The Great Retail Bloodbath of 2017 just doesn’t seem to quit. Recently, we told you that retailers have closed some 4,000 stores this year alone.
Now comes word that entire mall locations anchored by a Sears that’s slated to close could be next on the chopping block.
Beware of the “Sears effect” on malls
Independent investment research giant Morningstar is out with a new list of mall locations across the country that are likely to go belly up when Sears closes its anchor stores on mall properties by October 2017.
That’s the date through which Sears will continue to pay rent to mall owners, according to a June filing with the Securities and Exchange Commission made by Seritage Growth Properties.
The problematic retailer will pull the plug on some 300 locations this year.
(You deal hunters out there will want to take note of liquidation sales. They could begin as early as July 13 at many Sears locations that are going away!)
When a Sears locations at a mall gets shuttered, it effectively creates a vacuum in the commercial real estate market that sucks other retailers into the abyss. Let’s call it the “Sears effect.” Look for it at a mall near you — if you still shop at the mall anymore!
Of course, Sears isn’t solely to blame for the impending collapse of the malls on the Morningstar list. Many of them are facing a double-whammy because a co-anchor tenant such as Macy’s or Kohls is also set to close at the same mall!
When two or more major tenants of a mall give up the ghost, remaining tenants typically seek lower rents when their leases come up for renewal. That squeeze from both sides — between the disappearing anchor tenants on one hand and the in-line tenants who suddenly pay lower rents to mall owners on the other — usually triggers a death spiral from which a mall property can’t escape.
“With the loss of multiple anchors, we are concerned that the malls could begin to lose in-line tenants if the anchor boxes are not backfilled,” Morningstar writes in a report. “We also consider the malls to have long-term maturity risk, especially with the loss of two anchors making it unlikely that a lender will take a chance on a takeout loan.”
Here are the malls Morningstar has identified as at-risk for imminent closure because of these factors: