We’ll Be “The Future Of Retail” Blog For a Minute

One of the most disturbing retail trends over the past few years has been the virtual disappearance of old-line department stores. Even if shopping trends aren’t exactly favoring them anymore (and I would argue that there’s not all that many people in the under 30 set who shop at Macy’s very often), there’s still a question of what to do with the real estate they leave behind: huge, hulking, bunker-like stores that serve as almost every anchor to almost every mall in the country. These centers are troubled enough without having to worry about the string of mergers and bankruptcies and shifting shopping patterns that have taken away their lifeblood.

One place to look to for guidance is Canada, which is a country that has long thrived with only two real national department stores (The Hudson’s Bay Company and Sears, which was formerly Eaton’s) along with a few discounters (Zellers). Many Canadian malls have filled out their anchor roster with other tenants, such as big box stores (electronics retailers, sporting goods stores, and bookstores) as well as supermarkets.

The last item–supermarkets–have been the bugaboo here in the United States. Few malls are anchored by them, presumably because shopping carts filled with food don’t exactly mesh with ladies in feathered hats buying Manolo Blancs. But no more! Faced with unfillable anchor store vacancies, some malls in the U.S. have begun experimenting with grocery anchors, most notably Westfield, who is adding a supermarket at their North County Mall in Escondido, California, outside San Diego.

What’s good about this for malls is that supermarkets generate many more visits per month than your typical roster of apparel retailers–an average supermarket may draw a consumer in a few times a week, rather than once or twice a month. That also opens up the center to appeal to different kinds of stores that thrive on more foot traffic:

It is a change that an industry analyst calls “mall-morphosis,” aimed at building miniature town centers where consumers can shop for a week’s worth of food, play with their children and maybe feel relaxed enough to wander over to a jeans shop and spend some money.

“Malls will become more of community center, destination locations,” said Marshal Cohen, chief retail analyst at the NPD Group.

“They are adding restaurants, community centers, playhouses, splitting big stores into slightly smaller stores,” he said. “Some are looking at warehouse clubs, fitness clubs, converting a big store into an indoor skate park (in Los Angeles).”

I think this is great, because it’s playing precisely on why malls should be fun–they’re places to gather, not just shop for clothing.

Also, you can open up a lot of possibilities. For example, Whole Foods, a chain that has a large prepared food section and typically has cafes in store, could face the interior portion of the mall with this offering–which appeals to hungry casual shoppers–while facing the regular registers out towards the parking lot for people running in just for groceries.

Another trend I’m seeing more of with vacant retail spaces is “pop up” stores, which typically are temporary shops intended to promote a specific brand or product. This isn’t a new idea–Trendwatching did a piece on them way back in 2004, and here’s another from 2006 by Retail Traffic. But Apple’s wildly successful retail store venture has proven that tactile brand experience stores can translate to improved sales, and given the ability to buy practically anything on the internet, the retail experience could double more as a showroom. This has been tried in a few ways with less success (Sony’s failed Metreon Mall in San Francisco, or the never-opened “Epicenter Collection” internet showroom concept) but these pop up stores have been generating some excitement in empty storefronts in hip urban neighborhoods, or in temporary installations in big cities.

Here’s a few new ones:

San Francisco may be getting a “mall” of temporary pop up stores in several structures along Octavia Boulevard in the city’s Hayes Valley neighborhood, an area with a burgeoning high-fashion shopping district that draws on the same type of culture and products commonly associated with Melrose Avenue in Los Angeles. Octavia Boulevard replaced an elevated freeway that was removed, and there are still vacant lots dotting the boulevard; the plan here is to fill the space with a series of structures intended to last a few years, showcasing a variety of goods and services.

And in the less conceptual plane, there’s a Puma brand pop-up store (pictured top of post) on the waterfront in South Boston, made of a bunch of old shipping containers and filled with excited consumers:

Author: Caldor

Jason Damas is a search engine marketing analyst and consultant, and a freelance journalist. Jason graduated magna cum laude from Northeastern University in 2003 with a Bachelor of Science in Journalism and a minor in Music Industry. He has regularly contributed to The Boston Globe, PopMatters.com, Amplifier Magazine, All Music Guide, and 168 Magazine. In addition, he was a manager for a record store for over two years. Currently, he focuses on helping companies optimize their web sites to maximize search engine visibility, and is responsible for website conversion analysis, which aims to improve conversion rates by making e-commerce websites more user-friendly. He lives in suburban Boston.

49 thoughts on “We’ll Be “The Future Of Retail” Blog For a Minute”

  1. Everyone says that malls and department stores are dying, and avoids the legacy malls and chains still left from the old days. But then they go and shop at the full-line discount merchants which are pretty much approximations of 1960s and early 1970s era full-line department stores, and flock to outlet stores that sell lower quality versions of the same brands (for often the same price) available at the local malls and department stores they’re avoiding. Irony, thy name is retail.

  2. In someways this is everything old is new again. Early malls in the 50’s and 60’s often had supermarkets, 5&10 stores-Woolworth and Murphy were quite common, drug stores, bowling alleys, and even sections set aside as offices-doctors, dentists, etc.
    Those early malls were designed to function as the community gathering place for the new suburbs which lacked a downtown, Victor Gruen’s designs often included these designs, but sadly, few were actually built and most of the ones that were, over time lost the elements of design as a community center and became simply enclosed shopping centers.

    Many of the newer malls do include traditional big box stores among their anchors, but since the majority were built close to the turn of century, they still have 4 or 5 department store anchors. Some solutions to this delimma have been to demolish empty anchors and add open-air “lifestyle” sections of trendy restaurants and boutiques.

  3. Supermarkets have never really left malls. From time to time, they appear on outparcels. Westfield Wheaton’s makeover included a new Giant supermarket on an outparcel. It replaced a smaller store attached to the mall but w/o a mall entrance. A major difference between super market shopping and mall shopping is that that super market shopping usually happens on the way home from work and is fairly encapsulated. That is part of the reason that supers departed from malls.

    In other parts of the world, department stores continue to thrive, even after hypermarts and discount stores have entered the scene and typically they are quite similar to the old model with many departments. They also tend to have super markets!

  4. The Macy-ization of America is the #1 reason why there are so many department store vacancies in malls. The Federated-May merger should have never been legally approved by the regulators (because of all the competition it elimnated).

    Although this is highly unlikely to ever happen, I hope the government steps in and breaks-up Macy’s (for essentially having a monopoly on the mid-range department store market). After the break-up, some of the old nameplates could re-emerge as separate entities (while Macy’s itself would also still exist) and hopefully set up shop in the now vacant former department store buildings.

  5. Supermarkets at shopping malls are an old idea returning!

    In 1967, when the Greece Towne Mall opened in Rochester, NY, it had one major anchor, Sibley’s (then owned by Associated Dry Goods) , and several junior anchors, including GC Murphy, The National (a long time Rochester clothing retailer), and a Loblaw’s supermarket. What was unique was that the Loblaw store was built so that it could have its outside and mall entrances within close proximity. I remember entering the store, from the mall, through a turn style. It did great buisness, until Loblaw’s pulled out of Western New York in the late 1970’s. It was succeeded by a Bells which did not last as long as Loblaw’s did. In the 1980’s, Lenscrafters took over the location. When they moved to an off-mall property, it was converted to a Circuit City store, but the mall access was closed off. It was accessible from outside only. Now it sits empty.

    The neighboring Long Ridge Mall, anchored by Sears, McCurdy’s, B. Forman Co. and discounter JB Hunter, also had a supermarket, but it was in the mall parking lot, not attached to the mall. It was a Rochester based chain called Star Supermarkets. Star was Wegmans main competitor until the 1980s. When Star was sold in 1983, the store was converted to a no-frills Apples store. It died a quick death. When Greece Towne and Long Ridge Malls were joined together to form one mall in 1994, the Star building was demolished to make way for the connector mall, linking the two other malls together. Today, there is no supermarket at the joined Greece Ridge Mall.

  6. You don’t want the feds bursting in, and regulating everything.

    If the Macy’s acquisition is a poor one( which even I think it is), it will go under.

    Just remember that no one forced Federated to merge with Macy’s; that was their choice.

    You want the competition? If someone doesn’t like what they’re doing, they’ll go somewhere else.

    “But there isn’t a somewhere else!” you scream.

    Keep the feds out of it, and there will be. That’s what Capitalism is all about. 🙂

  7. Does anyone else find “mall-morphosis” highly ironic? A lot of the old, dying malls we see on this page and others were pitched as “miniature town centers” and “community center, destination locations.” And that might’ve even been the case at first. But over time, we gradually got gigantic clothing centers with food courts. Which was ok for a while but it drove anyone not looking for clothing or food away from the malls. Quite frankly, for malls to survive they need to do what they can to bring diversity back into their parcel lineup. Apple, supermarkets, and pop-up stores can make this happen. But on the other side of the coin, when the market turns back around, they need to do what they can to keep these stores instead of giving them the heave-ho to fill the space with more clothing stores and food court.

