Stores that defined American malls bet on freestanding future

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Quintessential shopping mall stores from Macy’s Inc. to Kay Jewelers to Gap Inc. are plotting out a post-COVID-19 future—and traditional shopping centers won’t play as much of a role in it.

Signet Jewelers Ltd., which owns chains such as Kay and Zales, said this past week it will expand in off-mall locations while continuing to pull back from the old-school gallerias where it has long had a major presence. The company also plans to add more kiosks in underserved markets.

The move brings “an opportunity for a better economic model,” Joan Hilson, Signet’s chief financial officer, said in an interview. “The foot traffic for off-mall locations is better than what we’re seeing in the mall, certainly in this time. It’s really important, and we see that shift continuing.”

Retailers are abandoning enclosed malls in growing numbers as the rise of online shopping transforms the industry—a trend that has accelerated during the coronavirus pandemic. Almost a third of retail CFOs are planning to scale back their mall presence, according to a recent survey from consulting firm BDO USA.

That’s throwing into question the future of hundreds of traditional malls, already financially struggling before the pandemic, as they grapple with expensive real estate and fewer tenants who want to be there.

“Even the ones that haven’t been distressed are being hurt by the lack of foot traffic in the mall,” said David Berliner, head of the restructuring and turnaround practice at BDO. Some are talking about relocating stores from malls to nearby centers anchored by merchants like Walmart Inc. “because they’re going to get more foot traffic than they’re getting at the mall now.”

Signet exemplifies that kind of shift. The company closed 395 stores last year, mostly in malls, and plans to shut down another 100 this year. At the same time, it has shifted 33 mall stores to off-mall locations.

Some of its outlet stores, primarily Zales locations, are now in so-called lifestyle centers—open-air markets with dining and other activities—and in locations next to popular stores like Ross Dress for Less. Signet’s Kay bridal business, in particular, is doing better in off-mall locations than the enclosed shopping centers.

Similarly, Gap said in October that it’s pulling back from malls, where its brands have long been staples, due to high rent and weaker performance. The company, which owns Banana Republic and Old Navy in addition to its namesake chain, wants 80% of its stores to be outside of enclosed centers by 2023.

Department-store chain Macy’s said it’s testing off-mall locations in Dallas, Atlanta and the Washington metro area; Bath & Body Works is also looking to add more off-mall locations. Beauty retailer Sephora plans to open dozens of freestanding stores in addition to 200 shops this year inside Kohl’s Corp., which operates almost entirely off-mall.

For retailers, there are many advantages to leaving the old-school shopping centers. Rent can be “substantially” lower elsewhere, the hours of operation are more flexible, customer parking is easier and building costs are lower, said Ivan Friedman, chief executive officer of RCS Real Estate Advisors.

Bath & Body Works also cited “significantly higher conversion rates”—a reference to the proportion of shoppers who make a purchase—in a recent earnings call. Same-store sales, a key metric, were about twice as high in its off-mall locations last year, it said.

The pandemic has accelerated what some see as a long overdue culling of locations.

“Everybody felt before COVID that they had 20% too many brick and mortar stores,” Friedman said.

That’s hurting malls disproportionately. Occupancy rates in the third quarter were about 87% at malls—meaning roughly one in every eight storefronts was empty—compared with about 92% at off-mall locations, according to a report from real estate data firm Green Street. Landlords in 2020 also collected a higher proportion of rents from tenants at off-mall centers, suggesting their better financial health.

Enclosed malls have already seen a pullback in specialty shops like record and card stores, making them overly concentrated in apparel, a category that has struggled during the pandemic. As Friedman put it, “How many different shoe stores can you go to?”

That feeling of sameness is driving shoppers instead to a newer generation of open-air centers that include housing or office space, BDO’s Berliner said.

“A lot of these mixed-use centers now are trying to recapture that town hall feel,” he said. “That’s where people want to go again, instead of just these rectangular indoor boxes, where everything is the same.”

