Malls: Will Your Anchor Hold?

From a mall operator’s perspective, the reason for allocating prime shopping locations to department stores is simple: they attract repeat shoppers who will later visit the mall’s smaller brands. These so-called ‘anchor stores’ were once, unquestionably, the keystone in the business strategy for shopping malls the world over.

Since the nineteen-fifties, mall construction has been contingent upon investors securing prestigious department stores as anchor tenants. Developers calculate that the image and reputation of anchor stores helps them lease space to second tier tenants, who, in turn, attract more shoppers, enabling them to achieve their target return on investment.

Given their traditional special status, anchor stores tend to enjoy below market rents and long-term leases, enabling marginally profitable stores to continue to operate for years beyond what smaller tenants would be permitted.

However, times are changing and the actual contribution of anchor stores is coming under increasing scrutiny. Landlords are keen to promote a new generation of retailers that will meet the changing needs of their target demographic and drive shoppers back to the malls.

Landlords need to become much more proactive in trying buy back space from anchor store tenants. Agreeing sale prices that incentivises them to downsize, relocate, or exit a shopping mall won’t be easy, nor will the cost of redeveloping the space come cheap.

However, if both parties can reach agreement, a potential win-win-win situation could arise: (i) landlords replace low-rent anchors with new brands paying several times more per square foot to occupy the sub-divided space; (ii) mall operators share the benefits of increased footfall associated with tenant churn as attractive apparel, footwear, home fashion, gyms, restaurants, and entertainment brands take centre stage; and (iii) anchor store tenants are afforded the opportunity to reinvent the brand and reinvigorate their merchandise proposition.

Since the first shopping mall was opened in Edina, Minnesota in 1952, only now is the accepted dogma is finally being challenged.

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