It’s no secret that brick and mortar retail operations have been shaken by the digitization of American shopping habits. Since the advent of the e-commerce era, retail stores like Sears and J.C. Penny have gone from ubiquitous consumer goods mainstays to has-beens trading only on niche, over the counter asset markets. The coronavirus era has only added to the woes of America’s physical retailers with over 28 major organizations including Lord & Taylor, Pier 1 Imports, True Religion, J. Crew, and Neiman Marcus filing for Chapter 11 or Chapter 7 bankruptcy so far in 2020. However, while investors have focused their attention on high-profile bankruptcies, a central character in this industry trend has been largely forgotten – shopping center real estate owners.

Large, publicly traded, commercial real estate firms focusing on the retail and shopping center space have faced an uphill battle as an increasing number of lucrative tenant firms like Sears, and J.C. Penny declare bankruptcy, stop paying rent, and leave malls with enormous vacant storefronts. As more American retailers close their doors during the pandemic era, mall-owning firms like Simon Property Group (SPG), Brookfield Property Partners (BPY), and Kimco Realty (KIM) have struggled to operate their properties profitability. This dynamic, combined with ongoing consumer reluctance to congregate indoors in large numbers has resulted in decreasing share prices across the board.,KIM,SPG

However, as COVID-19 and broader consumer trends facilitate structural change in the physical retail space, some organizations are finding ways to adapt. For example, Simon Property Partners - the largest mall owner in the U.S. with over 325 properties, has been in talks with Amazon (AMZN) to allow the disruptive online giant to utilize vacant storefronts previously rented by now bankrupt retailers as Amazon distribution centers.  These discussions have allegedly centered around transforming storefronts previously occupied by Sears and J.C. Penny, which are often larger than 100,000 square feet and span multiple levels. Although the number of stores in consideration has not been disclosed, the large geographical footprint of the two newly defunct department stores makes their former storefronts attractive for Amazon as it seeks to bolster its logistical operations.

Simon’s talks with Amazon, if brought to fruition, would likely be met with dismay from Simon’s other retail tenants. They see Bezos’ powerhouse as the primary culprit in the disruption of the consumer retail space and would rather see empty storefronts filled by other retailers who would lure additional foot-traffic to the shopping center.

These developments highlight both the strength of the boom in e-commerce and the decline of shopping centers in the modern era. Shopping centers, which have been struggling for some time as more consumers opt to stay home and shop online, have turned into problematic assets for their owners, whose historical reliance on large department stores has proved to be a losing long-term strategy. This has forced retail-focused real estate groups to explore alternative strategies in order to preserve their growth prospects. Organizations like Simon Property Group may provide a blueprint for other real estate investment groups seeking alternative ways to fill vacancies in their properties and preserve long-term growth opportunities. Investors in the space would do well to pay attention and shop around for real estate firms that will adapt creatively.