For retailers and shopping center owners 2020 has been a year of massive and tumultuous reshaping. So far CoStar group has accounted for 11,157 store closings through December 1^st.  

November brought another miserable first, with bankruptcy filings of two major REIT’s, CBL Properties and Pennsylvania Real Estate Investment Trust (PREIT). They both occupied the once healthy middle market, back when the country had a healthy and thriving middle class. The two players were homes to anchors J.C. Penney, Sears, and Lord & Taylor along with dozens of now troubled or defunct specialty retailers.

The muddlers in the middle are not alone. S&P Market Intelligence just released their December 2020 “Quantamental Research Brief” that paints an equally grim picture for five of the largest REITs, Macerich Co MAC -3.2%, Brookfield Property REIT, Washington Prime Group WPG -5.4%, Simon Property Grou SPG -2.6%p, and Taubman Centers Inc TCO 0.0%. They claim that all five are exposed to a toxic combination of 1) high concentration of bankrupt anchors and specialty tenants, 2) declining building permitting activity, 3) declining foot traffic, and 4) a high degree of leveraging. A recent Bloomberg article suggests that distressed commercial property sales are likely to flow into the marketplace reaching upward of $321 billion by 2025.

Inflexion Point, or Point of No Return?

COVID-19 will likely be viewed as an historic inflexion point in consumer behavior. Shoppers feel more connected because of the pandemic’s shared experience. According to Accenture ACN -0.7%, the pandemic has given rise to a more conscious consumerism, as well as a desire to buy locally.

As a culture and a society there are many new and pressing demands that are vying for our time and money. Many of the needs that malls long fulfilled are now being met in more efficient and effective ways. It’s inevitable that many will have to shutter, and estimates vary as to how many and how soon, but the B-, C, and D malls are most vulnerable. The good news is that, with great imagination, the best temples of the “shop ‘til we dropped era” can be reengineered to meet tomorrow’s needs. But, it will take a major mindset shift.

Facilitating Unified Commerce- Less Doors and Floors.

The economic model that fostered the 20^th century mall development is losing its viability. Both the “free riding” department store anchors and specialty retail chains that once paid the freight have become endangered species. So, it is time to rethink what these great swatches of building blocks and parking lots want to become.

In a world of unified commerce or blended retail, the role of the store is changing but is no less necessary. The “new retail” deemphasizes storing or transactional retail and emphasizes exploring or experiential retail. This foreshadows a new relationship between a brands physical and virtual embodiment.

With the internet doing much of the heavy lifting, the real estate requirements have changed, in terms of geography and store counts. As reported in BOF’s “State of Retailing 2021” retailers must now think of their brick & mortar real estate as a customer acquisition expense not solely a point of distribution, now and in the future. Here are my top-ten considerations for reimagining today’s malls.

1. Static to Kinetic, Passive to Active- The internet has become the access points for all brands, and social media has become the arbiters of taste and trust. As a result, motivating people to visit a mall has become a new game. The landlords must now become co-producers of “new retail theater.” Static, product-based retail will be replaced by kinetic, solution-based demonstrations and customer consultation. These will be focused on specific lifestyles, demographics, and passions, and must be in-sync with social media and influencer marketing.

A great example of this has been Showfields, considered “the new department store.” The concept bridges physical and digital retail, with an emphasis on discovery. Their mission driven digital first brands are curated in an artful manner, enabling customers to shop with smartphone in hand. Showfields also embraces social commerce by staging weekly shoppable livestream events connecting brands with expert advisers.

And it is not just the digital native brands that are focused on experience. The author of 20^th Century experiential retail, Nike NKE -0.6%, is planning between 150 and 200 small new format shops emphasizing “weekly sport-minded activations” including instore workshops and events. Both concepts deploy a fusion of analog and digital discovery.

2. Retail Incubators- In the good old days, mall leasing agents just calls from retailers begging for space. In the new retail the roles are reversed. It will become incumbent on the landlords to become co-creators of next-gen retail start-ups.

The economic downturn is likely to foster a new wave of retail entrepreneurs, replacing redundant lost brands with unique niche offerings. These digital native start-ups will become the DNA material needed to drive center traffic. However, to make this work, the threshold to entry must be nearly as simple as launching online. This will necessitate some “new math” where the risk-reward is shouldered by both lessor and lessee. Base rents are likely becoming a thing of the past, perhaps replaced by higher percentage rents, combined with some digital sales attribution formula.

3. Retail Resale Meets New Re-Tailors- As secondhand will supplant fast fashion within the current decade, brand’s like Poshmark, Thredup, RealReal REAL -4% and Tradesy have become top of mind to sustainability focused millennials and Gen Z’s.  Collectively, the market is poised to reach $80 billion by 2029, according to online reseller ThredUp. This should motivate malls and centers to create “Retail Resale Markets” that offer constantly changing inventory, even rotating venders.

Retail resale also offers opportunities for added monetization. Enlisting local stylists, fashionistas, and influencers to setup studios to restyle and personalize customer’s “finds” could elevate the product’s value propositions. As craft, heritage, and authenticity are trending, this new breed of “Re-tailors” are primed for take-off.

With the cost of a secondhand items being nominal, personalizing these items would increase their value while becoming high-margin profit centers and job creators. Additionally, the re-tailors can rejuvenate someone's once loved fashions, with a “one-off” remake. The new cottage industry will blur the lines between store and creative studio. Importantly, it pairs well with social media and emphasizes sustainability.