  8. It’s interesting that Westfield are leading the trend towards bringing supermarkets back into malls in the US. But I doubt it’s a trend they’ve copied from Canada.

    Down here down under – in the wide brown land that first sprawled a Westfield – mall facing supermarkets are almost always a key anchor of most suburban shopping centres. Indeed, it would be rare to find a mall which doesn’t feature a Coles or Woolworths / Safeway, along with a discount department store (K-Mart, Big W, or Target); supermarkets anchor Australian malls like Department Stores anchor malls in the US.

    This has been a mutually beneficial both for mall owners and for the big retailers. Good for the retailers in that they often get subsidised rents and place covenants limiting the number of supermarkets inside the malls where most Australians do their weekly shopping, meaning that independent supermarkets often have to set up away from major malls. This has been a factor in the two largest grocery store owners – Wesfarmers and Woolworths – in turn accumulating 80% of the Australian grocery retail market.

    And it’s good for mall operators because it guarantees a steady flow of residents coming through their doors at least once a week to their mall (and of course passing all the smaller retailers both on the way in and on the way out).

    The net effect has been that – with a few very notable exceptions (i.e. malls which were already mismanaged), the dead mall phenomena which has plagued the US has not been replicated here…

  9. Hmm…there was some small mall in Michigan that has a Kroger inside, and of course, there’s others: there’s the “Costco malls”, which have food sections, and then there’s the ill-fated LJ Hooker malls with bigg’s (Forest Fair Mall, Thornton Town Center, both bigg’s are gone now), and a few other specimens.

  10. @AmishThrasher, I don’t think it’s so much that the trend is being copied from Canada, exactly, I’m just saying that it has existed there for awhile and that Canada has long had a situation (with few national department stores) that the U.S. is really only recently waking up to. Canada also has used supermarkets to anchor enclosed malls with quite a bit of success.

  11. @Dante, I’m hoping that if malls break way from “all clothing and fast food all the time,” there won’t be a return, but all it takes is one developer in a highly populated area and the right publicity to turn a bad idea into a national phenomenon. Witness how many cookie-cutter lifestyle centers that were built in the wake of Poag & McEwen’s early experiments. Or all the bad festival marketplaces that followed James Rouse’s Faneuil Hall and South Street Seaport.

  12. @Steven Swain, And what happend to South Street Seaport? Hmmm!

    What happens quite often can be summed up in a few words”if it can work here, it can work anywhere.”

    Developers are finding out the hard way that copycat development doesn’t work long term, but unique & innovative designs & foward thinking features will keep people comeing back for years.
    Places like The Grove @ farmers market, NorthPark Center, Old Orchard/ Oakbrook & Roosevelt Field come to mind. Remember location plays a gigantic roll in evential success or failure.

  13. @Steven Swain, I also hope that fad won’t return. It’s really only been a recent phenomenon. I was thinking of when I used to hang out at the mall. That was the mid-90’s. Back then, my local mall (North Point in Alpharetta, GA) had 2 software stores, 2 music/movie stores, a large bookstore, a toy store, a cigar store, and an arcade inside it that I frequented. They are mostly gone now. In their place are a video game store practically devoid of computer software, an FYE store that is admittedly halfway decent, and that same bookstore moved into a MUCH smaller store in the mall. And North Point has fared pretty well as far as non-food/non-clothing shops are concerned.

  14. It is interesting that American malls are starting to have supermarkets again in malls, since most anchors (DEPARTMENT STORES) are generally glorified clothing stores that are carbon copies of themselves, and that the recession has made people want to save more and spend on only essentials, scaring malls into having more diverse shopping options to get more people to spend even if it is something small and disposable. Victor Gruen may (if he was alive) feel vindicated since his original idea for an enclosed shopping center was much more than just shopping, but was an alternative downtown or community center for everyone to shop, play and congregate. Unfortunately, the mall corporations felt that most other things other than clothing and accessories were too cost prohibative, turning the American mall mainly into a vapid shopping area mainly for clothes, accessories, and fast food, causing the loss of early mall stores such as bakeries, drug stores, arcades, 5 and dime stores (modern equivalent dollar stores), florists, movie theaters and other stores that caused many people to leave the mall. (Some malls still have these stores, but malls now are less likely to have them.) Mall owners may have thought that they could completely depend on middle-class female shoppers to keep the mall afloat, but hard times have diminished their revenue, causing a change to more diversity, trying to capture the dollar of anyone who causally comes to the mall.

  15. Regarding supermarkets in malls, I was a geography major in the 1970s and I recall a class [Social Geography? I can’t recall the name of the class] and I distinctly remember a text book categorizing the types of malls. Malls with supermarkets, per this text, were decidedly second tier. The lowest caste among malls.

    I also remember that the two malls that opened in my hometown (Lima, Ohio) in the 1960s both had super markets, for a time. The Lima Mall eventually ditched its supermarket, about the time it expanded by adding a “big city” department store (Lazarus, out of Columbus- now Macys). So, may be there was something to that mall hierarchy theory.

    The other mall [the American Mall, profiled in Labelscar] also eventually closed its super market, but that may have just been a portent of the future of that mall, as the American Mall eventually joined the ranks of the dead malls.

    I don’t know how valid that 1970s theory of mall hierarchies is today. Given the current state of the US economy, and the retail sector in general, I imagine the theory today is “anything that works”.

    It will be interesting to see how malls- the ones that are able to survive- will morph in the next few years…

  16. @James, interesting that the malls with the supermarkets were low-caste.

    Here’s a quote from Manchester Center:
    But the types of malls that we discovered were “dead” in the mid to late 1990s had mostly already gone away: these were the weakest players, the least-loved, and they were wiped off the map before the public’s collective consciousness began to recognize their existence. As a result, our trips since have been somewhat less enjoyable, since most of the remaining malls are at least somewhat whitewashed and there’s a sad knowledge that in just about every city in America, there’s at least one true gem of retail history that’s already long gone.

    MANOR EAST MALL in Bryan, Texas was an interesting specimen. It was built in 1972 as an attachment to an existing Montgomery Ward, and featured JCPenney and Wards and was the smallest city in Texas at the time to have a fully-enclosed mall. But then in 1982, the larger POST OAK MALL opened south of town and MANOR EAST MALL fell into decline. By 1986 JCPenney was lost to Post Oak, and the mall now had Wal-Mart, Food 4 Less, and Montgomery Ward as anchors. Yes, a GROCERY STORE and the FIRST MALL-CONNECTED WAL-MART. A long, protracted total death then happened. By 1993, Wal-Mart had jumped ship, by 1997 Wards was gone, and by 2000, it was little more than a corridor to a small pet store that managed to scrape out an existence inside the abandoned corridor.

    By 2003 it was rubble, mostly demolished for a new H-E-B supermarket. I researched this mall and contributed to Mall Hall of Fame which made an article of this mall.

  17. Just goes to show, everything that’s old is new again.

    Malls need to evolve and get out of this ‘department store anchors’, apparel, and fast food cliche it’s been in for the last four decades (since the late 1970s).. Specialty segments like music, movies, toys, and hobby-type things are pretty well dead segments due to mass-merchandise discounters and the Internet….I doubt these categories will return any time soon.

    Things like supermarkets and other ‘box’ type things would work nice for some dead anchor space. What may also need to happen in future (re)develoipment…… make the mall footprint smaller. There is no longer the wealth of national chains to fill in gigantic spaces any longer. I’ve seen some directories of malls in towns of 50k-100k with more space than is needed. Not every area’s demographics are ripe for ‘upscale’ and ‘international’ retailers to enter, thus the vacant space will just sit empty and rot away. Lots of front-side (road facing) tenants back then were also larger stores like Woolworths and Walgreens…most having exterior and interior entry.

    In a nutshell, malls need to become less like ‘malls’ and more like one-stop ‘shopping centers’ once again, with community functions and other amenities ….the kind of place one could spend an hour or two in.

  18. @Matt from WI,

    This is exactly what I’ve been thinking for awhlie. In fact, I am getting a bit tired of malls taking the drastic steps to demolish EVERYTHING for an outdoor mall. The fact is that malls that had 50-60 stores, one department store, a grocery store and a discounter with a very diverse roster were just right. Remember that the early malls were not homogenous: most stores in the mall were locally operated stores that relocated from downtown. If malls had STAYED this size, there wouldn’t be so many dead malls and we’d have a lot more malls to choose from with less overlap.

    The problem was, people in America have long has the “bigger is better” attitude. The old 50-60 store mall didn’t have EVERYTHING and the neighborhood around it was starting to look old and dumpy. These days, instead of building malls like it in the new suburbs, they’re just building lifestyle centers instead. These lifestyle centers are a fad themselves, but it will take awhlie for the new to wear off, so they’re hip for now.

