Outdoor Malls Proving Resilient During Pandemic
The retail sector began a limited recovery from the coronavirus pandemic during summer and fall as many states lifted some restrictions on shopping and dining, but open-air shopping centers appear to have regained more of their customers than indoor malls.
A few months ago, foot traffic at The Mayfair Collection, an outdoor mixed-use development in Wauwatosa, Wisconsin, seemed almost recovered to pre-pandemic levels, according to Brenton Schrader, the vice president of retail leasing and marketing for Chicago-based HSA Commercial Real Estate, which developed the 69-acre site. He said other nearby outdoor malls seemed to be thriving as well, while enclosed centers were struggling. Hard data confirmed those impressions.
Schrader analyzed monthly foot traffic data generated by data analytics firm Placer.ai. He found The Mayfair Collection, a group of former industrial buildings HSA renovated into a walkable outdoor retail center, was by October bringing in 93.5% of the traffic it did pre-pandemic.
He then ran the numbers for three other outdoor malls in the Chicago and Milwaukee markets, including Westfield Old Orchard in Skokie, Illinois, and 84 South in Greenfield, Wisconsin, along with four enclosed centers such as the 2.1M SF Woodfield Mall in Schaumburg, Illinois, and the 1.1M SF Southridge Mall in Greendale, Wisconsin.
As a group, the four outdoor centers attracted about 89% of their pre-pandemic traffic, while the four enclosed ones brought in 68%, according to Schrader’s analysis of Placer.ai data. The study represents just a snapshot in time for a relatively small group of properties, he added, but it may illustrate how customers adapted to the pandemic by changing their shopping habits. That behavior could harden into permanent patterns that cause a slower recovery, further endangering indoor malls, a sector already struggling with store closures and bankruptcies.
“The old-school enclosed model continues to make less and less sense,” Schrader said. “Customers appear to be returning in much greater number to outdoor malls versus enclosed malls, and it’s reasonable to assume that in light of COVID-19, customers are more comfortable traveling store to store outside.”
But according to Barrie Scardina, head of retail services, Americas for Cushman & Wakefield, it’s too early to tell how much the pandemic will damage indoor malls.
Too many changes are happening at once, she said, including the onset of colder weather and the resurgence of the coronavirus throughout the U.S., which crushed in-person shopping at both outdoor and indoor malls over the past Black Friday weekend. It is also possible the advent of vaccines will bring back a hefty chunk of customers who appreciate wandering from store to store without worrying about the weather.
“We have to be careful about making sweeping generalizations,” Scardina said.
Outdoor malls may also have had a built-in advantage when the pandemic hit, one that will vanish when vaccines become widely available, she added. Stores often designated as essential, including grocery stores, pharmacies and other medical tenants, typically stay away from enclosed spaces. That sustains traffic at developments like The Mayfair Collection, which includes a Whole Foods.
There’s also a big difference between an indoor mall with a domestic customer base and one that historically performed well with shoppers from overseas, according to Scardina. The latter group could see big bounce backs as the pandemic subsides and affluent Latin American visitors start flowing back into South Florida or other tourists begin returning to destinations such as New York City.
“People come from all over the world to spend Christmas in New York, and all of that traffic is not going to be there this year,” she said.
Many indoor malls have lost some of their cachet with shoppers, but Scardina, who works with owners and developers to reimagine these spaces, said disruption is nothing new to the sector. As consumers’ tastes changed, operators of these indoor spaces have switched between fine dining and fast food, introduced larger movie theaters or enticed e-tailers that decided to establish brick-and-mortar stores. That experience has made many nimble enough to get past COVID-19.
“Owners and developers have been for years on a transformational journey, ever since the creation of the department store 60 years ago,” she said.
The biggest recent change is a surge in online buying, a trend greatly strengthened by the pandemic but one that fell short of analyst estimates during last week's heady holiday retail kickoff.
Black Friday purchases made online hit $9B, a 22% increase over last year, according to Adobe Analytics, far lower than the $10.3B analysts had predicted. Foot traffic on Black Friday also dropped sharply, falling 52.1% from last year, Sensormatic Solutions reported.
A move online impacts all brick-and-mortar retail, and indoor centers are responding, according to Scardina. Mall of America, a 5.6M SF enclosed mall in Bloomington, Minnesota, the largest in the U.S., is one of many that made it easier for customers to buy online. It now provides Amazon Hub Lockers, which allow customers to buy products online, have them stored and pick them up whenever convenient.
The Mall of America has struggled to survive. It avoided foreclosure this year, and when it reopened for business this summer after COVID-19 restrictions eased, about 50% of its normal daily traffic returned, according to the Star-Tribune. But its owners showed the ability to adapt, Scardina said. Other indoor malls are facilitating curbside pickup for products bought online or making plans to once again host community events.
“There is a lot of ingenuity going on out there to help consumers feel safe and comfortable,” she said. “I also don’t see people giving up the opportunity to have all these unique experiences, whether it's hearing live music or going out to restaurants. The indoor mall is still the centerpiece of many communities in the U.S. and Canada, and that all bodes well for the future of indoor shopping. I feel very positive about what’s going to happen once we get vaccinations.”
Schrader said online competition will continue hollowing out some indoor locations even after vaccines arrive, partly because the cost of keeping customers cool in the summer and warm in the winter will be less sustainable as more purchases migrate online.
“It’s extremely expensive from a merchant’s perspective because the operating costs are so high, and it’s going to get harder to reconcile these operating costs with declining sales,” he said.
Schrader added that all retailers need to adapt to online competition. The Mayfair Collection, which first opened in 2014 and has about 400K SF of retail, provides off-price clothing stores such as Nordstrom Rack and T.J. Maxx, as well as furniture outlets like HomeGoods, which all perform well against the internet.
“Strategically, we always felt that’s where this model was headed,” he said, adding that the resilience of outdoor shopping throughout much of the pandemic provides an extra boost of confidence. “We’re almost back to pre-pandemic levels, which given everything we’ve gone through, we’re happy to be there.”