Commentary

Amazon May Convert Failed Retail Space Into Fulfillment Centers

Amazon may be bringing new life to some of the malls it has played a large part in decimating — but it’s not likely to be popular among the shops that remain as the bankrupted big retailers have departed.

“Simon Property Group Inc. has been exploring with Amazon the possibility of turning some of the property owner’s anchor department stores into Amazon distribution hubs, according to people familiar with the matter. Amazon typically uses these warehouses to store everything from books and sweaters to kitchenware and electronics until delivery to local customers,” The Wall Street Journal’s Esther Fung and Sebastian Herrera write in breaking the story yesterday.

“The talks have focused on converting stores formerly or currently occupied by J.C. Penney Co. Inc. and Sears Holdings Corp., these people said. The department-store chains have both filed for chapter 11 bankruptcy protection and as part of their plans have been closing dozens of stores across the country. Simon malls have 63 Penney and 11 Sears stores, according to its most recent public filing in May,” Fung and Herrera add.

advertisement

advertisement

“Turning over anchor store spaces in prime locations to Amazon would represent a major shift in the mall business. If Simon rents the space as fulfillment centers, it would probably accept a considerable discount to what it could charge another retailer. … The choice also won’t please nearby tenants:  fulfillment centers draw less foot traffic to the mall, and it would help make Amazon, seen as a disruptor of retail businesses, even more competitive,” Bloomberg’s Sebastian Tong and Yueqi Yang write, citing the WSJ story.

“Neil Saunders, managing director of consultancy GlobalData Retail, said the move makes sense as there will be an increasing number of vacancies, adding ‘it will be particularly hard to find new tenants for the large spaces once occupied by department stores,’” Kelly Tyko writes  for USA Today.

“‘Some of the alternative uses that were once floated, like gyms, are no longer feasible in the short term. This means that warehouse and fulfillment centers are an increasingly appealing option,’ Saunders told USA Today on Sunday. ‘However, inviting Amazon in is, in some ways, giving more power to a rival, so there will be debate about whether this is the right thing to do. The fact Simon is considering it underlines the fact that they are in a difficult position.’”

“Amazon has long focused on its so-called ‘last mile’ of delivery. In 2018, it started to recruit drivers to deliver goods in neighborhoods, for example. It has also tested and explored the use of drones to deliver packages. Amazon Lockers are in some other retail stores around the country where customers can go to pick up the items they deliver online,” Todd Haselton points out  for CNBC.

“The Sears and J.C. Penney locations could give Amazon more fulfillment center space, closer to customers, where delivery drivers could come unload and pick up packages,” Haselton continues. That may help speed up the time it takes to get an order delivered from Amazon.

“Amazon was praised early on in the pandemic for hiring 175,000 new employees and paying workers an extra $2 an hour to deal with surging demand. Amazon, whose reputation is built on speedy deliveries, however, has struggled to keep up with the surge in orders. Deliveries that took two days or fewer can now take a week or longer. And it had sold out of many the products people need, like toilet paper and disinfectant sprays,”  Frank Miles explains for FOXBusiness.

“The problem, Amazon said, is that it can’t get products into its warehouses and out again fast enough. The company doesn’t know when delivery times will return to normal,” Miles continues.

“Simon’s discussions with Amazon have been under way for months and began before the coronavirus pandemic, according to the [WSJ] report. It is possible that the two sides could fail to reach an agreement, the report said, citing the sources,” Reuters’ Juby Babu writes.

“A spokeswoman for Amazon said the company has a policy of not commenting on rumors or speculation, when contacted by Reuters. Simon Property did not respond to a Reuters request for comment. Both J.C. Penney and Sears declined to comment,” Babu adds.

Next story loading loading..