    If it were up to me, I’d build a small hybrid outdoor inclosed mall with all sorts of quirky and fascinating touches such as scattered locations of second levels, indoor water features, lots of natural light and distinct architectural design (in other words, refusing to copy).

    A new age mall would be anchored by only one department store, a store like DG or Fred’s, two decent sit down restaurants, a movie theater, a discount store (Target, Wal-Mart or something else) and a home improvement chain. The department store chosen would be the one most popular in the market, and any additional department stores would be required to be a junior anchor only (for example, if Fred’s didn’t make it).

    This mall would also not contain a food court. The smell of food THROUGHOUT the mall is a big part of the atmosphere. In addition, there tenant mix would be limited to no more than 50% clothing. The rest would have to be drug stores, book stores, pet stores, etc. The tenant mix would be designed to better reflect an early strip mall and would be designed to have a “carnival” atmosphere in lieu of just a big shopping center.

    The interior design of the mall would be especially significant. The design would need to be eye catching with plenty of plants and few wide open areas. In fact, instead of the middle area inclosed, it could be an open garden with an enclosed glass fronted cover over the walkways in front of the stores.

    Lastly, kiosks would NOT be permitted in my mall. They take away from the overall feel of the mall making it feel cluttered, and they tend to scare of shoppers with their aggressive marketing. If kiosks are used at all, they would be placed on the outdoor area in a covered portion that would function as a farmer’s market.

  19. @JT, you nailed it with your idea of what malls should be. Of course, if it was me, I would lean more towards adding some entertainment and leisure attractions like an ice rink to keep people in the mall longer, but not so much as to making it appeal too much to teens and college-age people.

  20. @Gary, actually I think entertainment is important, but I’d put it on an outlot aside from a theater. Entertainment venues tend to have a higher risk and failure rate, contribute to loitering (the mall’s worst enemy) and when they die out are more expensive and difficult to replace. I would definitely, however, put an entertainment complex on an outlot next to the mall: complete with a bowling alley, skating rink and other such things.

    I was noting the other day the rather creepy entrance to the bowling alley at Village Mall. Today it just looks like a service entrance, but I thought of how nice it would be if a bowling alley like that was in a mall today. I was back there exploring in detail what I missed. That mall is a first generation mall that has mostly been converted to offices, and I wanted to take note of what was in the original structure and what made it work for years. It had a five and dime, at least one restaurant, a grocery store, two department stores and a bowling alley all on a very small footprint.

  21. @JT, Entertainment has mostly been a bust. The video arcades were sources of trouble and had a short life. Amusement park-like elements generally have failed. Movie theatres have been in decline, because of general overbuilding. Some malls do seem to draw in families with small kiddielands, but these don’t make sense unless people buy other stuff. The one success in the leisure area has been sitdown restaurants, places like Cheesecake Factory, PF Chang’s, etc. A pioneer in this was White Flint Mall in the DC area. They replaced I Magnin about 15 years ago with restaurants and a Border’s and this has helped stabilize the mall, although it’s hardly as successful as its nearby competition. Food courts can be strong draws on their own and some malls have been configuraed to make them easily accessible for lunch time, but these often have little spillover given the limited time people have for lunch.

    Service businesses bring traffic but not shoppers. The DMV in DC’s Georgetown Park is always packed, but with little spillover to the rest of the mall. Ditto the post office at White Flint and the big dental office at Atlanta’s Phipps Plaza.

    Another direction for malls seems to be art galleries. Obviously, this only works in higher SES areas, but can fill quite a bit of space. Eton Square outside of Cleveland has had several, but only one has really stuck.

    The real problem for reconceptualizing malls is that they easily become big white elephants sitting in a sea of asphalt and once a place has a “reputation” or has simply died, it’s difficult to draw people in to take another look.

  22. In trying to think about a possible future for malls, it’s important to remember that they are business investments and that will ultimately drive what they look like. the current version of malldom evolved out of a business model where national chains were better able to pay high rents than local ones and things like apparel and jewelry carry higher profit margins than other goods. So, we wound up with malls filled with national brand apparel retailers. The owners of malls may be willing to tinker with the mix, but they still want to fill a mall in ways that drive the revenue that comes from boutique-y stores. If those stores can’t be supported, they’ll get more creative, but with the knowledge, that it will probably be less profitable and with the lack of enthusiasm that comes from that.

    Up thru most of the 70s, malls were filled with low end, but middle brow stores like Petries, Richman Brothers, Thom McAn, etc. They no longer exist. Their market niche has been taken by big boxes, which take more space, employe fewer people, don’t want competitors in the same complex and offer no service. They also don’t want to pay the rent that a dozen smaller stores could cover. Brining in a big box means taking a loss, relative to what malls used to get. The now classic mall mix helped kill local/regional retail, so there is no robust “second team” to fill the space when national retailers leave, just low end stores that sell the same junk.

    Given the choice between building an eclosed mall, an open plaza or a combo, the developer will build the open plaza, because it’s cheaper and if it plops, they can easily do something else with it. Once you build an enclosure, any enclosure, you get into HVAC and related capital and operating costs. Developers will partially demall an existing complex, but it’s doubtful that they’d purpose build anything like this. An open plaza is easier to repurpose and even with nice landcaping it’s probably cheaper to maintain.

    One of the long-term problems with malls is that often they are disconnected from anything else nearby, esp. malls built since the late 70s. Malls elsewhere in the world usually do not sit in the middle of giant parking lot. They usually are more connected to public transit and they accomodate different kinds of uses and stores because they are more likely to have multiple levels (not just two). Food and entertainment often get their own floor at the top—you have to at least window shop before you get there. Supermarkets typically go in the basement. Home furnishings, which need large, relatively cheap space also tend to go toward the top or bottom. Significantly, these structures tend to be integrated into an existing streetscape, rather than isolated from it and you have some idea of what’s in the mall, just by walking past.

    One way to redo a mall is to repurpose it for a specicfic category of store, although this works better for smallish complexes. Atlanta is filled with failed strips of small to medium size that have been redone with mostly restaurants and service businesses, and even bars. For many years, Eastgate, a 50s strip eclipsed by newer malls outside of Cleveland had a lot of home furnishings-related stores. Bangkok has a medium sized mall that’s been largely done over as an IT bazaar. It has some service businesses and a food court, but it’s largely found its calling a s mecca for hardware and software. Significantly, most of tehse repurposings were probably less profitable than an apparel focused mall and they work better if you can see what’s in the mall rather than having to go into a parking lot and enter a building with essentially no exterior.

    There are many rapidly growing parts of the country that have had little new mall development in the last 20 years: DC and LA come to mind, although both had significant amounts of mall redevelopment. Land costs are part of it and although developers basically own some of the jurisdictions, it’s still more difficult to build than in places like Atlanta, where opposition to silly development is relatively new. In other words, don’t expect much in the way of new malls anywhere for a long time. More likely we’ll see small urban malls like DCUSA which includes big boxes with a non descript common mall and street level retail that lacks mall entry. This kind of development is popping up in cities and inner ring suburbs. DCUSA is next to a DC Metro station in a redveloping neighborhood and its garage is never full, although the stores are quite busy. The Clarendon neighborhood in Arlington, VA has a fancier non-mall version of this. The collapse of the real estate market means fewer new lifestyle and power centers, but to the extent anything gets built in the suburbs, those will be the models, beause they are cheaper to build and easier to fill.

  23. @JT,

    Building on your throughts on entertainment, malls should even try to attract bars/restaurants such as Dave and Busters, Hard Rock and Lucky Strike Lanes. Palisades Center has done this, along with other restaurants, a movie theatre and Barnes and Noble, and they have been successful. I have argued, especially about the Monmouth Mall in NJ, that malls need to follow this route. And while many do decry the lifestyle center at the mall, I think it has been a good thing for many malls. Specifically Freehold Raceway Mall, Park Meadows south of Denver and Flatiron Crossing (which will be even better once the structural/land issues are cleared up in their lifestyle center) .

    On the Food Court issue, some malls such as Tysons Corner are making their’s WiFi compatible.

    To continue to draw people in, malls MUST update…as I have stated in another post, around 15 malls in NJ have either exanded, renovated or remerchandised this decade. Those that follow that route (Freehold, GS Plaza, etc) are successful and those that do not (Monmouth Mall, Moorestown Mall) will encounter problems down the road.

  24. @Rich, you may be on to something with your suggestion that some malls might have a future if re-purposed for a specific category of store.

    Oakbrook in west suburban Chicago is a very successful mall (an open air mall). Although Oakbrook has a wide variety of stores, and does not contain only a particular category of store (unless “high end” would qualify as a specific category), Oakbrook does have certain sections which have been repurposed with specific types of retailers. For example, the home furnishings stores have all been clustered in one section- “Z” Galerie is next to Restoration Hardware, which is next to Pottery Barn which in turn abuts the Crate and Barrel.

    Following that example, a smaller struggling mall might similarly cluster a group of like retailers to create a convenient out-of-the ordinary shopping attraction.

