Foot Locker is closing 400 stores. They may become an eyesore

New York CNN

Around 800 stores are being closed by two major retail chains. The spaces of one company will likely be filled while those of the other may become unattractive, zombie-like stores.

Retailers have already lined up to takeover the 400 Bed Bath & Beyond storefronts that are closing in strip malls where customers can park easily in front. Retail landlords and property experts say that 400 Foot Locker shops set to close at regional enclosed malls in the middle and lower tiers of the country won't be vacant for long.

The differing outlooks of Foot Locker (FL), Bed Bath & Beyond, and Bed Bath & Beyond reflect the changing shopping habits and the state of retail property in the United States. These spaces are important because they affect local tax bases, employment and economic conditions in communities throughout America.

Will they have a second chance?

Foot Locker

Foot Locker announced earlier this month it would close 200 stores located in lower performing A and B and class C malls. Malls are rated unofficially by the industry based on location, profitability and sales potential.

Jeff Kreshek said that there is no solution for some Foot Locker stores. Jeff Kreshek is a senior Vice President at Federal Realty, the retail property owner. The malls have too much room and losing another mall staple will not help.

Foot Locker's planned closures will be the latest blow for regional malls in US.

In the second half 20th century, regional malls were constructed to serve the growing number of Americans who moved to the suburbs from the cities. These malls replaced the old downtown shopping districts of cities. They were usually anchored by two department store at each end and a mixture of 'in-line stores' between them.

Today, regional malls are often classified as B or C malls. Class A malls tend to attract a larger population and have more tenants. Regional malls, on the other hand, are smaller. They are often older, have less open space and natural light than their more upscale competitors.

Retail real estate has seen a boom in mixed-use A malls that include grocery stores, luxury retail, restaurants, gyms, and apartment buildings. These malls are usually outdoors, walkable and feature a variety of tenants, which encourages customers to stay longer.

Foot Locker closings are just the latest blow for regional malls in the US, who have struggled to compete with online shopping and a deteriorating economic climate.

As department stores like Sears Macy's, and JCPenney have closed down, regional malls are caught in a downward spiral. The vacancies at anchor stores in malls affect their neighbors, such as Foot Locker, and also reduce the traffic to those stores.

Malls will eventually struggle to survive if stores like Foot Locker close. In recent years, hundreds of malls have been closed by brands like Gap (GPS), Victoria's Secret, and others.

According to CoStar Group, a real estate data company, the vacancy rate in class B and C shopping malls was at an all-time high of 10.8% during the first three months of 2018. This compares with a class A mall vacancy rate of 6.6%.

Brandon Svec is the director of US Retail Analytics at CoStar.

It will be difficult to find tenants for 400 Foot Locker as the big retailers are avoiding weaker malls.

Svec stated that it would be very difficult for mall owners to attract brands from other countries. There's a good reason why they chose these 400 brands.

Bed Bath & Beyond

Bed Bath & Beyond closed stores are also of great interest.

Bed Bath & Beyond stores are usually located in strip malls or neighborhood shopping centers, which are viewed as being more convenient than enclosed malls. Analysts say that they are often located near grocery stores and other retailers who can attract customers.

Last year, the asking rents for shops in strip malls and neighborhood malls increased, while they fell for malls indoors.

These properties are also in limited supply. In the period 2000-2009, community and neighborhood shopping centers added on average nearly 30 million square foot per year. Moody's reports that this level has dropped to less 10 million square feet per year during the most recent decade.

Bed Bath & Beyond is likely to be filled with discount chains and no-frills shops. Bed Bath & Beyond stores are popular with shoppers who have limited budgets.

Discount companies have already rushed to fill vacant Bed Bath & Beyond shops. TJ Maxx HomeGoods, and Ross have all taken over Bed Bath & Beyond storefronts.

Burlington (BURL), Five Below, Nordstrom Rack, and budget gym Planet Fitness may also fill the space. Bed Bath & Beyond could be appealing to department stores such as Macy's or Nordstrom, who are currently testing smaller store prototypes outside of indoor malls.

Brandon Svec, from CoStar, said: 'You've got all these possible use cases in an attractive format.' Bed Bath & Beyond is'much more easily filled than mall spaces'

What happens to the malls that have empty Foot Locker and other spaces? Developers can convert the entire mall into an apartment building, medical office or e-commerce warehouse. According to Moody's Analytics, these are slow, large projects that will require a lot of financing, and in some cases rezoning.

Thomas LaSalvia is the director of Moody's economic research. Would it be better to attract a Trader Joes or to bulldoze everything?