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LIFESTYLE CENTERS COMPETE FOR RETAILERS

BY ANNA ROBATON

Only seven years after building its first lifestyle center, Birmingham, Ala.-based Bayer Properties finds itself in a fight for tenants as it seeks to expand its popular Summit concept to markets around the United States.

The reason is that the industry’s push to develop lifestyle centers has become, in a word, frenzied. In some markets, Bayer Properties must compete for tenants not only against other lifestyle center developers, but even against the owners of existing malls, who are loathe to see their own tenants expand into nearby open-air centers, says the firm’s president, Jeffrey A. Bayer.

“There is a real battle going on,” he said. Bayer Properties is one of several developers that have unveiled plans for lifestyle centers in Fort Collins, Colo., and Pennsylvania’s Lehigh Valley.

Not only are more and more projects in a contest for tenants, but they are being rolled out at a time when specialty retailers are growing at a lackluster rate.

The retailers, too, are scrutinizing potential new locations very closely with many insisting on specific co-tenancies and on keeping a certain distance from existing stores.

All this is exacerbated by the growing number of projects that are not traditional lifestyle centers and yet vie for many of the same tenants — from centers that combine specialty retailers and big-box tenants to the wings of regional malls where outdoor components have been added and high-end specialty merchants clustered.

“Everyone is out there sort of blindly trying to figure out what works,” Bayer said. “It’s so new that we may kill the goose that laid the golden egg.”

Faced with a run on first-tier national tenants, some lifestyle centers have watered down their offerings with wireless stores, mom-and-pops and other merchants generally found in neighborhood centers or unanchored centers.

“It is very difficult to lease these things,” said Terry W. McEwen, president of Memphis, Tenn.-based Poag & McEwen, which credits itself with developing the country’s first purpose-built lifestyle center, The Shops of Saddle Creek, in Memphis in 1987. “The retailers are very cautious about whether the developer is capable of getting it leased, developed and managed properly. I get calls every week from people trying to do it and asking for help because they are struggling.”

Despite the difficulties, the pace of development shows no signs of slowing; there is a plethora of projects in the pipeline. In 2004 a record 18 lifestyle centers opened, and at least that many are slated to open this year, according to data from ICSC and Independent Retail Research, Syracuse, N.Y. More than 100 lifestyle centers exist nationwide, up about 35 percent from 2000, according to ICSC data.

Meanwhile, specialty retailers that operate in malls and lifestyle centers are expanding at a comparatively slow rate, due largely to weak consumer spending. During the past two years, they grew by less than 1 percent as measured by store count, according to Independent Retail Research. That compares with an increase of 4.2 percent in 2003 and 4.9 percent in 2004 for specialty retailers that traditionally operate in open-air centers, excluding lifestyle centers. Meanwhile, specialty retailers in power centers grew by more than 5 percent in 2003 and almost 6 percent last year.

“There are already probably more lifestyle centers proposed than should be built,” said James C. Bieri, president of Bieri & Associates, a retail consulting firm based in Detroit, where about a half dozen new lifestyle centers are in the works, adding that tenants can’t be in all the places developers want their centers to be.

Co-opetition and herding cats
Yet Bieri and others remain optimistic. In an environment where retailers are extremely cautious about where they put new stores, not all of the lifestyle projects in the pipeline are likely to get built, observers say. Sometimes, if a developer doesn’t outright scrap its plans, it may decide to stop fighting over tenants and join up with someone else.

In Pennsylvania’s Lehigh Valley, for instance, Poag & McEwen and Columbus, Ohio-based Stanberry Development were pursuing competing projects before they decided to form a joint venture. This spring they will break ground on a 600,000-square-foot lifestyle center called The Shops at Saucon Valley, in a suburb of Allentown.

“There are only certain geographic areas where lifestyle centers can get built,” said Adam D. Schiller, a senior vice president at Staubach Retail, a Dallas-based brokerage and consulting firm serving retailers and developers.

