In a series of articles over the last month or so, there has been quite a bit of speculation as to the discussions between Simon Malls and Amazon to potentially lease long-vacant Sears & JC Penney Stores, and other large box former retail stores as last mile distribution warehouses.

The Simon Property Group Inc. is the largest owner of malls in the U.S and has a direct connection with the Seacoast, as the Fox Run Mall in Newington is owned by this group. With Sears and JC Penney filing Chapter 11 Bankruptcy, it is likely that owners like Simon Malls are going to have to find new tenants to fill these spaces, and without a whole lot of demand for retail right now, this is leading to out of the box, creative solutions.

So what might that look like in the future? What are the potential pluses and minuses? Are there winners and losers, or are they all winners? What might the ramifications end up being for the consumer in the long run?

Malls have been struggling for years and the e-commerce boom was accelerated by the COVID-19 shutdown in early 2020. Spending slowed down here in 2020, but not nearly as much as had been anticipated during the shutdown. However, malls saw none of this revenue as they were closed for months at a time and then with only limited openings after lockdowns were lifted.

Let’s start to look at the physical plant in the first blush analysis. What are the clear heights of the former retail spaces like Sears? What are the load capacities of the floors? Will they be sufficient for the intended purpose? Will there be enough loading docks, or will there be additional required? Traffic issues relative to the mixing of delivery vehicles and the retail customers – will that become an issue? Zoning, and other town issues may come into play as well. Will the towns look kindly upon the change in use? Will the zoning prove to be an impediment? Will they agree with it, or will they fight it because the assessed value of a retail store is substantially higher than the assessed value of a warehouse? That could mean lost tax revenue to communities that are already cash strapped. 

Let’s talk about winners and losers. Re-use seems inevitable, so what will be the economic, highest and best use in the long-term? Will it be more palatable for the town to accept the warehouse use and embrace it, or are the lifestyle centers going to be the target for the towns? This could be a harder sell in some cases. In either case the consumer could be the winner; if the majority of retail is online, they get their purchases quicker as a warehouse. If it becomes a lifestyle center with a few hundred residences, then the municipality, mall, and consumers are all winners. Perhaps we need to ask ourselves whether or not retail as we have known it, is a thing of the past.

Will it come down to the cities and towns having the option of malls sitting empty or being converted to warehouses? Economics always comes into play. If there is no future retail use, given what was described previously, will the towns and cities have to settle for the change? Will it be better for them to embrace it instead of fight it? 

Relative to this concept, this partnership would not only bring much needed large industrial style space to regions across the country, but as malls are typically closely located near high residential areas and close to highways, this decreases fulfillment time as well.  This partnership will likely be one of the final steps necessary for same-day delivery for many items in the Amazon, Walmart, and others’ product list.  If you are a customer of Amazon, you are likely seeing this as something making your shopping experience better.  If you are worried about monopolies taking over an industry, Amazon’s growth should be alarming.

How will this affect the retail and industrial commercial space as a whole? If this partnership is allowed and the communities allow malls to be used as distribution hubs, this will save a lot of money for retrofitting mall spaces for entertainment or residential purposes. Both of these uses would be challenging to get past zoning as well because malls are typically in retail and commercial zoning districts. This will also keep a tremendous amount of commercial space from becoming available, as many other businesses such as GNC, J. Crew, The Paper Store, Pier 1, Brooks Brothers, and Lord & Taylor have all filed Chapter 11 Bankruptcy in 2020.   

These conversations, though serious and having repercussions, may or may not lead to a deal which could reshape these regions in totally different ways. What feels like a natural partnership in the changing retail industry would likely change how we think and see when we go to the mall. It might be that Amazon opens a retail component of their warehouse! Our hope is that demand and value of retail space remains competitive, albeit with a likely far smaller footprint.  Time will tell. 

– Written by Dave Garvey & Ethan Ash

– Statistics taken from Wall Street Journal