America's malls are incredibly dependent on struggling retailers, particularly department stores.
And this could prove to be an even bigger issue for mall owners as the rate of retail store closures accelerates rapidly because of the coronavirus pandemic.
A new analysis by commercial real estate services firm CoStar found that 14 of the 20 largest mall tenants are either apparel retailers or department store chains. Names on the list include bankrupted Forever 21 and L Brands' Victoria's Secret, which announced this week it plans to close 250 stores in 2020, with more closures on the way.
Penney filed for Chapter 11 bankruptcy earlier this month and is already planning to shut about 240 locations, or nearly 30% of its 846 stores, as part of its restructuring proceedings. Macy's told analysts this week that management is taking a "hard look" at its real estate and could accelerate previously announced plans to shut 125 stores over the next three years.
The third-largest tenant within America's malls is Dillard's, occupying 3.4% of space, followed by Sears, at 1.7%.
In addition to Penney, department store chains Neiman Marcus and Stage Stores and apparel brand J.Crew have all filed for bankruptcy protection during the Covid-19 crisis. It is unclear how many of these retailers' stores will ultimately close forever. Stage Stores is still looking for a buyer, or it could be forced to liquidate its more than 700 shops. Neiman Marcus and J.Crew are both evaluating leases and stores on a case-by-case basis.
Of the almost 117 million square feet of retail square footage in the U.S. that these four bankrupted companies occupy, 75.2 million square feet, or 65.4% is in malls, CoStar said.
While mall owners such as Simon Property Group and Macerich have been filling vacant retail space for years in the face of store closures from Sears, Bon-Ton, Claire's, Payless ShoeSource and others, the Covid-19 crisis is putting a glut of empty space back on the market at a rate nobody could have anticipated.
They will likely have to turn to other uses, such as storage facilities and warehouses, to fill the voids.
Under such intense pressure, some malls could go dark forever. Northgate Mall in Durham, North Carolina, for example, became the first regional mall to shut permanently during the pandemic. Its owners, Northwood Retail, said in a statement: "The severe impacts of the COVID-19 pandemic, which has changed the way we live and socialize, has resulted in extreme financial difficulties experienced by a majority of our tenants and the property," according to the Raleigh News & Observer.
"If you are well located, chances are you come out of this just fine," Joe Coradino, CEO of mall owner PREIT, said in an interview.
"Some people sit here and believe we are going to spend the rest of our lives sitting at home in our pajamas and ordering everything online," he said. "That's not it."