Amazon in Discussions with Largest Mall Owner on Moving Fulfillment Centers into Empty Department Stores

In a delicious irony, the largest shopping mall owner in the US, struggling with tenant closures, changing consumer behavior and other perhaps existential challenges, is negotiating with the most significant source of its troubles to take over emptied department store space.

Supply Chain Digest Says... The location of malls often make them attractive as distribution hubs, as many are near main highways and often close to upper middle class neighborhoods. What do you say? Click here to send us your comments Click here to see reader feedback

Of course, ecommerce generally, and Amazon specifically, are generally blamed for the financial woes of so-called brick and mortar retailers, seeing incredible growth as sales at many physical stores fall just as rapidly.

That existing trend was exacerbated by the virus pandemic, keeping consumers lock-down at home except for occasional trips to the grocery store, as many other retailers, especially on the department and specialty store front, were forced closed by state and local rules. Hundreds of permanent store closures have come in the aftermath, with announcements by Macy's, JC Penney, Nordstrom and others.

Now, front page news this week on the Wall Street Journal that the US' largest mall operator, Simon Property Group, is in discussions with Amazon to have the etailer move local fulfillment operations into now empty former JC Penney and Sears stores.

In the past few years, Amazon has built a few new fulfillment centers on properties that once housed shopping malls. That's what happened to the Randal Park mall in suburban Cleveland, the largest mall in the US when it opened in the 1970s before more recently falling into decline and ultimately shuttered. Now, Amazon operates an FC in the space.

The Journal says that how many stores are under consideration by Amazon is unclear. A deal with Simon would be consistent with its on-going strategy to develop more distribution nodes close to residential areas to support rapid deliveries such as same-day or next day.

On the flip side, mall and other retail property owners are trying desperately to find ways to utilize their increasing amounts of empty space, such as turning closed stores into senior living facilities or schools – but the pandemic has ended many of those strategies at least for now.

(See More Below)

It's hard to assess the cost considerations of such a move because the price for leasing for both retail and distribution space varies so widely across the country. The Journal notes that department store locations generally encompass 100,000 square feet or more – and usually have multiple levels. It says depending on when the leases were signed and their locations, department-store rents can be as low as $4 a square foot or as high as $19.

Warehouse space varies just as widely.

The location of malls often make them attractive as distribution hubs, as many are near main highways and often close to upper middle class neighborhoods.

The Journal cites a source who says Amazon has also been in talks with multiple mall landlords about putting its coming grocery-store chain in JC Penney locations.

What do you think of Amazon's potential moves into malls for distrubution? Let us know your thoughts at the Feedback section below.