The ongoing shopper exodus from malls has landed another two companies in bankruptcy court protection.
CBL Properties, a large Tennessee-based developer, and Philadelphia’s Pennsylvania Real Estate Investment Trust (PREIT) have each filed for Chapter 11 protection since Sunday as they look to fix their finances and make a go of it in an increasingly tough climate for their properties.
Mall owners have been slammed by a one-two punch as many tenants, notably Gap Inc., have stopped paying rent or negotiated reductions as the pandemic forced them to shutter stores in the spring, and a number of large tenants, including J.C. Penney and Macy’s, have left some malls for good.
Those trends have been tough for all mall operators, but even more so for companies like CBL, whose 107-property portfolio is made up primarily of so-called B-malls and C-malls—lower-quality malls as measured by sales per square foot. Those properties are typically occupied by weak tenants and haven’t been remodeled in years. Even the biggest mall operator, Simon Property Group, whose malls are mostly higher-end, is struggling amid the same forces.
Even as shoppers have resumed spending—just look at the stellar results at big-box stores like Walmart and Target—they are consolidating shopping trips and patronizing stores where they can focus on the essentials and tick off most of their errands in one place. Indeed, a recent survey by Coresight Research found that 55% of consumers were avoiding malls in favor of strip centers, where shoppers can park in front of the store of their choice and be quick about their errands.
More pain could be heading mall operators’ way: Gap Inc., long a core tenant of many malls, announced last month that it would be closing hundreds of its Gap and Banana Republic stores in the coming years, with the aim of having only 20% of outposts in mall locations by 2023.
Earlier this year, Coresight forecast that as many as 25,000 retail locations would close across the U.S., many more than in 2019 and primarily in malls. This year has seen many retailer bankruptcy filings, including J.C. Penney, J.Crew, Ann Taylor parent Ascena, Neiman Marcus, and Men’s Wearhouse.
The case of PREIT, a regional operator best known for the Fashion District center in downtown Philadelphia, offers sobering lessons for other mall developers: The operator of 19 malls had shed many of its weakest properties in recent years and opened more movie theaters, restaurants, and other non-store businesses to diversify its tenant base. Yet such businesses have also been hammered by the pandemic and failed to help the company make up for the loss of shoppers.
More must-read retail coverage from Fortune:
- The Fortune 500 gains female CEO as Coach owner Tapestry gives its interim chief the top job
- Chobani’s radical plan to take care of its hourly workers: Pay them more
- Target’s CEO says its mask-wearing requirement is about safety, not politics
- How Saks Fifth Avenue is providing luxury shoppers with “comfort food” during the pandemic
- Gap CEO: We’re not leaving all malls
