For generations, malls were a type of town square, a one-stop shop for restless teenagers and busy parents wanting to pick up gifts, fill out wardrobes or just get out of the house.
But in recent years their future has been in doubt as online shopping gained steam and one-time anchor retailers like Sears and Macy’s struggled financially and shuttered stores. Then came COVID-19.
Now, as coronavirus vaccines roll out across the U.S., top-tier shopping centers are likely to bounce back in the new year, retail experts predict. But those that were in trouble before the COVID-19 crisis may disappear more quickly, as shoppers bypass them for malls offering a more upscale experience, or simply choose to click and shop online.
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“In 2021, the good malls will continue to do well,” said Neil Saunders, managing director of the retail consultancy GlobalData. “It’s the weaker ones that will suffer…The future of the mall isn’t doomed or completely redundant. It’s just that 2021 will be a year of reckoning for underperforming properties.”
2020 may be a watershed year
Stores struggled across the board in 2020, as local officials ordered all but those deemed essential to shut their doors or limit the number of customers to slow the spread of COVID-19.
But malls were particularly hard hit during the pandemic. The temporary shutdown of movie theaters, gyms and restaurants that were helping shopping centers stand out from Amazon and other online sellers dealt them a significant blow.
Then in May, the bankruptcies of department stores and apparel retailers with a heavy commitment to malls started pouring in.
J.C. Penney and Tuesday Morning, an off-price home goods retailer, also filed that month. A slew of fashion retailers filed in subsequent months from Ascena Retail Group in July to Francesca’s in December.
As those mall staples shuttered stores, other retail tenants missed rental payments because of dwindling foot traffic, putting a dent in mall owners’ income.
“Retail rental payments are ultimately funded by sales,” said Tom McGee, president and CEO of the International Council of Shopping Centers. “In a year where stores were forced to close and federal aid was insufficient, missed payments happened.”
Simon Property Group received roughly 51% of the rent it was owed by its U.S. properties for April and May, according to Coresight Research. Mall owner Macerich said that roughly 40% of its tenants paid the rent that was due for that same two-month period.
And J.C. Penney, Nordstrom and The Cheesecake Factory were among the retailers that had not fully paid their rent or were negotiating temporary rent reductions as of mid summer.
A quieter Black Friday
In past years, the holiday shopping season kickoff was heralded by family and friends gathering to grab doorbusters. But this holiday season, Americans have generally shied away from shopping in groups and hunkered down online.
Black Friday was “the quietest in 20 years” as foot traffic plummeted, according to a report by Coresight Research, which tracks retail data. Preliminary data from Sensormatic Solutions showed in-store Black Friday traffic dropped by 52.1%.
Foot traffic analytics firm Placer.ai found similar results and said the average foot traffic at 16 leading malls was down nearly 50% this year.
U.S. retail sales are still expected to rise 7.6% during the 2020 holiday shopping season, compared with a year ago, research firm IHS Markit projected, but largely because of the rapidly growing number of shoppers making their purchases online.
“For the first time ever, stores will not be the focal point,” Hilding Anderson, head of retail strategy, North America at digital consultancy Publicis Sapient, told USA TODAY. “COVID restrictions coupled with the tremendous shift towards e-commerce we’ve seen this year makes it likely that stores will largely be an afterthought for consumers.”
Store closings, mall closures coming?
That shift is contributing to a shrinking number of retailers and a growing number of vacant spaces inside malls.
According to a recent CoStar report, more than 40 major retailers have declared bankruptcy and more than 11,000 stores have been announced for closure in 2020, which beats past store closings records.
More store closures are on the horizon, with 1,444 already expected in 2021 as compared to 1,625 openings, according to Coresight Research.
And mall occupancy rates hit 94.4% during the second quarter of 2020, their lowest level in at least ten years, according to CoStar Group, which tracks real estate.
Just as the pandemic sped up the shift to ordering virtually any item online, the crisis may hasten the closure of underperforming malls and the repurposing of many centers that remain open. Ultimately, 1 in 4 malls and as many as 1 in 2 could eventually go out of business, according to projections by Coresight analysts and executives.
“The U.S. has too much retail space which means a correction is needed,” Saunders said. “The pandemic has accelerated the speed at which this correction will happen as we move into 2021. This ultimately means that weaker malls will see more vacancies as stores shut, and they will increasingly become unviable.”
Those weaker, or so-called “B” and “C” malls, already have empty storefronts as well as lower-priced retailers as tenants.
Malls poised to survive and even thrive in 2021 are top tier “A” malls that house luxury retailers whose higher profits bolstered their ability to weather this year’s downturn. Shopping centers that have fewer vacancies, feature popular brands like Apple and Lululemon and offer entertainment and other experiences beyond retail are also likely to be in good shape, Saunders says.
“As vaccines are rolled out, we’re hopeful malls will be able to reopen at full capacity and that shoppers will gladly return,” McGee says. “Brick-and-mortar retail is a staple of our economy, and as soon as it’s safe, people are excited to return to normalcy as much as possible, and retail is part of that.”
Changes likely here to stay
Even if shoppers want to resume old routines, some changes put in place or ramped up because of the pandemic are likely to continue, McGee says, from safety precautions to parking spaces set aside for shoppers who make purchases online, then pick them up in person.
“The pandemic will certainly impact the way retail real estate invests in its spaces over the next few years,” says McGee. “We’ve seen trends take place in the last nine months that may have otherwise occurred over the span of a decade.”
Bill Taubman, chief operating officer for Taubman Centers, previously told USA TODAY, that he expects to see some lasting effects from COVID.
“I think it’s possible that curbside pickup could be with us forever,” he said. “And that will mean that we’re going to need to make physical changes to the space in order to accommodate it.”
RetailMeNot shopping and trends expert Sara Skirboll said retailers have tailored the shopping experience to consumers’ needs and she wouldn’t be surprised if early senior hours and social-distancing floor decals also remain.
But with shoppers becoming more comfortable with online shopping and delivery, she said some might not feel the need to return to the mall after the pandemic.
“For mall retailers, that means they will need to leverage in-store promotions or offer unique experiences to draw consumers in, whether that be a cocktail bar in the shoe department, free yoga classes, beauty treatments or customization counters,” Skirboll said.
Revamping vacant space
Weaker malls, meanwhile, will likely need to be transformed. Many owners are considering turning some empty retail spaces into residences and offices, Saunders says.
Placer.ai also noted the trend in a recent report. “From co-working spaces and fitness chains in malls to department stores and classic indoor retailers in strip centers, the crossovers that were already being seen in 2019 will likely pick up pace even more in 2021,” the firm wrote.
There have also been reports that Simon was looking to convert empty department stores including Sears and J.C. Penney anchor spaces into Amazon distribution centers.
“Others are looking at giving more mall space over to fulfillment operations and warehousing, both of which are booming because of the rise in online sales,” Saunders said. But, he added, “how successful either of these strategies is remains to be seen.”
Contributing: Nathan Bomey, USA TODAY