There has been some recent reporting that Amazon is in talks with mall management companies to take over some of the space from anchor tenants. Click here for a recent piece in the WSJ. Legacy tenants such as Sears and JCPenney. Legacy names that have fallen on hard times and faded away from the mainstream retail conversation. Many are fretting that this would be a terrible move for malls, letting the very player that has put these malls under duress come right into their house! Set up a fulfillment center, and just crush whatever life there is left for these malls. Not so fast!
I’m not convinced. First, what choice do malls have? The days of having mega retailers act as the anchor tenant have gone. The internet made sure of that. The advent of the World Wide Web meant that the mega shopping malls, were just a click away. I remember working at Forrester in the late 1990s, I had a large mall owner as a client. We had a conversation that went something like this:
Mall owner: “We are really excited about the web. We want to create a portal, where the brands and retailers that are in our mall could be part of our portal. Customers can then access our site and get to their pages.”
Response: “The internet is that portal. Why would you need to go through a secondary portal when I can get to those brands and retailers directly?”
Needless to say the silence after that conversation was deafening. This was retail thinking driven by a brick and mortar only mentality.
So fast forward 20+ years. Malls are taking it on the chin. They are scrambling to figure out how to get foot traffic into their physical locations. Many have turned to more experiential type tenants – restaurants, salons, gyms, medical offices or amusement park style operators (visit the Mall of America in Minnesota for a true experience). Some have looked to add residential inventory as well – or built around a larger attraction such as a sports venue. The Atlanta Braves’ new baseball park, Truist Park, is built with an outdoor mall and residential space – the Battery.
But many malls are still stuck with massive anchor footprints, a reminder of the Jurassic time in retail. Some are looking to bring grocers into those spaces. A local mall in the Boston region added a Wegmans a few years ago, hoping to attract foot traffic. And now, some mall owners are considering bringing in their biggest nemesis of all – Amazon – into that space. Here is why that might not be as bad as some believe:
- Create some buzz – want to bring your property some buzz? Let Amazon put up a distribution center. The local media will certainly pick up on it. There will be news reports on the automation that Amazon will be using to fulfill orders, clips of the boxes zipping around the conveyors and on Kiva Robots. There will be talk of how many employees the fulfillment center will now employ.
- Amazon employed foot traffic – maybe a small victory, but any mall should be happy to have bump in terms of having “guaranteed” foot traffic as Amazon employees will be present through out the day. There is the potential for these employees to become patrons of the other services within the mall. Maybe that is fool’s gold. But at least there is some opportunity to have a pseudo captured audience.
- Incentivize Amazon to do more than simply deliver – Malls who look to Amazon to take some fo the real estate space, should work with Amazon to not simply use the space to do last mile order fulfillment, but also BOPAC (buy online pick up at curb). Think of it. What do malls have other than a lot of physical store space? Lots of parking and are usually located in convenient geographic locations. Amazon could offer customers the ability to come and pick up their orders as well. Create designated curb side pick up spots, create spots where patrons can pick up merchandise but also park for a period of time in case they want to also go into the mall to pick up something. Could Amazon take some of the real estate and create seasonal stores – small footprint stores with the high demand merchandise and other Amazon products. Much like what they already do with their pop up and other physical stores now. Finally leverage this footprint to process returns. Maybe once the patrons return items, they might also stop at the food court or see what is going on in the mall.
- Leverage the Amazon fulfillment know how – This might be a stretch, but what if the Amazon fulfillment anchor tenants, also took on last mile fulfillment for the other tenants on the property. Amazon is already working on becoming a 3PL, delivering and fulfilling for other brands and retailers. Imagine if as an anchor tenant, Amazon worked with the other tenants to deliver merchandise from the stores. Either last mile fulfillment or BOPAC. Of course they would make their money in the services they offered. While the tenants would be able to take advantage of the fulfillment infrastructure and knowledge of Amazon. This may feel like giving up even more to Amazon, but sometimes if you can’t beat them, join them.
While I am sure that mall owners would prefer that their anchor tenants were not named Amazon and that they could still draw the foot traffic needed to make the property profitable, those times are in the rear view mirror. Mall owners need to face today’s reality. Having an anchor tenant such as Amazon, using the real estate to fulfill eCommerce orders, might be one of the few ways to get someone to pay for that space. But if you can work with them to offer other services such as BOPAC or become a returns hub, you now have new ways to getting people into the mall.
Yes Amazon will continue to eat at some of the mall’s core business, but might as well try to profit from their physical presence. It isn’t a pretty relationship, but it might just give malls some extended life.
The Thinking Frog 