Coming to a Mall Near You: Amazon

Amazon is reportedly exploring putting warehouses in malls across suburban America. What will its retail neighbors think?

Picture it: on one side of the property sits luxury apartments, a trendy new gym, and a food court featuring a trifecta of fancy new restaurants designed to draw in young consumers with money to spend. And on the other side is … a bustling Amazon warehouse with forklifts beeping constantly as they load up a fleet of cargo trucks.

It could happen. In suburbs across America, as mall owners seek to repurpose vacant space from retailers who have succumbed to disruption or COVID-19, one possible new—and large—tenant could be Amazon. According to news accounts, the retail giant is talking about converting some former Sears and JCPenney mall anchor stores into warehouses.

“Mall owners need to come up with new mixed-use spaces, and there is an obvious need for fulfillment centers given the acceleration of e-commerce because of the pandemic,” says Denise Kramp, a Korn Ferry senior client partner and the firm’s North America retail sector leader.

To be sure, Amazon’s need to be closer to its consumers for faster delivery makes malls attractive. But the challenges aren’t about logistics. One issue, says Kramp, is that many mall specialty stores have clauses that allow them to get out of their leases if an anchor tenant leaves. Mall tenants are desperate for foot traffic, which was already on the decline by double-digit percentages before the pandemic, and a warehouse isn’t likely to help bring people in to shop.

Another challenge is incorporating a warehouse into the look and feel of a mixed-use mall space, says Cameron Scott, a principal in Korn Ferry’s global real estate practice. “Cutting the original retail space into pieces to create a different layout for a warehouse and adding docks for trucks could impact the shopping experience,” Scott says. But, she adds, Amazon could carve out the piece of the store that connects to the mall for one of its own retail stores, keeping its distribution functions in the back, walled off from view.

In fact, Craig Rowley, a senior client partner with Korn Ferry and the firm’s global practice leader for the consumer sector, says reserving part of the space for Amazon stores could actually spur foot traffic to the mall. The reason: returns. “People hate having to return stuff in an envelope,” says Rowley. “They’d rather drive to the store to return something.” Having more Amazon stores within driving distance to return goods purchased on the platform, plus offering the ability to buy online and pick up in store, could get more shoppers into the mall—or at least more than other previous and potential tenants could.

Moreover, most of the malls that lack anchor tenants aren’t in prime real estate locations—they are in the mid- and smaller-sized suburbs where owners need to experiment with new ways to drive foot traffic. As Scott notes only somewhat facetiously, Amazon warehouses are so technically advanced that “people might come out just to see them.”