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13 thoughts on “Stores that defined American malls bet on freestanding future

    1. It’s no accident that Chick-Fil-A is opening freestanding stores in downtown and Greenwood, very nearby their mall locations, and appears to have already made the move near Castleton and Glendale. The writing is on the wall.

    2. Joe, I actually have some insight into Chick-Fil-A’s local situation. I would definitely expect the mall locations at Castleton and Greenwood to remain open for a while.

      I suspect that Circle Center is in trouble – the new proposed store downtown has a second kitchen just for catering orders. Circle Center’s CFA out-performed Castleton Square financially largely due to catering. Without catering, I am not sure if Circle Center is viable anymore.

    3. Thank you, Robert. In that way, that’s no different than Starbucks which has location both inside and outside the mall. That Greenwood location has been there for literal decades.

  1. “Occupancy rates in the third quarter were about 87% at malls—meaning roughly one in every eight storefronts was empty—compared with about 92% at off-mall locations”. I guess math is not part of the journalism curriculum. 87% occupancy (rounded) means one in every TEN (not eight) storefronts is empty. 92% occupancy (rounded) means that one in every TEN storefronts is also empty. Surely an issue that the malls will want to address, but a 5% occupancy difference doesn’t seem to indicate the end of malls. (Disclosure: I have no connection to the real estate business at all – just a consumer).

    1. 1/8 =.125 = 12.5%

      100%-12.5% = 87.5%

      So actually a little more than one out of every eight mall storefronts is vacant.

  2. So what does this do to Simon Property Group or have they seen this coming and have diversified so as not to be hurt by this shift?
    I haven’t been in a mall in years, but I am that typical male shopper as mentioned above. Of course my wife doesn’t go either or I’d have been drug in there by now! We used to go regularly and had fun doing it, but we are more price conscience these days then when we were younger.

  3. I have not been in the Castleton Mall for at least 10 years. I have been in the Fashion mall, but only because of the Apple Store. If Apple does a free stand, then my mall trips will be a historic memory. FYI, typical male non shopper.

  4. Most Indy malls are dreadful relics. In general, they are unattractive, uninspiring, disorganized and mediocre in design. But, that reflects the minimalist and cheapest-is-best mentality that has long served the mantra of Indiana legislators — long-term vision and respect for local control is lacking at the statehouse.

    Shamefully and shockingly, the Circle Centre which should be a flagship location of Simon properties, is unremarkable at best, tired at the worst. Of course, downtown conventions will prop up lackluster performance. However, a solid base of central city population with income characteristics to support Circle Centre as well as other business, restaurants and entertainment locales is key.

    Indy has tried but has not yet been stellar in attracting and maintaining a significant enough base of mid to higher-income central city residents as has been achieved in Denver, Portland, Seattle, Columbus and Kansas City. Perhaps the regressive interference by the statehouse with ridiculous transportation, transit and housing legislation is part of the conundrum. Also, the City Council needs to focus on key aspects such as quality schools; quality infrastructure for roadway, sidewalks, street lights, parks and waterways; quality transit; and trees! A better tree canopy would improve visual quality of neighborhoods and roadways and cost effectively improve air quality.

    1. What on earth would mall design have to do with Indiana legislators? Circle Centre may look dated now, but it was stylish when it was built. And the city/state partnership with the private sector had more to do with property interests and the protection of historic buildings, which is what made Circle Centre a clever concept in 1992 or whenever it was built. I can’t imagine Simon and the other private companies would have been very interested in taking Indiana legislators’ advice on interior design. And the legislature had zero influence on the design other malls in the Indy area. What a strange analysis.

      While I’d imagine the neighborhoods ringing Columbus are better than Indy’s, the downtown sure isn’t. Never has been. Kansas City still seems dead as a doornail from my last visit–its thriving downtown is that County Club Plaza area. Denver, Portland, Seattle are indeed vibrant in good times; these are not good times. Have you visited any of these places? They’re basically being held hostage by homeless drug addicts and political radicals, two categories which largely overlap. Not an enviable position. But one that some of the ideologues on this site seem to hope that Indy might someday achieve. SMDH