Shoppers Prefer Staying Outdoors. That’s More Trouble for Malls.
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Shoppers Prefer Staying Outdoors. That’s More Trouble for Malls.

Bath & Body Works, Foot Locker are among retailers ditching malls for strip centers, other shopping outlets

By KATE KING
Tue, Jan 16, 2024 9:14amGrey Clock 3 min

National chains are accelerating their exit from malls for other types of retail locations, signalling more trouble for malls as consumers show a growing preference for shorter, more convenient shopping experiences.

Jewellers, shoe stores and other specialty retailers are among the operators making the shift, indicating they will continue opening at outdoor, non-mall locations such as grocery-anchored shopping centres and strip malls after finding that they perform better and typically save on costs.

“These retailers are going to grow more confident that they’re barking up the right tree as they continue to see quarter after quarter after quarter of outperformance in their off-mall locations,” said Brandon Svec, national director of U.S. retail analytics for data firm CoStar Group.

Bath & Body Works, which for years sold scented soaps and body creams to mall goers, is on track to open about 95 new locations for the fiscal year ending in February, while closing about 50, primarily in struggling malls. More than half of its 1,840 stores in the U.S. and Canada are now located outside of enclosed shopping centres.

Foot Locker said it is aiming to operate half of its North American square footage outside enclosed shopping centres by 2026, up from 36% in the third quarter.

Signet Jewelers, which owns brands such as Kay Jewelers, Zales and Jared, is closing up to 150 locations in the U.S. and U.K. by mid-2024, nearly all in traditional malls. Company executives told investors last year that off-mall locations had stronger sales margins, and about 60% of its total square footage is now outside malls.

Not all retailers are exiting from malls. Publicly traded mall owners Simon Property Group and Macerich, which primarily own higher-end centres, have reported record-high leasing volume over the past year as retailers such as Hermès, Warby Parker and Alo Yoga have taken space.

But foot traffic to U.S. malls was down 4% on average in 2023 from the prior year, and about 12% lower than 2019 levels, according to real-estate data firm Green Street.

Low-end malls have seen the biggest drops in customer visits, partially because department stores have closed in higher numbers at these properties since 2017.

Online-sales data have also helped retailers pinpoint locations for successful stores with better accuracy than in the past.

“You know where your customer is buying and where they live,” said Scott Lipesky, chief financial and operating officer for Abercrombie & Fitch. “We’re looking at this digital shipping data, and we just plop a store down in the middle of it.”

Recently, Abercrombie & Fitch has been opening in city shopping districts in an effort to get closer to younger millennials and recent college graduates.

Visits to outdoor shopping centres have increased since the pandemic as the rise in remote work has given people the time and flexibility to run errands more frequently and closer to home.

Outdoor shopping and strip centres also appeal to retailers who are increasingly allowing customers to pick up or return items bought online, CoStar’s Svec said. These shoppers want to get in and out of stores quickly, and not spend time navigating large parking garages or walking across the mall.

Increasing demand for open-air space has driven up shopping-centre rents to nearly $24 a square foot, the highest level since real-estate firm Cushman & Wakefield began tracking the metric in 2007.

But moving out of malls can still help retailers cut costs, particularly the common-area and maintenance charges that landlords pass on to tenants to help pay for the property’s upkeep.

Owners of enclosed malls are saddled with a host of additional expenses compared with open-air shopping centres, such as keeping the indoor walkways clean, repairing the heating and ventilation systems and maintaining the restrooms.

“It’s a lot more than blowing leaves out of a parking lot,” said Jim Taylor, chief executive of Brixmor Property Group, a real-estate investment trust that owns about 365 shopping centres across the U.S.

Taylor said he started to notice traditional-mall tenants moving into Brixmor centres several years ago. More recently, he has seen an increase in the types of retailers making the move, including those in the beauty, footwear, jewellery and housewares business.

“We’re seeing them come into the open-air centres because of the proximity and convenience to the customer,” he said.



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The city’s real-estate market has been hurt by high interest rates and mainland China’s economic slowdown

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Hong Kong has taken a bold step to ease a real-estate slump, scrapping a series of property taxes in an effort to turn around a market that is often seen as a proxy for the city’s beleaguered economy.

The government has removed longstanding property taxes that were imposed on nonpermanent residents, those buying a second home, or people reselling a property within two years after buying, Financial Secretary Paul Chan said in his annual budget speech on Wednesday.

The move is an attempt to revive a property market that is still one of the most expensive in the world, but that has been badly shaken by social unrest, the fallout of the government’s strict approach to containing Covid-19 and the slowdown of China’s economy . Hong Kong’s high interest rates, which track U.S. rates due to its currency peg,  have increased the pressure .

The decision to ease the tax burden could encourage more buying from people in mainland China, who have been a driving force in Hong Kong’s property market for years. Chinese tycoons, squeezed by problems at home, have  in some cases become forced sellers  of Hong Kong real estate—dealing major damage to the luxury segment.

Hong Kong’s super luxury homes  have lost more than a quarter of their value  since the middle of 2022.

The additional taxes were introduced in a series of announcements starting in 2010, when the government was focused on cooling down soaring home prices that had made Hong Kong one of the world’s least affordable property markets. They are all in the form of stamp duty, a tax imposed on property sales.

“The relevant measures are no longer necessary amidst the current economic and market conditions,” Chan said.

The tax cuts will lead to more buying and support prices in the coming months, said Eddie Kwok, senior director of valuation and advisory services at CBRE Hong Kong, a property consultant. But in the longer term, the market will remain sensitive to the level of interest rates and developers may still need to lower their prices to attract demand thanks to a stockpile of new homes, he said.

Hong Kong’s authorities had already relaxed rules last year to help revive the market, allowing home buyers to pay less upfront when buying certain properties, and cutting by half the taxes for those buying a second property and for home purchases by foreigners. By the end of 2023, the price index for private homes reached a seven-year low, according to Hong Kong’s Rating and Valuation Department.

The city’s monetary authority relaxed mortgage rules further on Wednesday, allowing potential buyers to borrow more for homes valued at around $4 million.

The shares of Hong Kong’s property developers jumped after the announcement, defying a selloff in the wider market. New World Development , Sun Hung Kai Properties and Henderson Land Development were higher in afternoon trading, clawing back some of their losses from a slide in their stock prices this year.

The city’s budget deficit will widen to about $13 billion in the coming fiscal year, which starts on April 1. That is larger than expected, Chan said. Revenues from land sales and leases, an important source of government income, will fall to about $2.5 billion, about $8.4 billion lower than the original estimate and far lower than the previous year, according to Chan.

The sweeping property measures are part of broader plans by Hong Kong’s government to prop up the city amid competition from Singapore and elsewhere. Stringent pandemic controls and anxieties about Beijing’s political crackdown led to  an exodus of local residents and foreigners  from the Asian financial centre.

But tens of thousands of Chinese nationals have arrived in the past year, the result of Hong Kong  rolling out new visa rules aimed at luring talent in 2022.

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