A crisis for big retail in Charlotte awaits on the other side of a shutdown

Department stores and the malls they anchor were already struggling before coronavirus. Now, the outbreak is fast-tracking that decline, meaning some malls in the Charlotte area could end up going the way of Eastland.

It’s a shopping experience familiar to a generation of mall shoppers: On a walk through a mall, you step out of the flow of traffic and through the glass doors of Lids to try on a new hat.

The brand is ubiquitous. There’s a Lids in just about every mall in Charlotte, from SouthPark to Northlake to Carolina Place.

Since coronavirus forced malls to shut down, Lids laid off all but seven of its roughly 8,500-person workforce nationwide, Lids CEO Tom Ripley says. He’s not sure if his company will be able to reopen all of its 1,100 stores nationwide once the outbreak ends.

“I do think we’ll have stores that won’t reopen,” Ripley says. “Just because those malls were already struggling, and this new paradigm will make it even more difficult.”

In North Carolina, officials required all non-essential retailers to close in March. Malls such as SouthPark and Northlake and Carolina Place, all once teeming with shoppers, went dark. The retailers inside of them, including Lids, saw their sales dry up.

The coronavirus shutdown has hit department stores particularly hard.

J.C. Penney, is reportedly considering filing for bankruptcy. It has locations at Carolina Place Mall, Rock Hill Galleria, and Carolina Mall in Concord. Neiman Marcus, an anchor tenant at SouthPark, filed for bankruptcy May 7 and may opt to close some of its stores. Macy’s, which has stores at Northlake and SouthPark, will emerge from the outbreak “as a smaller company,” the retailer’s CEO told CNBC this week.

The financial health of department stores, once the cornerstone of American retail, is vital for the survival of traditional malls. It’s a domino effect: If department stores fail, mall foot traffic slumps, hurting other smaller retailers that could opt to leave for good.

Malls will start to reopen this month, likely with new social distancing measures in place. Simon Property Group announced last week that SouthPark, Concord Mills, and Carolina Premium Outlets will open this Friday, May 8.

Whether shoppers will follow, and which anchor tenants will be stable for the long haul, remains to be seen.

“Malls and big anchor tenants are going away — or at least they’re going to be greatly shrunk,” says Steven Cox, a marketing professor at Queens University of Charlotte. “That’s going to just accelerate dramatically.”

Recent news reports about the future of department stores paint a grim picture. More than 50 percent of department stores anchoring malls will close by the end of 2021, CNBC wrote, citing the real estate firm Green Street Advisors. Mark Cohen, the director of retail studies at Columbia University’s Business School, told the New York Times that “very few” department stores are likely to survive the pandemic.

The outlook for non-department stores is also bleak. On May 11, J.Crew filed for bankruptcy, becoming the first big retailer to fall during the outbreak. This week, Nordstrom said that 16 of its stores will permanently close, though it didn’t say which ones.

The companies that own Charlotte’s malls — SouthPark, Northlake, Carolina Place, Rock Hill Galleria, Monroe Crossing, Carolina Mall, and Eastridge — all either declined to comment for this story or did not respond to a request for an interview. But throughout the history of retail locally and nationally, the fate of a store or mall often rests in its ability to adjust and reinvent itself as an important place in a community.

Belk, a homegrown retailer, has experienced dramatic change in recent years.

Founded in Monroe in 1888, Belk was a family-run icon in Charlotte with influence that stretched well beyond checkout lines. John Belk, son of founder William Henry Belk, served four terms as Charlotte’s mayor. Over the years, the family has infused millions into organizations like UNC Charlotte and The Foundation For the Carolinas.

In 2015, New York private equity firm Sycamore Partners purchased Belk for $3 billion. The following year, Tim Belk retired as CEO, bringing to a close nearly 130 years of family leadership at the company.

In the years since, the retailer has invested in its digital capabilities, such as an app upgrade. But generally, it has struggled to find its footing, Cox says.

New CEO Lisa Harper, a Durham native and UNC Chapel Hill graduate, is the former CEO of specialized retailer Hot Topic and the children’s store Gymboree. Since taking over at Belk, Harper has leaned into its identity as a “Southern” brand, Cox says. One way she’s done that is through expanding its offerings of private label brands, including Crown & Ivy.

