As the modern American retailing business struggles to deal with the perfect storm of a national pandemic, a severely diminished economy and the increasing role of e-commerce in the shopping process, an unusual solution is surfacing that is as complicated as it is curious.
Shopping mall operators such as Brookfield Properties, Simon Properties and others are buying up troubled -- and often bankrupt -- retailing chains and operating them as tenants in real estate. While we haven’t seen it happen in the home furnishing space yet, the retailers now owned by these investors include apparel chains Aeropostale and Forever 21 with additional bids in process for JCPenney, Brooks Brothers, Ann Taylor owner Ascena and others.
While it’s happened before in retailing history, more recently it has become increasingly widespread and the reasons why are obvious. For the distressed retailers, real estate companies are a welcome savior, often a better overlord than the private equity buyers who are usually first in line in these situations.
And for the mall operators, the motives are even clearer. Allowing these retail chains to remain in business gives them tenants for their malls and allows them to make back some of the money in the form of monthly rents. (And with some retailers withholding rent payments it guarantees the landlords get paid too.)
But there’s also a more subtle reason when it comes to buying a big department store like Penney. Many mall leases are predicated on the center having a certain number of large anchor stores. If those spaces go dark, smaller specialty tenants are allowed to cancel their leases and move out, creating a domino-effect throughout the mall. For these developers, it’s often the best way to keep their properties viable and occupied.
Often times the mall owners will bring in another partner who may operate the stores or at least take the brands and further develop them in both physical and online retailing.
Of course, the Covid pandemic is what’s driving a lot of this activity but it began several years ago and it’s only accelerated -- as so many other business trends have -- over the past six months.
It all presents a conflicting situation for some retailers who find that the company they are paying rent to is also the one that owns the space next store and is a competitor fighting for the same shopping dollars. Again, we haven’t seen it in the home space yet but as this trend becomes more commonplace it stands to reason that it will happen. It’s something any retailer in any shopping environment needs to be aware of and plan accordingly.