US Department Stores Turned into Amazon Warehouses

Store Closures Due to COVID-19 Impact
Discussion on Using Some Simon Property Group-Owned Stores as Logistics Centers

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Large department stores in the U.S. that declared bankruptcy due to the activation of online shopping and the aftermath of the novel coronavirus disease (COVID-19) have become logistics centers for the retail giant Amazon. It is being evaluated that the change in shopping trends, combined with COVID-19, is accelerating the tectonic shifts in the retail industry at a faster pace.

On the 9th (local time), The Wall Street Journal (WSJ) reported that Amazon, the world's largest e-commerce company, and Simon Property Group, the largest shopping mall operator in the U.S., are discussing plans to use some department store locations that have filed for bankruptcy protection as Amazon logistics centers.

The discussion targets department stores owned by Simon Property Group, including 63 JC Penney stores and 11 Sears stores. JC Penney filed for bankruptcy protection in May, and Sears had already filed in 2018. A key point in the negotiations is how many of these stores will be converted into distribution centers.

Amazon entered the negotiations because it highly values the geographic characteristic that department stores are located near densely populated areas. Securing logistics centers in easily accessible locations can shorten delivery times. From Simon Property Group's perspective, it can break away from the old business model relying on large department stores and secure tenants more stably.

Local media attributed significance to the meeting between Amazon, which has risen as a retail giant, and traditional large retail chains like department stores, seeing it as a crossroads of shopping trends.

WSJ described the negotiations as "the intersection of two trends: the decline of shopping malls and the rise of e-commerce." The rapid growth of online shopping and the decline of offline retail networks are fully reflected in these talks.

Some express concerns that this negotiation may accelerate the downfall of offline retailers. If Amazon secures key logistics centers and shortens delivery times, its competitiveness will increase further, potentially exacerbating the crisis of offline retail networks.

Amazon has already made shortening delivery times its top business priority to respond to increasing online orders. Amazon is piloting drone delivery in some areas and has introduced the 'Amazon Locker' service, where customers pick up items directly from retail stores. It is also making proactive investments in electric trucks and strengthening its logistics network.

These changes are expected to spread throughout the retail industry. Bonadio, a real estate investment trust company that owns the JC Penney building in Manhattan, New York, has also announced that it is considering converting the building into a logistics center in the future.

Camil Renshaw, CEO of real estate brokerage B+E, said, "To replace department stores closed due to COVID-19, building owners are considering schools, medical facilities, and silver towns, and this trend will accelerate further."