Anchors Up: Why the Exit of Legacy Retail Tenants is Actually Good for Malls
Every month another major retailer closes stores in the shopping malls we grew up going to. The ease of digital search paired with the advantages of e-commerce (lower overhead, decreased inventory commitments) is giving retailers pause. The development of a truly omnichannel shopping experience, where the path to purchase is more fluid than linear, hammers home the realization that the same revenue per square foot can be achieved with a fraction of the physical space, leaving no room for sprawling brick-and-mortar stores.
With “anchor” tenants wobbling, and fear that other stores will follow suit, the question begs: Are malls next?
The short answer is no. Retail continues to grow at rates exceeding expectations, REITs consistently outperform the S&P 500, and e-commerce brands like Birchbox and Bonobos are frequently investing in physical spaces of their own. Class A malls in particular, also referred to as “fortress malls” that attract premier tenants, are thriving. High demand for limited space in these destination venues is driving up rents — and driving out some retailers. For fortress malls, anchor tenants leaving can sometimes be the best news of all.
Historically, anchor tenants were grandfathered into “special” leases incomparable to those signed today, where prominent space was given to retailers based on the large crowds they traditionally funneled in, along with the even larger ad spend associated with their brands. However, as customer preferences change and new generations prefer to spend money on experiences instead of goods, anchor tenants no longer provide the same benefits to malls. Today, anchor tenants can take on a different meaning, weighing down an otherwise prosperous location and creating “dead zones” for foot traffic and customer interaction.
Landlords are now replacing anchor tenants with new traffic drivers, be it in the form of restaurants, movie theaters, hotels, and even doctor’s offices. Additionally, these colossal spaces within malls serve as ideal spots for co-working spaces similar to Bespoke’s in San Francisco's Westfield Mall and experience stores offered by brands like Sonos to call home. Though the new leaseholders may vary by vertical, the goal of their presence remains the same as why anchor tenants had their heyday: they encourage traffic from a new demographic of customers, and offer a destination where visitors can congregate, interact and connect through experiences.
The most successful malls won’t rely on just raw traffic either. Smart mall owners are integrating technology into every facet of the shopper’s journey, delivering ultrapersonalized experiences that are mindful of shoppers’ time, energy and overall satisfaction while on-site. Offering digital maps, product search through in-venue directories, and even smart fitting rooms are just a few ways malls and retailers can integrate technology to provide an improved experience.
Mall owners are forced to compete on more than just rent. The best ones think more like their own tenants, and work tirelessly to improve the shopper experience. Stale and failing anchor stores sitting on uncompetitive leases are just another opportunity. The laggards still think themselves as landlords, for whom a long-time tenant always trumps a new one. After many decades of homogenous growth, we're starting to see leaders emerge and laggards fall. It would be a mistake to only focus on the losers.
Hongwei Liu is the co-founder and CEO of Mappedin, a company that helps retailers manage their stores, enabling consumers to find what they’re looking for — by category, brand, product and promotion.
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