  25. @James,

    A few malls in NJ are attempting to do this…specifically Garden State Plaza (the more upscale stores clustered around Neiman Marcus) and Cherry Hill Mall (the Macy’s wing is considered the upscale wing).

    Bridgewater Commons, when it first opened, attempted to market its three level setup with the slogan “A Level for Every Lifestyle.” The bottom floor, aka “The Commons Collection” was considered the most upscale level, the middle floor, aka “The Promenade” was family, gifts and home themed and the third floor, “The Campus Level” was themed to teenagers and 20 somethings.

    I also remember in the 1990s Eaton Centre in Toronto doing something similar.

  26. Hi,

    Technically, Sears is not just “Sears, which was formerly Eaton’s”. Sears and Eatons’ co-existed for a lot of years, often in the same malls. However, Eaton’s went bust in 1999, and was aquired by Sears, mainly for their prime real estate locations.

  27. As I see it, the future of retailing can go in two basic directions. The first is one of total homogeneity, where a Wal-Mart or a Target corporation BECOMES the bland face of retailing, a sort of global general store where people get virtually everything they need for every facet of their lives, including transportation and healthcare.

    The second, and far more welcome possibility, is that the mall concept returns to its roots and becomes part of the community social fabric rather than the strictly one of commerce.

    I recall back in the 60s, Apache Plaza was the mall closest to our home in Minneapolis-St. Paul area. When it opened in 1961, it was as much the village square of an essentially anchorless suburb as it was retail venue. And as far as retailing goes, it offered groceries, fabric stores, office supplies, pet shops, and hardware in addition to shoes and clothing.

    By the 70s, much of that full-service variety had left, and malls had become giant blue-jean warehouses for teenagers, devoid of any social function or connection to the community — short of arcades. No wonder they died.

    By connecting groceries back to mall, maybe it’s the start of a return to the mall as part of the community rather than just profiting from it, especially with the advent of mixed-use communities in today’s urban planning. One can hope.

  28. This article comes from September 2009’s “Shopping Center Business.”

    Where’s The Market?
    Experts give their opinion on where the market is, and when it will be back.
    Jill Bensley and Erica Barton

    It’s been a while since we’ve heard any good news from the retail sector in the United States. You don’t have to be a genius to know that same-store sales have been declining at an increasing pace, and 2009 is a banner year for bad karma.

    Figure 1 shows the percentage change of comparable store retail sales in current dollars from 1986 through 2008, according to ICSC. Throughout the late 1980s and early 1990s, annual change kept pace with inflation and in some years outpaced inflation by several percentage points, peaking in 1999, at 6.7 percent. Then came the 9/11 terrorist attacks and the rate of increase reverted to a slower pace for the next 6 years.

    Figure 1 – Percentage Change of Comparable Store Retail Sales in Current Dollars from 1986 through 2008.

    Then, the real recession hit, and for the first time anyone can remember, we have seen negative growth for 4 out the past 5 months in 2009.

    In all this gloom and manure, where’s the pony? After thinking about it and not coming up with much, we decided to interview some very smart industry friends who are on top of these trends. Wthout any nudging, we got some very positive answers on where retail is heading, and what the road ahead holds.

    What The Experts Had To Say

    We interviewed four individuals who are avid trend-watchers and who are also responsible for knowing where trends are headed, as well as making them happen in the retail world. They include:

    • Michael Beyard, Retail Fellow Emertus, Urban Land Institute, Washington, D.C.

    • Michael Rubin, President, MRA International, Baltimore, Maryland.

    • Shaheen Sadeghi, President of Orange County, California-based LAB Holding, LLC.

    • Cindy Chong, First Vice President, CIM Group and Manager of Hollywood & Highland Retail/Entertainment venue in Hollywood, California.

    Some exciting changes are on the horizon. In this down-market, these individuals are on their toes and, as they say, “things are lookin’ up.”

    As background, while the economic slowdown was an eventual necessity, it has become a self-fulfilling prophecy, feeding on itself.

    In the 2000 to 2007 period , U.S. consumers were saving at an alarmingly low rate as shown in the bar graph in Figure 2:

    Figure 2 – U.S. Consumers Savings Rate from 2000 to 2009.

    • Subprime loans were made to debt-ridden consumers.

    • Banks who held the loans bundled them and sold them in tranches to everyone worldwide.

    • Housing prices bottomed out in the United States due to overbuilding.

    • Subprime mortgage holders couldn’t pay their mortgages.

    • Securitized debt instruments became worthless.

    • Balance sheets of once prosperous companies tanked.

    • Bankruptcies of major U.S. institutions caused upheaval in U.S. consumer confidence.

    • Major institutions failed and massive layoffs resulted.

    • Consumers cut spending and began saving more.

    • The retail industry went into a tailspin.

    I asked each expert very general questions about the retail situation in the United States: Where are we now? Are we at the end of the retail consumption high? What changes do you see coming? Are Americans changing their consumption patterns? What retail sectors will thrive and which will dive as a result of the recession? What will the retail world look like in 5 years?

    All of the experts said that the retail downturn was inevitable. From overspending consumers to overbuilt markets, the industry was ready for a correction. Michael Beyard pointed out that the “numbers people” kept telling developers the growth of supply was outpacing demand, no matter what historical measure adopted. But credit was available and developers did what they love to do: develop. And per capita square footage of mall shopping center space in the United States rose from 5 in 1964, to 20 in 2000. While at the same time, sales for a large portion of shopping center type goods declined precipitously! The trend simply could not be sustained.

    The Underlying Problems and Their Solutions

    So what were the real issues and what caused the crash? Was the retail bust just a consequence of the bank failures? Not one of our experts believes that to be true. Shaheen Sadeghi put it very succinctly: “I don’t see this as a recession cycle so much as a cultural shift. The crash of the financial system has forced us to look at our culture and make some fundamental changes that have needed revision for a long time.”

    He cited the United States’ imbalance of consumer spending and wasting of resources. Americans consume like no other nation — using three times the amount of water per capita than the world average and nearly 25 percent of the world’s energy, despite holding only 5 percent of the global population; and producing 5 times more daily waste than the average in poor countries.

    According to Sadeghi, that trend is not sustainable. We have just seen the initial collapse of the culture of excess and waste and a transition toward a more European and thrifty way of life. To meet that fundamental change, Sadeghi is reworking conventional retail formulas, focusing on unique local products with quality and individuality. For example, in Costa Mesa, California, he is introducing an entirely flexible retail concept, named SEED People’s Market, with the purpose of enabling local entrepreneurial business to take root despite the pressures of the current economy. In a very modern and almost gallery-type setting, SEED allows multiple and complimentary vendors and artisans to house “mini-shops” or “pop- up shops.” Leases are short, quality sales staff supplied, utility costs covered; all the headaches of a small shop owner transferred to the SEED staff. “We intend to nurture the creatives who historically fuel new markets,” he says, “and SEED provides that environment.”

    Also, as a “recycled” project on a grand scale, the LAB Holding team is renovating a 100-year old abandoned flour mill in Portland, Oregon. To celebrate the area’s renowned culinary enterprises and wineries, the project’s reuse will offer a cooking school, farmer’s market stalls, on-site brewery, food presentation boutiques, community garden areas and more. Sustainability and healthy living connects all components of the project with numerous community events planned throughout the grounds. “It’s not about buying more stuff,” Sadeghi explains. “The future of retail is about an experience, a gathering place, becoming an integral part of the local community.”

    Transforming Retail

    Michael Rubin, consultant, architect, teacher, thinker and developer in the retail, mixed-use, sports and themed entertainment industries has given the issue a great deal of thought. In his 2009 presentation to the Entertainment Development Council at the Spring Urban Land Institute Meeting, Rubin talked about 13 transformative forces affecting retail, leisure and entertainment trends, as shown in Figure 3.

    Figure 3 – 13 Transformative Forces Affecting Retail, Leisure and Entertainment Trends.

    Some of the more interesting changes in the 3.0 Web format include The New Cinema. It remains a highly programmable social entertainment venue driven by a regular rotation of content. The new drivers reshaping the cinema include digital retrofitting, new sources of digital content (live casts), new screen formats (3-D; wide format) and new amenities. The new challenges include reduced “vault time,” Web 3.0 and “Anywhen” media access. The new cinema will need to be socially engaging, offer unique-to-the-venue content and provide a new viewing experience — larger, immersive, brighter multiple settings.

    Rubin also cited 21 new opportunities:

    • Proximate Resorts & Destinations

    • The New Third Places

    • The New Cinema

    • The 21st Century Plateau

    • Co-Presence: “Anywhen” Environments and Portals

    • Event Retail Environments (Pop-Up, Pop-In, Beta)

    • Cows on Parade/Buring Man: Event Destinations

    • Web 3.0 (Co-created Content)

    • Brand Engagement

    • Media Immersion/Integrated Environments

    • Authentic Experiences

    • Wellness Oriented Leisure

    • Membership/Interest-based Leisure

    • Heritage-oriented Leisure

    • Work-Play Destinations

    • Urban-oriented Leisure

    • Discovery-based Leisure

    • Eco-oriented Leisure

    • The New Theme Park I: The App Park

    • The New Theme Park II: The Overlay Park

    • Rotations Venues

    Rubin also highlighted other types of retail innovations, as shown in Figure 4.

