Observations & Conversations
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There is no longer an
argument against bringing in a non-traditional mall anchor... |
The cool place of the ‘80s for middle
America to see and be seen was at the mall. Television stars and teen idols used
them for publicity stops and moms looked at it as the perfect babysitter for
young teens. Today, a lot of these once-dynamic centerpieces of the community
are tired relics of a bygone era. This month’s feature article reports on
several malls that are completely closed or have shuttered wings. The most
interesting part of the article is that these projects are resurrecting
themselves with non-mall anchors, such as wholesale clubs and discounter mass
merchandisers, or they’re being changed to different uses like call centers and
even colleges.
Quite often the demise of these enclosed shopping centers was the owner’s
reluctance to put money back into the project to keep it fresh - aesthetically
and from a tenant mix perspective. Also, a lot of these older malls were
annihilated when a “new,” bigger and better mall came to town. The other factor
leading to their demise is the lack of growth from traditional department stores
after this type of anchor lost its luster. The Lord & Taylors and Macy’s of
twenty years ago have nothing in common with the look and feel of the same
chain’s stores today. Now, most department stores are serve-your-self, with
centralized check-out counters and merchandise sold based on price, whereas long
ago these chains would host fashion shows, bring in merchandise not found in any
local stores and offer great customer service. Today, not much sets them apart
in merchandising, pricing or service from the likes of Wal*Mart, Target,
Burlington Coat Factory, T.J. Maxx, Ross or Marshalls. There is no longer an
argument against bringing in a non-traditional mall anchor because there are so
few left. Nordstrom is still a “real” department store, but you can see notable
differences in its merchandising from smaller markets compared to their stores
in downtown San Francisco or Dallas. However, most of America is closer to being
a Sears shopper rather than a Nordstroms, just because not many of us plunk down
$300 for a handbag too often. I think most owners, tenants and city officials
would rather have their mall anchored by any type of viable user, rather than
sitting vacant. So why have so many of them been lingering for years?
The answer is that it takes years to redo these types of projects and demolition
is often more cost effective than trying to work within the footprint of an
enclosed mall. I know of a 600,000 sq.ft. mall that has been about 70% vacant
for three years, and by Christmas of 2004 it will be anchored with a 100,000
sq.ft. home improvement chain, an 80,000 sq.ft. promotional department store, a
20,000 sq.ft. office supply store, a 100,000 sq.ft. department store and a
30,000 sq.ft. fitness center. It will be the first time in about 10 years that
this project has seen a 90% occupancy. The de-malling of this center took loads
of patience, a few bucks and a determined owner. Plus, a few excellent leasing
agents made a huge difference.
Keeping a mall in tact and finding anchors is really difficult. Most of the
malls I’ve seen that once were severely vacant and didn’t hire a demolition team
now have non-retail as the anchor. That isn’t a bad thing from a cash flow
aspect, but it doesn’t help keep the small shops occupied. Re-tenanting with
call centers, colleges and other non-retail users still allows the owner to pay
the mortgage and the taxes, while the city sees a boost in employment and
everyone wins. But what’s key in determining if it makes sense to rebuild for
retail or just lease to other use, is how good the real estate is today. A
number of these malls were built in areas that no longer draw the type of
customer Dillard’s or Macy’s wants, or the population density moved to the other
side of town. When this happens the owner has no choice - the center has to be
leased to what we think of as a strip-center anchor or to an alternative use.
I don’t see the harm in bringing in stores like Target, Costco, Burlington Coat
Factory or Kohl’s to anchor malls. A lot of mall developers say “it will bring
down the quality of the center.” Nonsense, it will bring the kind of store where
most customers shop. As to bringing down the quality of the center, I don’t see
much in the way of elaborate fixtures or window merchandising at Sears or
JCPenney and a lot of malls have at least one of them as an anchor. Most mall
developers want high-end anchors, but there are so few markets that can sustain
upscale stores. It’s stupid to waste time trying to lure the likes of Nordstrom
to middle markets. The competition is starting to heat up with strip and power
center-oriented anchors now looking at malls as a viable alternative, which is
exasperated by the fact that there is about one hundred million square feet of
anchor space sitting vacant from coast-to-coast.
A retailer that I think would be a great anchor for a failing mall in a good
market is Ikea. Its 250,000 sq.ft. home decor stores draw from 50 miles, put out
a great advertising campaign and cater to all lifestyles. Another possibility
for a mall anchor is a mega-size sporting goods store in the 80,000 sq.ft. to
100,000 sq.ft. size range, like Galyan’s with their rock climbing walls, or
Cabela’s, which spends more effort in merchandising than any department store
I’ve visited lately. Another idea to fill anchor positions are entertainment
tenants, such as indoor family entertainment centers. This type of tenant can’t
survive paying rents demanded in flashy entertainment centers or new
construction. They need low rents, but they tend to draw traffic since they are
truly a destination tenant. In desperate situations, I’ve heard about a flea
market chain that is opening swap meet locations in small-market malls with
vacancies. Another project that I read about was a 500,000 sq.ft. middle-market
mall that was bought by a college. Now the property is fully occupied with
classrooms, administrative offices and retail stores operated by the college
that cater to, and are staffed by, students.
Survival is possible for these ailing projects, but it just takes more
creativity and patience than most developers are willing to give. For our
monthly supplement on retailers that are looking for mall, downtown, specialty,
entertainment or lifestyle-type projects, I’m always surprised that we have more
retailers looking for small space in malls than we have space to print their
site selection requirements. I’m starting to wonder if the small shops are
looking at malls only because there isn’t enough satellite space in newer strip
and power centers. This segment of retailers has a bigger pent up demand for
space than any other size of user.
Next week’s issue of The Dealmakers will be supplemented with our annual Retail
Real Estate Brokers Guide and distributed at the ICSC New England Dealmaking in
Boston. It’s the only directory of brokers that specialize in retail real
estate. We’ve got the info for you to reach the top brokers in the country. It’s
a must-have issue and great tool for finding tenants that these brokers rep and
specialists in the sale of retail sites. If you’re a broker and want to be
listed in the online version of the directory, just go to http://property.com/broker_guide/guide2002.htm
and give us the details on your services - it’s free and you just might pick up
some business from the listing. In August, we’ll be at the ICSC Florida
Dealmaking, so be sure to stop by our booth and say hello.
Until next month,
Ann O’Neal
Publisher