Bath and Body Works Opening 90 Off Mall Stores

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Alpha8472
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Bath and Body Works Opening 90 Off Mall Stores

Post by Alpha8472 »

The company is opening 90 off mall stores, but closing 50 mall locations.

Are their mall locations doing so badly that they are moving to off mall locations? The off mall locations might be really cheap to rent.

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Re: Bath and Body Works Opening 90 Off Mall Stores

Post by storewanderer »

In Reno their mall location does infinitely more volume than their 2 non-mall locations.

I think they have hung on in some pretty near dead malls.
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Re: Bath and Body Works Opening 90 Off Mall Stores

Post by Brian Lutz »

One of those off mall locations is currently under construction in Draper in a strip mall between a Kohl's and a Five Below. Other tenants in this center include a Petco, a Ross and an Office Depot. As far as I can tell they don't have a location in the nearby South Town Mall.
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Re: Bath and Body Works Opening 90 Off Mall Stores

Post by Alpha8472 »

Are customers in the area moving from malls to off mall locations these days? Many of these malls seem to be slowing down and dying.
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Re: Bath and Body Works Opening 90 Off Mall Stores

Post by mbz321 »

Alpha8472 wrote: February 24th, 2023, 8:57 pm The company is opening 90 off mall stores, but closing 50 mall locations.

Are their mall locations doing so badly that they are moving to off mall locations?
I mean, is anything inside a mall doing well these days? I'm surprised they held out in malls as long as they have, while others were busy fleeing for big box centers. Bath and Body Works is one of the few stores that seem to remain in mostly dead malls.
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Re: Bath and Body Works Opening 90 Off Mall Stores

Post by buckguy »

There's no new generation of chain "mall stores" entering malls which means that vacancies either go unfilled or get mom and pops. If such places did exist (mall stores), existing chains would be staying malls.
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Re: Bath and Body Works Opening 90 Off Mall Stores

Post by Romr123 »

Wonder if them remaining in malls has come from them being the new "traffic builder" as department stores dwindle--if they've got newly cheap leases (since the department stores are dead)...a zero lease with a minimal percentage of sales is covered by not too many candles and soaps going through the door.
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Re: Bath and Body Works Opening 90 Off Mall Stores

Post by norcalriteaidclerk »

They just closed their longtime Sunrise Mall location,but still have a store across the street at Marketplace at Birdcage which has largely overtaken the mall since evolving from its old boutique center incarnation(Birdcage Walk)into its current 'power center' form.
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Re: Bath and Body Works Opening 90 Off Mall Stores

Post by ClownLoach »

Alpha8472 wrote: February 24th, 2023, 8:57 pm The company is opening 90 off mall stores, but closing 50 mall locations.

Are their mall locations doing so badly that they are moving to off mall locations? The off mall locations might be really cheap to rent.

https://chainstoreage.com/bath-body-wor ... eyes-chain
I think I've explained this before, but off mall is not cheaper. It is a different financial model. Malls have percentage rent at every threshold, you bring in one dollar of sales and they want a piece of it. The more you make the more they take. But the flip side is that the leases are contingent on anchor presence. If that Macy's, JCPenney, Nordstrom, etc. closes then you basically pay no rent until it's replaced... And of course we all know that it doesn't get replaced.

Off Mall has different expenses. Instead of percentage rent at every level there is a threshold at which it kicks in. Smart lease negotiators will make sure that threshold is well above chain average but they also put themselves at risk of getting booted in the 10 year exit window or whenever the mutual kick out period is. In other words the landlord decides that they've got a tenant who is willing to pay more and they believe they will get higher sales volume thereby piercing the percentage rent ceiling - they can throw you out with no recourse at that one time window. Malls usually have shorter lease windows, sometimes only one year which enables flexibility for tenant and landlord. This is why you might see a mall store move around the center three or more times in a decade. In a good quality Class A standard big box center with junior suites that may be a 10 or 20 year lease commitment.

Off mall usually has higher fixed cost common area maintenance fees. This might sound surprising since malls have more common space to take care of, but the mall managers expect their percentage rents to cover most and charge lower fixed fees. Again the more customers you bring in the more you're expected to pay for wear and tear on the mall. So in theory your candle store is paying about $6K in percentage rent and common area fees at the mall. You move out and increase sales a tad, but now you owe $10K a month in fixed fees. You could be worse off now. In some states the tenant is responsible for property taxes in the lease, and obviously the better the space the higher the tax due. A declining mall will likely be a lower tax proposition than a shiny new outdoor center.

And per square foot rents in nicer, newer centers are higher than rents in B and C performance malls. They know they can do this because they are considered more desirable space these days.

So now you're seeing a reversal of the old trends. Mom and pops are going into the big malls they used to not be able to afford. Big chains are taking all the best outdoor strip space. But the situation is still a big gamble for these chains trying to move out - if they pick a bad location their costs will be higher than in the mall and they'll bleed out cash because they can't escape without a big penalty for terminating a decade plus long lease.

For someone like Bath and Body Works - if they can figure out which big box strip malls their mall customers are moving to, or which co-tenants they work best next to, then theoretically they can increase their business by moving closer to where their customers are more often. I can't imagine how any mall could be seeing more traffic now than Pre COVID except for the absolute best of the A malls (South Coast Plaza, Ala Moana caliber centers). Since Bath and Body is a repeat business type of store they're less likely to bleed customers to alternative cheaper grocery store shampoo or whatever else if they're more convenient to the customer and can maintain shop frequency.

