The e-commerce giant has begun talks with Simon Property Group to turn its anchor stores into Amazon’s distribution hubs, as reported by the Wall Street Journal. With Simon Property Group being the largest owner of the shopping malls, the Bezos led company will expand its reach to many regions in the US if the talks are successful. The stores will allow Amazon to quickly fulfill their online orders, which will further increase their profits as people shift their shopping activities online.
As part of the deal, the agreement between the e-commerce giant and the tenants could see the former taking over the department stores that were previously owned by JCPenney and Sears. The two have filed for bankruptcy and have closed dozens of their stores over the past few months. Simon Property Group is trying its best to acquire JC Penny, a move that, if successful, would grant it substantial control over the way these spaces will be used in the future, according to WSJ. The mall owner already has in its control 63 JC Penny and 11 Sears stores meaning they are in a better position to acquire the rest compared to other players.
As Simon Property Group, the biggest mall owner in the US with a total of 204 properties, continues struggling with the closures of their retail stores that occurred even before the COVID-19 pandemic, the offer by Amazon might be the light at the end of the tunnel for the mall owner. The closures of shopping malls have been occasioned by the preference of online shopping to brick-and-mortar retail stores by the customers. The pandemic acted as a catalyst to fast change, that worsened the situation.
For other mall tenants that are sharing space with Amazon, the move might appear like an insult and will cost them the foot traffic that they rely on for sales. This will, however, depend on the amount of space that Amazon wants. The deal will be beneficial to Amazon as it will give it well-located warehouse spaces around the US. It will allow the online retailer to reduce the delivery times on shipments and, in return, increase customer satisfaction. The idea behind this is to shorten the distance between the customers and warehouses.
Even if the deal gets done, the change from retails to warehouses will not be achieved overnight. It will not be as simple as Amazon getting the space and moving in immediately. Instead, many things must be done in converting the premise from retail to a fulfillment store. That is not easy or cheap. On the other hand, landlords will likely prefer tenants that will bring in new customers to their locations, such as stores and gyms. Unlike retail stores and gyms, which will increase activity around the premise and bring potential customers, Amazon fulfillment centers will not draw customers for business around the location. These centers will not attract other people apart from their employees. However, the coronavirus pandemic, that has reduced the revenues among the landlords, will likely change their thoughts, and Simon Property Group might accept the offer.