The CEO of one of America's biggest mall operators reveals how 'fulventory' is turning stores into fulfillment centers and why malls have to stop being a 'lazy a– business'

  • Lou Conforti, the CEO of mall operator Washington Prime Group, said the mall industry needs to evolve away from being a "lazy a– business." 
  • Earlier this year, Washington Prime introduced an initiative called Fulventory, which allows existing tenants to pay a lower rental rate to use additional space as a fulfillment or pickup and returns center. 
  • "Dark stores" — or locations dedicated exclusively to fulfilling online orders — are a growing trend in retail.
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The CEO of one of the United States' largest mall operators says that malls will have to make some big changes to survive. 

"This has been a very passive industry," Lou Conforti, CEO of Washington Prime Group, told Business Insider in a recent interview. "We were rent collectors versus problem solvers or curators." 

Conforti doesn't even like to use the word "mall" because of its "negative connotation" — he prefers "retail venue" instead. The company's portfolio includes a mix of open-air and traditional enclosed shopping centers. 

Washington Prime, which was spun off from Simon Property Group in 2014, is introducing innovations that it hopes will make its retail venues more attractive to both tenants and shoppers while blending e-commerce and in-person purchases. 

At the beginning of the year, Washington Prime launched a new initiative called Fulventory, offering its tenants the ability to turn an empty mall space into a place where they can facilitate buy-online-pickup-in-store and buy-online-return-in-store services. Existing mall tenants can also use the space to run clearance sales on excess inventory. 

They have the option to choose between small, medium, and large spaces, and Washington Prime is charging a lower rent to use them than it would for a traditional retail store. 

So far, Washington Prime has partnered with West Virginia University Medicine to create a logistics, distribution, and fulfillment center in the Morgantown Mall in Morgantown, West Virginia. The fulfillment center services 11 hospitals and a number of clinics in the WVU Medicine network.

Washington Prime has also brought on Dick's Sporting Goods — which opened a Warehouse Sale clearance location at Lake View Plaza in Orland Park, Illinois — to the Fulventory initiative, as well as unnamed active lifestyle and women's fashion tenants. 

Conforti said the service is meant to help retailers bridge the gap between e-commerce and brick-and-mortar sales, which he says is essential to meeting today's shoppers' needs. 

Shoppers might want to order an item online, but be able to pick it up the same day in-store, without having to pay for shipping. They might not want to spend so much time browsing stores in-person as the coronavirus pandemic remains a concern in the US.

"Dark stores" — or locations dedicated exclusively to fulfilling online orders — are a growing trend in retail. Macy's recently closed stores in Littleton, Colorado, and Dover, Delaware, to dedicate them exclusively to fulfillment and order pickup for the holiday season. 

"There's this symbiotic relationship between e-commerce and physical retailing, but they both need to be more user-friendly," Conforti said. 

Another benefit of Fulventory, Conforti said, is finding new purposes for large, empty retail spaces. The WVU Medical space, for example, is located in an 80,000-square-foot former Sears store.

In August, the Wall Street Journal reported that Amazon was in talks with Simon Property Group to turn former Sears and JCPenney stores into fulfillment centers. Amazon and Simon both previously declined to confirm those reports, saying they don't comment on rumors or speculation. 

'We beta test the s— out of stuff'

Retailers continue to file for bankruptcy protection at an elevated pace in 2020, with companies like Ascena Retail Group, JCPenney, and RTW Retailwinds announcing plans to close hundreds of stores.

Washington Prime collected just 44% of its rent in the second quarter. Of the 56% that was not paid, 30% was due to rent deferral agreements with tenants while 26% was due to bankruptcy or pandemic-related lease modifications, according to the company.

A recent Barclays analysis reported on by CNBC estimated that 15-17% of US malls would need to be redeveloped to serve other purposes in the long term. That's not great news for property owners — according to Barclays, turning a dead mall into a fulfillment center could mean a loss in property value of between 60-90%. 

Conforti said the keys to malls' survival are in diversifying tenants and creating new, innovative spaces. He said the mall sector has historically been a "lazy a– business." 

"We had a lot of overleveraged, private equity-sponsored tenants that were crummy merchandisers, and guess what? They should go away," he said. 

This summer, Washington Prime hosted a series of socially distanced exercise classes as well as a drive-in movie series in some of its parking lots. 

It also struck a deal to bring Amazon Lockers to a number of its properties back in 2016.

Ultimately, Confort said, it comes down to trying a lot of new things and seeing what sticks. 

"Beta tests are the most important thing this industry can do, because guess what, you're supposed to fail," he said. "You shouldn't rely on something because … it was done 30 years ago."

"We need to have a lot of dynamism in this space. So we beta test the s— out of stuff."

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