Though many malls were struggling before the coronavirus outbreak began, the pandemic made things exponentially worse. Not only did many consumers stay away from malls due to health-related concerns, but over the past year, dozens of well-known retailers have filed for bankruptcy and/or shuttered stores, leaving malls with vacancies to fill.
But that's not the only reason malls aren't in the best spot right now. Retail chains and department stores alike are increasingly going off-mall, testing out stand-alone locations in shopping centers in the hopes of gaining visibility and eliminating the competition that comes with being in a mall setting. Losing department stores is especially brutal for malls, as they commonly serve as anchor tenants.
Still, things aren't all dire for shopping malls. Now that things are getting better with regard to the pandemic, there's a strong chance foot traffic at malls will increase as consumers grow increasingly comfortable with the idea of in-person shopping. And with the economy being in better shape, a lot of people might have more flexibility to get out of their houses, hit the mall, and shop -- especially those with stimulus funds left over.
Furthermore, while malls may be losing some larger tenants, they're gaining a new breed -- smaller brands without a major retail presence. And that could be the boost they need to survive in the near term.
Small brands invade malls
It's common practice to walk around a mall and see row after row of recognized store names. But that landscape may soon be changing.
Now, malls are increasingly getting interest from lesser-known brands -- many of which may have previously operated in a direct-to-consumer setup only -- that are looking to attract more customers and drum up business.
These smaller brands aren't necessarily signing traditional leases. Rather, they're renting out smaller spaces on a temporary basis as a trial run of sorts. But if these brands find that having a mall presence helps, they'll no doubt seek to sign longer-term arrangements.
Direct-to-consumer brands often rely heavily on aggressive marketing and social media to drum up business. And over the past year, that's been a solid channel. But now that people are finally getting more comfortable with the idea of leaving their homes, having a mall presence makes sense. It's an easy ticket to growing brand awareness and a simple way to draw in customers who don't spend a lot of time online.
While the leases smaller brands are signing may not be the most profitable for malls, at this point, any leasing activity is better than none at all, especially coming off a brutal year like the one malls just had. And if smaller brands help malls stage a comeback, that'll be great news for real estate investors.
Many investors in mall REITs (real estate investment trusts) saw their portfolio values decline in the course of the pandemic. Smaller brands could help fuel a major mall revival -- and help those REITs recover some or all of the value they lost in the pandemic's wake.