4. Makers Markets and Make-tailing- The popularity of crafted, handmade, and limited production items has resulted in astronomic growth in makers market Etsy ETSY -0.6%. Their sale of 54 million masks since April helped 2020 sales increase by 70% while pushing its stock price up 300%. Etsy has stuck a cord with its legions of sellers and buyers by satisfying a hungers for authenticity. Etsy’s chief executive Josh Silverman suggest they focus on a few key issues, including economic empowerment, gender and racial diversity, and carbon neutrality.

Make-tailing has been at the core of several growing brands including Shinola, that promote product customization and personalization. Ultimately, the reimagined mall must bridge the gap between established legacy brands and a new breed of retailers.

5. Land Use, Underutilized Assets & Placemaking- There are a myriad of ways that consumer behavior, changing consumption patterns, and our longing for safe socialization all dovetail nicely with the mall’s rebirth and its path to sustainability.

Architect Victor Gruen’s vision for Southdale Shopping Center, the preeminent mid-century indoor mall wasn’t fully realized. Initial plans included the development of gardens, walkways, housing, and community buildings, in a walkable parklike setting. The reimagined mall will more closely emulate that vision.

Beyond rethinking the customer experience in the reimagined mall, one must reconsider the architecture, site and land-use. Their are few success scenarios that support the simple refilling of empty or underutilized buildings with “more of the same.” As a result we’ve entered the hyperbolic realm of “underutilized asset redeployment.” Simply put it’s necessary in my opinion, to begin selling off parts to save the whole, but within the context of a holistic vision.

As density in the adjacent suburban communities that many malls occupy has increased since their inceptions, walkability has become a factor in their rebirth. The malls inward-facing hard shells must be pealed open and become more pedestrian friendly. Year-round gathering places that bridge interior and exterior, will add vitality while being extensions of the communities they surround.

6. Mixed-use Redevelopment- One need not look too far to see the next iterations of these malls already starting to take shape. Many are already becoming mixed-use properties. Vacant anchor stores are being converted to fitness centers, co-working spaces, grocery stores and clinics.

With 10,000 citizens a day turning 65, there is a huge need for multifamily housing, as downsizing goes together with retirement. This has led to both an urban and suburban multifamily building boom. Overflow parking areas in some malls are already being sold off to build apartment buildings and condominiums. And, now as more of the population will be working from home at least part time, there is a growing demand by singles and working couples as well.

7. Community Gardens- The move from homeownership to downsized rental means carefree living with less maintenance. But for many empty nesters, it also means losing their once beloved gardens as well as a connection to the land.

As portions of these mall sites revert from parking, back to parklands and walkways, introducing community gardens seems natural. Offering small plots to neighboring dwellings adds context and community engagement, while letting folks get their hands dirty growing flowers, herbs, and vegetables.

8. Ghost Kitchens and Food Halls- The pandemic has taken its toll on untold numbers of restaurants across this country. Once we can safely gather there needs to be a way to jump start the food and beverage industry.

How better than to repurpose space into grand indoor and outdoor dining areas with the creation of ghost kitchens and food halls. These could become venues for local rotating star chefs to offer subscription dining opportunities on a constantly revolving basis. Additionally, they enable special-order custom meal prep to the surrounding community. These culinary creations pair well with the new experiential retail venues scattered throughout the site.

9. Farm to Store to Table- The centralized location of many of our malls bring them within spitting distance of numerous grocery stores. These grocers are constantly dealing with produce spoilage, often related to shipping and handling. But this does not begin to calculate the financial or carbon costs of moving goods hundreds of miles.

The mall site could make a huge contribution to a nation grappling with food insecurity, shortages, and increasing costs of farm to market. The pandemic has drawn attention to supply chain vulnerability, in fact, corporations of all stripes are investing in “supply chain redundancy.” Redundancy is good, but control is even better.

As I have reported in the past, hydroponic gardens, some even manufactured in recycled shipping containers, have become the most efficient, and environmentally sustainable means of propagating a broad range of vegetables. In a footprint no bigger than a defunct Sears auto center, neighboring grocery stores and the local onsite kitchens could be supplied with fresh veggies year-round. This would cut costs, spoilage, and time to market, all the while providing some handsome carbon offsets.

10. Last Mile efficiencies- As the pandemic has taught many retailers, the phenomenal growth of e-commerce has created fulfillment challenges and a quick course in all things BO. BOPIS (buy online, pick up instore) and BOPAC (buy online, pick up at curb) have all become offshoots of expedited and contactless fulfillment. This is not expected to subside even after the pandemic wanes.

These trends create new demands for both localized micro-distribution and customer return centers. Efficient pick up and drop off will spawn new canopy-covered drive ups to service the entire mall. Additionally, they can be tied to geolocating apps which recognize customer arrival for safe and efficient servicing.

And no one needs last mile help more than Amazon AMZN +1.2%, to cut its fulfillment costs and be in parity with Target TGT -0.8% and Walmart WMT -0.6% which have found great efficiency in utilizing their stores as micro fulfillment centers for same-day or next-day delivery.

The continued demand for localized micro-distribution sites can be a win-win for reimagined malls. The best properties could tie divestment of dark anchors to investment in physical infrastructure consistent with the mall’s new master plans.

Source:https://www.forbes.com/sites/sanfordstein/2021/12/27/grand-mall-overhaul-top-ten-considerations-for-reimagining-todays-malls-for-tomorrows-needs/?sh=62d7588646bc