The last time I went to a mall was well before the COVID-19 crisis hit. Even without the pandemic, there were signs of distress. Some shops, like the Apple Store or REI, were busy, with big teams of employees scrambling to meet the needs of an engaged, demanding customer base. But some stores were much less busy. There were employees standing idly in some clothing shops and bookstores. But despite the fact that they weren’t engaged in the act of selling goods, as hourly employees, each of those people was another cost in the budget of a retailer already facing eCommerce disruption.
That kind of disparity reeks of inefficiency. Not only for the tenant businesses who either have a great need for labor or are stuck with too much of it, but for the mall owners as well. The fortunes of a retail landlord are tied up in the fortunes of his or her tenants. When stores make strong sales, things are good and the landlord either collects a percentage of gross proceeds or else rests easy, knowing he can continue to expect a steady stream of rent checks. When things are bad, percentage rent collections go down, and landlords begin worrying about whether their tenants will be able to continue making payments. Non-paying tenants can cause a cascade of problems, particularly at anchor stores. Their departures can give smaller tenants the opportunity to break their leases under co-tenancy clauses meant to protect them if things start going south at the mall, threatening traffic, and thus making it harder to do business for everyone. To keep anchor tenants around, landlords are sometimes forced to eat the operating costs themselves, nevermind debt or tax obligations.
This is why landlords have a vested interest in tenants’ employment ratios. When a mall’s total employee base is lopsided, with some tenant companies facing excess labor supply and others facing excess demand, it creates problems for everyone. Never has this been more obvious than during the coronavirus outbreak. Retailers that offer food and home goods, like Walmart and Target, have been hiring like mad. In Walmart’s case, that’s an astonishing 200,000 new jobs. One solution to this demand could be sharing employees. Of course, not every tenant business will be interested in letting its employees moonlight at competitors, but for businesses that occupy different niches, employee sharing could represent a dynamic way to meet the needs of some employees while cutting the costs of others. Looking again at Walmart, Donna Morris, executive vice president and chief people officer for the company said that many of the new hires were furloughed staff from the hospitality industry and even other retailers.
The idea of employee sharing as an actual policy is picking up steam. In China, employee loaning has become more common in the landscape of COVID-19. The supermarket 7Fresh launched an employee sharing plan where lender companies, often small businesses like restaurants and bars, pay the benefits and insurance for their employees while 7Fresh picks up their hourly wages and gets to take advantage of the extra manpower. Meanwhile, employees stay busy and keep generating income for their own rent and expenses. It’s a win-win all around.
What would it take for a retail landlord to begin setting up such an arrangement? A clear knowledge of which tenants need support and which don’t, for one thing. That information could be easily ascertained by simply picking up the phone and asking. Then, it would require a system to keep track of hours, payments, and cross-training. No easy feat, but let’s face it: disparities amongst retailers are not going away, even once we get a vaccine for the virus. Getting on top of this issue now could pay dividends later.
As we discussed in our newest research report, employee sharing is just one of many types of new strategies that retail owners should consider taking as they work not only to outlast the outbreak, but to emerge from it with strength enough to challenge the eCommerce giants. But while shopper experience, loyalty programs, and ease of pickup are all critical, so too is labor. Instituting employee share programs across the scale of a mall or shopping center might take some effort to negotiate between big corporate tenants, but if Walmart is any indication, it’s far from impossible. But for now, perhaps landlords should focus on helping set up a sharing system for the local, non-corporate tenants. The local board game shop, record store and specialty grocer will all have different levels of labor needed as we progress through the days of the outbreak. If landlords step up as leaders, tenants, employees, and investors alike could reap the rewards.