    Figure 4 – Retail Innovations.

    Rubin postulates that in the future, brand engagement will take the consumer further than ever before. According to Rubin, brands will furiously reposition following the recession. A multi-channeling of brand presence will present a dilemma and brand engagement will be the new mantra. He says it will take three forms — co-branded venues, events and environments, Web 3.0 and immersive environments. There will also be pattern shifts and opportunities as shown in Figure 5.

    Figure 5 – Pattern Shifts & Opportunities.

    What’s New At Hollywood & Highland

    Cindy Chong of CIM Group is on a high from all the changes at Hollywood & Highland. Seems that the “A” group of properties isn’t suffering as much as other properties. Hard Rock Café closed at Beverly Center in 2006, and will reopen in 2011, at Hollywood & Highland in the 20,000-square-foot space vacated by Virgin Records.

    Another out-of-the-box tenant at Hollywood & Highland includes Cirque du Soleil at the 3,400-seat Kodak Theater. The theatrical group has entered into a 10-year, $100 million agreement to create a permanent show for the venue. The new production features a movie industry theme and will open in 2011, playing 368 times annually.

    Zara, the hot Spanish retailer, will make an appearance at the nearby Hollywood project owned by CIM. Pop-up stores also come and go, and pay good rents, according to Chong. The experience at Hollywood & Highland shows the creative ways retail is leasing these days: from theater shows, to pop-up stores, to leasing space to countries (in this case, the United Arab Emirates).

    Does Chong think Americans are through with conspicuous consumption? “Yes,” she says. In her opinion, the phenomenon is generational, with younger consumers shying away from logos and pushing away from showiness, and Boomers reevaluating all lifestyle options. She talked about the European model of buying less and acquiring more quality. Of course, this bodes well for luxury brands. She believes sectors that will thrive in the near term include health and beauty, cosmetics, less expensive brands such as H&M and Target that offer designer fashion and home accessory items. She also spoke about the emergence of more retail cooperatives such as Fred Segal and Garden Farm co-ops in urban areas. (This is very similar to Sadeghi’s new SEED concepts in Costa Mesa and Portland.) She also believes that big, big stores are out, and retailers with too many outlets will have to pull back. She believes the integrity of brand as paramount. And integrity means the end of arrogant companies (in any industry) who do not follow their consumers’ mind-sets and wishes.

    What Goes Down, Must Come Up

    Michael Beyard of the Urban Land Institute believes that we are still on the downward slope of the retail curve since we have multiple real estate bubbles bursting at the same time, namely housing, office and retail. This condition assures that the recession will require more time to correct. Further, many exurban projects (those located far from city centers) are completely unviable now because of the cost of gas and the changes in the American consumer to a mindset of “less is more.”

    But Beyard is optimistic about the luxury goods segment. While more savings is the order of the day, the personal savings rate is only slightly greater than four percent. And the middle market will have pent-up demand, once the economy recovers and consumers see the light at the end of the tunnel.

    Beyard foresees innovators scooping up retail spaces vacated by bankrupt and outdated tenants. These empty spaces won’t be taken over by housing, junior department stores or restaurant clusters. Rather, they may be occupied by smaller format urban style Wal-Marts or Wegmans-type gourmet grocery stores. Retail developers will become more innovative out of necessity. They will change their business model from rent-based profit to creative business and more mixed-use models. They will become more expansive and enter into business with their retail tenants.

    Beyard also sees more convenience retail mixed with regional and lifestyle uses, as in Europe and the Middle East. He predicts we will see more lifestyle/aspirational tenants mixed in with grocers, in a complicated and convenient mix of uses. He believes that value retailers such as Wal-Mart have been eating up market share and will continue to do so because they have turned around their image and become very nimble by changing size, location and merchandise quickly. He also sees a resurgence of entertainment tenants in retail locations, middle-income magnets such as the mixed-entertainment multiplex offering bowling, bars and gaming. More entertainment retail tenants will likely emerge, those that make the merchandise the star in an entertaining format, such as Sephora and Ulta. And entrepreneurial retailers will become the wave of the future, those that are selling to the younger generations that want their shopping, leisure and entertainment in the same place in a non-chain format.

    The Consensus

    All of our experts predict that by 2015, retail will be thriving once again, albeit in new formats and new locations. There will be painful restructuring, changes brought about by the cultural revolution, and a move to smaller, more sustainable, sensitive, greener sellers. We will see retail projects in places and configurations we haven’t seen before and a plethora of new high-density urban projects. Finally, cities, regional government, transportation agencies, citizens, developers, and retailers will cooperate to engage the public and create new projects with an eye to the future. SCB

    Jill Bensley is president of Ojai, California-based JB Research Co. She can be reached via email at jill@jbresearchco.com. Erica Barton is an independent research consultant based in California.

    It’s amazing that these people are still drinking the cool-aid on some level.

  29. @SEAN, A lot of this is happy talk and fanciful. The glut of retail space is real (one of the more sober observations here) and things are likely to get worse rather than better—the commercial real estate bubble (which lagged the residential one) has been starting to burst which will effect construction of new space as well as renovation, and maintenance of existing space. Upscale retailers seem to be hurting as much or more than anyone else and pop-up retailers seem most likely to be marginal phenomenon, filling up space seasonally or in occasional convesrions of dead venues in viable areas. Most likely, we’ll see more dead malls, more retailers curtailing new operatsions and closing existing ones, and probably more bankruptcies. Chains are porbably going to look for ways to cut costs through more conservative buying, better inventory control, and closer tabs on labor scheduling. Cutting the retail glut is probably a good thing in the long run, although it will hurt communities that are dependent on dying venues, esp. if they lack the demographics to attract strong replacements.

    Recessions and depressions have helped new retail forms develop like super markets (a product of the depression) and off-price retail (started in the 70s stagflation era), based on economy and thrift. That’s what we’re more likely to see in the future–good times for dollar stores, Wal-Mart, and the like. perhaps, we’ll see new forms that take the economies of scale and supply chain innovations of Wal-mart but use them in niche categories or markets with smaller stores and/or higher end merchandise.

  30. I just hope most of the empty big box spaces in most single-story shopping malls in the Midwest or elsewhere can be filled with the likes of ShopKo discount department stores or Meijer hypermarkets, or a supermarket like EconoFoods or Piggly Wiggly, when the recession is over. I do see ShopKo expanding in the future, but not in too many freestanding locations.

    My ideas for filling up the space within a a shopping mall include mixing up existing in-line retail tenants with other in-line retail tenants, like restaurants, services like banks or credit unions, fitness venues, like gyms or martial arts centers, and entertainment venues, like movie theaters arcades, internet cafes, and bowling alleys.

  31. When I came on board with my currrent employer several years ago, we had 900+ mall-based locations. 2010 sees us heading towards an optimum 150-175 stores after the realities of mall presence has changed over the last few years. People are just not shopping at the malls like they used to.

  32. @Rich, true. BUT retail isn’t necessarily zero-sum gain (as in, something getting a bigger slice of pie reduces it for someone else), AND people are moving. So we’re likely to see more dead malls in Michigan and Florida (where people are moving out) and less in, say, Texas.

  33. My thought of the future of retail or specifically Wal-Mart (and I’m sure someone has thought of it) is why not turn it into more of a mall experience rather than just another superstore concept? This is where Wal-Mart could get creative with branding their departments into individual “stores”, as quoted because they aren’t necessarily stores but are part of Wal-Mart’s vast array of departments. As for clothing, they could break it up into smaller “stores” such as store brand clothing and lingerie. Instead of having to wait in line for the many registers up front, they can just have the registers in each individual space and deal with it more efficiently. After each shift, all “stores” would take their money to the main office just like at a regular Wal-Mart.

    With this concept, it may be necessary to wall off sections and do renovations, but if done right, it could be very successful. Another thing I’ve noticed with these superstores is how they have little shops and even a fast food restaurant in the front of the store. Apparently someone with that idea must’ve been thinking of the shopping mall because that’s where the idea originated. A new Wal-Mart concept like I’ve envisioned could build on the existing concept and grow from there. A store with a McDonald’s, Subway or Dunkin Donuts could be transformed into a concept featuring all three restaurants in a food court setting. Wal-Mart does have the traffic to sustain a small food court. It also has the demographics for a small kids play area like you see in malls, which could replace the small arcades that are currently in the existing stores.

  34. @Rich, I had drawn a similar conclusion that this was a lot of PR bullshit. As for Wal-Mart, there going to need to shed a lot of stores to remain viable. I figure about half of the stores could end up closing if not more.

