After Christmas your mall might vanish — but it may also be reborn

After a brutal year for most shopping malls, crowned by a weak Christmas shopping season thanks to the deadly COVID-19 pandemic, many who have had financial troubles for years could disappear for good in 2021 as their tenants close their stores.
"Bankruptcies and store closures will accelerate again," said Jan Rogers Kniffen, a seasoned retail manager, in a new letter to customers this week.
Of the 1,100 or so malls in America, Kniffen believes only 278 are viable in the post-pandemic world, where online shopping will be even more important. These would be the best of the best malls - or A-malls as experts call them - that are located in highly populated areas and aimed at higher income buyers.
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The thinning of the herd in the next year could be ugly.
The pandemic has just accelerated billing day for long stretches of zombie retail property. America, prior to COVID-19, had a deluge of retail space with twice as many square feet devoted to shopping as any other country in the world. According to the International Council of Shopping Centers for US Merchants, a New York-based retail group, retail is oversupplied by six square feet per capita compared to Europe.
An almost empty Pentagon City Mall can be seen in Arlington, Virginia on March 17, 2020. - The coronavirus outbreak has transformed the US from a place of limitless consumption to one suddenly restricted by nesting and social distancing, practically overnight. (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN / AFP via Getty Images)
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According to John Schupp, principal at Avison Young, a Toronto-based commercial real estate services company, around 300 of America's 1,100 malls are currently in distress. In fact, a key player in the mall succumbed to the inevitable before Black Friday.
CBL & Associates Properties - which operates 100 properties in 26 states - filed for bankruptcy on November 2nd. The company's largest tenants such as J.C. Penney and Ascena filed for bankruptcy that summer, putting more pressure on CBL's financial data.
"It's going to be bad. The mall industry and tenants who are in malls are already precariously positioned on a knife edge, and the [COVID-19] shutdown has pushed them over the edge. Department stores are going to fold. They are vulnerable - They can't go a month or two without sales, ”said Scott Crowe, CIO and portfolio manager of CenterSquare Investment Management, a Pennsylvania-based investment management firm.
The numbers for shopping malls are staggering.
In the US, Crowe estimates that 20 to 25% of retail space will be vacant in the next few years due to the pandemic. Half of the malls in America will disappear over time, said Najla Kayyem, senior vice president of marketing at Pacific Retail Capital Partners, a California-based retail investment and management company.
“A significant percentage of the area will be free. In certain cases, the malls that previously had problems may never reopen. The pandemic is a tipping point that is bringing together and accelerating the trends we have previously seen in the industry, ”said Pam Boneham, general manager and head of capital strategies at Barings Real Estate.
However, some shopping malls are being reborn
For those malls that manage to get past the other side of the pandemic, consumers should expect a vastly improved shopping experience. Mall owners are realizing they need to do a lot more to stop people from shopping on Amazon.
Jackie Soffer, chairman and CEO of real estate developer Turnberry, tells Yahoo Finance that sports arcade player TopGolf could become an anchor tenant. Bowling alleys in shopping malls are also possible - but not the traditional type seen in internet imagery from 1985. Think one with only 25 lanes and plenty of space for a bar and club. In other words, Dave & Busters (another potential mall tenant, people tell Yahoo Finance) about steroids.
Up-and-coming fitness equipment player Mirror (now owned by sporting goods retailer Lululemon) and Gwyneth Paltrow's lifestyle brand Goop could also venture into the mall, Soffer said. In that case, the mall would help bring cool new brands to shoppers - ones that are more interactive than a traditional clothing store.
On the other hand, parts of some malls could be completely leveled to reset the experience. Experts say Yahoo Finance hotels and mixed-use shared apartments could appear in former anchor stores. This would be welcome news for malls tenants as it incorporates a range of buyers.
Large retail centers will add parks and plazas to improve the mood. Shared meeting rooms attract shoppers to the Avalon Mall in Alpharetta, Georgia and the Market Street Mall in Woodlands, Texas. Pop-up stores, art installations, and programs like yoga and barre classes will be part of malls that will thrive for the next few years, experts say.
However, experimental retailers can conflict with clinical, contactless coronavirus management tools. So expect the shopping experience to be a little clunky if not annoying at first. Shopping centers try to find ways to balance customer service and safety.
“Retailers who succeed are prioritizing security measures that don't feel scary and clinical. They are surprised and delighted - clinical action should be secondary, ”said Melissa Gonzalez, Lionesque Group and shareholder of global architecture firm MG2.
Roadside collection at the mall is currently a new normal for Macy's, Coach and Dick's Sporting Goods. One might expect the mall to serve the 24/7 shopper better in the years to come.
Macy's at Valencia Town Center Mall opens for roadside pickup during the COVID-19 outbreak in Santa Clarita, California. (Photo by Robin L Marshall / Getty Images)
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Empty stores are used by retail brands as warehouses for online orders. A multi-level Macy's could be a "perfect distribution hub" for last mile retailers, said Boneham.
Retailers even envision a hybrid scenario where customers in a store that has been converted into a distribution center can try things on so they can touch and feel a product before buying, according to Terrell Gates, Founder and CEO of Virtus Real Estate Capital, an investment management firm based in Austin, Texas.
Ultimately, the concept of a hangout known as a shopping mall still makes sense, according to experts. But the days when shopping malls were only filled with pizzerias, clothing stores and various kiosks are over. COVID-19 didn't kill the mall, it just sped its rebirth into something far more useful in modern times.
"Those Macy's, Sears, or J.C. Penney malls are going away ... A lot of these malls just don't have anchors," Kniffen says.
Sad but the new reality.
A version of this story was originally published on August 25, 2020.
Sarah Paynter, a real estate reporter for Yahoo Finance, contributed to this story.
Brian Sozzi is an editor and presenter at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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