Malls have been struggling since before the coronavirus outbreak took hold. For years, online giants have been driving smaller retailers out of business, leaving malls with vacancies on their hands. But the pandemic has turned an otherwise dire situation into even more of a nightmare. Since March, dozens of popular retailers have filed for bankruptcy, and many are now making plans to shutter stores on a permanent basis. This extends to department stores, which have long served as anchor tenants for malls.
It's not surprising, then, to learn that a frightening 25% of U.S. malls could disappear within three to five years, according to Coresight Research. Mall occupancy rates hit their lowest level in at least a decade during 2020's second quarter, reports CoStar Group. And operating restrictions and general fear will likely result in sluggish foot traffic at malls until things improve on the pandemic front.
Analysts agree that higher-end malls are more likely to survive the pandemic than lower-end malls are, since luxury brands have higher profit margins and are therefore better suited to withstand a sustained period of revenue decline. But even those malls may start to suffer if the current situation drags on. And though vaccines are beginning to roll out, health experts agree that widespread deployment won't happen until spring. Even then, distribution and compliance issues could delay the process of putting an end to the pandemic once and for all.
But let's not forget that malls don't just have to survive the pandemic; they also have to find a way to survive on a long-term basis. And that's where operators and commercial landlords should begin focusing their efforts as we begin to see a light at the end of the coronavirus tunnel.
How malls can save themselves
Malls may need to change their strategy in coming years to remain viable, and they have different options to explore here. First, some malls may get some leeway by pivoting to focus on entertainment. Clearly, this won't help during the pandemic, but once social distancing regulations ease, malls need to get back to being a place where people want to gather socially. Adding more amenities that support that, like bowling alleys, climbing zones, and higher-end restaurants and food courts, could help draw consumers and revive otherwise sluggish spaces.
Malls may also need to think about becoming healthcare and wellness hubs. By welcoming medical offices and gyms, malls can expand their customer base and encourage repeat visitors.
Furthermore, malls may need to get on board with the idea of welcoming smaller tenants -- independent stores not as well-known as major chains. They also may need to offer more flexible lease terms as new tenants enter the mall space.
The Millionacres bottom line
None of this will be easy, but if malls want to survive in their current form, they'll need to get creative and make the effort. Of course, dying malls that don't expect consumer traffic to improve can fall back on converting to fulfillment centers for retail giants like Amazon (NASDAQ: AMZN). But those that want to continue to operate in their current capacity do have some options -- especially once the pandemic comes to an end.