The coronavirus pandemic has changed the way a lot of people live -- and shop. In the past year, many consumers have shifted to online ordering, making their purchases to be delivered to their homes or retrieved via curbside pickup. And a lot of shoppers have veered away from malls in favor of open-air shopping centers due to coronavirus concerns.
The latter trend has a number of popular retailers planning to go off-mall in the near future, opting for freestanding stores in shopping centers instead. Recently, Sephora announced that it intends to open over 60 freestanding locations in 2021, not to mention a whopping 200 shops inside of Kohl's (NYSE: KSS) -- another big-name retailer that's seen its share of success outside the confines of a mall environment.
Sephora isn't the only brand moving away from malls this year. L Brands (NYSE: LB) says it will open 49 new Bath & Body Works stores in North America that are almost entirely off-mall while making plans to shutter up to 40 mall locations. The reason boils down to profitability rates at freestanding stores that are equal to or better than those of the average mall location.
Gap (NYSE: GPS) is also planning to shut down mall locations and move to outlets and outdoor shopping centers, and Nordstrom (NYSE: JWN) is expanding its line of Rack stores, which have traditionally been located outside of malls as well.
Of course, many of these plans are more recent, fueled largely by the pandemic. But Macy's (NYSE: M) was already making plans to try out some smaller off-mall locations as part of its plan to close over 100 stores -- a plan put in motion well before the coronavirus outbreak began.
A mixed bag for real estate investors
An influx of freestanding stores could be a boon to shopping centers and those commercial real estate investors who invest in them. But if the off-mall trend really takes off, mall REITs (real estate investment trusts) could take a serious hit.
As it is, malls are already struggling to stay afloat, given the number of retailers that have been forced to shutter in the wake of the pandemic. That includes department stores, which commonly serve as anchor tenants for malls, drawing in customers and bringing new tenants into the fold.
From a retailer's perspective, going off-mall has its benefits. First, there can be cost savings involved from a rent perspective. Secondly, it can set the stage for less competition. A Sephora location in a shopping center with a supermarket, hardware store, sporting goods shop, and pet care store as its other tenants won't face the same competition as with a mall location, where department store beauty counters threaten to take away customers.
The Millionacres bottom line
Of course, the fact that many of the aforementioned retailers are talking about expanding is a good thing, especially in an age when stores are consistently closing, not just due to the pandemic, but the impact of the online shopping boom. But the fact they're moving away from malls is definitely a mixed bag for real estate investors. While shopping centers may pick up a host of new tenants, malls are apt to grow increasingly desperate if freestanding stores evolve to become the norm.