    I saw a video on Yahoo News reguarding Sears. I don’t recall the Wall Street analyst making the call, but Sears could be on the death watch very soon.

  35. @Gary, wal-Mart has done this with categories where they want to “kill” like toys, CDs and books. Unfortunately, these are low margin categories that are dying, except for toys. Wal-Mart admits that its profits increasingly come from things like check cashing and wire transfers. This is why they wanted to start a credit card-oriented bank. They wanted to make even more money from financials, probably from predatory lending rates on credit cards for low income people. But….basically Wal-Mart limits sizes and brands to simplify logistics and build volume. This is why some areas of the store like computer stuff are so crappy. It’s doubtful they would go for a boutique experience, although they have tried to add higher end lines in some areas. Wal-Mart also goes for uniformity which precludes concepts that would work well on a Target turf but not in a lower income small town in Texas, for example. Wal-Mart has received billions in tax abatements and incentives to locate in communities in the past. They won’t be getting that added income now. Wal-Mart needs to tailor its stores better or risk a long, slow decline like Sears has had. The recession has bought them time and they’ve been updating their stores, but the long haul for them is likely to limit their profit growth. The only places for them to expand are urban areas and inner ring suburbs—these are expensive places to operate (rent, insurance, taxes and, in some cases, shrinkage) and the local people and governments are far more sophisticated than the small towns and developing exurbs where Wal-Mart has always been king—those places are usually bought and paid for by real estate interests. The cost of entry to established areas is greater and, in many cases, people have other options and more opportunity to see where Wal-Mart is a better deal (food, a limited range of popular items) and where they are not.

    Wal-Mart recently flopped when they brought in more stylish clothing. It was a hit in urban areas, but not in small towns. Unless, they bite the bullet and some how adapt to a more expensive and complex model of operating stores, they will have problems in the future because not everyone buys what’s popular in kennesaw, georgia or Fredericksburg, Virginia. Their profit growth is unsustainable without cutting service (already non-existent) or squeezing suppliers further. Alternative mass merchandising models could thrive if only because suppliers are tired of the micromanagement that Wal-Mart does with them. Variations on the dollar store format, with niche items and demographics would be one possibility. Moving traditonal boutiques out of malls and into lower cost environments with high volume/low service models would be another.

  36. I think that Wal-Mart DOES change merchandise depending on the market, because I sure know that anywhere else, Texas A&M merchandise would be unavailable.

  37. @Rich, When Wal-Mart opened in White Plains NY in 2007 not everyone was thrilled because of there histiry of destroying communities where they go. As a result, the store is not performing up to snuff & rumers of it’s closure have been floating around.

  38. Wal-Mart often has a few local merchandise. Some stores will sell jogging pants that have local high school team names on them (while other Wal-Marts don’t). It’s almost as if each store has the choice of opting in to that.

    Back in the early 80s, it seemed that Wal Mart stores were even more local in their merchandise choices. Every store had a different layout and was a different size and had more or less of different things, and sometimes a larger store wouldn’t have some things that a smaller one would have.

    I enjoyed going in Wal-Mart stores back then. Much more merchandise was bought from American companies and the stores had a different atmosphere — much less “monolithic” and more local and friendly.

  39. They probably buy the sports merchandise from a single vendor but tailored to a local market. I would guess that they have gotten even more uniform over time in their buying because central management of the supply chain and just in time delivery is one way they have been able to wring savings out of logistics.

  40. ShopKo is the only regional retailer left. They are undergoing an upscale makeover at most of their existing locations in response to the successful opening of their newest prototype stores. Like I said before, I do see a future in a regional retailer like ShopKo, and hope for them to open new locations in the future in their existing markets as well as new locations in new states. Kmart is getting the thunder stolen from them by Walmart and Target. I hope ShopKo becomes the third largest retailer in the future. I think ShopKo would be better off distinguishing themselves from Walmart and Target, by becoming an “upscale niche discounter,” instead of the conventional “big box” store. I see ShopKo opening in most single-story malls inside the likes of a vacant JCPenney, Sears, Ames/Hills, Woolco, Bradlees, or Bon-Ton store, or on as a first-level anchor of a two-story mall with the second floor going to the likes of Kohl’s or TJ Maxx. Most ShopKo stores are between 80,000 and 110,000 square feet, meaning that ShopKo can fit any space previously used by another big box store or department store.

  41. @Justin Hill (Sponge1987/ShopKoFan), What I meant to say when I said ShopKo is not “the only retailer left,” but that it’s “one of the only regional retailers left” or “the only regional retailer left worth mentioning.”

  42. Don’t get me wrong, I love Macy’s. But is it the new Wal-Mart? You know, the taking over everything, shut out small town stores, monster?

  43. What a stupid way to represent a company with a store in shipping containers. Canada shouldn’t EVER be used for guidance; neither should Australia.

  44. @mallguy, From Retail Traffic…

    Lifestyle Center Developers Apply Lessons Learned During the Downturn
    May 17, 2010 3:37 PM, Elaine Misonzhnik

    As lifestyle centers grew in popularity during the boom years, Poag & McEwen, a Memphis, Tenn.-based development firm often credited with creating the concept, became a rock star within the retail real estate industry. The firm’s founders, G. Dan Poag, Jr. and Terry McEwen, were seen as visionaries, leading the country into the new age of retail development that would make regional malls obsolete. They were frequently quoted in newspaper articles championing the exciting new format.

    Five years later, Poag & McEwen was back in the headlines. Only this time, it was for a less glamorous reason: loan defaults.

    Last fall, for example, Poag & McEwen lost its 350,000-square-foot Promenade Shops at Dos Lagos, in Corona, Calif., to foreclosure. The center, which opened in late 2006, has been able to maintain occupancy above 90 percent, according to Joshua D. Poag, company president and CEO. The problem has been sales. Sales at the center plummeted by more than 25 percent during the depths of the recession, according to Poag. That’s more dramatic than the 10 percent peak-to-trough dips the firm saw at its other properties. As a result, tenants had trouble paying rents, which cut into the center’s NOI and ultimately made it impossible for Poag & McEwen to keep current on its $125 million loan with CW Capital.

    The movie theater at Steiner + Associates’ Easton Town Center helps draw traffic to the center.
    “That project was hit harder than anything else [our company had] in the country,” Poag says. “The population growth was just enormous during the boom. But when the recession hit, not only did that population explosion immediately end, it ended up deteriorating.”

    The center’s location in Inland Empire didn’t help, as the subprime crisis in the area led to a huge drop in housing values and subsequently, a significant drop in consumer spending.

    Though he’s not aware if anyone has expressed interest in buying Promenade Shops from CW Capital, Poag believes the center can still flourish if it ends up in the hands of an experienced operator with plenty of capital to invest in the property. As of February, the Promenade Shops remained in REO.

    But the Promenade Shops at Dos Lagos was hardly the only lifestyle center in the country to be devastated by the recession. Industry insiders can rattle off a list of properties that ended up in foreclosure in the past two years, including projects such as Downtown at the Gardens in Palm Beach Gardens, Fla., Woodbury Lakes in Woodbury, Minn. and Perkins Rowe in Baton Rouge, Fla., among others.

    During the past decade, lifestyle centers proliferated quickly. In 2001, lifestyle centers comprised 0.8 percent of total U.S. retail GLA, with 192 properties containing 49 million square feet, according to data compiled for ICSC by the CoStar Group, a Bethesda, Md.-based research firm. Today, lifestyle centers make up 1.77 percent of the retail universe, with 455 centers featuring 127.8 million square feet. While the amount of total shopping center space in the U.S. grew 18 percent during the past decade, to 7.2 billion square feet, the amount of lifestyle center space increased 161 percent.

    Given the new market realities, however, roughly 40 percent of those centers might ultimately prove unviable and will have to be converted to other uses, says Jeff Green, president of Jeff Green Partners, a Mill Valley, Calif.-based real estate consulting firm.

    Because lifestyle centers rely primarily on high-end, discretionary tenants they need to be located in markets with appropriate demographics and draw from a wide trade area in order to deliver positive NOI, Green notes. Many of the centers that came on line in the past few years did not meet the criteria. In addition, many lifestyle center developers devoted all of their space to traditional in-line tenants and dispensed with traditional anchors that would bring in the needed shopper traffic day-to-day. This strategy made sense during the boom years, when a line-up of solid specialty retailers was still attractive to consumers. In a recession, however, people have needed more of a reason to visit lifestyle properties.

    The success of Promenade Shops at Dos Lagos was predicated on residential growth that never materialized.
    “Everybody likes to pick on lifestyle centers because the REITs don’t have a lot of them,” Poag says. At the same time, he admits “there were a lot of centers out there in the world that maybe shouldn’t have been built. There are going to be lifestyle centers that aren’t going to be lifestyle centers” in the future.