The smart folks should be figuring this out and trying to throw together a bunch of new mall stores because they can start up with really low costs now... Lower risk and potentially greater reward in the right centers.
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Re: Bath and Body Works Opening 90 Off Mall Stores

Post by buckguy »

ClownLoach wrote: March 7th, 2023, 11:45 am
Alpha8472 wrote: February 24th, 2023, 8:57 pm The company is opening 90 off mall stores, but closing 50 mall locations.

Are their mall locations doing so badly that they are moving to off mall locations? The off mall locations might be really cheap to rent.

https://chainstoreage.com/bath-body-wor ... eyes-chain
I think I've explained this before, but off mall is not cheaper. It is a different financial model. Malls have percentage rent at every threshold, you bring in one dollar of sales and they want a piece of it. The more you make the more they take. But the flip side is that the leases are contingent on anchor presence. If that Macy's, JCPenney, Nordstrom, etc. closes then you basically pay no rent until it's replaced... And of course we all know that it doesn't get replaced.

Off Mall has different expenses. Instead of percentage rent at every level there is a threshold at which it kicks in. Smart lease negotiators will make sure that threshold is well above chain average but they also put themselves at risk of getting booted in the 10 year exit window or whenever the mutual kick out period is. In other words the landlord decides that they've got a tenant who is willing to pay more and they believe they will get higher sales volume thereby piercing the percentage rent ceiling - they can throw you out with no recourse at that one time window. Malls usually have shorter lease windows, sometimes only one year which enables flexibility for tenant and landlord. This is why you might see a mall store move around the center three or more times in a decade. In a good quality Class A standard big box center with junior suites that may be a 10 or 20 year lease commitment.

Off mall usually has higher fixed cost common area maintenance fees. This might sound surprising since malls have more common space to take care of, but the mall managers expect their percentage rents to cover most and charge lower fixed fees. Again the more customers you bring in the more you're expected to pay for wear and tear on the mall. So in theory your candle store is paying about $6K in percentage rent and common area fees at the mall. You move out and increase sales a tad, but now you owe $10K a month in fixed fees. You could be worse off now. In some states the tenant is responsible for property taxes in the lease, and obviously the better the space the higher the tax due. A declining mall will likely be a lower tax proposition than a shiny new outdoor center.

And per square foot rents in nicer, newer centers are higher than rents in B and C performance malls. They know they can do this because they are considered more desirable space these days.

So now you're seeing a reversal of the old trends. Mom and pops are going into the big malls they used to not be able to afford. Big chains are taking all the best outdoor strip space. But the situation is still a big gamble for these chains trying to move out - if they pick a bad location their costs will be higher than in the mall and they'll bleed out cash because they can't escape without a big penalty for terminating a decade plus long lease.

For someone like Bath and Body Works - if they can figure out which big box strip malls their mall customers are moving to, or which co-tenants they work best next to, then theoretically they can increase their business by moving closer to where their customers are more often. I can't imagine how any mall could be seeing more traffic now than Pre COVID except for the absolute best of the A malls (South Coast Plaza, Ala Moana caliber centers). Since Bath and Body is a repeat business type of store they're less likely to bleed customers to alternative cheaper grocery store shampoo or whatever else if they're more convenient to the customer and can maintain shop frequency.

The smart folks should be figuring this out and trying to throw together a bunch of new mall stores because they can start up with really low costs now... Lower risk and potentially greater reward in the right centers.
The review of market dynamics is helpful, but it's not only not having "mall stores" but no real "new concepts". The rise of off price and big box stores benefited the old "community shopping centers" eclipsed by malls. If they had decent demographics, big boxes and off price chains often found the old JC Penney dry goods stores, variety stores, and the occasional first generation discount stores to be around the right size for many of their operations or, in the case of discount stores, easily subdivided. Super markets often anchored these places, which kept a stream of traffic. It's not difficult to think of examples of centers that are still going strong after 60 or 70 years.

Big boxes and off price chains have their own problems now and when they do go into malls, they often want to face outward and don't drive traffic into malls. Even when malls insist that they have inside entrance they don't drive mall traffic---Wheaton Plaza outside of DC did this with Costco and its interesting to see people not go any further into the mall. that aside, malls have much more space to fill than community centers did and the inline stores often have different shoppers than the anchors, even if all the anchors stay filled (once they got Costco, Wheaton had all the big spaces filled but the anchors tend to be on their own and, at least one, JC Peenny wasn't looking good the last time I was there. Too few customers and big gaps in the displays.

Suburban downtowns and secondary urban urban retail also has come back in many places. Often it started with traditional scavengers like charity shops and commercial second hand furniture or clothing stores---filling in old groceries, variety stores, drug stores, etc. If they area had ok demographics and especially if it had some architectural appeal, then boutiques, art galleries, destination restaurants and even some chains followed. The second hand businesses are fewer because EBay et al. There was a mall outside of St Louis that tried to be an arts space, like what has happened in some urban neighborhoods, but it was too much space to fill, too few customers and gone in less than a year.

Off price took up where department store basements had left off once they were closed. Big boxes took some of the role that low end first generation mall merchants had filled until they died off in the 80s and early 90s. Now there's no large segment to shift customers from what they currently have (or are losing in the case of dying boxes like BBB). Even A-list malls aren't completely immune to losing tenants--last time I was at Tyson's Corner, they had empty pots (rarely seen in the past) and a few no-name tenants (never seen before). They probably should take note of what seems to be the increasingly rapid decline of the surviving mid-market malls. Even if they outlast their competition, they don't seem to be doing very well and closings by Sears and by surviving chains seem to make this go more rapidly.
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