The Greendale Mall in Worcester, Massachusetts, is down to a single tenant. At a time when retailers are dropping like flies -- a situation much exacerbated by the coronavirus pandemic -- that's not a particularly shocking scenario. But rather than let that space fail to meet its potential, its operators are instead seeking to maximize it as much as possible -- namely, by letting Amazon (NASDAQ: AMZN) take it over.
Amazon wants to expand
Amazon has been on a quest to open fulfillment centers in more strategic parts of the country -- and malls generally meet that requirement. Malls tend to be conveniently located on or near major roads and highways. That makes the logistics of filling and pumping out orders even easier for the online giant, whose competitive advantage is largely rooted in its ability to ship efficiently.
But welcoming Amazon into malls is a mixed bag from a real estate perspective. A big reason so many malls are grappling with massive vacancies is that Amazon itself has helped drive so many retailers out of business. Welcoming Amazon could, in time, hurt even more retailers, thereby impacting local communities.
Still, Amazon is clearly on a mission to snag more space, and so fighting the online retail giant may be far less advantageous to mall owners than teaming up with it. In October, Amazon announced plans to expand its fulfillment center square footage by 50% this year. The company already has 726 facilities throughout the country and another 247 in the works.
The arrangement with the Greendale Mall isn't a done deal. Finard Properties, the Boston development firm that bought the mall in December of 2019 for $7.1 million, has applied for a permit to demolish the mall and build a new fulfillment center in its place. But that requires approval from the Worcester Planning Board. If these plans do go through, it will leave the city of Worcester without an enclosed shopping mall for the first time in roughly 50 years.
There are already concerns that moving forward with this proposal will create a traffic crunch due to the volume Amazon sees. A fair counterargument, however, is that a thriving mall could produce comparable traffic.
A growing trend
Worcester may not be the only city to find itself without an enclosed mall in the near term. With dozens of retailers making plans to close down stores in the wake of the coronavirus pandemic, an increasing number of malls could soon have a vacancy crisis on their hands. And if Amazon comes knocking, the temptation to partner up may be too good an offer to refuse. At the end of the day, dying malls can't produce revenue, whereas selling space to Amazon can not only do the opposite but also create local jobs, which helps communities in its own right.
Amazon has previously been in talks with Simon Property Group (NYSE: SPG), the largest mall owner in the U.S., to take over empty retail space in its portfolio of properties. Even if the deal with the Greendale Mall somehow falls through, it's fair for investors to assume that Amazon won't back down in its attempt to take over malls and expand its already impressive network.