Anchor Stores Like JCPenney And Macy’s Once Drew Crowds To Suburban Malls. Now Their Struggles Could Push Hundreds Of Malls Into Extinction.
Hundreds of department stores are expected to close in the next 18 months, leaving a glut of empty real estate at shopping malls across the US that could be nearly impossible to re-occupy.
Malls will struggle to find new tenants for space occupied by department stores, as businesses pull back sharply on spending and expansion amid the pandemic.
“We expect to see a lot of the space that goes vacant remain vacant for extended periods of time,” said Kevin Cody, senior consultant for the commercial real estate firm CoStar Group.
This means many malls will be stuck with empty anchors. Anchors are the giant, multi-story buildings at mall entrances that have historically been responsible for a large portion of mall sales and foot traffic.
The real estate research firm Green Street Advisors expects more than half of mall-based department stores to close by the end of 2021, leading to “excessive dark mall anchor space.”
“Widespread department store closures will accelerate the demise of many malls,” the firm said in a recent report. “Many malls will be faced with multiple anchor vacancies, a tough place to come back from.”
Neiman Marcus, JCPenney, and department-store operator Stage Stores have all filed for bankruptcy in the last few weeks. Macy’s said this week that its first-quarter sales fell by as much as 45% and that it expects to report a roughly $1 billion operating loss when it reports earnings in July. Nordstrom, another department store chain, has said it will close 19 locations, including 16 full-line department stores.
Other mall-based stores are struggling, as well. J. Crew Group and the shoe chain Aldo filed for bankruptcy this month. L Brands said sales fell 37% in the most recent quarter and it plans to close 251 Victoria’s Secret stores and 50 Bath & Body Works stores.
Experts and analysts say this is just the beginning of a giant wave of closings and bankruptcies expected to sweep the retail industry. UBS recently estimated that about one in five clothing and accessories stores — or roughly 24,000 locations — will close in the next five years and pandemic hammers retailers.
Department store losses can push malls into a downward spiral
When anchors close, malls are put in the challenging position of finding new tenants for their biggest stores or facing sharp declines in business.
Finding new tenants for stores that have multiple floors and take up more than 100,000 square feet will be particularly difficult at a time when most mall-based retailers are halting store growth following weeks of forced store closures.
Even the highest-quality malls — referred to as “A” malls — will have a hard time finding replacement tenants for empty anchors, according to some experts.
The threat of a second wave of infections in the fall will prevent even many stronger retailers from making investments in expansion, he said.
“I don’t see a whole lot of retail sellers of goods reloading and making major capital investitures to open new stores now, not knowing when the social distancing and regulations limiting numbers of people in stores are going to be relaxed and whether we are going to make it through the autumn without a recurrence,” he said. “I think it would be a pretty aggressive play [to open new stores]. Every retailer that we’ve talked to is trying to conserve cash.”
Hundreds of department stores are expected to close in the next 18 months, leaving a glut of empty real estate at shopping malls across the US that could be nearly impossible to re-occupy.
Malls will struggle to find new tenants for space occupied by department stores, as businesses pull back sharply on spending and expansion amid the pandemic.
“We expect to see a lot of the space that goes vacant remain vacant for extended periods of time,” said Kevin Cody, senior consultant for the commercial real estate firm CoStar Group.
This means many malls will be stuck with empty anchors. Anchors are the giant, multi-story buildings at mall entrances that have historically been responsible for a large portion of mall sales and foot traffic.
The real estate research firm Green Street Advisors expects more than half of mall-based department stores to close by the end of 2021, leading to “excessive dark mall anchor space.”
“Widespread department store closures will accelerate the demise of many malls,” the firm said in a recent report. “Many malls will be faced with multiple anchor vacancies, a tough place to come back from.”
Neiman Marcus, JCPenney, and department-store operator Stage Stores have all filed for bankruptcy in the last few weeks. Macy’s said this week that its first-quarter sales fell by as much as 45% and that it expects to report a roughly $1 billion operating loss when it reports earnings in July. Nordstrom, another department store chain, has said it will close 19 locations, including 16 full-line department stores.
Other mall-based stores are struggling, as well. J. Crew Group and the shoe chain Aldo filed for bankruptcy this month. L Brands said sales fell 37% in the most recent quarter and it plans to close 251 Victoria’s Secret stores and 50 Bath & Body Works stores.
Experts and analysts say this is just the beginning of a giant wave of closings and bankruptcies expected to sweep the retail industry. UBS recently estimated that about one in five clothing and accessories stores — or roughly 24,000 locations — will close in the next five years and pandemic hammers retailers.
The pandemic is accelerating the demise of weaker retailers
In many ways, the pandemic is accelerating the trends that have been upending the retail industry for years.
Department stores and apparel companies have for more than a decade battled weak demand stemming largely from the 2008 recession, evolving shopper habits, and the rise of e-commerce. This triggered a period known as the retail apocalypse for its high level of retail bankruptcies and mass store closures.
The pandemic is now speeding up the shift to e-commerce and further weakening retailers that were already struggling pre-coronavirus.
Manny Chirico, the CEO of PVH Corp., the owner of brands including Calvin Klein and Tommy Hilfiger, told CNBC last month that he expects 20% to 25% of all US stores to close in the next two to three years. Before the pandemic, he said he was expecting that level of closures to take place over six years.
For many retail stores and shopping malls, this period will only hasten the inevitable — a large-scale decline in physical locations and in some cases, total extinction.
