It’s reinvent or die for struggling retail centers

“The mall is dead, long live the mall” could easily be the 2021 motto for the nation’s roughly 1,000 shopping centers, many facing a make-or-break moment of truth and transformation. Limping into 2020 thanks to a cascade of major department store closures, the shuttering of 9,200 retail chain stores and the total liquidation of mall staples like Payless ShoeSource and Charlotte Russe, malls were already staring into the abyss. Then COVID-19 arrived and swiftly took matters from bad to worst. According to a Barclays Capital report, the pandemic is likely to cull between 15% to 17% of U.S. malls, which will no longer be “viable as shopping centers.” And an alarming Bloomberg report last week found that U.S. mall values plunged an average 60% after appraisals in 2020, erasing about $4 billion in value from 118 retail-anchored properties with commercial mortgage-backed securities debt in what one analyst called “an eye-popping decline.” “This country has been overdeveloped in the retail space for some time,” said retail specialist Nancy Abram, associate professor of practice at the University of Iowa’s Tippie College of Business, adding that the U.S. has six times as much developed retail space as any other country. “And that’s a problem because people want to shop differently now. The idea that, post-COVID, people want to park in huge lots and go into these cavernous malls – they don’t want to do it. People have done their pre-shopping. They want to buy it online or they want to go in and get it and get the hell out.” Ms. Abrams believes many malls can survive. But only if they adapt to a new convenience-oriented reality that is likely to outlast the pandemic in the short term, and embrace becoming “lifestyle centers” incorporating residential, health and wellness facilities, recreation centers, and amenities from gaming centers and bowling alleys to micro-breweries over the long haul. “The big things we’re going to see with malls that survive is they will be repurposed as lifestyle centers, they will become last mile distribution centers, we’re going to see discounters moving in, and these traditional large footprint stores will continue having the most trouble,” she said. “What we think of as the mall has got to change.” Like mall operators around the world, Lindale owner Washington Prime and Coral Ridge owner Brookfield Property Partners have had a rough year. Washington Prime made news last week when a Securities and Exchange Commission filing indicated it had withheld a $23.2 million interest payment due Feb. 15. Meanwhile, a recent Real Deal analysis of mortgage data recently turned up 10 Brookfield malls at risk of being handed over to their lenders, although none in Iowa. Monica Nadeau, general manager of Coral Ridge Mall, the region’s largest shopping center, says it is well-positioned to evolve to changing times. The mall has been a lifestyle center for years, offering the Iowa Children’s Museum, an ice-skating rink and a 10-screen cinema, among other attractions. Lindale Mall in Cedar Rapids appears to be moving in the same direction with a new Planet Fitness in the works. Construction on the fitness center is set to begin March 15 and wrap up in October, according to Lindale Mall General Manager Becky Eckley. “This past year was tough on every industry and we were no different,” Ms. Nadeau said. “But we’re weathering the storm and I think we’re going to come out strong.” Lindale Mall is similarly optimistic about that center’s prospects for survival. Ms. Eckley said foot traffic is up since vaccines have begun being distributed and the mall is preparing for an even bigger increase going into the spring and summer seasons. “We want Lindale Mall to be thought of as the community hub in the Cedar Rapids and surrounding area,” Ms. Eckley said in an email. “Through offering a wide variety of retail options and a robust calendar of events for the whole family, we want to be the place people think of coming when they need something to do.” At Coral Ridge, though foot traffic was down precipitously over the past year, occupancy never fell below the mid-90 percentile – “and believe me, I’m very grateful to be able to say that at this point,” Ms. Nadeau said. That percentage will creep up into the high 90s, she added, when trendy women’s apparel and accessory outlet Windsor opens later this month and fast fashion favorite H&M unveils its highly anticipated second Iowa location sometime in late spring. Meanwhile, two anchor stores have completed or are in the process of expansion in a nod to changing times. Scheels recently expanded its previous 104,000 square feet of space by another 20,000 feet, taking over seven smaller store spaces, including the former Forever 21 just inside the mall entrance. In addition to expanding its showroom footprint, the expansion has allowed the business to create a fulfillment center within the store to take advantage of an explosion in e-commerce demand. Nearby Target is working “full speed ahead” on a four-month renovation also aimed at changing customer demand, including creating new holding areas for curbside delivery – a pandemic-related shift Ms. Nadeau believes is here to stay. The buy online, pick up in store (BOPIS) – or parking