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After decades together, some retailers are redefining their relationships with malls.
Stores like Macy’s, Dillard’s, Belk and J.C. Penney have long been seen as pillars of stability for America’s indoor shopping malls. But in recent years, those retailers have increasingly been looking and moving off-mall. The pandemic accelerated the trend.
And now, many of the familiar specialty retailers that typically fill American mall concourses have said they plan to shrink their mall footprint too. Like the anchor stores, other retailers are increasingly looking to open-air, outlet or strip centers for their next wave of growth. They include Journeys and Foot Locker; beauty and personal care retailers like Sephora and Bath & Body Works; and apparel retailers like Express.
“There is a general trend for retailers to move off-mall and, as more centers open, this should continue across the year ahead,” GlobalData Managing Director Neil Saunders said in an email to Retail Dive. “Retailers are not completely abandoning traditional malls, but most of the new opportunities are off-mall, so this is where a lot of the development is and new store openings are focused.”
Growth opportunities are off-mall
Macy’s smaller stores are continuing to generate year-over-year comparable sales growth, Tony Spring, the president and incoming CEO of Macy’s, said during a November earnings call. The retailer said in October it planned to open up to 30 off-mall stores in the U.S. over the next 18 months. Outgoing CEO Jeff Gennette said in early 2023 that it was in the “final stretch” of closing underperforming mall-based stores.
However, the company appears to have accelerated its shift from operating as a mostly mall-based retailer. This month, Macy’s announced the closure of five anchor stores in four states. The company also said it plans to cut 3.5% of its workforce. Macy’s also operates an off-price banner, Backstage, and it owns Bloomingdale’s and Bluemercury. Its off-mall moves are part of a push to accelerate the retailer’s small-format strategy.
Shawn Grain Carter, a retail industry consultant and professor at the Fashion Institute of Technology at the State University of New York, told Retail Dive in an email that Macy’s likely sees growth opportunities in strip centers, as moderate and upscale retailers are usually absent from the tenant mix. The company’s Backstage banner, in particular, is likely to perform well off-mall, Carter said. So too is Sephora “because of their loyal repeat customer business as a specialty beauty store retail chain.”
In another major off-mall move, Foot Locker said last year it planned to close about 400 of its namesake mall-based stores by 2026. A company spokesperson confirmed this month that it still aims to have 50% of its North American store square footage outside enclosed shopping centers by 2026.
As of the third quarter of 2023, Foot Locker had 36% of its North American square footage off-mall. A spokesperson said its North American store closure initiative is focused more on adjusting its overall square footage versus the number of stores in off-mall locations.
Transforming Foot Locker’s real estate footprint is a key element of the company’s Lace Up turnaround plan, CEO Mary Dillon said during the company’s first-quarter earnings call last year. Dillon said at that time the retailer’s new format stores and off-mall locations were out-comping the rest of its store fleet.
Genesco, the parent of Journeys, is moving away from malls too. In a May earnings call, Genesco CEO Mimi Vaughn said market research found that Journeys customers visit off-mall retail locations multiple times a month, citing convenience and access to omnichannel services like curbside pickup.
Vaughn said Journeys’ newest off-mall stores have significantly lower rent and a larger footprint. Although additional marketing spend is required for off-mall locations, “we are really enthusiastic about this growth opportunity, and it just gives us the potential of really a number of growth locations for Journeys.”
At Bath & Body Works, off-mall sales performance exceeded in-mall stores, CEO Gina Boswell said during the company’s Q2 earnings call in August. The retailer wants two-thirds of its stores to be outside malls as part of its long-term strategy.
At the height of the pandemic, this entrance to the Chesapeake Square Mall in Chesapeake, Virginia, was closed. Signs directed guests to another entrance. Analysts said this month that many anchor and specialty retailers are choosing to move out of malls for lower rents and more operational flexibility.
Nate Delesline III/Retail Dive
Although strip centers may face a perception challenge in that consumers may associate them with lower-priced goods, “this different retail mix can optimize foot traffic due to less apparel-focused retailers eyeing their competition,” Carter said. “Previously, strip centers were only for dollar stores and discounters or off-price retailers targeting bargain shoppers.”
Anchors weighed down by resistance to change
A half-century ago, the indoor shopping mall represented the pinnacle of American retail. They featured dozens or even a hundred or more retailers paired with a food court and a multiscreen movie theater all in a climate-controlled space along busy, often suburban, roads with acres of free car parking.
But the consumers' tastes – and the economy – have changed. Yet, Saunders noted that most traditional malls still rely on the anchor store model, where big department stores are intended to be the main traffic draw. In contrast, off-mall retail tends to be a mix of smaller boutique-type stores mixed with food service and leisure offerings. In some instances, “this is arguably more attuned to what modern consumers want,” Saunders said.
Part of the shift is people who used to shop at Macy’s, Dillard’s Kohl’s and J.C. Penney may now turn instead to off-price retailers like Ross and TJ Maxx. In the United States, you’re likely to live closer to a dollar store than an indoor mall. The store count for dollar stores like Dollar General and Dollar Tree is about 25 times the likes of J.C. Penney and Macy's.
Approximate retail store counts
| Retailer | Store count |
|---|---|
| Dollar General | 19,000 |
| Dollar Tree, Inc. | 16,000 |
| Ross Stores | 1,765 |
| Five Below | 1,500 |
| Kohl’s | 1,100 |
| J.C. Penney | 663 |
| Macy’s Inc. | 722 |
| Dillard’s | 274 |
Source: Retailer websites.
Lower rent, more flexibility, different visibility – the off-mall advantages
Amazon and other digital retailers have reshaped consumer expectations, which has hurt mall foot traffic, and consumer preferences have changed too when it comes to in-person shopping, due in part to the pandemic, Jonathan Zhang, an associate professor in business at Colorado State University, said via email. Zhang focuses on retail and consumer behavior.
Retailers with a strong brand identity and appeal often fare better off-mall, Zhang said.
“For instance, brands like Apple have successfully operated off-mall stores, leveraging their strong brand appeal to attract customers,” Zhang told Retail Dive in an email. “The adaptability of retailers to the off-mall environment, including adjusting their product mix and marketing, plays a crucial role in their success. Retailers that can seamlessly integrate their online and physical presence, creating a holistic shopping experience, often find greater success in off-mall locations.”
Carter noted that moving out of the mall usually means lower rent, and that can boost the bottom line. However, she added that physical stores remain a key element of retail, and malls in particular are still appealing to baby boomers and members of Generation X, who are used to and may even prefer that kind of in-person shopping experience.
Zhang said that retailers may also benefit from relocating away from malls to better position themselves with potential customers who might not shop in malls anymore. “For instance,” Zhang said, “fitness and wellness retailers like Lululemon have benefited from locating stores in high-traffic urban areas or affluent suburban strip centers and aligning with the preferences of their target market. Similarly, luxury brands often find greater success in exclusive, standalone locations that reinforce their brand prestige.”
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Nate Delesline III, Khareem Sudlow
