Mall Owners Find Relief From Unlikely Source: Online Retailers

By Esther Fung and Jennifer Smith | Jan 17, 2017

Online retailing has been chipping away at mall revenue for years. Now it is starting to make a contribution as well.

Retailers are converting empty mall space into makeshift distribution centers used for package pickup and returns of goods bought online. At the same time, online merchants are opening physical stores to reach more customers, either via short-term leases in pop-up stores or long-term tenancies like Amazon.com’s upcoming move into Manhattan’s Time Warner Center.

“We don’t view [online retailing] as the enemy, we view it as another distribution channel,” said Stephen Lebovitz, chief executive officer of mall owner CBL & Associates. While online sales make up less than 10% of all retail sales today, Mr. Lebovitz said, the number will grow.

More retail centers, including those at town-center locations in smaller cities, are housing Amazon Lockers, which allow Amazon’s online customers to pick up and return packages at their convenience. Other online retailers without any physical stores are looking to provide options for their customers to drop off unwanted purchases in person in shopping centers where they can get immediate refunds.

One startup, Happy Returns, accepts in-person returns from participating online retailers at six malls in California, Chicago and Virginia. Its first “return bar” is located in a kiosk at Santa Monica Place, while the other five locations use the host mall’s concierge desk. Returned items are sent to a regional processing hub, then on to retailers’ fulfillment centers, third-party logistics companies or liquidators.

Happy Returns hopes to build a national network that includes open-air shopping centers, high-end grocery stores and coffee shops and is aiming to have a presence in the top 20 metro areas by 2017, said David Sobie, president and co-founder of the start-up.

Such efforts could provide needed relief to shopping malls across the U.S. as they grapple with a rise of e-commerce and retailer bankruptcies. Vacancy rates in community shopping centers increased in 30 of 77 U.S. metro areas last year, compared with 24 in 2015 and 19 in 2014, according to data from real estate researcher Reis Inc.

Columbus, Ohio-based landlord Washington Prime Group in November started rolling out Amazon Lockers in 50 of its retail centers and is looking to add digital screens that offer coupons and promotions to draw shoppers to restaurants and apparel stores nearby. The idea is to get the customers “into the belly of the beast,” said Lou Conforti, Washington Prime’s chief executive.

The real estate investment trust, which runs so-called class B and C malls across the country, also is allocating a small portion of space in its portfolio of about 70 million square feet to pop-up stores. The stores have 60- or 90-day leases that typically target new merchants, including those that started their business online.

“We have to be creative,”said Mr. Conforti. “People are so hungry in Middle America for interesting products.”

At the Crocker Galleria in downtown San Francisco, the Storenvy Popup, a 1,700 square foot space that started in March 2013, has been an avenue for new merchants to try out physical retailing. Women’s clothing retailer TopShelf, for instance, started out in a “fashion truck” in a parking lot but moved into the pop-up space and now occupies a retail storefront in the three-story mall.

“Online merchants are trying to duplicate their online strategy into the physical world, trying to optimize the way customers look for items, gathering feedback about their offline experience,” said Mohamed Haouache, chief executive officer of Storefront, an online marketplace for renting short-term retail space.

Amazon, Google and Facebook have rolled out numerous pop-up stores and roadshows around the country showcasing their gadgets, such as speakers with the latest intelligent voice functions (Amazon Echo and Google Home) or virtual reality goggles and wireless controllers (Google’s Daydream View and Facebook’s Gear VR).

Amazon has been the most active, with 31 pop-up stores in shopping centers around the U.S., and it plans to roll out grocery stores.

Analysts and landlords still expect to see a dip in demand for retail space across the country as more retailers rethink their physical footprint.

“E-commerce doesn’t mean the death of the American shopping mall. But there are clearly too many malls in the U.S. and hundreds are likely to close or become irrelevant retail destinations over the coming decade,” said Andy McCulloch, managing director of real estate analytics at Green Street Advisors, a research and advisory firm.

Article was originally published here.