For the most part, Macy’s, Sears, and JCPenney are all trying to survive “the Amazon effect.” Shoppers have shifted allegiance significantly toward online shopping and department stores are now scrambling to keep up. Unfortunately for them Amazon saw this trend much sooner and may have an insurmountable lead. All three chains have announced many store closings in recent years, and regional shopping center landlords should not get comfortable anytime soon.
In hindsight, we should have seen this coming long ago. In our May 2014 issue of KeyPoints we cited Green Street Advisors, which indicated that nearly half of enclosed and open-air regional malls were anchored by Sears and JCPenney. It also noted that one-quarter of Sears and JCPenney-anchored malls had mall shop sales productivity of less than $300 per square foot, an established benchmark in determining the long-term viability of malls.
Although we have recently heard about a combined total of 218 Macy’s and Sears/Kmart store closings in the coming year, we have not yet seen a number announced for JCPenney. But its CEO stated just this month that it is planning to close some of its 1,014 stores soon. Although he didn’t say how many, Cowen and Company analyst Oliver Chen said that Penney’s could ultimately chop its count by some 30%.
Looking at our own backyard, what does all of this mean for the future of malls in Eastern Massachusetts? For A-level properties, it likely doesn’t mean much; I include in that bunch the “Big Four”: Natick Mall, North Shore Mall, South Shore Mall, and Burlington Mall. All Nordstrom-anchored, all with a fashion-heavy mix, these are “want-based” centers, to use a phrase coined by shopping center designer Yaromir Steiner several years ago. By Steiner’s definition, want-based centers are those that include experiential and aspirational tenants. These four malls fit that description. Although all are anchored by at least two of the aforementioned troubled department store firms, their long-term viability should not be questioned. Cambridgeside Galleria, although anchored by both Macy’s and Sears, also is on solid ground, serving a densely populated urban market and maintaining a close-to-full occupancy level.
At the other end of the spectrum, we find regionals malls such as Silver City Galleria in Taunton, which includes a vacant JCPenney store, unoccupied since 2015, and will be losing Macy’s in the next couple of months. It’s surprising that Sears remains open there - reportedly a poor performing store. Don’t be surprised, however, if that’s the next shoe to drop. Consequently, mall shops will feel the impact of reduced foot traffic, leading to the strong possibility that overall occupancy levels will decrease further, ultimately leading to mall demise. Swansea Mall is another problem shopping center anchored by Macy’s and a vacant Sears store. It was recently announced that the Sears space there is a potential site for the Swansea town hall.
Then there are those regional shopping centers holding tentative positions in the market. Let’s talk about Emerald Square in North Attleboro. In the past decade, it has seen market share erode as a result of competitive developments including Patriot Place, Mansfield Crossing and Legacy Place, which all constrain the customer draw from the north. Emerald Square is reportedly a marginal performer and Macy’s is vastly overstored there, operating two anchor positions that combine for 305,000 square feet. Other anchors include Sears and JCPenney, which does not bode well for fashion retailing in a mall setting. If you’re forming a watch list, this is one to keep an eye on. Another mall that requires a finger on the pulse is Westgate Mall in Brockton. With the closing of the Macy’s store imminent, this center will be left with Sears as the only department store anchor. It remains to be seen if Sears and the mall shops can withstand the loss of foot traffic and still remain viable.
One mall owner should be given some credit for its remerchandising efforts: Pyramid Companies has reinvented the former Independence Mall in Kingston, currently known as the Kingston Collection, as largely an entertainment venue. But Macy’s continues to operate there, and nothing has been done with a vacant Sears unit. At Auburn Mall, Simon is finally planning primarily a medical office use replacement for the vacant Macy’s Home Store. But Macy’s and Sears remain anchors, and questions remain regarding their future.
Until we see a store closing list for JCPenney, it will be difficult to accurately assess the damage these potential vacancies will have on malls. There are six still operating in Eastern Massachusetts. The region already includes vacant Penney stores in Hanover and Taunton, and in Natick a third is being retrofitted to include Wegmans and additional space.
As we wait for the next closing announcements, it’s understandable why mall owners remain on edge – and may continue to lose sleep - as we start a new year.
Bob Sheehan, Vice President of Research
BSheehan@KeyPointPartners.com