He explained that retailers don’t want to cannibalize sales of existing stores, and landlords don’t always have an anchor to lease around. The fate of many projects often hinges on whether the developers are able to line up a core group of chains that have become lifestyle powerhouses, a cadre that usually includes Ann Taylor Loft, Chico’s, Coldwater Creek, Talbots and Williams-Sonoma. Many other retailers refuse to even consider a project until the developer has struck deals with these chains, says Schiller. “A developer’s job is to get them to hold hands and jump in the water at once, and, as the saying goes, it’s like herding cats,” he said.

Still, developers are undaunted, convinced that well-located, well-designed projects will attract the right tenants, regardless of the flat growth in recent years among certain specialty retailers. They say that even mature brands such as Chico’s are finding new ways to grow, either through acquisitions or new concepts. Chico’s has ambitious plans, for instance, for its newly acquired White House/Black Market chain and its newly launched Soma chain, according to a report by Columbus-based consulting firm Retail Forward. Chico’s believes it can ultimately expand both chains, which now have 155 stores and 10 stores, respectively, to more than 500 each. And American Eagle Outfitters has announced plans to launch a new concept next spring.

“They all must continue to expand in one way or another,” said Mark Zygmontowicz, managing director of Troy, N.Y.-based Mapinfo Corp., a software and research company that helps retailers and developers identify markets. “The shareholders and Wall Street won’t let them take time off.”

Developers also expect to draw their future tenants from a crop of specialty retailers that are still in the early phases of their growth cycles — including Coldwater Creek, J. Jill and Urban Outfitters’ Anthropologie — and from the growing number of foreign chains in the United States, including Spain’s Zara and Mexx, a Dutch chain that Liz Claiborne acquired in 2001. Though most new foreign players currently have only a handful of stores, several expect to ramp up their store openings after establishing an initial base, according to Retail Forward.

Of the fledgling U.S. specialty chains, Coldwater Creek alone plans to grow its store count to about 500 during the next several years, up from about 115 today, according to David Gunter, a spokesman for the Sandpoint, Idaho-based chain, which began as a catalog retailer and opened its first stores in 2000. This year Coldwater plans to open 60 stores, more than half of them in lifestyle centers.

“We are not in a build-it-and-they-will-come environment, but if you are in the right place, it behooves even the brands with several hundred stores to be there,” Gunter said.

And, despite resistance from the owners of regional malls, lifestyle centers are expected to continue to attract mall-based retailers, including teen-oriented merchants. Chains with a strong teen following are already a focal point at some centers, like RED Development’s The Shoppes at Arbor Lakes, a 400,000-square-foot lifestyle center in the Minneapolis suburb of Maple Grove. The tenant mix there includes Aeropostale, American Eagle Outfitters and Wet Seal, along with a 16-screen theater, restaurants and chains catering to older shoppers.

Come grow with us
Developers expect retailers to continue to look to lifestyle centers as an outlet for growth in an environment where few new regional malls are being built. Lower occupancy costs and a focus on markets with high-income households and strong population growth are also expected to keep mall-based retailers migrating.

“It’s amazing the mall retailers that will go into lifestyle centers that wouldn’t look at them four to five years ago,” said Andrew LaGrega, SCMD, SCSM, senior vice president of leasing and marketing for Boston’s The Wilder Cos., which is building a portfolio of open-air centers that include both specialty chains and big-box merchants in a streetscape setting. Wilder has dubbed its concept The Loop and is currently developing its second Loop project, a 440,000-square-foot center in Kissimmee, Fla., near Orlando.

Ultimately, though, the fate of lifestyle centers will depend not only on whether the economy improves to fuel more-robust growth among specialty chains, but also on the performance of many projects that are now in the works.

Some developers worry that too many marginal centers will eventually spoil the honeymoon between many retailers and lifestyle centers.

“There will be some terrific ones built, some will be failures, and some will be mediocre in their success,” said Bayer. “If they are done right, then the concept will live a long life.”