The Mall Makeover: Upcycling Retail Assets

by | 22 December 2020

Over the next few years, America’s major retail landmarks including malls and various shopping centers across the country are poised to make an unprecedented shift in the retail experience. This will require much of the traditional malls around the country to either reconfigure, repurpose or close; albeit not impacting all classes of retail assets equally. In the past, the concept and execution of whether and how to reconfigure the majority of Class A properties into multi-use, including multi-channel retail, fulfillment, healthcare services and lofts for the urban to suburban millennial has been up for debate given lack of certainty for an optimal solution for the operator.  Now, with changing consumer buying habits due to COVID-19 and the growth of e-commerce, this is no longer a theoretical question, but more of an existential reality. The very demographic drivers that have brought about the rise of shopping malls and retail centers are now being reevaluated to repurpose these sites to attract occupiers meeting not only present, but moreover future consumer buying behavior.

Retailers, in response to today’s evolving buyers, continue their pursuit towards aggressively implementing optimal fulfillment channels to maximize revenue with an acceleration in capturing the market for e-tail. Headlines are popping up all over America illustrating how major retailers are pivoting to meet this paradigm shift. As an example.  Bloomberg reports Apple has started shipping devices from stores to speed up deliveries and Nike has kicked its popular Bronx sporting goods store to the curb after a half-century, reported the NY Daily News.

Retail Giants Upgrade Assets

The omnichannel focus for the future multi-dimensional retail mall will combine the blending of online and in-store inventory with front-end show rooms and back-end distribution, in-store pick up as well as drive-up for online purchasing options. This is part of their omnichannel strategy to flank both online and brick-and-mortar retail sales by creating a fully integrated digital and physical consumer experience. With the COVID-19 pandemic, these retailers that have a fully integrated digital and physical footprint are the ones that are succeeding, only accelerating this trend. Walmart, already having 90% of Americans living within 10 miles from a Walmart store, plans to repurpose a portion of these stores to provide local delivery services from roughly 1,600 stores initially; leveraging its physical footprint to charge ahead. The company has recently opened new test stores, experimenting with the new era of retail. John Crecelius, SVP of Associate Product and Next Generation Stores, Walmart U.S said “We’re moving quickly to use our physical stores to not only serve in-store shoppers, but to flex to meet the needs of online shoppers, too, in ways that only Walmart can. We have an amazing set of assets that have us well prepared for this next era, but we can’t stop there.

Another retail behemoth, Target, which had just completed a heavy investment in upgrading their stores, is revisiting their approach to combining the online and physical shopping experience. Target CEO, Brian Cornell, told CNBC “We’re putting our stores at the center of our strategy. In the last three years, we spent more than $4 billion remodeling our stores, completing hundreds each year, transforming them into showrooms, fulfillment hubs and service centers.”

Real Estate Landscape Transformation

The fulfillment channel for malls and centers going forward will likely be centered on increasing back-end fulfillment for sophisticated tenants with data driven inventory management algorithms to meet the demands of consumer preference. Rather than the traditional anchor while last-mile distribution operators will serve as potential anchors. With Amazon announcing fulfillment centers in North Dakota, Nebraska, Texas and Kansas in the month of October alone, the company’s demand for square footage is in full momentum to meet the ever increasing needs of their consumer base, having absorbed nearly 26 million square feet of industrial space in the first half of 2020. Alicia Boler Davis, Amazon’s VP of Global Customer Fulfillment, told Fortune Magazine “Once you define a problem, you move very quickly to finding solutions and trying out different ideas. And then when you find something that works, you replicate that as quickly as possible”.

After increasing square footage of its facilities worldwide by about 15% annually over the past few years, Amazon will grow it by 50% in 2020 alone.

And it is not just fulfillment centers that these retail malls are morphing into. The future of healthcare outpatient services are following a similar behavior shift as seen in the e-commerce consumer with demands for multi-medical outpatient services, urgent care expansions and telemedicine, currently being put to test on a wider scale for its effectiveness, reliability and patient/doctor utilization during the pandemic.

The other debate hangs on the housing development as part of a repositioning, especially with preliminary evidence of an uptick in the urban to suburban residential migration. The mixed-use urban centers with micro-downtown walking with retail and housing have seen early success. For example, The Belmar in Lakewood Colorado, driven in part by bringing the urban lifestyle into a suburban community, demonstrates the viability of such an asset repositioning. The declining regional mall was transformed into a vibrant 22-block mixed-use development within five years. Testimony to the success of the 1.1 million square foot center, The Belmar’s entire asset was purchased by Starwood Capital Group in 2016.

With a “one-size-does-not-fit-all” solution driven proposition, each asset can be evaluated under the revised criteria to maximize ROI while supporting the local communities with continued services and job creation. The repositioning will require demographic considerations, financial and zoning analysis, parking accessibility for distribution vehicles and healthcare services, as well as parking and loading configurations required by tenants. The savvy operator will look to diversify its retail footprint with a multitude of service-oriented occupiers whether in-store, in-medicine, or e-tailing. Operators, lenders and retailers are adapting and executing on real-time data in the absence of long-term consumer trends.

The evolution of the classic retail mall, although it may appear challenging today, presents opportunities for astute owners and investors to reinvent viable sites and successfully repurpose declining retail properties into newly revived thriving assets in line with the next generation of shoppers evolving consumer buying habits.

Within Colliers, our Retail Repositioning Advisory Services group has not only been tracking these trends as they have manifested over the years, but is proactively advising our retail clients around the best and highest use of their portfolio across all asset classes. This dedicated task force, combining our retail, industrial and healthcare team of experts works with operators and investors in modeling the future of the assets and implementing the best tools and resources to provide the optimal strategic solutions.

About the Authors:

As a Managing Director at Colliers, Robert Lella represents property owners, as well as national and regional occupiers with their acquisition and disposition requirements. Areas of expertise include sales and leasing of warehouse and distribution facilities, as well as professional offices with a distinct focus in the outer boroughs of NY including the Bronx, Westchester and Connecticut. Robert specializes in structuring and negotiating of sale and lease transactions, site selection, repositioning projects, as well as supply chain logistics.

Head of Location Strategy Consulting, Gregory Healy, a senior vice president, leads the Supply Chain Solutions team in the U.S. for Occupier Services, as well as Workforce (Labor) Analytics Consulting practice. With over 20 years of global manufacturing and supply chain experience as both a senior executive in the corporate world, as well as owning a supply chain consulting practice and a third-party logistics business, Gregory has real world experience that brings a unique perspective to the Colliers team.

As Vice President of Retail Repositioning at Colliers, Todd Scheffler’s role is to help expand the business by offering clients new and alternative ways to reposition the commercial retail property. He combines his experience as both an architect and analyst to provide a unique “left/right” brain approach to solve problems and expedite solutions for clients across the country.