Amazon’s Potential Deal With the Country’s Largest Mall Owner

A New Era of Shopping

Amazon (AMZN) and Simon Property Group (SPG) (the largest mall owner in the US) are in talks about converting empty department store space into Amazon fulfillment centers. This potential deal highlights two trends that have been accelerated by the ongoing COVID-19 pandemic: the decline of malls and the rise of ecommerce.

JCPenney (JCPNQ) and Sears (SHLDQ), two anchor tenants in malls across the country, recently filed for chapter 11 bankruptcy protection. Both companies’ plans include closing dozens of their locations in malls. Meanwhile, demand for Amazon’s services has surged as people practice social distancing and avoid in-person shopping. Despite logistical challenges when the pandemic first set in, Amazon recently reported double-digit revenue growth year-over-year.

Amazon’s Perspective

For Amazon, a deal with Simon Property Group to put fulfillment centers in former department store locations would help achieve its goal of speeding up the “last mile” stage of its delivery process. Malls are often located close to highways and residential areas, making them attractive to Amazon.

Amazon has already acquired some defunct malls and turned them into fulfillment centers. FedEx (FDX) and DHL International GmbH have also adopted this strategy.

Simon Property Group’s Outlook

For Simon Property Group, a deal with Amazon would have costs and benefits. Renting prime retail space to Amazon would impact the longstanding business model malls have relied on: drawing customers to restaurants and small retailers with a large anchor tenant like a department store. In fact, some smaller mall tenants have co-tenancy clauses in their rental agreements which allow them to break leases or pay reduced rent if larger tenants move out. Replacing department stores with Amazon fulfillment centers could invoke these clauses. However, it may still be better for Simon Property to fill the space with an Amazon warehouse than to have it sit empty.

By making a deal with Amazon, Simon Property would have a consistent, reliable tenant at a time when the future of retail and retail real estate is uncertain. Investors in traditional retail and in ecommerce will be carefully watching to see how talks between the two companies unfold.

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