Target, Walmart could replace department store anchors and save malls - Business Insider

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Malls will likely try to court grocery stores like Walmart and Target to replace department store anchors in a post-pandemic world, analysts and experts say.
The struggles of traditional department store anchors like JCPenney and Nordstrom have been heightened amid the pandemic.
As foot traffic to malls declines and the grocery sector surges, experts say that malls will look to capitalize on high grocery store foot traffic.
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As department stores like JCPenney and Nordstrom struggle, the once-celebrated "anchor" store seems to be fading into a remnant of the past.

At the same time, the pandemic has helped accelerate the growth of the grocery sector. According to experts, this pattern will likely encourage malls and shopping centers to start courting grocery stores and essential retailers like Walmart and Target to become their new anchor stores, accelerating a retail trend that was already well in place.

Grocery and big-box stores can help drive traffic to malls

Foot traffic in malls has been declining steadily, even before the pandemic. On the other hand, foot traffic to grocery stores has been relatively stable, making that sector more attractive to malls that are hungry for visitors.

"I can definitely see the allure of having one of these food retailers as part of your shopping center because they do drive footsteps," said Instinet analyst Michael Baker.

Now, with the demand and interest in grocery surging amid the pandemic, the benefit this sector holds is even more pronounced.

Target grocery — A Target store in Manhattan, New York.

According to an April report from foot-traffic tracker Placer.ai, most US grocers saw significant year-over-year growth, with especially large peaks in the second week of March. Kroger and Albertsons were the standouts, performing particularly well in terms of foot traffic. In the second week of March, both grocers exhibited a year-over-year weekly traffic growth peaking at 50% and 33%, respectively.

While Walmart and Target technically saw a decline in foot traffic during the pandemic, Placer.ai attributed this to the retailers' self-imposed restrictions to limit guests in stores.

"There is no question that shopping centers will actively court essential retailers (grocery stores, mass merchants like Walmart and Target) to their centers as more traditional anchors rapidly close stores," said Neil Stern, a senior partner at consulting firm McMillanDoolittle LLP, in an email to Business Insider.

The motive for malls, Stern said, is based on the long-term traffic that essential retailers are known to drive.

"This was a trend pre-pandemic and will likely become a bigger one post," he said.

Department stores could be the anchor stores of the past

Well before the onset of the coronavirus pandemic, department stores had been hit hard by the decline of foot traffic to American malls. In the outline regarding its restructuring process, JCPenney mentioned that having a majority of its stores in shopping malls were a large part of the company's struggles.

However, while the essence of the anchor store may be evolving, the need for larger, traffic-driving centers in malls is still present.

"Shopping malls were always built around department store anchors," said retail historian and lecturer at the University of Essex Vicki Howard, who authored the book "From Main Street to Mall: The Rise and Fall of the American Department Store."

Howard added that shopping malls should be able to adapt to the decline of the department store and find new anchors.

"But, anchors they do need," she said.

Do retailers want to be in big shopping centers?

While the allure of implementing traffic-boosting retailers is obviously attractive to a mall, it could be up to individual retailers to determine if moving into this new territory fits their overall business model and motivations.

"Dedicated parking fields, better ingress, and egress, etc. need to be factored in when grocers are looking for real estate," said Stern, adding, "I would suspect that both the retailers and the centers will get more creative to match the opportunity."

Baker said that in order for a retailer to be able to thrive in a shopping mall environment, it should be able to show a flexibility in its model. For example, Target's same-day delivery, in-store pickup, drive up, and Shipt services, which rely on the company's retail stores acting as miniature fulfillment centers to process digital orders, could make the retailer better equipped to move into an anchor store role.

It is not unheard of for malls to give supermarkets a place in a shopping complex, Howard pointed out. Though she said it remains to be seen if this will become the norm in the post-pandemic world. She also added that a grocer moving into a pre-existing anchor position might run counterproductive to a retailer's general expansion plan.

"If they are to become an anchor, I would expect it would be of a power center," she said. "And they already are serving that function in many of these strips of big box stores anyway."