Retail Shift: Bath & Body Works' Off-Mall Strategy

The retail landscape is in a perpetual state of flux, constantly adapting to shifts in consumer behavior, technological advancements, and economic pressures. While reports from data analytics firms like Placer.ai indicate a significant rebound in mall foot traffic, particularly in October 2025, signaling renewed consumer interest heading into the holiday season, this resurgence doesn't always translate directly into sales. This paradox highlights a crucial distinction: visitation does not inherently equate to spending. Amidst this dynamic environment, long-standing mall staples like Bath & Body Works are proactively recalibrating their retail strategy, embarking on a comprehensive transformation that includes a strategic pivot towards off-mall locations and a detailed turnaround plan to secure future growth.

The Evolving Landscape of Retail Foot Traffic

Recent data underscores a nuanced narrative concerning the health of physical retail spaces. Contrary to popular belief that American consumers have entirely abandoned traditional malls, insights from Placer.ai reveal a robust recovery. October 2025 witnessed a significant rebound in foot traffic across indoor malls, open-air shopping centers, and outlet malls, demonstrating substantial year-over-year (YoY) and month-over-month (MoM) growth. This surge suggests a potential early start to holiday shopping or at least an increased propensity for consumers to seek out deals.

Specifically, indoor malls continued their strong performance throughout 2025, leading the growth. However, open-air shopping centers and outlet malls also moved into positive territory after four consecutive months of decline, reinforcing the widespread nature of this recovery. The MoM data is particularly telling: October 2025 saw visits rise sharply compared to September 2025—up 6.1% for Indoor Malls, 5.5% for Open-Air Shopping Centers, and 7.9% for Outlet Malls. This contrasts sharply with October 2024, which only saw modest MoM increases of 0.5%, 2.1%, and 1.4%, respectively. While these statistics paint a picture of renewed consumer engagement with physical retail, it is crucial to reiterate that increased foot traffic does not automatically translate into heightened spending, a critical consideration for retailers formulating their long-term growth strategies.

Bath & Body Works' Strategic Real Estate Pivot

Amidst these broader market dynamics, Bath & Body Works, a ubiquitous presence in malls for decades, has been executing a deliberate strategy to reposition its physical store footprint. The core of this initiative involves a systematic migration of its store portfolio towards off-mall locations, a process that inherently includes the closure of certain mall-based stores.

Shifting from Mall Dominance to Off-Mall Presence

Wendy C. Arlin, former CFO of Bath & Body Works, provided clarity on this strategic direction at a Goldman Sachs retail conference. She highlighted that an impressive 99% of their stores are cash flow positive, underscoring the financial health of their real estate fleet. The strategic focus, however, is unequivocally on expanding their off-mall presence. As Arlin articulated, the stores being opened each year are predominantly in off-mall locations, while closures are primarily within malls. This plan, which commenced in late 2022, aims to transform their current approximately 50-50 mall/off-mall split to a future state of roughly two-thirds off-mall and one-third in-mall. This transition signifies a fundamental shift in how the brand intends to engage with its consumer base, seeking locations that offer greater accessibility, visibility, and potentially lower operational overheads.

Store Rationalization: Closures and Net Expansion

The implementation of this strategy is evident in Bath & Body Works' recent operational reports. In their Q3 2025 earnings report, the company disclosed the closure of 34 company-operated stores since February 1, 2025. Concurrently, they opened a substantial 73 new stores within the same period, indicating a clear strategy of net expansion, even as they rationalize their existing footprint. This pattern suggests a selective approach, optimizing their portfolio by exiting underperforming or less strategically aligned mall locations while investing in new, often more modern, stand-alone stores.

Examples of this shift include the closure of their store in Meriden Mall, Connecticut. Simultaneously, the company is actively opening new, contemporary off-mall locations, such as a "Gen Z-focused" Bath & Body Works store in San Antonio, featuring fresh designs and interactive elements. These new formats are designed to enhance the customer experience and resonate with a younger demographic, reflecting a forward-looking approach to physical retail.

