Published On May 26, 2017  
in  Retail Real Estate Industry

We all have read recently about how enclosed Class-B malls are struggling as retailers such as JC Penney and Sears continue to close stores leaving large anchor vacancies. Mall owners are scrambling to find creative ways to breathe life back into their properties.  Most recently, they’ve begun recognizing the benefits of necessity-based retail and are trying to bring that into the mall sector. In a recent Wall Street Journal article, “Coming Soon to Your Local Mall: Celery and Dog Food”, Esther Fung reported on the recent trend of mall owners courting grocery chains to fill vacancies within their properties. 

Phillips Edison & Company has focused on grocery-anchored retail real estate for over 25 years and our business model hinges on the enduring value and long-term viability that necessity-based retail offers.  People have to eat and they need to buy food.  It’s that simple.  That being said, it is also much more complicated in that there are a host of other considerations that go into where consumers choose to do their regular grocery shopping.  Developing a successful grocery-anchored property is not as easy as dropping a Kroger or Wegmans into a vacant mall space. 

Grocery shoppers are typically loyal to a specific store location and usually select their preferred grocer based on convenience, cost/value and selection.  The average supermarket’s customer base lives within three miles of the store and shops two to three times per week.  These shoppers demand easy access in terms of both parking lot accessibility from major work routes and distance from store to car. They also prefer adjacent tenants that help them mark things off of their daily “to-do” lists such as cleaners, gyms, pharmacies, post offices and salons. 

Mall properties typically lack all of these requirements.  By their very nature, most Class B malls were developed to be destination-based shopping, attracting customers from as far away as a 20 to 30 mile radius.  Parking lots are more complicated and larger – making the centers more difficult to enter and exit and the walk from store to car longer.  In addition, small store tenants are not necessity-based so shoppers must drive to get their other errands completed.  In short, they lack the convenience piece of the equation and even the best grocer can’t make up for that. 

People are just not going to drive miles out of their daily work route to get milk from a mall.  They aren’t going to support the jeweler or the clothing store while their frozen foods sit in the car.  Neighborhood centers will continue to be the primary venue for shoppers’ daily and weekly necessity-based shopping because they are designed to be convenient.  The mall owner wants the grocer for the same reason Amazon wants to grow its presence in the grocery business:  customer traffic driven by necessity purchases.  The customer will define convenience for themselves. Our bet is that the simpler option, closer to their home will be their choice.

Jeffrey Edison
Jeffrey Edison
Decision Making