Taubman, Kimco may convert retail strip mall assets to multi-fulfillment centers
Taubman, Kimco, SPG can modernize retail assets, protect future revenue
As pandemic-era retail real estate goes, outdoor strip malls are easier and less expensive to adapt and make profitable again than are shopping malls.
That's good news for America's strip mall operators, such as Taubman Centers Inc., Kimco Realty Corporation and Simon Property Group who have collected less than half their rent since April, as retailers have begged or demanded breaks on rent and leases. This has CREs and strip mall operators exploring recovery and evolution strategies that include converting existing retail strip mall stores into modern micro-fulfillment centers or MFCs.
MFCs take merchandising, payments and most of the customer service that used to happen inside stores and moves it online. The physical space is converted into an automated fulfillment and distribution operation, with a compact, or curbside space for order pickups.
MFCs are an excellent option for enterprise and SMB-class grocers, fashion retailers and home improvement retailers. The more digitally savvy and automated retailers already are, the better. While e-commerce and digital payments were still 'on their way' at the start of 2020 - particularly for small business - COVID-19 has accelerated the consumer adoption timeline drastically. Online buying is now very much arrived, unpacked and here to stay in American retail.
That makes converting old strip mall units feasible for many REITs and CREs with retail real estate holdings. Collectively, Taubman, Kimco, SPG and another dozen or so major firms control the lion's share of America's 30,000 strip malls.
By making the investment in MFC conversion in the ideal strip mall locations, CREs and REITs will modernize aging assets and reinvigorate retail leasing revenue stream, while ensuring retailers have a safe, modern solution to meet consumer's e-commerce demands moving forward.
Once completed and integrated to a retailer's e-commerce supply chain, an automated MFC can cut the time it takes to fulfill an online order from one hour to five minutes, quickly providing a return on the $2 to $3 million it costs to convert a store in the grocery sector, where BTIG Analysts Michael Gorman and James Sullivan are particularly positive for the future of MFC.
"Developing cutting edge micro-fulfillment centers in their properties could fix critical gaps in online grocery fulfillment, increase store productivity and make REIT shopping centers even more critical real estate,” Gorman and Sullivan wrote, adding that benefits to the grocery store would enhance productivity and make those tenants “stickier” for owners and operators.