It's a tough time for real estate investors with mall real estate investment trusts (REITs) in their portfolios. Over the past year and change, dozens of well-known retail chains have filed for bankruptcy due to the financial blow the coronavirus pandemic dealt them. And some of those bankrupt retailers were forced to close stores to stay afloat.
But bankruptcies aren't the only reason malls are losing tenants. Over the past number of years, there's been a huge shift to e-commerce as more consumers have gotten used to shopping online. This trend actually exploded during the pandemic, when safety concerns kept many shoppers out of stores.
In fact, so many consumers are shopping online these days that retailers are rethinking their mall and shopping center presence. Some well-known chains are investing money in warehousing space so they can focus on digital sales rather than sink resources into improving underperforming store locations.
Malls may also, in the coming years, continue to lose anchor tenants as a growing number of department stores continue to favor stand-alone locations -- locations that don't come with the same level of competition malls often present. As such, malls will need to get strategic in the near term if they want to secure a steady stream of paying tenants. And one mall operator is taking its own unique approach in this regard -- going local.
A focus on local businesses
CBL & Associates (OTCMKTS: CBLAQ) has borne the brunt of store closures. Last year, it filed for Chapter 11 bankruptcy protection in the hopes of restructuring and emerging in a more financially healthy spot. But to continue operating, it needs paying tenants. To this end, it's trying to lure in local businesses instead of focusing on the national chains so many malls rely upon.
In fact, CBL reports that around 1,300 of its tenants are locally owned businesses. Granted, that's 1,300 tenants across more than 100 malls in 24 different states, but it's still not a negligible number.
For local businesses struggling with foot traffic, taking up residence in a mall makes sense. And malls benefit, too. Many consumers like supporting local businesses and would rather spend a little more on quality products than visit chain stores that are known to mass-produce everything they sell. By targeting local businesses, CBL may succeed in filling some vacancies -- and bringing in the revenue it desperately needs.
Will more malls follow suit?
Identifying and advertising to local businesses isn't exactly a simple endeavor, but for struggling malls, it's a step worth taking. Though it's easy to argue that there's a risk in signing leases with small businesses -- namely, that they may not have the same staying power as large chains with hefty amounts of capital behind them -- at this stage of the game, paying mall tenants are better than vacancies. And while it's too soon to know whether CBL's local business initiative will prove successful, for sluggish malls that need revenue, it's certainly a tactic worth trying out.