Walmart (NYSE: WMT) signals expanding real estate strategy by scooping up a Pittsburgh shopping mall
If you’ve ever wanted a Walmart Supercenter (NYSE: WMT) right next to your favorite food court or movie theater, you may be in luck as the world’s largest retailer said it’s buying a popular shopping center outside of Pittsburgh. The $34 million all-cash deal for the Monroeville Mall barely registers against Walmart’s $620 billion in annual revenue, but it’s a first-of-its-kind move that signals a real estate strategy shift.
The Bentonville, Arkansas-based company was tight-lipped on details but hinted at new formats, telling CNBC that it was interested in “being part of any future redevelopment of this site.” The mall—one of the largest in the state of Pennsylvania—was first built in 1969, and its 133 stores and nearly 1 million square feet of retail space draw almost 3.5 million visitors a year.
The purchase is the latest example of an aging shopping complex getting a fresh lease on life after a new generation of consumers turned their backs on what was once a staple of American culture, choosing to shop online instead. The agreement also comes as Amazon (NASDAQ: AMZN)—Walmart’s biggest rival—has been aggressively expanding its physical footprint into brick-and-mortar activities. Owning mall space could help Walmart test new concepts—whether in logistics, retail, or entertainment—and keep the heat on the competition.
New opportunities
That could all result in interesting growth opportunities, especially with Coresight Research documenting that shopping malls have seen a bit of a turnaround lately despite the widespread view that the sector has been in decline. The consultancy’s most valuable insight, however, is its observation that collective brand strategy can increase sales, and that’s exactly why Walmart might be interested in the space.
“Brand synergy is the idea that brands generate more value by being in close proximity to other high-value or sought-after brands, which brands leverage to identify new locations that are likely to be successful, as well as increase store foot traffic from engaged shoppers,” Coresight said in a report. When Walmart becomes a landlord, it will be able to curate the mix of other nearby retail tenants in an effort to drive more traffic to its own store, presuming it puts one there. A trip to the popular H&M or Dick’s Sporting Goods (NYSE: DKS), for example, could be capped with a seamless grocery run at Walmart. The company will also get the power to keep closer competitors further away.
Walmart’s foray into landlording, meanwhile, could help energize the commercial real estate sector. CBL Properties (NYSE:CBL)—the previous owner of the Monroeville Mall—said the transaction will allow it to focus “on higher productivity properties,” and other winners could include mall operators Macerich (NYSE: MAC), Simon Property Group (NYSE: SPG) and Regency Centers (NASDAQ: REG). They can keep focusing on their most profitable, higher-end locations, while suddenly there’s a behemoth possibly on the hunt for any properties they might want to jettison.
‘Fierce Competition’
Walmart—whose shares rose more than 80% over the past year and far outpaced gains seen by rivals including Costco Wholesale (NASDAQ: COST) and Amazon—is so large that it’s hard for any single, new initiative to make an immediate impact on stellar performance that already included sales growth of 6.1% in the last quarter. The move, however, shows that the company isn’t resting on its laurels and constantly testing new strategies, especially as affluent households earning more than $100,000 a year—the exact demographic with more disposable income to spend at the mall—accounted for 75% of recent market share gains.
“We have fierce competition from all kinds of different directions. So our mindset is to be aware, to watch, to learn,” CEO Douglas McMillon said in an earnings call with investors. “And when we see the customer responding to something, react if it makes sense for us to react and to change, if we need to change. So we try to stay focused straight ahead, eyes on customers, members focused on our associates, have our competitors in our peripheral vision, but study them and learn and apply.”
Malls may be drawing renewed attention from investors, and Walmart’s entry into the space comes with an extra twist of irony. After decades of squeezing them out, it now wants a front-row seat to their revival.
