Are Grocery Stores Replacing Department Stores as Shopping Mall Anchor Tenants?

For decades, large shopping malls have been home to big name department stores such as Macy’s, Sears, and J.C. Penney. However, in the midst of the retail apocalypse and with an estimated 8,600 store closures in 2019 alone, many of these large department stores have experienced bankruptcies or major store shut downs, creating an excess of vacant mall space nationwide. Large grocery chains, such as Whole Foods, The Fresh Market, and Lidl have begun taking advantage of these vacant spaces, which enable them to become a mall’s anchor tenant, or at least the largest and most prominent store in a retail commercial real estate development.

As shopping patterns continue to shift from traditional in-store purchases to e-commerce, it is becoming clearer that department stores no longer hold the value to shoppers that they once did. However, even as grocers have started offering curbside pickup options, most people still prefer to shop for their groceries in person. In fact, approximately 84% of Americans say that they prefer the in-store grocery shopping experience because of the ability to inspect and pick their own products.

Some developers have already begun to incorporate grocery retailers into their designs, and with good reasoning. According to Coldwell Banker Commercial Atlantic, despite the number of malls failing in the United States, the majority of those that are still turning a profit are anchored by grocery stores. Additionally, 48% of retail investors cite grocery-anchored centers as their preferred retail investment because of their staying power. With their high demand, grocery stores could indeed create the next wave of mall anchor tenants.

 

Why are grocers attracted to vacant department store space?

With U.S. openings increasing 30% in 2018, grocery is one of the strongest retail sectors, with investments totaling $9.9 billion. Amidst the sector’s expansion of store locations and investment growth, vacant department store space can be viewed as an opportunity to supplement retail growth.

For grocery retailers, vacant department stores offer high visibility and accessible parking – two important attributes that retailers typically consider during the site selection process. These opportunities have created a natural attraction between grocers and shopping malls.

 

How do shopping malls benefit from having retail grocery stores as anchor tenants?

While the concept of placing a grocery store within a mall is not new, the urgency for reviving suffering shopping malls has contributed to it being a rapidly emerging trend. In 2018, Coldwell Banker reported that at least 430 anchor department stores would be closing their doors. As the number of closures continues to grow, modern mall owners and developers are recognizing more than ever before the need for filling newly vacant space with retailers that will produce steady foot traffic – and grocery stores are quickly becoming a top candidate.

Shoppers in the U.S. shop for food an average of 2.2 times per week, meaning that grocery anchor tenants could drive weekly mall visits. Not only does this provide stability for the mall, but it also brings people in on a more consistent and predictable basis while providing shoppers with added convenience.

Food retailers remain a regular destination for millions of American as opposed to department stores, which continue to struggle in the face of e-commerce. In fact, the Local Search Association reports that 80% of consumers are still in-store grocery shoppers, even with the introduction of online order and pickup options. And research by General Growth Properties reports that nearly 50% of shoppers are open to the idea of having a supermarket located in the mall.

 

The future of grocery-anchored shopping malls is perhaps more relevant now than ever before as more and more big name department stores continue to shut down. Grocery stores will always be needed because people will always need food and household items. Despite the fact that e-commerce is dominating most retailers, online grocery sales account for less than 10% of all online transactions. As grocery-anchored shopping malls continue to gain traction amongst developers and investors, the expected growth is exponential.

 

Read What Makes Grocery Stores a CRE Stronghold in the Turbulent Retail Sector? to learn more about how grocery stores are impacting the retail sector of commercial real estate.