As more and more businesses start to re-open after the pandemic-induced pause, it’s becoming something of a crapshoot whether we’ll be recognizing ‘old friends’ or bogus copies of what had been successfully operating just two months ago. The enclosed malls too are timidly opening, bearing little resemblance to what we have become accustom to.
Certainly, there is a lot of replacement staff, many of which are new to the store and more that are new to the retail industry. And the enclosed projects, while doing everything in their power to welcome customers while at the same time, providing a safe environment, much of that enthusiasm is missing. The excitement is gone, fun has taken a backseat to fear.
Over the past weeks we have learned of several large retail organizations that are reducing their presence in the Canadian retail community and others that are disappearing all together. This ‘culling of the herd’ is further decimating an already fragile industry that employees nearly 16-million people, a large percentage of which are in malls across the country. Simply by being ‘enclosed’ and whose business model calls for large crowds, the malls are especially under-the-microscope as the community attempts to return to normal. While this latest round of retail store closures will place a heavy burden on retail landlords, it is the rent deferrals that are creating financial havoc.
Several of the landlord have acknowledged the needs of their tenants and from the beginning have been granting rent deferrals to tenants that qualify, however, lately we have been hearing of these deferral discussions becoming rent re-negotiations with the threat of closing being the ultimate bargaining tool.
A big question now is, what will the mall be in the future? As we’ve seen over the past years, many of the larger malls have become fashion-centric with so many of the tenants being brand store fronts, almost brand billboards, changing frequently. Unfortunately, there doesn’t appear to be another use on the horizon to fill these space opportunities on a long term basis…………..and in order to show a stable and growing bottom line, the REIT and pension fund landlords need long term leases. As a result, we can expect to hear more talk of residential becoming a component in malls and we are sure to see an increase in buying and selling as landlords try to streamline their portfolios. Additionally, there is sure to be more landlords exploring the de-malling option. Afterall, common area doesn’t produce revenue and it’s expensive to maintain.
Of course, another difficulty that traditional retail is facing, and by extension becoming a landlord problem, is the growth in eCommerce. Showing steady growth for the past seven years, eCommerce was expected to account for ten percent of all retail sales in Canada by 2020. With the onset of Covid-19, some analysts are suggesting that it much higher and likely to grow even more.
Mall retailing is starting to look bleak. Of course, it looked bleak in the late 1970s when Hudson’s Bay acquired the Simpsons chain severely reducing the mall anchor pool, or in 1993 when the Woodward department store chain closed, stripping so many of the new at the time Western Canada malls of a full line anchor and in 1999 when the Eaton chain closed, leaving only their name on many major projects. Retailing in general looked dismal in the early 1980s when a sever global economic recession saw unemployment in Canada peaked at twelve percent, or in the early 1990s, with the introduction of the GST and companies closings across the country, or in the 2008-2009 period when the unemployment was upwards of 7.5 percent and over 150,000 people and companies chose bankruptcy. In spite of the many downturns and hiccups along the way, malls have survived……….each time adapting to the times. And you can be sure they will survive, with some changes, again………………the malls aren’t dead yet. Stay safe, wear a mask and stay six feet away………………