health care is interesting but frankly the likelihood is that those will be net transfers from other locations, not net new ones. While not entirely a zero sum game, in total it’s probably closer to being one than not. So all-in-all the retail/hospitality space is going to decrease and some malls won’t make it.

Ralph Jacobson
BrainTrust

As virtually all the comments on this article agree, malls need to transform into lifestyle destinations, as opposed to being simply a bunch of stores under one roof, and many are doing so. Anchor attractions, whether they are stores, food sellers, entertainment or whatever need to have the compelling magnetism that drives long-term loyalty and visit frequency. Those are two keys to mall sustainability.

Tom Dougherty
BrainTrust

Absolutely. It’s obvious that there are other options to use as an anchor that hook into the fabric of the target audience. I only wish the department stores themselves were as nimble and willing to change THEIR own model. The malls are leading the way.

Patricia Vekich Waldron
Guest
Patricia Vekich Waldron
2 months 18 days ago

Most department stores are no longer the centerpiece of shopping, so it’s no surprise that other types of retailers — or businesses — that are relevant to consumers are taking their place.

Craig Sundstrom
Guest

The QOD about Publix was about not overreacting to isolated data. This issue is just the opposite: “Don’t UNDERreact to an avalanche of data.” And that data is showing there is too much un- or at least under-productive retail space around.

It’s true that in recent years, as the number of department store brands — and so with it, potential anchors — has declined, even strong centers have sometimes found themselves with a spot to fill. Theaters, upscale food courts/markets, gyms, and other esoteric replacements have been called in, and proven useful. But a play can only have so many understudies before no one wants to see it. Malls that find they have no traditional anchors left, IMHO, have no future (and that’s particularly true if there is an alternative nearby that does).

wpDiscuz
Braintrust
"The new mall is really more about mixed use than anchors — food, music, entertainment and, oh-by-the-way, retail."
"Malls should see themselves as the center of a community — a destination to satisfy the personal, family and collective needs..."
"Maybe a corollary question here should be, “Are Department Stores Better off Without Malls?”"

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