U.S. store traffic plummeted 52% year over year on Black Friday and 49% for the holiday weekend as a whole, according to Sensormatic Solutions. By all accounts, malls experienced even greater foot traffic declines.
Low traffic during the traditional peak shopping season might seem like terrible news for mall owners. While malls that were struggling before 2020 may never recover from the pandemic, top-tier malls -- like those owned by Macerich (MAC 1.67%) -- are in much better shape.
Black Friday couldn't be normal
Government regulations made having a busy Black Friday impossible, so take last weekend's huge mall traffic declines with a grain of salt. Nonessential retailers are operating with severe capacity restrictions across much of the U.S. For example, retail stores are limited to 25% of normal capacity in most of California right now. Most days of the year aside from Black Friday, that rule wouldn't have a big impact.
Aside from those mandatory restrictions, the Centers for Disease Control and Prevention, as well as many state and local public health officials, urged people to avoid in-person shopping on Black Friday.
Furthermore, retailers have recognized for months that they wouldn't be able to roll out the usual Black Friday playbook. They started offering deals as early as October, spreading their promotions across the holiday season. Many retailers made all of their discounts available online, whereas some promotions would normally be in-store only. In short, retailers that would usually try to maximize Black Friday store traffic instead urged consumers to shop earlier in the season or online.
For all that, plenty of mall-based retailers with hot products -- including lululemon athletica, GameStop, and L Brands -- had to meter traffic into their stores on Black Friday to comply with capacity restrictions. There was clearly still demand for the Black Friday mall experience despite pandemic-related restrictions. Shoppers who did turn out were more likely to spend. That continues a recent trend: Last month, Macerich said that traffic to its malls was down about 20% year over year, but sales dipped a more modest 10%. Many stores in Macerich's malls are posting strong sales growth.
Stores are still useful
If vaccine distribution goes as planned, malls will probably be able to operate at full capacity by this time next year. Still, investors may wonder whether mall-based retailers and their customers will return to their pre-pandemic habits.
Most retailers will focus on driving store traffic again for Black Friday in 2021. In-person shoppers are more likely to make impulse purchases. Furthermore, the cost of shipping items to customers' homes will weigh heavily on retailers' margins this year. Retailers are deviating from their usual practice of prioritizing store traffic because they have no choice in the current environment, but going forward, it's in their interest to encourage customers to shop in person -- or at least pick up their e-commerce purchases at the store.
Of course, there may be some changes. Retailers have been trying to begin the holiday shopping season in early November for years, with only modest success. Perhaps consumers will be more willing to start early in future years after doing so in 2020. There may be a greater emphasis on curbside pickup in the future, too. However, a mass exodus from malls -- at least high-traffic ones -- in favor of e-commerce isn't likely.
Leasing volume is already recovering
During its Q3 earnings call last month, Macerich disclosed some promising statistics pointing to the continued demand for space at its malls. First, less than 5% of tenants scheduled to open stores at Macerich properties in late 2020 or 2021 have backed out of their leases.
Second, leasing volume is already recovering. Macerich signed 120 leases for 342,000 square feet of space during the third quarter. While that was down from 239 leases for just over 1 million square feet a year earlier, it was triple the leasing volume of Q2 2020. As the pandemic recedes and mall capacity restrictions loosen, leasing activity will almost certainly accelerate.
So-called "A" malls -- the top 25% or so of U.S. malls -- still offer compelling shopping experiences, with good anchor tenants and carefully curated tenant rosters. The pandemic has weighed heavily on traffic to these malls in 2020. However, this segment of the U.S. mall industry is likely to recover rapidly over the next couple of years, driving shares of Macerich and its closest peers higher.