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Simon Property Group Inc., the largest owner of shopping mall in the US, has been in talks with Amazon.com Inc. to turn some of their anchor department store spaces into Amazon tracking centers, according to people familiar with the matter.
For Amazon, more tracking centers near residential neighborhoods would accelerate the crucial last mile of delivery. For Simon, the turnaround of what was once a prime shopping center for fulfillment centers shows that it would be willing to give up an essential way to bring in more shopping center to secure a rigid tenant.
Simon’s conversations with the online retailer have been going on for months and began before the coronavirus pandemic, these people said. The two companies have been investigating the conversion of stores previously owned by JC Penney Co. Inc. and Sears Holdings Corp. in Amazon distribution centers; in some cases, Simon and Amazon investigated the purchase of occupied space by retailers, these people said.
It was not clear how many stores are being considered for Amazon, and it is possible that both sides could not reach an agreement, people informed about the matter. Simon malls have 63 Penney and 11 Sears stores, according to their latest public record in May.
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Simon, which is the largest U.S. shopping center by number of shopping malls, is also considering other options for its vacant space for large boxes, say people familiar with the business.
| Ticker | Security | Last | Change | Change% |
|---|---|---|---|---|
| AMZN | AMAZON.COM INC. | 3,167.46 | -57.54 | -1.78% |
| SPG | SIMON PROPERTY GROUP INC. | 62.19 | +0.99 | + 1.62% |
A number of U.S. malls are already doing business with Amazon, such as parking parking lots the size of Amazon’s fleets. But for Simon to rent a large, well-located indoor location would be the rare instance of a large shopping mall operator offering prime retail space to Amazon.
“To replace department stores, consider shopping malls, medical offices and senior housing,” said Camille Renshaw, CEO of B + E, a real estate investment firm. “With today’s pandemic, industry is the only thing left now.”
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A hookup between Simon and Amazon would show how retail and logistics – especially delivery for the critical last mile – are merging faster.
Many retailers are using their stores as mini-tracking centers to speed up the delivery of online purchases, especially since the pandemic became a new alternative to their own retailers and sidewalk pickup. Amazon would likely use the department store space for a smaller version of its enormous distribution centers, and rely on vans to navigate suburban streets, analysts said.
Simon Property said it has hired logistics companies with some rental homes for retailers to help with their need for fulfillment. Shopping center owner Washington Prime Group also has a new venture that rents space to retailers like Dick’s Sporting Goods for inventory.
Shopping malls’ strategic locations often make them attractive as distribution buttons. Many are close to highways and residential areas. Amazon has already purchased the pages from some failed shopping malls and converted them to follow-up malls. FedEx Corp. and DHL International GmbH have done the same.
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Amazon has also been in talks with multiple mall tenants about placing its upcoming chain for supermarkets in JC Penney locations, according to a person familiar with the matter, although it could not be determined if that contained Simon malls.
Simon’s negotiations with Amazon also illustrate how critical it is for large mall operators to fill vacancies for large vacancies, and the kind of compromises they may be willing to make. Sears and JC Penney have filed for bankruptcy protection and each remains dozens of stores closed. Other department stores such as Lord & Taylor also filed for bankruptcy earlier this month, while Nordstrom Inc. closed 16 stores in recent months.
These spaces with large boxes are typically more than 100,000 square feet and often span more than one level. Smaller mall tenants have relied on traffic to department stores to pass on to neighboring retailers, and many have closets that allow them to reduce rents or break their lease if the department store remains empty.
Having an Amazon tracking center could still pull off some of these co-tenancy clauses, but some landlords say that even that scenario would be preferable to keeping that gushing space empty.
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Still, Simon’s other tenants may not enter into a deal with Amazon. Many blame the giant online retailer for disrupting their business. Its presence as a new neighbor would probably not do much to pacify them, especially as Amazon’s new distribution capabilities in well-located Simon shopping center helped make it even more competitive by helping speed up delivery times.
Filling centers would not attract much extra foot traffic to the mall, although some employees could eat and shop at the mall. Therefore, landlords prefer to replace department stores with other retailers, gyms, theaters or entertainment operators. However, many of these tenants are struggling to survive during the pandemic and are not in expansion mode.
Simon would probably rent the space for a big discount on what it could pay another retailer. Warehouse rentals are typically less than $ 10 a square foot, while restaurant rentals can be multiples of that. Depending on when the leases were signed and their locations, department store rents can be as low as $ 4 a square foot or as high as $ 19 a square foot.
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But Amazon’s growth and healthy balance would make it a reliable tenant at a time when most retail business has been hit by the pandemic. Simon, who owns 204 properties in the U.S., has struggled in recent years with a rise in retail stores, which accelerated during Covid-19.
Simon and Brookfield Property Group filed a joint bid for JC Penney Co., which filed for bankruptcy in May. By taking over the department store chain, it gives them control over the store space and certain rights, such as making changes to the parking structure, exits and access to shared space and roads.