The "Consumer First Formula": A Comprehensive Turnaround

Beyond real estate adjustments, Bath & Body Works is undergoing a holistic transformation under the leadership of CEO Daniel Heaf. During the third-quarter earnings report, Heaf introduced the "Consumer First Formula," a comprehensive plan designed to revitalize the brand across multiple dimensions and unlock its next era of growth.

Four Pillars for Sustainable Growth

The Consumer First Formula is built upon four strategic pillars, each targeting critical revenue-driving opportunities:

• 1. Create Disruptive and Innovative Product: The focus here is on reestablishing product leadership. This involves developing innovative offerings within core categories such as body care, home fragrance, soaps, and sanitizers. Guided by deep consumer insights, the company aims to deliver ingredient-led formulas, sensorial excellence, and elevated storytelling, all while simplifying the assortment to prioritize trend-right innovation.
• 2. Reignite the Brand: This pillar seeks to reclaim Bath & Body Works' position as a cultural leader. Strategies include bolder, more targeted brand moments and deeper creator advocacy. The goal is to build enduring fragrance franchises around iconic scents, supported by elevated visual storytelling and sustained social momentum across all consumer touchpoints.
• 3. Win in the Marketplace: To acquire new consumers, the company plans to meet them where they are, making discovery effortless. This involves continuously enhancing digital and in-store experiences while strategically expanding into new wholesale channels and marketplaces, thereby broadening accessibility and reach.
• 4. Operate with Speed and Efficiency: A fundamental objective is to transform Bath & Body Works into a faster and more efficient organization. This includes breaking down silos, accelerating decision-making, and strengthening an agile operating model. Future growth initiatives will be funded through continued operational discipline, with plans to achieve $250 million in cost savings over two years, with more than half identified for 2026. These savings will be strategically reinvested into revenue-generating product and brand initiatives.

Navigating Current Challenges and Future Outlook

Despite these forward-looking strategies, the immediate financial performance reflects ongoing challenges. Bath & Body Works reported third-quarter net sales of $1.6 billion, a 1% decrease compared to the previous year, with earnings per diluted share at $0.37. The company's net sales for the quarter ended November 1, 2025, were $1,594 million, slightly down from $1,610 million for the quarter ended November 2, 2024. Furthermore, the company anticipates a high single-digit decline in net sales for the fourth quarter of 2025, compared to $2,788 million in Q4 2024. CEO Daniel Heaf acknowledged these results were below expectations, attributing the lowered outlook to current business trends and persistent macro consumer pressures, while reiterating the company's swift and decisive actions to secure sustainable, long-term growth.

Expert Perspectives on the Retailer's Strategy

The strategic moves by Bath & Body Works have elicited varied reactions from industry analysts. Sucharita Kodali, a Forrester analyst, described the company's enduring appeal as a "head-scratcher," noting the inherent challenges of being a mall merchant selling widely available commodities. Yet, she acknowledged the brand's unique ability to resonate with a broad consumer base.

Conversely, some analysts view Bath & Body Works as a testament to the potential resilience of malls. John Morris, a senior analyst at D.A. Davidson, cited the brand as "Exhibit A that the mall is not dead," highlighting its success in attracting a diverse demographic from teens to baby boomers. However, GlobalData Managing Director Neil Saunders offered a perspective that aligns with the strategic closures, suggesting that while Bath & Body Works stores often stand out as "shiny beacons" in struggling second- or third-tier malls, exiting such gloomy environments is a pragmatic decision.

In conclusion, Bath & Body Works is navigating a complex retail environment by implementing a multi-faceted transformation. By strategically repositioning its physical footprint, launching an ambitious consumer-first growth strategy, and focusing on operational efficiencies, the brand aims to overcome current headwinds and establish a foundation for sustained success in an ever-evolving market.