    The question now is whether the lifestyle concept itself can survive and how retail developers can learn from the mistakes of the past. Most experts point to three key elements that make a lifestyle center work: a substantial critical mass, limited competition from regional malls and the presence of some sort of an anchor, be it a traditional department store or a popular grocery chain like Whole Foods. Becoming an integral part of a mixed-use environment, whether through design or site selection, also helps bring in traffic.

    “My advice is don’t do a lifestyle center if it’s under 500,000 square feet, un-anchored and mostly populated by in-line tenants of regional malls,” says Yaromir Steiner, CEO of Steiner + Associates, a Columbus, Ohio-based retail development firm. “Those projects are very, very difficult to execute successfully. They do not have the critical mass. They will work in some locations, but those locations are very few.”

    Getting it right
    With the right approach, however, many experts still believe in the lifestyle center concept. To do it right, developers have to exercise intelligent site selection practices and make sure the market can support a property full of discretionary retailers and upscale restaurants. Lifestyle centers work best in markets with higher than average median incomes, a high concentration of families and a prevalence of white collar jobs, says Robert H. Spratt Jr., president of Hill Partners Inc., a Charlotte, N.C.-based retail developer.

    Easton Town Center blends a variety of uses, including public space, to serve its customer base.
    For example, Spratt says that the company’s Town Center at Levis Commons, in Perrysburg, Ohio, has performed extremely well during the downturn. Perrysburg boasts a median family income of $75,651 a year, about $17,000 more than the national average of $52,175 a year. Approximately 46.9 percent of the city’s residents have a bachelor’s degree, compared to 27.4 percent for the U.S. population as a whole.

    The 319,000-square-foot Town Center at Levis Commons opened in 2004 and features a 12-screen Rave Motion Pictures cinema as an anchor.

    The hitch is that the right demographics have to be there when you identify the site, Poag notes. From personal experience he advises developers not to base any decisions on what they think the demographics will be in the future. “Whereas before we were expecting the population to grow, we are looking at where the population is today,” he says. “Everybody realized that history does not predict the future anymore.”

    Lifestyle center developers also need to make sure there are either no regional malls present in the trade area or the malls have reached full occupancy and can’t accommodate any more tenants, according to Steiner. Malls and lifestyle centers tend to rely on the same pool of retailers and some tenants have a prejudice against the lifestyle format because they feel it’s not as reliable in attracting foot traffic. Therefore, it’s critical to ensure that their choice of locations is limited.

    Too much competition might have been part of the problem for Downtown at the Gardens in Palm Beach Gardens. When Menin Development Cos. completed the 350,000-square-foot property in 2005, the presence of the Gardens Mall, a 1.4-million-square-foot regional mall, less than a mile away wasn’t seen as a problem. Tenants reportedly paid twice the market rate to lease space at the center. But as the economy crumbled, most couldn’t produce the sales needed to justify those prices and left. Vacancy quickly reached 30 percent. Last summer, Berman Enterprises and Ashkenazy & Agus Ventures bought the center’s $138 million mortgage out of foreclosure at a steep discount, hoping to eventually revive the property.

    The best areas for lifestyle centers are dense infill sites, where land is scarce and development is difficult, says Steiner—think Bergen County, N.J., not California’s Inland Empire.

    Poag & McEwen’s Promenade Shops at Briargate in Colorado Springs, Colo., has performed well in spite of the Great Recession.
    After selecting the right site, developers have to consider how to generate a critical mass of retailers to keep shoppers coming back for more. Because most people don’t visit a Gap or an Ann Taylor store more than a couple of times a year, there has to be a varied tenant roster with unique draws in order to pull consumers from a large trade area, says Green. That’s not likely to happen with a suburban project that’s smaller than 100,000 square feet. While small centers can work in thriving urban areas, most experts recommend that a lifestyle center be at least 500,000 square feet and optimally, as large as 1 million square feet in size.

    “You look at the lifestyle center as a magnet and the smaller the center, the smaller the magnetic attraction, therefore it’s more vulnerable,” Green says. “If retailers are going to close stores, those are the centers where they are going to close stores first.”

    For the same reason, most lifestyle centers can benefit from having an anchor on site (unlike regional malls, these projects often forego anchor tenants). As the lifestyle center construction boom got underway, many developers felt that a wide selection of popular in-line stores would serve as a substitute for traditional anchors like department stores. But it turned out that in-line stores alone can’t bring in shoppers on a regular basis. A lifestyle center doesn’t necessarily need a department store anchor, but an entertainment venue like a movie theater or a bowling alley can be a good draw for regular foot traffic. Green says one of the best strategies today might be to bring in an upscale grocer like a Whole Foods or a Wegmans because people shop for groceries at least several times a month. Whole Foods has been among the few original tenants at Downtown at the Gardens that has brought in healthy sales and remains open. The strategy works equally well if the grocery store is already there when the development site is picked.

    Being a part of a mixed-use development can also be a boon, experts say. A nearby apartment complex and/or office park can generate a solid customer base and visibility.

    As an example of a lifestyle center done right, Green points to Legacy Place, a 675,000-square-foot project that opened in Dedham, Mass. last summer. The median household income in the area is estimated at $79,350 a year, according to the 2006-2008 American Community Survey, $27,175 above the national average. The median value of a home is $403,800, twice the national figure. More than 40 percent of local residents finished college.

    In addition to having a large GLA for a center of its type, Legacy Place features five anchors, including Whole Foods Market, Showcase Cinema de Lux, Borders, L.L. Bean and Kings bowling alley. The 60,000-square-foot Whole Foods has proved instrumental in bringing shoppers back to the property on a regular basis, says David Fleming, corporate marketing director with WS Development, the Chestnut Hill, Mass.-based firm that built the project. Having tenanted the center with many chains and restaurants that are not available elsewhere in New England, the firm found that Legacy Place has exceeded its expectations for trade area reach, Fleming notes.

    Legacy Place also features 50,000 square feet of office space that has been set aside for the marketing department of Citizens Bank. In February, Boston Globe Magazine named the center “Best of the New” in the Shopping category.

    “It’s got convenience, as well as destination retail; it has an entertainment base and it’s part of a mixed-use development,” Green says. “I think that’s the best example of the format that’s going to provide the greatest success in a ‘lifestyle center’ going forward.”

    Unfortunately, the lifestyle centers that lack critical mass, don’t have solid anchors and are built on the wrong sites will likely not survive this down cycle. Other candidates for demolition would be lifestyle centers built in very cold markets like Minnesota, where the open-air format works only half the year.

    The weather may have been a problem for Woodbury Lakes, a 398,000-square-foot lifestyle center in a suburb of Saint Paul, Minn. developed by Opus Northwest and RED Development in 2005. (The center was sold to Cornerstone Real Estate Advisers in 2006). Demographics in the area seem to fit the lifestyle model—the median household income is $92,276 per year, the median value of a home is $305,500 and 55.5 percent of local residents have a bachelor’s degree. There is a Trader Joe’s on site.

    To be sure, one of the center’s largest tenants, Linens ‘n Things filed for bankruptcy and closed its doors in 2008. Yet by 2009, vacancy at Woodbury Lakes reached 23 percent—reportedly higher than the average for the market. The only review of Woodbury Lakes on Internet site Yelp dates back to March 2008 and gives the center three stars out of five. The reviewer, a Woodbury resident, mentions being somewhat surprised that a lifestyle center would choose to be located in a place that has bad weather nine months a year, adding, “if I want to do serious shopping, I’ll drive to a mall, but if I’m going shopping more as a social activity, we’ll come here.”

    Last fall, after Cornerstone defaulted on its $78.5 million mortgage, the lender, LNP Partners, took the property back. The center is currently up for sale.

    Steiner says his firm has been getting an increasing number of phone calls from lifestyle center owners asking for help repositioning their projects. But he notes that in many cases, a redevelopment won’t solve the problem of the wrong property being in the wrong place.

    “We find that regional malls are much more fixable than lifestyle centers,” he says. “Very often, these centers are not regionally accessible and they don’t have the size. I think they will be demolished; I don’t think there is any way to [save] them. Some are going to disappear entirely.”

  45. Feature Article, June 2010
    Trends To Grow By
    While America may be over-retailed, emerging new trends in society may point to adaptive reuse of retail space and new retail concepts.
    Sanford Stein

    Whether you believe we are in a U-shaped recovery or a V-shaped one, the general consensus is that the economy appears to be improving, retailers are ordering goods and consumers are starting to spend. Still, consumer trending still does not bode well for a re-absorption of the retail real estate that sits vacant in malls and shopping centers.

    America is simply over-retailed. Too many storefronts chasing too few customers with different needs and priorities than in the 1970s ‘80s and ‘90s when they were built. Boomers that fed the growth are in shock over their diminished IRAs and their under-funded retirement programs and are cutting up their plastic. To quote Paco Underhill, “Many of us are trying to get beyond our lifestyles to something we feel better about.” X’ers are becoming increasingly comfortable with the idea of E-commerce and are likely to embrace the coming M-commerce (mobile) trend which has already taken root in Europe and Asia. And while the Gen Y’s who mirror the boomers in numbers came back to shop first after the recession, they too, are spending less and getting more at Target. Text messaging and Facebook updates have become a more pressing priority than hanging at the mall.