lot – trend is one Coral Ridge is also adapting to, adding expanded areas around the mall for customers to wait to collect purchases. Lindale has also adjusted to the pandemic by offering Retail To-Go, which allows guests to place orders with select retailers by phone, online or via mobile app and pick up purchases curbside without leaving their vehicles. “Early on, people were hesitant to leave their homes so curbside, zero-contact delivery was a big help,” Ms. Nadeau said. “Now, I expect it to continue into the future. This kind of convenience has become the new way of shopping.” Whether it’s called omnichannel marketing, click and collect or BOPIS, making mall shopping easy and convenient is key, Ms. Abram agrees. After a year that saw e-commerce skyrocket 40%, retailers have little choice but to embrace online, allowing customers to combine the ease of browsing and purchasing from home with the instant gratification of picking up the item from a nearby bricks and mortar location. For that same reason, Ms. Abram believes many malls will open last-mile fulfillment centers where customers can collect parcels from Amazon and other online retailers. Not only are consumers embracing the idea, it is helping retailers solve a longstanding and costly “last mile” problem. “People have gotten used to using their time as they want, absolutely,” Ms. Abram said. “They don’t want to park down by the ice arena if they need to go to Barnes and Noble. They want it now, and that’s across the board. And why not when [consumers] can acquire anything they need sitting at home?” Ms. Abrams said malls need to look closely at their retail mix. Apparel, for instance, has fared poorly in the work-from-home COVID economy outside of athleticwear. “No one is buying anything,” she said. “People are realizing they don’t need 72 t-shirts.” Retail that is hot includes discount stores as people watch their bank accounts more closely amid the recession. Pets, electronics, sporting goods and exercise equipment, electronics and home and furniture stores are also doing well, she said. Coral Ridge replaced its empty Younkers space with an Ashley HomeStore in late 2019 in a move Ms. Abram said now seems prescient. “The malls that will be OK will have to get occupied by enterprises that have growth and are viable in this market,” she said. “And long term, there is just a huge transition to an experience economy. The younger generation doesn’t want to gather stuff as much as experiences, to take pictures in fun settings, to do things, eat things.” A new redevelopment plan for the aging West Des Moines Valley West Mall offers a glimpse at the potential future of the mall – one intended for a post-pandemic, vaccinated population. The $262 million revamp would transform the 1970s-era shopping center into a vibrant hub of activity with new residences, outdoor gathering places that include ponds and walking space, and a hotel with event space. Plans also call for a 65,000-square-foot entertainment complex. According to global shopping mall operator Unibail-Rodamco-Westfield, the future of shopping malls doesn’t have much to do with shopping at all. “The future of retail is multifaceted and complex. It is omnichannel and experiential,” the company said in its “Destination 2028” look at the next generation mall. According to the company, the future mall is made up of “hyper-connected micro-cities, places where social interaction becomes central, communities are built and shopping is part of a wider experience, bringing the best in dining, entertainment and events. It integrates important consumer trends such as smart technologies and wellness in sustainable environments.” “I think ‘the experience’ is the mall of the future,” Ms. Nadeau said. “Thinking about Gen Z, they live online, so offering cool spots for selfies and branded filters are possibilities. And interactive experiences are going to be the way of the future.” One new tenant at Coral Ridge, The Influence Selfie Museum, is already dipping a toe into those waters, promising an “ever-evolving photo experience that is specifically designed to stimulate and nurture everyone’s need for creativity and fun through a click of a button.” But Ms. Nadeau said Coral Ridge is also looking down the line at its food mix, ways of creating a sense of place and creating buzzy indoor and outdoor gathering spots. Once life returns to something like normal, local mall operators have few fears people won’t return. “Physical stores continue to form a crucial channel for retail sales,” Ms. Eckley said. “Ninety-four percent of shoppers will spend at retailers with physical store presences, whether in store or online.” “Everyone is ready and eager to get back to normalcy and the mall will absolutely continue to be relevant,” Ms. Nadeau agreed. “They’ve been gathering spots for communities for decades, and even though it’s been a little different this past year with the pandemic, there is no replacement for being able to go into a store and be able to touch and to see.” And rather than compete with online retail, she said, bricks and mortar will be using it to its advantage to offer a seamless shopping experience: “We’re already seeing the blending of e-commerce and in-person, and that’s just going to continue to grow and evolve.”