How will the Lord & Taylor closure impact Eastview?
Malls and their anchor tenants were facing difficult times even before the coronavirus
The closing of Lord & Taylor, one of the country's oldest department stores, comes on the heels of a wave of retail bankruptcies and closures across the nation.
The iconic department store, which has a store in Victor's Eastview Mall, filed for bankruptcy protection in the Eastern Court of Virginia on Sunday, Aug. 2, after not being able to recover from the pandemic shutdown that impacted the entire retail sector.
Since May, numerous stores have sought Chapter 11 protection, including: Ascena Retail Group, parent company of Justice, Ann Taylor and Lane Bryant; New York & Company's parent company RTW Retailwinds; Lucky Brand; J.C. Penney; Brooks Brothers; Sur La Table; Neiman Marcus; Tuesday Morning; Tailored Brands; GNC; and J. Crew.
The parent company of suit sellers Men's Wearhouse and Jos. A. Bank also filed for Chapter 11 bankruptcy protection Aug. 2 after recently announcing plans to permanently close up to 500 stores.
Eastview is owned and operated by Wilmorite.
"The retail industry was hit particularly hard by this pandemic, but the shopping center industry has been struggling over the past decade," said Tom Wilmot, chairman of Wilmorite, in a statement in May.
Wilmorite also operates Marketplace Mall in Henrietta, the Mall at Greece Ridge and Pittsford Plaza.
"We have been blessed in Rochester to have had viable malls, but this pandemic has put everyone on shaky ground, and we cannot sustain a long-term shutdown," Wilmot said. "Many tenants have filed bankruptcy and will not be re-opening, directly impacting the local economy."
Another anchor store at Eastview, Sears, which closed at the mall last November, is making way for a new Dick's Sporting Goods store at the site.
In 2018, Apple made an investment in the mall at the former Rite Aid site. The new store is more than double the size of the previous site, located in the same wing of the mall near Starbucks. Other upscale retailers in that wing include lululemon and Michael Kors. Stores that are specific to Eastview Mall include Pottery Barn, J. Jill and Vera Bradley.
The Lord & Taylor store at Eastview Mall reopened much later after the pandemic shutdown, even as neighboring department stores Von Maur and Macy's opened.
Mall manager Mike Kauffman said he does not have any information beyond that the store will be closing. He said the mall will "look at it as an opportunity to bring in a stronger tenant."
Hilco Merchant Resources and Gordon Brothers are managing the store closing sales. According to a news release, the "closing stores feature an abundant assortment of merchandise at significant price reductions" including brands DKNY, Nike, Ralph Lauren and Tommy Bahama.
Some shoppers seem to be taking the news of the closure in stride while others are sad.
Toni Weasner of Brighton said she's been disappointed in Lord & Taylor after its former parent company Hudson Bay sold it to French-based Le Tote last year.
"They looked like Marshall's," Weasner said. "Customer service had gone downhill."
Heidi LaDuca of Webster said she will miss the department store.
"It's the end of an era," said LaDuca, a mother of four.
Can shopping malls survive the pandemic?
Just when many shopping malls had finally figured out how to adapt to the era of digital retail, the coronavirus pandemic upended everything.
Having seen their recent move toward dining, entertainment, fitness and personal services come to a screeching halt — a pivot that was supposed to help them survive the Amazon age — malls throughout America are suddenly running out of time.
With J.C. Penney trying to avoid liquidation, smaller retailers closing or requesting rent relief, and venues like theaters still temporarily shut down due to COVID-19, anywhere from 1 in 4 malls to 1 in 2 could go out of business altogether, analysts projected.
“The whole business model of a mall, which is about pulling in as many people as you can and getting them to stay for as long as you can, has just unraveled,” said Neil Saunders, managing director of consultancy GlobalData Retail.
The bleak turn of events has provided more fuel to online retailers already swiping market share away from malls that were relying on diminishing foot traffic to apparel shops and department stores in particular.
“There are malls that this crisis will accelerate their closure, no doubt,” said Kat Cole, president and chief operating officer of Focus Brands, parent company of mall classics like Cinnabon and Auntie Anne’s. “How many is anybody’s guess, but we’re hoping it’s a minority.”
Analysts at Coresight Research, which tracks retail closures, projected that about 25% of America’s malls would disappear within the next three to five years.
But that could rise to as many as 50% “if we can’t stop the bleeding,” Coresight CEO Deborah Weinswig said in an interview. “That ends up changing the face of America.”
In general, analysts say that high-end “A” malls are in the best shape because their luxury retail tenants have higher profit margins and thus are better able to withstand the downturn. But so-called “B” and “C” malls, which have lower-priced stores and more vacancies, are facing a high risk of closure.
“They’re trying to plug the holes in a dam,” Weinswig said.
Even malls that bet big on in-person experiences that were considered to be extremely resilient in the age of digital retail are suddenly experiencing nothing but pain.
“A lot of the things that malls have built-in like gyms, movie theaters and restaurants, food service are just not able to operate and pull in customers the way they once did,” Saunders said. “They’re either having to shut down or limit capacity or customers are very reluctant to go there.”
Mall occupancy rates hit their lowest level in at least a decade in the second quarter of 2020 at 94.4%, according to CoStar Group, which tracks real estate.
Eastview Mall's occupancy rate consistently exceeded 90% through the years. The current occupancy rate at Eastview Mall is 88% — with a goal of being at 90% by the spring 2021.
Retailers filing for bankruptcy
While some retailers have flourished during the pandemic, nearly all of them — such as Walmart, Target, Kroger and Home Depot — offered essential services of some kind, including groceries and home improvement goods. Few are typically located in malls.
