The Anchor Store Snowball Effect

When an anchor store like Sears or Macys closes, it often triggers a downward spiral in performance for the shopping mall.

Note: Sears’ store count is now less than 1,140 which is down from 2,073 five years ago. Macy’s has announced 65 closings so far.

Not only do the malls lose the income and shopper traffic from that store’s business, but the closure often triggers “co-tenancy clauses” that allow the other mall tenants to terminate their leases or renegotiate the terms, typically with a period of lower rents, until another retailer moves into the anchor space.

To reduce losses, malls must quickly find a replacement tenant for the massive retail space that the anchor store occupied, which is difficult. Especially in malls that are hurting the worst. And when major department stores are trying to reduce their retail footprints — not open new stores. That puts the property owner in a very tough spot.

Next likely comes the rush to transform vacant mall space into non-retail space like apartments. This isn’t the specialty of most retail property owners so there’s a learning curve and potentially a JV partner. And it could be argued that the ship has already sailed on new apartment construction.

I may be stating the obvious but the nation’s worst-performing malls will be hit the hardest by the store closures.

I’ve predicted that 20% nation’s malls will be forced to transform to another use in the next 5 to 10 years. But also remember most of the retail properties in the US aren’t “malls.” They come in all shapes and sizes.

We’re in the 3rd inning of what is going to amount to the most significant retail real estate transformation in the last 70 years.

Retailers recognize that they need a much more direct to consumer, e-commerce driven business model. It’s still unclear if the average retail property owner knows that they need a new business model too. We see most property owners reacting to problems rather than getting out in front of them.


About Beau Beach, CCIM

Beau is a leading Investment Real Estate Broker, author, investor and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.

He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.

Beau leads Prowess Investment Real Estate Services which specializes in selling investment real estate for the absolute highest price the market will pay in Wisconsin, Florida and Illinois.

Considering selling? Request a free Sell For More Listing Plan to get the step-by-step blueprint to sell your property for the absolute highest price the market will pay. Request yours now at www.SellforMorePlan.com.

Beau can be reached at 414–324–4938, 561–425–9935 or Beau@ProwessIRES.com

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