“(Harper) had the concept it was the Southern person’s store. She tried to specialize Belk into that area, and give it a differentiator,” Cox says. “I don’t think that’s worked. It’s a great thought, though.”

This year, Belk closed its three-story flagship store in the Galleria Dallas, a high-end mall that’s home to Tesla and Apple stores, according to the Dallas Morning News. Belk had been there since 2014.

In February, Belk cut 80 jobs at its corporate headquarters off Tyvola Road. The move was meant to “simplify corporate operations, more efficiently align teams and position Belk to continue to grow,” the Charlotte Observer reported at the time.

Currently, Belk has approximately 1,150 associates at its corporate office, spokeswoman Jenny Anderson said. The chain operates 293 stores, mostly in the southeast. Belk would not make anyone available for an interview. Anderson declined to respond to follow-up questions the Agenda sent in an email.

“All of these are great questions but are unrelated to our stores reopening, which is our sole focus right now,” Anderson said.

Belk started reopening stores in South Carolina, Georgia, Tennessee, Arkansas, and Oklahoma last week after weeks of being closed because of coronavirus.

Even when department stores like Belk reopen, though, shoppers won’t be returning in droves, Cox says. That’s partly because the coronavirus outbreak has prompted a changed in shopping habits.

When people had no choice but to stay home, those who weren’t already shopping online learned quickly. Amazon reported a 26 percent increase in first-quarter sales this year over last year.

“People have been forced to discover they can buy almost anything they want online,” Cox says. “They’re getting a lot more comfortable with it.”

But for some retailers, brick and mortar stores are critical for survival.

Take Lids, for instance. Trying on a hat at Lids is part of the experience of shopping there.

Lids has had some online sales since everything shut down, but not nearly enough to get by, says Ripley, the CEO. Lids is also uniquely positioned in two industries crushed by coronavirus: retail and sports. There are no live sports right now, and most of what Lids sells is tied to one of the national leagues.

“It’s kind of a double whammy, with sports and mall-based retail,” Ripley says.

In the meantime, Lids has come up with rent concession agreements with certain landlords, including Simon Property Group, which owns SouthPark.

Lids isn’t the only mall tenant not paying its landlords. Gap — which owns Banana Republic, Athleta and Old Navy — also stopped paying rent last month. Urban Outfitters also said it would stop paying rent for now.

Smaller mall tenants typically have clauses in their contracts that give them negotiating power if department stores go dark, Cox says. That means smaller stores can demand rent relief, or they can break their leases and close for good, if an anchor stays closed, CNBC and others have reported.

Cox doesn’t use the word “dead” when he’s talking about the future of malls, though.

Rather, Cox says, they’ll be “reimagined.” Maybe they’ll add some non-retail businesses like gyms or dentists’ offices. Or maybe they’ll close, sell, and re-emerge as something totally new, like Eastland. The east Charlotte mall closed in 2010, then the city bought it a few years later. It’s now slated to be redeveloped to house apartments, restaurants, and the headquarters of Charlotte’s Major League Soccer team.

“(Malls) might have to be torn down or rebuilt. But they’re going to be reimagined to be even more convenient,” Cox says.

The retail industry tends to reinvent itself periodically.

Back in 1960 and 1970s, downtown areas were where people shopped. Belk and Ivey’s both operated stores in Uptown Charlotte. When people flocked to the suburbs, so did retailers. SouthPark mall opened in 1970 on property that was once a dairy farm.

“The only reason we have malls is because they were convenient when people moved out to the suburbs. They basically got a downtown experience and a place to park,” Cox says.

SouthPark is one example of a mall that’s shifted with the times. It’s also benefited from the growth of the surrounding area. Apartments are cropping up within walking distance, as are restaurants and bars. Legion Brewing opened nearby a few years ago. The mall is a centerpiece of one of Charlotte’s top upscale neighborhoods.

If malls are to survive, they will have to evolve, like SouthPark has, Cox says. The ones in trouble look the same now as they did a decade ago.

These days, retail is also once again moving closer to dense areas. Atherton Mill, for instance, is filled with popular shops like Madewell, Anthropologie, Free People, Warby Parker, and Lululemon.

On top of that, the development has brand-new apartments, sits next to the light rail, and is walkable to breweries and restaurants in South End. That’s the kind of vibe retailers are after, Cox says.

“Malls in general are on their way out, in the way we have seen them as a strictly shopping area,” he says.

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