AMC, Bed Bath & Beyond, Belk, Cineworld, Party City and Rite Aid top Green Street’s list of the most at-risk publicly traded, mall-based anchor tenants, landing in the “critical” category, according to a new report from the firm.
As part of its analysis, Green Street tracks operational health, balance sheet, and stock performance, as well as credit agency ratings. But “the ‘critical’ category, where retailer bankruptcy is likely imminent, is far less crowded than it was in ’19 as pandemic-related bankruptcies have cleaned out a fair share of struggling retailers,” write the firm’s Vince Tibone and Emily Arft — who also say mall REIT exposure to at-risk inline retailers is “minor.” Overall, the pair say tenant watchlists are “far less crowded” than they were prior to the pandemic, and near-term bankruptcy risk is slanted toward anchor tenants.
In addition, from a merchandising standpoint, landlords are shifting away from purely apparel concepts while growing entertainment and F&B, Green Street analysts say.
“There is no one retail model for a mall’s optimal tenant mix,” Tibone and Arft say. ”Instead, landlords are appropriately re-merchandising malls to 1) match broader secular changes in consumer demand, and 2) tailor the shopping experience to better serve the local community. Apparel continues to represent less and less of a mall’s overall ecosystem. Retail is a Darwinian business that will truly never stop evolving.”
Tenant mix also varies across mall grade as well, except for department stores which typically occupy 30% of total square footage. But “apparel takes up considerably less space at lower-quality properties as national retailers have left in mass while new or expanding brands have little interest in this segment of mall real estate,” Tibone and Arft say. And while some legacy retailers like The Children’s Place and Signet Jewelers are right-sizing their footprints in response to e-commerce shifts, brands in the digitally native, entertainment, athleisure, and luxury categories are selectively expanding in some malls (but also in strip center, street retail, and stand-alone locations, Green Street analysts say).
High-end tenants are performing well on both sales and margins in the wake of COVID-19, with the latter metrics improving “dramatically” over the past few years and now are “well above” national retailers. Operating margins are slumping for middle-market national retailers, however, and sales now lag luxury tenants “by a sizable margin.”
“It appears expense and inflationary pressures have yet to make their way to many luxury retailers’ bottom lines as affluent consumers have done well since Covid,” say Tibone and Arft.
Source: “Retail Tenant Watch List ‘Far Less Crowded’ Than Pre-COVID“
