A third of America's malls are going to shut permanently by 2021, according to one former department store executive, as their demise is accelerated due to the coronavirus pandemic.
"The mall has been losing ground for a long time, now it's losing ground faster," said Jan Kniffen, a current retail consultant and former exec at The May Department Stores, which was eventually folded into Macy's.
"I expect we are going to see at least 20% of the [inside of the] mall go. I expect to see a third of the malls go a lot sooner than we thought," he said Wednesday on CNBC's "Squawk Box."
Initially, he was expecting roughly 33% of America's malls to go dark by 2030. Now, Kniffen thinks that will happen by next year.
There are still about 1,000 malls operating in the U.S. today, according to commercial real estate services firm Green Street Advisors.
A large majority of those malls are classified as so-called B- C- and D-rated malls, meaning they bring in fewer sales per square foot than an A mall. An A++ mall could bring in as much as $1,000 in sales per square foot, for example, while a C+ mall does about $320.
Per Green Street's analysis, there are roughly 380 C- and D-rated malls out of the 1,000. And those are considered the most at risk of going dark, permanently, as they don't generate enough sales to maintain the property and have greater vacancy rates. Green Street has said C malls "are not viable retail centers long term."
Macy's Chief Executive Jeff Gennette spoke to this reality on Tuesday, during a virtual fireside chat with Cowen & Co. analyst Oliver Chen.
"When you look at ... the bulk of those stores, they're in Green Street [A] malls," Gennette said, referring to the locations that Macy's plans to keep open longer term, as it shuts 125 stores over the next three years. "Fifty-one percent of our stores and 65% of our sales are in all A malls of Green Street. And they're the best malls in the country. They will stay, definitely, in my perspective, will stand the test of time."
"We've got highly motivated REIT developers that I think are best in class, and they're looking at remixing the tenant mix of these malls," Gennette added, referring to A mall owners such as Simon and Brookfield.
According to Kniffen, Macy's is here to stay, now that it has secured $4.5 billion in new financing to weather the Covid-19 crisis. "They are well secured through 2022, at least. They are going to be with us."
But the future for many other retailers is much less certain. Department store operator J.C. Penney is still trying to emerge from bankruptcy as a smaller business. Stage Stores could be forced to liquidate if it does not find a buyer. Signet, the owner of jewelry brands including Kay, Zales and Jared, said Tuesday that it will close as many as 400 locations, as its sales plummeted due to the pandemic. Even Macy's said it could "accelerate" its store closure plans, but it is still working through that with its landlords.
A record 25,000 store closures are expected to be announced by retailers this year, according to a report by Coresight Research. And about 55% to 60% of those closures will be in America's malls, it said.