By Debra Hazel, President of Debra Hazel Communications
First, the bad news:
Bed Bath & Beyond (again). Tuesday Morning (again). Party City. All filed for Chapter 11 protection in the first months of 2023, and the first two are liquidating, closing between them 1,400 stores around the country. Party City is shuttering 31 stores in 15 states but remains in business.
Then add in the non-bankruptcy closures. FootLocker is closing up to 400 mall locations by 2026 and 125 Champs Sports stores as it refocuses its real estate on open-air projects. The Gap continues to shutter namesake and Banana Republic stores. Even Wal-Mart is closing some sites.
In previous eras, this would have sent owner/managers, industry analysts and journalists into paroxysms of panic, predicting yet again the death of retail real estate and wondering how on earth all that space will be filled.
But that’s not happening (much) this time. None of the above closures were unexpected, and the numbers are far lower than in 2020 (around 8,000), 2021 (8,700) and 2022 (2,600). In fact, UBS has cut its project store closures through 2026 from 80,000 to 50,000. And to some degree, the announcements are likely a relief to landlords who can finally gain control back of their real estate and execute a plan to re-lease the space more profitably.
There are plenty of options for them to do so. Unlike previous eras, there has been very little new retail construction in the 2020s, and expanding tenants are fighting for space in good locations — retailers actually opened more stores than they closed in 2022. Remember, for example, that FootLocker may be closing mall stores, but it is opening in neighborhood and community centers.
Restaurants, discounters, fitness centers, grocers and even click-to-brick apparel retailers are filling in those holes. Landlords who once eschewed local dining — preferring national, creditworthy names — are now embracing farm to table and local celebrity chefs. They differentiate a property and bring a loyal audience. With health restrictions gone, people are returning to gyms and a few large and boutique concepts are again starting to expand. That empty Bed, Bath & Beyond could easily become a Planet Fitness — it did during a previous round of closures in my neighborhood.
During the pandemic, people also became used to cooking and eating at home. While they’ve flocked back to restaurants and bars for socialization, they now also are cooking more. Look for grocers such as Aldi, Lidl and other local concepts to continue to grow. At the recent ShopTalk conference, Levi’s President and CEO Chip Bergh reiterated its commitment to opening more of its own boutiques.
The result is that retail tenants absorbed nearly 76 million square feet of space in 2022, its highest level since 2017, reported JLL.
What’s fascinating is what companies are opening stores, including some surprising familiar names — Barnes & Noble plans 30 new big box stores this year and WHP Global, which has been reviving Toys R Us inside Macy’s and a few standalone stores, is planning to bring back Babies R Us. Academy Sports + Outdoors plans 80 to 100 new units in the next five years. Five Below plans to triple its total store count to 3,500 by 2030. Ross is looking at nearly a 50% expansion to 2,900 stores. Whole Foods is accelerating its expansion. And Dollar General keeps on growing.
The real challenge is anchor space, as shown by Directory of Major Malls/ ShoppingCenters.com numbers. The data shows more than 4,780 vacant anchors, comprising 13.5% of all anchors in the database. They total 302 million square feet, with the average closed store taking approximately 64,000 square feet. Those spaces are much harder to fill, and landlords are increasingly thinking outside the (very large) box and especially are looking at sports, experiences and healthcare, as well as residences and office space.
Case in point: Stamford Town Center will replace a closed Saks Off 5th with Pickleball America. In Janesville, Wisconsin, an empty space will become a sports and convention center that includes athletic courts, conference and meeting facilities and community spaces.
Given that malls are well-located with lots of parking, health care facilities can be particularly useful as baby boomers move into their golden years and even Gen Xers are now in their 40s and 50s. As part of its rebrand and redevelopment, Gallatin Crossing, Gallatin Valley Mall is adding a medical pavilion on a former JCPenney space and adding a Whole Foods. A couple of Sears stores in New York and New Jersey are being converted to ambulatory surgical centers.
The idea, obviously, is to mix uses.
As the shortage of rental units continues, apartments are an attractive option, if the right multifamily partner is found. Until the pandemic, offices also were an appealing option, and still could be as workers who don’t want to commute into a central business district five days a week again could be persuaded to utilize suburban space closer to home (and with convenient dining and entertainment, to boot).
The key going forward will be a careful assessment of what a community wants and needs. There’s really no excuse right now for a well-located, well-run retail center not to have its pick of any number of retail and non-retail options.
About Debra Hazel
President of Debra Hazel Communications
A native New Yorker transplanted to North Las Vegas a few years ago, Debra Hazel is a veteran retail real estate writer, editor and media consultant. She provides comprehensive communications services to retail real estate owners, developers and managers, design firms and businesses allied to the industry. You can reach her at debrahazelcommunications.com.