Though shopping malls were struggling before the COVID-19 crisis, things have gotten exponentially worse during the pandemic. Earlier this year, malls were largely forced to shutter temporarily, and since reopening, they've been running at limited capacity. The result? Retail revenue just isn't what it used to be.
That's bad news for mall investors, especially at a time when so many stores -- including department stores -- are shutting their doors for good.
But desperate times call for creative measures, so some mall owners are adapting their business mode to increase foot traffic and revenue while giving consumers a safe shopping experience to enjoy.
Moving malls outdoors
Health experts have made it clear the COVID-19 virus spreads more easily indoors than outdoors -- hence the need for malls to limit capacity and enforce strict guidelines before welcoming shoppers. This data is driving some mall owners to take their business models outdoors instead.
Westfield Valley Fair in Santa Clara, California, Northern California's largest mall owned by Unibail-Rodamco-Westfield (OTCMKTS: UNBLF), began exploring this concept in July with its open-air market. The market features large pop-up tents for retailers to display merchandise as well as food trucks that allow hungry shoppers to refuel. A number of well-known retail chains have actively participated in this outdoor concept, and the list continues to grow.
Unibail-Rodamco-Westfield isn't the only mall owner looking to shift its model outdoors. Simon Property Group (NYSE: SPG), the largest mall operator in the U.S., is exploring similar options. It's already turned its Del Amo Fashion Center in Torrance, California, into an outdoor market.
Are outdoor malls sustainable?
Outdoor malls have the potential to solve a significant problem right now. They allow retailers to generate revenue while making for a safer shopping experience as the country battles a pandemic.
But for an outdoor venue to be successful, the weather needs to cooperate. While a year-round model may be sustainable in some parts of the country, if an area gets the full four-season experience, the window for open-air markets may be rapidly closing. After all, consumers aren't going to want to bundle up and shop outdoors when temperatures drop.
High heat can put a damper on open-air markets, too, as can rain. And while tents can help protect shoppers from the elements, in extreme conditions they may not be all that effective.
While it's a positive thing that mall owners are getting creative and finding ways to encourage more foot traffic, the outdoor mall model may have a limited market and a numbered stretch of weeks during which it can be successful. Mall owners will still face a number of challenges as consumers remain hesitant to shop indoors and capacity restrictions limit volume. And retail investors, in turn, will need to gear up for a rocky period ahead.