    Most of the country’s biggest specialty retail concepts that populated the regional malls have reached maturity and are contracting rather than growing, and there are few new concepts coming on line. We all know what happened to most of the department stores that anchored the regional malls — anchors away! Simply put, the regional mall is no longer the darling it once was; representing a decreasing asset to developers, REITs and insurance company portfolios.

    So what is to become of these meccas of economic indulgence, driven by the shop-till-we-dropped period that we all thought would last forever? For some it will be yet another facelift, and a remixing of other attractions that will draw us into their newly sofa filled courts. Regrettably, for many, it will become a permanent darkening as they wait to become repurposed or reinvented to meet our rapidly changing societal needs. Even with an economic resurgence, the chance of regaining their ‘80s luster is improbable.

    Converging Trends

    As observers and predictors of consumer trends, we watch for “change waves” made up of multi-trend convergence that ultimately challenge or alter conventional norms. We are currently in a period of just such a change wave, driven by a dramatic demographic shift, corporate downsizing, economic stagnation and rising costs. Combine this with increasing awareness of the perils of the planet, the finite nature of our resources and a growing sense of responsibility to take action and we have the makings of “macro-change.” By looking at a series of dynamic convergences we can begin to construct a viable repurposing of many of today’s dead or dying malls into a viable new community form to meet our society’s dramatically altered needs and lifestyles.

    Trend 1: Aging America Is Rightsizing

    In 2004 there were 36.3 million people aged 65 and older, making up 12 percent of the population. By 2030, this will increase to 71.5 million or 20 percent of the U.S. population. Over the next two decades, as 78 million boomers undertake downsizing or right-sizing their lives, they will need a host of new services and service providers not currently in existence. They will also be searching for a new sense of community and connectedness to others.

    As these empty nesters contemplate moving to condos, townhouses and apartments, many are also taking care of their aging parents. Eldercare now accounts for more lost work hours than childcare. College tuitions, leaned out IRAs, job losses, imploding real estate values and inadequate retirement planning have all conspired to paint a very different picture of retirement than many of us were planning during the casual consumption years of yore.

    Trend 2: Community Redefined

    For the very affluent, the retirement housing options are becoming many and varied. New housing alternatives are gaining favor including Continuous Care Retirement Communities (CCRCs), which offer a broad range of living and care options depending on healthcare needs and levels of independence. Most CCRCs require an entrance fee and a monthly fee. Entrance fees can run up to $400,000, depending on living units and community amenities. In most cases, these entrance fees provide little or no equity in the community and monthly payments are substantial, depending on care and amenities.

    For many more of the nearly 80 million boomers with fewer assets the housing options may not be as plentiful. Inexpensive and energy efficient housing, in close proximity to vital services, healthcare, culture and other quality of life assets will be in short supply in many communities. As a result, numerous new forms of community focused eldercare are emerging, including co-housing communities, member owned healthcare cooperatives, neighborhood based block nurse programs, and naturally occurring retirement communities or NORCs. While these all possess attributes and benefits they do not suggest a solution of the scale or magnitude needed by this demographic group.

    Trend 3: Health Care Challenges

    Our broken health care system is yielding a new emphasis on wellness and prevention. Additionally the growth of high deducible health plans (HDHP) and health saving accounts (HSAs) all suggest new opportunities and new healthcare formats. It is likely that new incentive (carrot & stick) programs for preventative care and wellness will emerge with support from insurance companies, care providers and HSAs.

    Trend 4: The End of Cheap Food

    The rapidly growing global population, emerging growth of a global middle class, and changing weather patterns (probably caused by global warming) have conspired to put an end to cheap food. The emerging interest in local growth and consumption of food along with increased concerns over food quality and the economic recession has caused renewed interest in home grown fruits and vegetables. Additionally, the physical and psychological benefits derived from gardening are bringing people of all ages back into the dirt; from the First Family on down.

    Repurposing The Mall

    Many of this country’s regional malls have become place holders for a new emerging community form. These converging trends suggest that this new hybrid lifestyle community model might be a cross between an elder hostel a wellness center and an Israeli Kibbutz. This new community form could fulfill the needs of America’s aging baby boomers for a highly integrated living/working and wellness environment that completely reinvents the types of convalescent environment known to previous generations.

    The fact remains that many of today’s regional malls are appropriately sized and strategically located with reusable structural systems that would enable ideal repurposing into this new community form. The resulting communities will celebrate our diverse, and highly individualized aging population while meeting a series of interconnected, dynamic societal needs. These communities will focus on a generation of senior citizens that view aging very differently than previous generations and will chose to remain active and productive for many years. It will provide for the ongoing needs of 78 million aging Baby Boomers with a complete and holistic blend of lifestyle offerings including:

    • Housing

    • Healthcare

    • Physical and Occupational Therapy

    • Wellness programs

    • Fitness/exercise/spa

    • Continued education

    • Spiritual growth

    • Essential services

    • Rehirement” job opportunities

    • Intergenerational daycare

    • Arts & Entertainment programs

    • Outdoor green space

    • An independent and sustainable community

    Here are the details of each lifestyle offering:

    Housing. A range of housing offerings from apartments, to assisted living, to full care environments will be offered. The communities will be the homes to between 1,200 and 2,000 full-time residents depending on the size of the facility. Generally speaking, the housing will occur in building forms previously occupied by anchor tenants. Floor-to-floor heights allow for mechanical distribution and open center cores lend themselves to day lighting and balconies.

    Essential Services. While the community will not be self sufficient, it is anticipated that there will be a significant enough of a contained population to support key essential services providing able body citizens meaningful income opportunities. These will include a clinic, convenience store, spa, fitness center, food service, library, community center, seasonal farmers market, crafts center, media center, laundry, intercommunity transport etc.

    With conversion of parking lots back to green spaces the new community form will feature mini-parks, walking and bike paths and other outdoor communal spaces which will enhance this vital and sustainable community. Gardening will become an essential component of the internal economy as a source of fresh fruits and vegetables for food services, resident consumption, as well as providing a profit center aimed at the broader adjacent community.

    Continued Education/Libraries. A satellite community college or university system will be created to link to the various communities. These will offer continued education and life long learning opportunities to the residents including lectures and seminars as well as graduate course work.

    Spiritual Growth. Society’s complexities and the response to past “excesses,” are giving rise to a renewed interest in spirituality. These values will be fostered through, study, discussion, yoga and meditation for those who seek out life’s deeper meaning and spiritual fulfillment.

    “Rehirement.” There will be a host of job opportunities which will cover a broad range of services offered within the community. This live/work model will take on a new dimension with an eye toward becoming a self sustainable community.

    Intergenerational Bonding/ Daycare. Our kids, the 76 million echo boomers, also known as Generation Y, will be busy having their own families, creating a significant need for daycare and support while mom and dad are out working. The new community form will revert to an intergenerational model that has worked for centuries and continues to work in many other cultures throughout the world. Grandma and Grandpa can assist with daycare, in the community daycare center which will provide intergenerational bonding benefits for both the old and the young alike; that is when grandparents aren’t being world travelers. This also becomes another viable means of income for the community.

    Arts and Entertainment. No vital community can exist and flourish without the arts. This will largely take place through community out-reach to museums and performing art groups throughout the community. Naturally both indoor and out door public presentation spaces will be planned for use by all segments of the community.

    Community Spirit/Soft Branding

    For so many people the pride of ones high school or college years lives on throughout life. In much the same way, it is both positive and beneficial to “soft brand” the new community form in ways that foster a sense of pride in the community. Living in these environments will be anything but a passive existence because participating citizens will be contributing (relative to ability) to keep the community viable.

    It is becoming increasingly evident that America has fostered the invention and proliferation of a building type that has in many cases run its course, socially and economically. The current economic “resetting” has only served to hasten the inevitability of the situation. It is now up to mall equity holders, urban planners, and community leaders to come together to repurpose many of these strategically located assets. Repurposing the most obvious candidates will begin to create new, vibrant and financially sustainable communities. It will provide jobs during and after conversion while meeting the rapidly evolving needs of a generation of its core constituents, but in a new and dynamic way.

    Sanford Stein is a speaker, designer and trend forecaster and is the president of Minneapolis-based STEIN LLC, a firm specializing in the design of unique branded environments. He can be contacted at sstein@steinllc.com

  46. I am a student at Western Michigan University taking Retail Management (#mkt4760) with Dr4Ward. This is an interesting concept of having grocery stores in big shopping centers and malls. Seems like the foot traffic would surely increase potentially helping the retailers around the grocery store. The question I would ask is; Do you think this could hurt the grocery store in these locations…maybe people would not find it very convenient or know that they would be too tempted to buy other items that they may not need?

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