On the other hand, department stores and apparel retailers, which dominate most malls, have been floundering. And many are already facing existential crises.
Recent Chapter 11 bankruptcy filings have included department store chains J.C. Penney and Neiman Marcus as well as apparel retailers Brooks Brothers and J. Crew. Those four have said they hope to use the restructuring process to cut debt and emerge as more sustainable companies.
But their plans also include hundreds of store closures, including 242 planned by J.C. Penney alone, raising the prospect that malls throughout the country will be hollowed out in the coming months.
Retailers have already announced the closure of more than 80 million square feet of space so far in 2020, according to CoStar. That compared with 114 million for all of 2019, which had the liquidation of Payless ShoeSource, Gymboree and Charlotte Russe.
“Malls are going to certainly see a lot of those closures. And I think that mall owners are going to have to get creative in order to survive,” CoStar consultant Robin Trantham said.
Bill Taubman, chief operating officer of Taubman Centers, one of the largest mall property owners in the country, pointed out that most of the retailers that have tumbled into bankruptcy in recent months had significant challenges before the pandemic erupted.
For example, J.C. Penney, Neiman Marcus and J. Crew had billions of dollars in debt that weighed them down, placing them on watch-lists for Chapter 11.
“The COVID crisis has impacted them in a way that has deteriorated their business plan. I can agree with that for sure. But I don't know that COVID was the cause of the issue to begin with,” Taubman said.
But he acknowledged that the pandemic will require malls to adapt their approach, especially because retail leasing is not expected to rebound quickly, even if a vaccine ultimately puts an end to the crisis.
“I think we're seeing a higher rate of evolution right now than we have in the past and we're going to have to move,” Taubman said. “But there are so many new tenants out there that are interested in space and interested in experiencing bricks and mortar and I don't think that's going to fade. I think it's going to take a hiatus for a while because people don't have the money right now.”
The challenges facing department stores, in particular, are especially problematic for malls — and not just because of the foot traffic they’re supposed to deliver. Many malls also have clauses in their leases that allow other, smaller tenants to leave if anchor tenants drop out.
“The department store is just a format that does not work anymore,” said Chris Kuiper, a CFRA Research stock analyst who tracks mall companies. “People don’t want to wade through a four-story megastore to find a couple of items. So instead of these anchors being a traffic generator, they became an anchor in a literal sense, dragging down these malls.”
Experiential model fades
The great hope for malls was supposed to be a sharp pivot toward experiences and services. But in-person, indoor interaction is considered one of the riskiest activities during the pandemic — and thus many of those operations have been shut down for months, with little promise of reopening soon amid an outbreak in states like Texas, Arizona and Florida.
“That has unfortunately turned into a massive liability because those are the things that are going to stay closed,” Kuiper said. “So they’re really facing no good options at this point.”
The key question is whether the experiential model is finished or simply on hold.
Philadelphia resident Marta Rusek, 35, considers herself a lifelong mall shopper and before the pandemic was regularly going to the AMC movie theater at her local mall.
Now, Rusek, who works as a nonprofit organizer and has a compromised immune system, has no plans to return anytime soon. She even recently dreamt about going to a mall again but called it a “COVID-19 nightmare” because in the dream she accidentally left her mask at home.
“I'm not going to feel safe going into the theater or being around large crowds of people until the day those magic words that ‘there's a vaccine available and it's over’ are spoken,” Rusek said.
On that day, malls that had bet on food, entertainment, fitness centers and other services could zoom right back to the front of the pack.
Michael Brown, a partner in the consumer practice of global strategy and management consultancy Kearney who has studied the future of retail, said the experiential model remains compelling for malls in the long run.
“We all believe that the COVID pandemic is temporary. We don’t know if it’s temporary for six, 12, 18 months or longer, but it is temporary,” Brown said. “At some point in time, we will gather in public together to enjoy dining or entertainment or sports or recreation together. That’s why we say this is really just an accelerator. The strong will survive, but they will take a financial hit in the short term.”
Brown rejected the suggestion that Americans will stay away from mall restaurants, for example, after the pandemic.
“Dining at home is nice, but the food doesn’t arrive as hot, it’s not presented as well and somebody always has to do the dishes when you’re done,” Brown said. “So it’s not a substitute for dining out.”
Despite short-term difficulties for tenants like fitness centers, which have been forced to shut down in many states, malls are still likely to move in that direction when this is over if only because of the pressure e-commerce continues to place on physical stores, CoStar’s Trantham said.
“While it may take a while for fitness centers and restaurants to expand at the same rate as they were before, we will still believe that they will recover eventually,” Trantham said.
In the long run, mall property owners may need to pivot once again, turning toward alternative options for their space, like hotels, apartments, or online product fulfillment centers, analysts say.
“Real estate is real estate, so if you’ve got a good piece of land you can turn that into something totally different,” Kuiper said.
They also need to invest in new ideas like consolidated areas within the mall where shoppers can pick up products that they bought online from retailers located inside the mall, analysts said.
However, many malls can’t make long-term plans right now. They’re too busy dealing with the present.
For example, mall owner CBL & Associates warned in a public filing that it faces a risk of going out of business. The company missed a key interest payment in June, having racked up about $4.5 billion in debt.
CBL, which has 108 properties in 26 states, reported rental revenue of $161 million in the first quarter, down 18.5% from a year earlier, as store closures, rent concessions and bankruptcies took a toll.
“There’s just too much debt on these assets that will never produce that level of cash flow anymore,” Kuiper said.