Friday, January 8, 2016

Anchors aweigh - will mall department stores be replaced?

A PYMNTS article linked to a Tampa Bay Times article that quoted retail analyst Jeff Green. Green was speaking about the diminishing relevance of department stores to shopping malls. Department stores such as Sears and Macys were traditionally known as "anchor stores" for malls, but as the department store chains have consolidated and Amazon takes over the world, there are a lot of empty spaces in malls these days.

Within his quote, Jeff Green said something that I didn't know:

[Anchor stores] don't pay rent, so they're costly to a center if they don't bring in shoppers.

Perhaps you already knew about the rent benefits to anchors, but I didn't.

Why would an anchor store pay no rent, or reduced rent? Because of the benefit of having the anchor store associated with your mall. Back in the day, Joe Mallman was building his mall out in Suburb City, and Montgomery Ward would come up to him and say, "Joe, if you want to get people to your new mall, then you have to have Montgomery Ward at your mall. And if you're really nice to us, then perhaps we'll place one of our stores in your mall."

Well, the landscape has changed now, and malls don't necessarily need the few remaining department store chains to survive. Who do they need? Ask Laura Northrup:

I only go to the mall when one of my Apple products breaks or I want to test makeup.

So guess who gets the rent breaks at malls these days?

The WSJ interviewed mall business insiders who explained that putting an Apple Store in a mall can raise total sales by as much as 10%, even though the store fits in only a tiny part of the mall’s retail space.

However, Northrup notes that this is a macro view of the mall - the numbers look really good to the people who operate the mall. However, the numbers may not make a lot of difference to other stores within the mall. Just because someone spends $1,500 on a new Apple Computer, that doesn't necessarily mean that the person will walk down the hall to the clothing store next door and buy stuff there also.

But perhaps the person will go to Ulta and test some makeup.
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