The Covid-19 pandemic has dramatically accelerated new models of retail ownership and leasing for national retailers and their owners.
Between growing demand in e-commerce and declining consumer interest in visiting stores in person, retail was already struggling in the years leading up to the pandemic. More than 9,000 physical stores closed in 2019 and around 40% of the country’s department stores have been closed since 2016.
The pandemic has accelerated this metamorphosis of retail. More than 12,000 stores were closed in 2020, 30% more than the previous year. As a result of the shift from in-person to digital purchases, retailers who who were not adapting to changing trends effectively or quickly enough struggled the most and were left behind.
For example, Francesca’s, a women’s clothing and accessories retailer, struggled before the pandemic and filed for bankruptcy because it was too late on popular retail trends, only launching its first mobile app. ‘at the end of 2020.
But these changes have also prompted shopping center owners to take more interest in the activities of their tenants.
The role of shopping center owners in retail bankruptcies
Since the start of the pandemic, some major shopping center owners such as Simon Property Group, in partnership with Authentic Brands Group, a brand management company, and Brookfield Property Partners have taken the future of the shopping center into their own hands, not only to capitalize on these undervalued assets but to consolidate the stability of their own shopping centers.
When brands like Brooks Brothers, JC Penney and Lucky Brands filed for bankruptcy in 2020, shopping center owners became bidders for businesses and provided financing throughout the bankruptcy process, changing the dynamics between shopping center owners and retail-tenants. Shopping center owners have become more involved in rescuing individual retailers from bankruptcy in order not only to make their investments profitable, but also to ensure financial security and the occupation of their own shopping centers.
This new retail buying tactic preceded the pandemic, however: In 2016, when Aéropostale, a teenage clothing and accessories retailer filed for bankruptcy, mall owners took a risk and bought the company’s assets.
This experience turned out to be a worthwhile investment; as stated, the purchase was successful and the mall owners were able to generate income and return on investment. This purchase created the model that resulted in a new symbiotic relationship between the mall owner-owner and the retailer-tenant.
This strategy has been emulated on a larger scale in the dire circumstances created by the pandemic in the hope that not only will mall owners save retailers, but also block, or at least slow down, deterioration of the mall. traditional.
Exceptions to the trend
It’s important to note, however, that not all mall owners invest in struggling retailers. When it comes to retailers that shopping center owners do not find useful or imperative for the stability of their shopping centers, shopping center owners are not
as open to finding creative solutions, but instead seeking to enforce their rights under their existing leases.
For example, they often don’t offer concessions and rent reductions as flexible or generous as those given to retailers considered valuable. Instead, they insist either that their flaw be corrected and the lease assumed, or that the lease be rejected and the premises vacated.
Mall owners closely monitor retailers to assess their value and need for malls and mall owner portfolios. Shopping center owners not only consider the impact on individual shopping centers, but also the effect on their overall portfolio.
This tactic gives shopping center owners great power to manually select the makeup of businesses that will continue to exist not only in their own shopping centers, but also in the retail landscape at large. It will also create an interesting competitive environment in shopping malls – how can a retailer does not belong to a shopping center that competes with an owner-owned retailer?
What’s in store for you?
Analysts looking to the future predict that the concept of the traditional mall will fade and will be redefined as mixed-use spaces with commercial, residential and entertainment aspects.
Some owners have already added health and educational facilities to their shopping centers. Additionally, Amazon is currently working with mall owners to convert vacant malls into distribution centers to meet digital shopping demands.
In the wake of the pandemic, the gradual transformation of the suburban mall may have been accelerated by a decade or more. These changes may be just beginning, but they’re here to stay. There is a new interaction between mall owners as owners and retailers as tenants.
We don’t know where such a transformation will end up, but it is clear that the changes will continue. Mall owners are diversifying much more with such investments and this in itself will create a whole new paradigm in the future of the mall and retail industry.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.
Write for us: Instructions for authors
Author Info
Mark Indelicato is the Managing Partner of Thompson Coburn Hahn & Hessen in New York. He represents parties in insolvency, bankruptcy and out-of-court settlement, including secured and unsecured creditors, official and ad hoc committees, trustees, debtors and asset buyers in Chapter 11 cases. .
Comments are closed.