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Shopping Centers Today -> July 2003
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A PARTNERSHIP REDEFINED
Mall, dept. store split has wide repercussions
BY NANCY COHEN
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| New use of an old space in Kravco’s King of Prussia (Pa.) Mall. |
Malls have been wedded to department stores ever since the first enclosed shopping center opened nearly 50 years ago as a vehicle for The Dayton Co.’s suburban expansion. They grew together for decades, with developers agreeing to support department stores through lavish subsidies in return for a commitment.
But now the two are reassessing their relationship in light of department store consolidation on the one hand and mall saturation on the other. Each, suggesting that the other no longer meets all its needs, is experimenting with different partners. The department stores are trying new, often smaller formats in lifestyle and strip centers and in downtowns. The malls, for their part, are pursuing alternative anchors — not only entertainment venues, restaurants and services, but also retailers from the once taboo ranks of power center tenants — discounters, category killers and warehouse clubs.
In the process, formerly hard and fast definitions of shopping center types (including tenancy as well as size, trade area and design) are blurring almost beyond recognition, and the long-term impact of these changes is equally unclear. But at a time of slowed consumer spending and general economic malaise, retailers and developers are casting about in every direction for solutions.
“No question, the bloom is off the rose as applies to department stores in malls,” said David Birnbey, chairman of the Shopping Center Group, an Atlanta-based real estate services firm. “But the flip side is [that] department stores are seeking out pieces of real estate where they can have the same value they used to, and where they’re not competing with additional department stores.”
The endeavors of Federated Department Stores are a good example. The Cincinnati-based company, which operates more than 450 stores under seven names, is opening just 12 units this year. Those include a 124,000-square-foot Bloomingdale’s in New York City’s SoHo section, and Bon Marché and Bloomingdale’s home stores in Chicago; Oakbrook (Ill.) Center; and Tacoma, Wash. In addition, Federated is developing scaled-down department stores for smaller markets, such as the 110,000-square-foot Macy’s branches destined for Simi Valley (Calif.) Town Center and County East Mall, Antioch, Calif.
As for malls, they are reducing their reliance on department stores. Spurred by vacancies and by the lack of distinction among most of the chains that remain, malls are increasingly embracing a blended approach that was virtually unheard of in the United States before 1998. That’s when the Pyramid Cos.’ Palisades Center, which opened in West Nyack, N.Y., combined the likes of BJ’s Wholesale Club and Bed Bath & Beyond with Lord & Taylor and Banana Republic.
Today if a mall’s department store goes dark, “developers typically aren’t shedding tears,” said Norris R. Eber, SCSM, executive vice president of asset management and acquisition at Joseph Freed & Associates, Wheeling, Ill. “Since department stores are usually not the highest payer, there’s an opportunity to add value to the project.”
Kravco Co. officials can attest to that. Consolidation left the company’s King of Prussia (Pa.) Mall with two Strawbridge’s department stores, one of which Kravco broke up and re-leased. New tenants in the old space — renamed The Pavilion — include Borders Books, Cheesecake Factory, H&M and Urban Outfitters.
“Already there’s $70 million coming out of that building that the department store was never able to do,” said Kravco Chairman and CEO Wayne Snyder.
While many observers applaud the blended, all-things-to-all-people format that is emerging, others point out that replacing department stores with other uses is not without challenge or risk. Converting a department store space can be difficult and costly, especially if the store has more levels than the attached mall. What is more, the on-mall entrances that developers prefer can create problems of security, management and layout for power center retailers, whose shoppers use carts and need to exit directly into the parking lot.
“Power center retailers are uncomfortable with two entrances,” said Birnbey. “They usually have registers at their one exit to secure the store. In a mall, sometimes they’ll put a couple of registers or the manager’s office at the mall entrance. But it’s difficult, and it breaks up their typical racetrack design.”
Beyond the design issues lie deeper questions about the desirability and benefit of having such a diverse array of retailers locate stores in every kind of venue.
First off, the synergies are still untested.
“Everyone’s turning to alternative uses because there are no alternatives today, but the long-term viability of the new anchor idea is not yet proven,” said Nathan Forbes, a partner at Southfield, Mich.-based development firm Forbes Co. “Does it mean additional business and traffic for in-line tenants? How strong is the blend? There’s not enough of a track record to know.”
The question becomes especially pointed when it relates to adding the very discounters that have, from more-distant locations, drained sales from onetime mall stalwarts. “In many cases, you can walk into Target and out of Target without ever going into the mall,” said Ted Kraus, president of TKO/Real Estate Advisory Group, Trenton, N.J. “That defeats the whole purpose.”
Yet that kind of mix, though new to the United States, has succeeded elsewhere, notes Jerald Dick, a partner at GCD Consultants, a Scottsdale, Ariz., leasing and retail consulting firm. “In Canada and Australia, all the centers have discounters and supermarkets, so they’re more things to more people. Here, nobody ever wanted to mix anything, but it’s crazy to let [the discounter] go across the street. I’d rather see a Target or a Kohl’s than a second May department store — it’s better than the duplication.”
In the absence of statistics proving otherwise, another argument can be made for a synergy between discounters and in-line stores.
“Maybe there’s more of an opportunity for customers to upscale a purchase in the mall because they bought their durables at a very good price at Target,” suggested Michael E. McCarty, CLS, president of Simon Property Group’s community shopping center division. “Is it better than having a full-line department store? I can’t say. If department stores are on their ‘A’ game, it makes the decision more difficult — but they’re not, for the most part, now. So as a developer, I’d probably want both.”
But as the developers of all kinds of properties trawl the same pool of tenants, and as retailers simply repackage themselves for new locations, the entire industry increasingly exposes itself to the hazards of homogenization, some observers argue.
“The boredom factor is pretty bad,” complained Therese Byrne, a New York City-based retail analyst. Overbuilding and self-cannibalization are additional risks, as retailers open variously sized branches in traditional malls and in lifestyle, hybrid and strip centers, as well as downtowns and freestanding sites. Beyond the redundancy, scaled-down formats are confusing, she said.
“Sears and Home Depot learned that people walking into their small stores expected the same depth and breadth of [stock-keeping units],” Byrne said. “When they didn’t find it, they were out of there.”
Such concerns, however, seem at present to be outweighed by the need to fill space rather than adhere to increasingly archaic definitions of “mall.”
“Most retail properties are adding big boxes, Targets, Wal-Marts, groceries,” said McCarty. “Malls are morphing to have everything in them. Maybe we should call them ‘alls.’”
 | Current Issue November 2008 |