Santa is having a tough year. Finding a job has never been harder. The jobs he lands will likely involve a plexiglass shield separating him from the starry-eyed children with long wish lists they want to share. If he appears in person at all. In some cases, he may have to go virtual.
In any other year, he would have inked contracts in March and April with the malls and large retail chains that employ him during the year-end holiday shopping season. But COVID-19 and the social and economic turmoil and uncertainty that came with it scared most suitors away.
Santa hiring was down 90 percent from late March into June compared to the same period last year, said Mitchell Allen, founder of HireSanta.com, perhaps the largest talent agency for Santas in America. “It was just crickets.”
In the year of the pandemic, Jolly Old St. Nick is the canary in the mine.
Fear of the virus, widespread store shutdowns this spring and restrictions on social gatherings have staggered already weakened brick-and-mortar retailers struggling to adapt to rising online sales and other changes in consumer attitudes and behaviors.
Shopping malls are hoping to ride out the storm that’s threatening their rent-paying tenants. Some are seeking new partners to fill gaping holes in their properties as bankruptcies claim longtime anchor stores. Some are moving forward with plans to reinvent themselves with more entertainment, food and lifestyle attractions, such as gyms and restaurants, even as those businesses are being battered by pandemic restrictions.
“It’s fair to say that while the pandemic has been truly disastrous to retail, it is only accelerating what was already taking place,” said Jeff Burd, president of Tall Timbers Group, a research firm focused on the southwestern Pennsylvania retail and construction industries. “Retail trade, from a brick-and-mortar standpoint, was already suffering.”
Good news, bad news
After steep declines in March and April, U.S. retail sales made a surprisingly strong recovery in July, when sales reached $536 billion, surpassing July 2019 totals by 2.7 percent, according to U.S. Census Bureau estimates. Sales continued to climb in August, albeit more slowly, beating July totals by .06 percent.
But the news is bittersweet for brick-and-mortar retailers. Online shopping, which had been taking larger bites out of their sales before the pandemic, is now surging. When the year began, e-commerce accounted for 11.3 percent of U.S. retail sales. By mid-summer, 16 percent of retail spending was done online—a share four times greater than what e-commerce claimed 10 years ago.
And retail casualties continue to mount, including once-popular mall staples. Bankruptcy filings in the past few months have included the likes of J.C. Penney, Brooks Brothers, Lord and Taylor, Neiman Marcus, J. Crew, GNC and Lucky Brands, parent company of Aeropostale.
Still, most shopping malls that were in business before the pandemic still open their doors every morning across the region and nation. More of their retailers reopened as summer moved to fall. And Santa hiring picked up in the third quarter as they try to return some normalcy to the holiday season, even if it means reinventing Santa’s meet-and-greet routine to accommodate social distancing. Still, Allen expects to see 25–40 percent fewer Santa jobs this year.
Whether the malls that hire them can survive COVID-19 is a question whose answer depends on such uncertainties as the length of the pandemic, its impact on consumer behavior, and the will, creativity and capital that mall owners are able to muster in response to the changing landscape.
Survival of the fittest
Simon Properties Group, the nation’s largest mall owner, has run into considerable turbulence. But it’s also exploring new partnerships to fill vacancies in its 200 properties and has even bid to acquire some of its troubled tenants. Simon owns Ross Park Mall and South Hills Village in southwestern Pennsylvania. The pandemic led the Indianapolis-based company to temporarily shut down its 175 malls in the spring, costing it 10,500 total shopping days during the second quarter. While the mall landlord collected a little more than half of billed rent in April and May, the company reported collecting 69 percent of rent in June and 73 percent in July as lockdown measures eased. More than 90 percent of its retail tenants had reopened by the end of summer.
Compared to its peers, Simon is in the enviable position of owning more-resilient top-tier “A” malls and having $8.5 billion of liquidity, including about $3.5 billion in cash. And it hasn’t been timid about using it. The company tends to spend upward of $1 billion a year redeveloping its U.S. properties, although the pandemic has slowed some projects. Investments include expanding entertainment, services and dining options to help attract consumer traffic.
In August, Simon and a New York brand management firm bought Brooks Brothers, Aeropostale and Forever 21 out of bankruptcy hoping to restructure the retailers and return them to health. In September, Simon and its partners struck a deal to buy bankrupt J.C. Penney. And The Wall Street Journal reported that Simon is exploring a deal that could turn some empty mall department stores into Amazon distribution hubs.
The pandemic didn’t stop CBRE Group this summer from redeveloping a Macy’s department store into The Shops at Beaver Valley Mall, which offers office, service and more retail space with access to the mall near Monaca that 20,000 motorists pass daily.
To help separate themselves from the pack, an increasing number of malls have embraced such town center concepts as they try to boost their appeal by becoming places where people can shop, eat, take in a movie, exercise, visit a doctor and even work in an on-site office.
Lower-tier malls that have few offerings to distinguish themselves and less money to change their image were already struggling to compete for shoppers. They face the greatest risk of not surviving the pandemic recession.
The pandemic has exacerbated the struggles of CBL Properties, owner of the Monroeville and Westmoreland malls in southwestern Pennsylvania. Landing a new casino at Westmoreland Mall was a coup, but the company is heavily in debt. It has sold 21 low-performing malls since 2013. It holds a large number of vulnerable mid-to-lower tier malls. Its stock was trading at less than 3 cents per share in November, down from $15 five years ago. It has dropped 97 percent this year alone.
The Nashville-based company filed for bankruptcy in November. Company officials said that will help complete a deal it struck with debt holders in August to restructure its balance sheet, shed some debt and improve its financial flexibility, giving it a new lease on life, at least for a few years. Chief Executive Stephen Lebovitz said the deal will allow the company to keep its malls open and continue to reinvent traditional enclosed malls as suburban town centers.
The longer the pandemic lingers, the greater the risk that recession will claim at least some malls. That doesn’t necessarily mean they’ll disappear from the suburban landscape. Location is one of the mall’s greatest assets. Most are surrounded by thousands of suburban rooftops along heavily traveled roads or intersections. They have the potential to be a consumer magnet if they find something that will attract the people living under those roofs. All of the malls closed by CBL, for example, have stayed open as malls under new owners.
“There’s a lot of cash on the sidelines,” Burd said. “There will be capital ready to be deployed to buy, renovate, repurpose a shopping center that is two-thirds vacant or a shopping mall that is 50 percent occupied.
“Demand, as yet, hasn’t been diminished. While nobody can do what they want to do right now, there doesn’t appear to be a structural change in their spending habits. So far, it’s a cyclical change. People have had to spend less because they couldn’t go to stores or because of an economic choice, such as they were laid off, or they’re just pulling in their horns until they feel more comfortable and start spending again.
“We’ll find out whether this [pandemic] will alter the spending habits of Americans, make them less of a consumer in the same way the Great Depression altered the spending habits of an entire generation. Right now, there’s no evidence of that.”
Sam Craig changed his shopping habits, but he’s still spending. He’d come to the Monroeville Mall to walk on a damp mid-week afternoon and had no trouble abiding social distancing guidelines. No more than a dozen masked shoppers strolled the two aisles that ran the length of the mall’s top floor. Several masked clerks stood in storefronts waiting for a customer or two to come their way. The scene on the floor below was no different.
Craig wasn’t surprised. He’s been shopping less during the pandemic himself, consolidating his trips to reduce the risk of exposure. But his sentiments about spending should make local brick-and-mortar retailers smile. “I buy from businesses in Pittsburgh,” the Penn Hills resident said. “People here work hard. I don’t see the point of sending money to Amazon.”