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FOREIGN IDEAS

U.S. looks abroad for latest shopping center innovations

BY JOEL GROOVER

Shopping centers might well be about as Yankee Doodle Dandy as one can get, but the inspiration for the next wave of U.S. retail properties may be coming from overseas rather than Anytown, U.S.A.

Big changes in the American retail landscape are forcing the U.S. shopping center industry to pay attention to alternative approaches that have worked for years in Tokyo or London, experts say.

“It may be true that America wrote the book on shopping centers, but the book is in many ways outdated,” said Stanley L. Eichelbaum, SCMD, president of Marketing Developments, a Cincinnati-based retail consulting and research firm with clients in 39 countries. “The world is exploding with great ideas, so we can’t feel the shopping center is a proprietary product.”

Several emerging trends in the U.S. have long-standing and instructive parallels abroad. American developers, for example, are relatively new to the dynamics of anchoring malls with Target or Wal-Mart superstores. But the international equivalents of such discounters — Carrefour, ParknShop, Tesco and other hypermarkets — typically anchor malls from London to Hong Kong.

“In Australia, they have discounters, supermarkets, fashion stores, theaters, entertainment — all in a vertical integration that, if you stop and think about it, is where we’re headed [in the United States] today,” said Richard E. Green, vice chairman of U.S. operations for Westfield Group, a Sydney, Australia-based REIT with interests in 127 centers in four countries. “We have seven or eight of these hybrid projects here that are completed or under construction. From that standpoint, the U.S. is seeing what has happened in the rest of the world.”

That also means dealing with some of the same challenges international centers face: Should shoppers be allowed to wheel grocery carts into a mall? How would they get from floor to floor? What if they buy perishables like ice cream, but still want to browse for fashion?

The road well ‘travelated’
Fortunately, American companies can rely on solutions already worked out by their international counterparts. Australian malls offer temporary storage for groceries, as well as special escalators for shopping carts, as now seen in some two-level Target stores in the United States. “In Australia you can literally have a grocery store on the bottom of the shopping center, with the parking on the roof, and transport your basket all the way to the top without losing anything,” Green said.

In fact, in a clever bit of impulse-buy merchandising, multilevel Wal-Marts in China encourage shoppers to keep piling items into their carts even as they ride such “travelators,” says Ahsin Rasheed, a senior vice president at Development Design Group, a Baltimore-based international design firm.

“Wal-Mart sees them not only as a means to move people and shopping carts, but also as a merchandising opportunity,” Rasheed said. “They’ve created these bins next to the travelators, so while you’re slowly going down to the next level, you’re also picking up items like candies, batteries and calculators. That’s an idea I can easily see happening soon in the U.S.”

Indeed, while many American retailers and developers still dread the trickier logistics of vertical centers, such developments are a fact of life in Europe and Asia, where U.S. architectural firms have spent years tweaking their designs. Insights drawn from those experiences will prove invaluable as demand grows in the United States for urban centers and other projects with smaller footprints, says Stan Laegreid, a principal of Seattle-based Callison Architecture.

“If you don’t have department stores as the anchor, what do you use? We’ll use parking decks, entertainment precincts,” Laegreid said. “But if you do use an entertainment precinct, it’s only an anchor in the evening, so what do you do during the day? Those are the questions we’re dealing with: How are people actually going to navigate through the shopping center?”

Baltimore-based RTKL, a global architectural firm, deviated significantly from the classic American model — a dumbbell-shaped mall anchored by department stores — in its design for Multiplaza Pacific, which opened in December in Panama City, Panama. Although the three-level, 1.1 million-square-foot regional mall occupies a large enough footprint to accommodate a traditional mall design, Panama lacks large-format department stores, says Jeffrey J. Gunning, RTKL’s vice president of North American operations.

“What they consider anchors are really medium-sized users in the U.S.,” Gunning said. “So we came up with a plan configuration that was sort of a pinwheel, where in each corner there is a major public court space and one of these 20,000- or 30,000-square-foot users. It takes the place of what normally would be a Bloomingdale’s or a Nordstrom in a U.S. center.”

This approach of combining medium-size boxes with restaurants and public spaces to create alternative anchors could help American developers deal with the declining strength of department stores in the United States. “It opens up more possibilities for pedestrian movement through an enclosed or even an open-air center,” Gunning said. “It changes the paradigm of what an anchor really is.” Multiplaza Pacific has been so successful that expansion plans are already in the works, he adds.

Shoppers included
Large-scale developments in such tightly packed cities as Tokyo also tend to integrate retail with residential, a trend that is gathering steam in the United States as mall REITs and other U.S. developers become increasingly open to mixed-use (SCT, January 2005). Here, too, lessons learned overseas could prove useful, says Scott P. Murray, SCSM, a property manager for Houston-based Hines, developer of the 4.2 million-square-foot Diagonal Mar mixed-use complex in Barcelona, Spain.

Hines developed mixed-use projects in Houston and Dallas containing offices, retail and hotels, but Diagonal Mar, which opened in 2001, hammered home the power of integrating retail with residential, Murray says. The development includes 1,445 residential units. “To have a built-in customer base was fantastic,” Murray said. Cross-promotions, for example, gave the new residents special discounts at Diagonal Mar’s home stores and hard-goods retailers. And because those shoppers lived so close to the mall, they spent long hours hanging out there. “Our whole third floor was devoted to leisure activities, much more than in traditional U.S. shopping centers,” Murray said.

