Amazon is in talks with a property developer to transform struggling department stores into distribution hubs, hoping to speed up delivery in residential areas.
For the Simon Property Group, department stores like JC Penney and Sears once served as valuable sources of income. Now, both companies have closed stores across the US and applied for Chapter 11 bankruptcy protection.
Simon has dozens of both retailers in its malls, and is reportedly considering turning its sprawling mall real estate into Amazon distribution hubs. It remains unclear just how many stores are under consideration and, according to sources, it is possible the two sides will fail to reach an agreement.
Malls have been struggling financially for quite some time. While shoppers once made the trek to their closest mall for a day of shopping, many now buy online instead. The spread of the coronavirus, which forced malls across the US to close temporarily and limit the number of shoppers even after reopening, has only made the situation worse.
A deal with Simon would be consistent with Amazon’s efforts to boost its number of distribution hubs and speed up deliveries to residential areas, and this isn’t the first time Amazon has turned to mall real estate for its distribution hubs. In 2019, the company announced plans to transform the Rolling Acres Mall in Akron, Ohio into a distribution hub.
Though location and lease length often influence prices, department stores pay anywhere between $4 a square foot and $19 a square foot when renting retail space. Per The Wall Street Journal though, should the deal go through, Simon is likely to rent the space to Amazon at a considerable discount.
There’s no denying that at this point, malls are hurting for money. As Camille Renshaw, chief executive officer of real-estate investment brokerage firm B+E, told the Journal: "To replace department stores, mall owners considered schools, medical offices and senior living. With the current pandemic, industrial is the only thing left now."
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