The largest mall owner in the US is in talks to turn ailing Sears and JC Penney Stores into Amazon distribution warehouses.
Simon Property group has been grappling with empty retail space at malls across the country as anchor department stores took a major hit during the pandemic and e-commerce boomed.
Now the mall company is in talks with Jeff Bezos’ Amazon to convert stores formerly or currently occupied by JC Penney or Sears into distribution hubs, as both chains filed for chapter 11 bankruptcy protection and have been closing dozens of stores across the country, according to the Wall Street Journal.
Simon Malls has 63 JC Penney stores and 11 Sears stores, according to its recent public filing in May.
Similarly Lord & Taylor filed for bankruptcy early this month, Neiman Marcus Group Ltd filed in May and Nordstrom Inc closed 16 stores in recent months.
It’s not clear just how many stores are under consideration for the Amazon transformation and it’s possible they won’t reach an agreement at all.
In the pandemic malls were temporarily closed then reopened with heavy restrictions including masks and limited crowds.
For Amazon the Simon deal is a logical effort that would bring distribution hubs near residential areas to speed up delivery times.
Simon will have to surrender key space to Amazon which would break away from the former model of relying on giant, glossy department stores to draw customers and foot traffic in.
While having an Amazon fulfilment center in a mall could lead to co-tenancy clauses, landlords say it’s better than having the space vacant.
But other vendors may fear the Amazon deal as it would disrupt business and won’t attract new, curious shoppers.
Simon would likely rent the space at a discount to what it would charge another retailer.
Warehouse rents are typically less than $10 a square foot. Depending on when leases are signed some department store rents can be as low as $4 a square foot or as high as $19 a square foot.
Amazon’s growth, especially amid the pandemic, would make it a reliable tenant, something malls need in the current economic climate.
Overall Simon owns 204 properties in the US and has faced a difficult couple of years with retail closures.
Today a number of US malls are already doing business with Amazon such as renting parking lots to Amazon’s van fleets.
But having an indoor location would be a first for a major mall operator offering prime retail space to the e-commerce giant.
‘To replace department stores, mall owners considered schools, medical offices and senior living. With the current pandemic, industrial is the only thing left now,’ Camille Renshaw, the chief executive officer of B+E, a real-estate investment brokerage firm said.
Most stores at malls already run as mini-fulfillment centers to speed up the delivery of online purchases, as the pandemic temporarily suspended in-person shopping and curbside pickup became an effective alternative.
Alternatively, Amazon has also been in talks with multiple mall landlords about putting its coming grocery-store chain in JC Penney locations, one source said.
Simon and Brookfield Property Partners are putting a joint bid for JC Penny, taking over the chain to give themselves control over the store space and rights to make changes to the parking structure.