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Amazon Meets the Shopping Mall: a New Tenant Opportunity

Posted by RealNex on Nov 9, 2020 10:00:00 AM

If you take a look around, it’s easy to see that the traditional shopping mall has been in steady decline over the past several years. According to research firm Moody’s Analytics, mall vacancies were at a historic high of 9.8 percent in September 2020, which exceeded the previous high of 9.3 percent in 2011. And, unfortunately, this trend doesn’t seem to be going away anytime soon. In fact, Coresight Research recently estimated that 25 percent of America’s approximately 1,000 existing shopping malls will close over the next three to five years. 

So what, exactly, is going to happen to all of these “dead” malls in the United States? Of course, that’s the question that has been on the minds of both retailers and commercial real estate developers. And one possible solution may surprise you. 

The largest owner of shopping malls in the United States, Simon Property Group, has recently been in talks with Amazon about transforming failed or failing anchor department stores into bustling Amazon distribution hubs, fulfillment centers, and warehouse space, according to the Wall Street Journal

This particular arrangement is a win-win for both sides. Once thriving anchor stores, such as Sears or JC Penney, that used to be huge revenue streams for shopping malls have recently been more like heavy weights around the necks of shopping mall developers. Bringing in new, successful tenants is a huge relief to these companies -- and their bottom line. 

From the standpoint of Amazon, the deal also makes sense, as the e-commerce giant prides itself on pushing its customer experience to new limits. “While at a surface level, this appears simply to be about converting shopping malls into warehouses to strengthen Amazon’s supply chain and physically position the retailer closer to customers (both rural and urban) for same or next day delivery, the move has all the hallmarks of Amazon’s DNA,” says Sean Maharaj, managing director in the transportation logistics and retail practices of Arte. “It’s yet another example of its creative, disruptive and innovative mindset. The advantage play comes in many forms, but most importantly, pushing customer experience to new limits.” 

Converting existing shopping mall space into warehouses and distribution hubs is just yet another way for Amazon to effectively compete with brick and mortar retail giants, such as Target or Walmart. With these retailers pressing their advantage of physical presence and also offering their customers new e-commerce abilities, such as curbside pickup or free ship to store options, Amazon realizes that it needs to quickly gobble up available physical space in order to remain competitive. 

What’s more, this strategy is also beneficial for consumers. At the end of the day, today’s consumers are demanding more instant gratification, partially from Amazon’s amazingly fast shipping speed. By Amazon having a physical presence closer to more consumers, it gives them a tremendous advantage in delivering the products that consumers want, faster than ever before. 

There are some concerns about Amazon taking over shopping mall space, though. Shopping malls weren’t designed to simply be places to buy things; rather, they were designed as sort of community centers, integral parts of the traditional American life where consumers were able to spend time outside the home on the weekends or evenings, looking through new merchandise and socializing with neighbors and family. 

Turning shopping malls into warehouses or distribution hubs would no doubt change the landscape of the American community -- but perhaps this isn’t necessarily a bad thing. Given Amazon’s foresight and forward-thinking, it may also find ways to turn local shopping malls into showcases or even experience centers. 

While American communities will continue to evolve and be transformed to adjust to new technology and accommodate consumers’ demands, rest assured that they will never vanish. And, given the alternative, Amazon’s occupation of these spaces may be a far better fate for commercial real estate and communities alike than completely abandoning these spaces.

Topics: blog