Mall operators, faced with a sharp downturn in foot traffic, are looking into the viability of converting empty commercial space into mini-fulfillment centers for their remaining retail tenants, technology vendors and analysts say.
“It’s a very real possibility,” said Max Pedro, president and co-founder of logistics technology maker Takeoff Technologies Inc. Mr. Pedro says at least one of the company’s clients, a large European mall landlord with hundreds of locations, is considering the strategy. He declined to name the client.
Malls have several advantages over outside, third-party fulfillment and logistics providers, including ready-made warehouse-sized spaces, central locations and a roster of on-site retailers, Mr. Pedro said: “It would be a huge missed opportunity.”
The pandemic has dealt a crushing blow to large mixed-retail malls, which were already struggling before the crisis. Many were declared nonessential businesses and closed by local governments as early as March. At a handful of malls that reopened in Georgia, Texas and other states in early May, foot traffic was down an average of 83% compared with the same period last year, according to Placer.ai, a research firm that uses cellphone data to track consumer behavior.
Two midsize mall owners,
CBL & Associates Properties Inc.
Pennsylvania Real Estate Investment Trust,
filed for chapter 11 bankruptcy protection this month. Many large stores that lease retail space in malls have also filed for bankruptcy in recent months, including Neiman Marcus Group and
J.C. Penney Co.
Failed malls have been an attractive target for
and DHL International GmbH, looking for strategic distribution hubs near main highways and residential areas. The sites are typically used to store products or packages ahead of last-mile deliveries to customers.
Mr. Pedro said he envisions malls operating like these fulfillment centers. Tenant retailers display a limited sample of products in stores. The bulk of their inventory is kept on site, where it can be quickly sorted and shipped by robotics systems and advanced logistics software, he said.
Across the market, a surge in e-commerce during the pandemic has pushed the development of automated warehouses and faster delivery models. U.S. e-commerce sales are expected to grow 18% to $709.78 billion this year, according to market-research firm eMarketer. Online shopping is projected to account for a record 14.5% of total retail sales, the firm reported.
By providing in-house fulfillment services, mall operators could potentially earn a share of online sales growth from its retail tenants, even as fewer shoppers crowd into physical stores, said Sucharita Kodali, an analyst at enterprise-technology research firm
Forrester Research Inc.
But she said converting space in a mall into a micro-fulfillment center is a multibillion-dollar investment, including robots, conveyor belts, order management systems and other hardware and software tools—all highly customized for different retailers and their products.
“The myth about micro-fulfillment centers is that they can apply to anything,” Ms. Kodali said. “Robots can only pick up uniform boxes.” As such, many stages of the process are likely to remain manual and cut into delivery times. Some retail tenants might not want to opt in, she said.
“I wouldn’t say it’s foolhardy, but they need to consider the opportunity cost of the real estate,” Ms. Kodali said.
Simon Property Group,
which operates more than 200 malls in the U.S., instead has held talks with Amazon to take on the task of converting some of its anchor department stores into warehouse delivery hubs.
”It’s understandable malls are wanting to reinvent themselves,” said Kelsie Marian, an analyst in Gartner Inc.’s CIO Research Group. But hardware and software costs, or even physical considerations such as low ceilings in older stores, are likely to pose challenges, she said: “For some, leasing or selling space to another fulfillment or logistics operator may be the most viable option.”
Write to Angus Loten at [email protected]
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