The loss of specialty retailers, such as Jos. A. Bank, J.Crew, Lord & Taylor, and Pier 1, didn’t just impact the companies themselves. The ripple effect ran through the malls in which they were tenants and indirectly impacted the other mall tenants that relied on their presence as a draw. Many tenants had anchor store requirements that allowed them to renegotiate or even cancel their leases. Unfortunately, landlords are often caught in a tough spot, between tenants who are also trying to survive and must use every leverage point they can, and mortgagers, who require a minimum level of revenue to avoid foreclosure.
Landlords and Tenants Can Work Together to Save Retail
The worst situation for all parties involved would be foreclosure. Landlords and tenants are going to need to find ways to work together. The retail real estate industry must assume a collaborative stand with tenants through these unprecedented times. That doesn’t mean just agreeing to what the tenant wants. Understanding how a tenant makes money and what they can afford to pay is incredibly important. So owners, view your tenants’ requests for assistance as opportunities to strengthen the non-financial aspects of a lease. Reduce co-tenancy requirements, shorten terms, and remove exclusives or other cumbersome items that limit a landlord’s flexibility.
The Future of Mall Space Can Be Exciting and Functional
Elizabeth A. Whitman takes a deep dive into what can be done with retail space in malls that is no longer being taken up by department stores. Temporary options include becoming a vaccination site or converting to warehouse space for last-mile delivery. But long-term solutions are even more exciting in the potential they offer. One mall is transforming its now-empty Sears location into a fitness center with a pool. Another has converted boutique shops into micro-apartments for single tenants. The one common element of all of the reimagined uses of the space is that it recenters the mall as the place where people congregate to live, shop, and have fun – and that’s the key.
We use phrases like ‘omnichannel’ to describe scenarios as though every consumer wants to move seamlessly across everything a retailer, for example, has to offer. However, we have to turn that idea inside out and remember that for consumers it’s all about experience, and always has been. A consumer will choose the experience they want, based on the service or goods they are buying, and then the channel. The businesses that will be rewarded with brand loyalty are those delivering great experiences in stores and online.
Where Do We Go from Here?
Two truths on which we need to remain hyper-focused have come out of this year: One, tenant representation is essential – tenants who had someone capable of navigating, renegotiating, and changing lease terms were more capable of being flexible in meeting their customers’ needs; and two, the adversarial nature of the tenant-landlord relationship needs to transform into a partnership that keeps them all in business. If these things are not achieved, then banks are going to end up owning a lot of empty malls.