
Malls are on life support—but Amazon might have what it takes to bring them back from the brink.
Simon Property Group is said to be in discussions with Amazon to convert some of its mall anchor properties once occupied by Sears and J. C. Penney—both of which have filed for bankruptcy in recent history—into fulfillment centers that could strengthen the tech titan’s vise grip on the so-called last mile;
“Amazon has a policy of not commenting on rumors or speculation,” a spokesperson for the e-commerce company said
Reports indicate that Amazon was in dialogue with the nation’s largest mall owner before the Covid-19 pandemic dealt an indelible blow to the retail landscape, and underscores the Seattle firm’s purported interest in purchasing some of Penney’s distribution centers for its own national network of logistics centers. However, a successful restructuring, or even a bankruptcy-forced sale, would mean Penney’s would still need its warehouse real estate to shuttle online orders to customers and resupply stores.
That Simon is entertaining Amazon’s interest reflects how rapidly retail—and the mall’s business model, in particular—has changed. Moving into 100,000-square-foot-minimum anchor locations in suburban areas flanked by a connective tissue of highways would fuel Amazon’s last-mile domination, even as fierce rivals like Walmart race to catch up with new loyalty programs and a massive two-hour store-to-door delivery push.
Last-mile-delivery has become a focus for many companies in the business-to-consumer space. Last month, Dalfen Industrial, one of the nation’s largest buyers of industrial real estate and player in the last-mile property sector, completed a deal with Goldman Sachs Merchant Banking Division on a 46-property last-mile industrial portfolio. Dalfen, whose investment focus is on strategically located urban infill warehouse and distribution buildings, said the portfolio represents more than 6.3 million square feet proximate to major population centers and key logistics corridors.
According to Dalfen, properties in the portfolio are located in cities including Atlanta, Dallas, Chicago, Orlando, Fla., Phoenix, Raleigh, N.C., Houston, Tampa, Fla., Baltimore, Minneapolis, Cincinnati, Columbus, Ohio, Reno, Nev., and Jacksonville, Fla., with tenants ranging from Amazon and Frito Lay to Sherwin Williams.
“While the trend toward e-commerce has been on an upward trajectory for years, COVID-19 accelerated that rate tremendously,” Dalfen said. “In May alone, e-commerce sales jumped 92.7 percent. The expenditures for just April and May exceed $53 billion in the U.S.
“In order to handle rapid replenishment needs, delivery volume, and current customer expectation of timely delivery, companies need to be closer to their customers,” it said. Research estimates that “400 [million square feet] or more of total additional U.S. logistics real estate demand will be created in the next two to three years” as a result of this shift, it added.
Meanwhile, Amazon has already converted some failed malls into fulfillment centers, while logistics giants FedEx and DHL have done the same, according to the Wall Street Journal, which first reported on the talks between Simon and Amazon Sunday.
Presuming Amazon and Simon could forge an agreement on some of the mall operator’s real estate, such a deal would represent a new paradigm in mall-space usage and could augur a shift in overall mall tenancies, as well.
Retailers such as Penney’s and Sears have been long familiar tenants anchoring malls across America, serving as the big fish attracting myriad other small fish—merchants with more modest square footage and pockets far less deep—into the mall pond. But as foot traffic at shopping malls has deflated in tandem with the indomitable rise of e-commerce, with the coronavirus pandemic now exacerbating that entrenched trend, the entire shopping- center ecosystem is under threat as retailers’ dried-up cash flow means they can’t pay their rent and are forced to close down their stores.
A number of retailers have already filed for bankruptcy this year, including Neiman Marcus, J. Crew, and Brooks Brothers, beyond Penney’s. More recently, Tailored Brands filed and is looking to cut up to 500 stores, while bankrupt Lord & Taylor and its parent Le Tote are planning to close 19 stores, or all 38 locations if they fail to secure a buyer.
Mall operators are bracing for more retail bankruptcies, given that the virus remains out of control in the many states and a second wave of store shutdowns isn’t out of the picture. Looking at ideas for how to restructure some of the mall space is likely top of mind for shopping-center owners as a matter of sheer survival, especially in view of the estimated 25,000 stores that could die off before the curtain falls on 2020.
Executives at Simon could not be reached for comment by press time.