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Shopping Centers Today -> May 2003
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MALL OPERATORS KEEP AN EYE ON A NEW RIVAL
With lifestyle centers loved by consumers for their convenience and by retailers for their low costs, it is little wonder that some see them as a threat to the enclosed mall.
“How do we eliminate $25-per-square-foot CAM charges on top of $50-per-square-foot rent at the premier malls?” said Raymond Brunt, a former Gap executive who has crossed to the development side as leasing chief of Columbus, Ohio-based lifestyle center builder Stanbery Development. “It was something we were constantly looking to eliminate.”
Though lifestyle rents can be comparable to those at malls, CAM charges are in the $6-per-square-foot range at lifestyle centers, which don’t have gigantic roofs or climate-control systems to maintain. Faced with such competition, mall builders are learning from it, imitating it and, in a few cases, wishing it well. No one is ignoring it.
With traditional mall tenants such as upscale apparel merchants looking to grow, but finding few new mall opportunities, it’s logical that they would search for other formats to expand into.
“If you’re going into new projects, you’re going into lifestyle centers,” explained C. David Zoba, executive vice president and general counsel of Galyan’s Trading Company(SCT, April 2003). Of nine new stores the sporting goods and apparel chain plans to open this year, Galyan’s says it will open three in malls, three in lifestyle centers and three in other formats.
Talbots will open 97 stores in malls, lifestyle centers and urban streets this year; a majority — 60 percent — are going into lifestyle centers and urban street locations, says Richard O’Connell, Talbots senior vice president of leasing.
“It’s definite competition,” said Stephen D. Lebovitz, president of mall developer CBL & Associates Properties, Chattanooga, Tenn. He points out that malls are chasing some of the same retailers inhabiting lifestyle centers. “We’re doing deals with Barnes & Noble, Bed Bath & Beyond, Linens ’n Things, Coldwater Creek, Williams-Sonoma. We definitely want these stores in the mall.”
Mall owners faced with the prospect of a lifestyle center’s arrival in the neighborhood have been stung into action. Taubman Centers, for instance, extensively renovated Beverly Center, Los Angeles, when work began on The Grove, a 575,000-square-foot Caruso Affiliated Holdings lifestyle center with a Nordstrom and a Pacific Theatres megaplex less than a mile away.
Malls are becoming more aggressive in their deals with retailers, in some cases retooling leases to give favored tenants the best locations.
“There are certain situations where a mall wakes up,” said lifestyle center developer David Kass, president of Continental Retail Development. The firm is a subsidiary of Columbus, Ohio-based Continental Real Estate Cos., which has six lifestyle centers already built or under construction. “Four or five years ago, they weren’t too concerned.”
In the best tradition of “if you can’t beat them, join them,” some mall developers are incorporating lifestyle center elements by building so-called hybrid centers, which have outdoor sections leading off from the indoor segment (SCT, October 2001).
“The lifestyle component is what we’re trying to do at a lot of our centers, adding streetscapes with access from both inside the mall and outside,” said Robert A. Michaels, president and COO of General Growth Properties. The company did just that with its redevelopment of Park Place, Tucson, Ariz. General Growth would even consider developing a pure lifestyle center, “under the right circumstances,” he added.
Taubman’s Stony Point Fashion Park, Richmond, Va., has lifestyle elements, says Courtney Lord, CLS, the company’s senior vice president of leasing. Some consider Simon Property Group’s Bowie (Md.) Town Center to be influenced by lifestyle projects, with its architecture, open-air format and streetscape layout.
But many mall owners say they are not as shaken up by this new arrival on the shopping center scene as some would have the industry believe.
“I don’t make them more or less a threat than strip centers or a Target,” said Lord. “The only thing that is not a threat is the supermarket.”
Fortress malls are particularly invulnerable, some say. When Memphis, Tenn.-based Poag & McEwen opened Deer Park Town Center, a lifestyle project northwest of Chicago, Taubman’s Woodfield Mall in nearby Schaumburg, Ill., saw no decline in sales, Lord said. And since Taubman spruced up its Beverly Center, he adds, the company has little to fear from Caruso’s Grove.
“[Caruso] has a mix of stores that is very nice. We have a small theater, Macy’s and Bloomingdale’s,” Lord said. “We are cohabiting: We share some customers, and we’re both sating the needs of our customers.”
Malls are protected somewhat by radius clauses, which prevent some of their retailers from locating additional stores in other centers too nearby.
There is no mass exodus of particular retailers from the malls to lifestyle centers. Talbots, for instance, one of the tenant pillars of the lifestyle format, is not shunning malls.
“Our direction is to address our target markets wherever they are,” said Talbots’ O’Connell.
Lifestyle developers say that their projects are generally several miles from the nearest mall, and quite often a tenant will have stores at both centers. As a result, most mall managers say that they have not had to sweeten any deals to compete with lifestyle centers.
“We have prided ourselves on relationships, not leverage,” said Ross Glickman, CEO of mall management firm Urban Retail Properties, Chicago. Even those who have offered inducements to retailers say it isn’t a big deal.
“That’s nothing new,” said Lebovitz. “I was doing that with Warner Bros. and Disney 10 years ago. You always make economic deals for the right kind of store.”
With their greater variety of merchants, malls exert a bigger draw than the upscale lifestyle centers, attracting shoppers from a range of economic backgrounds.
“We’ve put together a merchandise mix that speaks to market demographics, so we have the best of both worlds,” Glickman said. “The short answer is that the jury’s still out whether they hurt regional malls.”
Some mall developers say they are staying away from the lifestyle center format altogether.
“We have not jumped into the lifestyle fray,” said Michael E. McCarty, CLS, president of Simon Property Group’s community center division. “Some of them may do $600 per square foot, but some do $200 per square foot. We don’t see them replacing malls. No lifestyle center is offering to be all things to all people. You still have to make an additional trip.”
— D.H.
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