American developers of mixed-use projects or lifestyle centers also might adopt international approaches to food and beverage that have kicked the food court concept into overdrive elsewhere. “Australia picked up food courts from the U.S., but now their food courts are better than ours,” Green said. “You have basically white-tablecloth serving — not paper plates, but dishes and silverware. It’s a better visual presentation.”

Westfield Bondi Junction, a $540 million, 1.1 million-square-foot redevelopment completed last year in Sydney, offers everything from an oyster bar to fresh catches from the local De Costi Seafoods to such food retailers as Norton St Grocer and Laurent Patisserie, all with a view of Sydney Harbour. “It actually has open glass walls with an outside terrace,” said Kenneth P. Wong, president of Westfield’s U.S. operations. “When is the last time you saw a food court in a mall that had an outdoor presence?”

Ian F. Thomas, chairman of Thomas Consultants, a global retail consulting firm based in Vancouver, British Columbia, describes this approach as the “total manifestation of food” — organic greengrocers, supermarkets, sushi bars, cozy cafés and more coexisting under one roof. “In North America we’re told that a food court should have no fewer than six outlets and no more than 12,” he said. “But if you go to the Philippines, Japan or elsewhere in Asia, they’ll have 24 or 25 outlets in the food court.”

Callison has used this approach to turn malls in the Middle East into legitimate social centers, Laegreid says. (The 120-degree heat in the United Arab Emirates drives people indoors, of course, and makes the task a bit easier.) “Food and beverage in any traditional retail center might be 10 percent of the area,” he said, “but it might be up to 25 percent in an international shopping center.”

Overall, in fact, retail formats outside the United States tend to do a better job of meeting consumers’ everyday needs, says Gunning. Shoppers in the United Kingdom, for example, can have prescriptions filled at small in-line pharmacy chains like Boots or take home complete gourmet meals from Marks & Spencer. “Outside the U.S. they have maintained a mix of everyday needs and shopping, whereas the trend in the U.S. was just to allow that to go away and make it only fashion, especially in the regional mall,” Gunning said.

Global street of ideas
The success of the American shopping center model is beyond dispute. Thomas, Eichelbaum and other consultants spend much time helping their international clients grasp tried-and-true American operational approaches and avoid the no-no’s arising from decades of American experience: dead-end corridors, insufficient parking, poorly placed escalators, confusing mall layouts and the like.

The Mills Corp.’s Madrid Xanadú shows the continuing relevance of the American model. The 1.4 million-square-foot mall, which opened in 2003, offers American-style conveniences sorely lacking at most Spanish centers, including ample parking, with more than 8,000 spaces, and a ring road that provides easy access, says Mills spokesman David Douglass.

Such large-scale malls as Bluewater, in London; Centro Oberhausen (Germany); and Plaza Vespucio, in Santiago, Chile, rely heavily on American ideas too, Thomas says.

Yet the demand for the classic American mall overseas is limited, says Gunning, for a number of reasons, including the lack of department store traditions in many countries, the scarcity of land, tough planning restrictions and an emphasis on urban rather than suburban development.

Meanwhile, most of these countries lack a shopping center industry per se, so the rigid specialization that has persisted in the United States — with some developers sticking to retail, others to office or residential — never developed overseas, says Tim Magill, a principal and senior vice president at the Venice, Calif.-based Jerde Partnership, a global architectural firm.

That has led to design and development approaches that fit well with such emerging U.S. trends as the declining dominance of department stores, the growing interest in organic foods and the rising demand for lifestyle and urban mixed-use projects.

“If it had happened long ago, we probably would not have had the splitting of retail components that we see in the U.S. today, where discounters could not get into the mall so they went across the street,” Green said. “That didn’t make sense.”

Hear, hear, says Eichelbaum. “We sat there and said, ‘We know what we are doing,’ but until the American shopping center was in duress, we didn’t try what has worked in other parts of the world.”

One possible explanation for that might be that, until recently, most U.S.-based retailers and developers focused on domestic projects and rarely traveled abroad, even while Westfield, Hines and other international firms were learning valuable lessons overseas. Today, however, Mills, Simon Property Group and other U.S. names are looking hard at international opportunities.

“Our success with Madrid Xanadú has certainly opened doors for us in other international markets,” Douglass said. “Recently, we were awarded the rights to develop the Mercati Generali site in Rome’s city center, and we are in negotiations to develop in Milan, Valencia, Barcelona and at Ravenscraig in Glasgow.”

The experience these firms gain overseas is likely to lead to new approaches at home, says Development Design Group’s Rasheed, who has worked on projects in Asia and the Middle East for 18 years. “It will be interesting to see what happens,” he said. “They will be exposed to things that we and others have been seeing for years.”

The prospect of a bustling two-way street of ideas excites longtime internationalists. “A project we’re working on in England takes advantage of concepts from the U.S., Australia and New Zealand,” Green said. “Basically, we’re coming closer together as a world — more unified as to the types of properties under development.”