Even before COVID-19 hit the USA, US shopping malls were experiencing difficulties and the recent crisis may be the death knell for many. Whilst the high-end malls filled with activities and restaurants can still draw in the crowds, many more are struggling to entice shoppers as their stores lose relevance and online shopping becomes more and more popular.
Macy’s is the biggest mall tenant, occupying 6.2% of the square footage in US malls. The company reported that it expects about $1 billion in losses this quarter, roughly equivalent to its entire profit in 2019. The next largest mall tenant is JC Penney, which recently declared bankruptcy and announced it would close 242 stores. Other big renters of mall space include Nordstrom, which plans to close 19 stores, and Victoria’s Secret, which said it will close about 250 stores in the US and Canada.
These department stores and some other large retailers have historically been critical anchors at malls, generating foot traffic and luring other businesses to open shop, sometimes with co-tenancy clauses that allow them to break their leases if the anchor leaves. Simultaneously, other retailers concentrated in malls such as Neiman Marcus and J.Crew have both recently filed for bankruptcy and are likely to close stores.
There may be an upside for the smaller independent stores however as consumer research is indicating that the consumer ranked shopping malls and large department stores as the space they feel less safe shopping in as shops re-open. They seem to be more confident about visiting and shopping in grocery stores, ‘big box’ stores, pharmacy chains and smaller local businesses.
Victoria’s Secret and sister retail brand, Bath & Body Works, have already announced a series of closures. Victoria’s Secret intends to close 250 stores in shopping centres, malls and other locations in the USA & Canada, driven by plummeting sales during the pandemic, and 50 Body & Beach stores. With these closures, the brand’s parent company, L Brands, will eliminate 22% of the company’s 1,091 stores in addition to 1.26 million square feet of real estate. It has been a tortuous few months for L Brands as in February 2020, it was poised to sell a 55% stake in their company to New York private-based private equity firm Sycamore Partners, but the onslaught of the virus led to the deal being called off in early May.
The nature of federal government system in the USA means that many big players such as Sephora, Nike and Gap are taking a phased approach of re-opening their stores – opening earlier in some states than others. Others, like Nordstrom, will close some 16 stores whilst planning to reopen approximately 380 stores across the USA. The upscale department store retailer reported at the end of May that its sales had plunged nearly 40% in its fiscal first quarter. The group says that its future is not in traditional shopping centres: it plans to accelerate the expansion of its online and off-price business, which last year accounted for nearly 60% of its total business.
The recent upheavals across much of America, initiated by the homicide of George Floyd by a Minneapolis police officer, has exacerbated the slow re-opening of retail and looting of large stores in New York as well as other cities across America, overshadowing the peaceful demonstrations over the African American’s death. Both the looting and justifiable public demonstrations will likely lead to even further deaths from COVID-19 and a longer recovery period for the USA.
