PRINT THIS STORY:

CHANGE TEXT SIZE:

A NEW SETTING

Jewelry chains, traditionally in malls, are moving into open-air centers

BY GLEN A. BERES

Jewelry chains are increasingly selecting strip centers as their vehicles for growth, citing the higher rents, dwindling real estate opportunities and other challenges presented by malls.

At least six of the 10 largest mall jewelry chains in the United States either have strip center units in place already or plan to install them over the next two years. The chains need to widen their audience, analysts say.

“Department stores are no longer the reason why people come to the mall, because they have failed to innovate,” said Kenneth Gassman Jr., a jewelry analyst at New York City-based Rapaport Research. “Time-pressed consumers are spending less and less time shopping in the big regional malls, because it is more convenient to get in and out of the strip malls.”

The pioneer of nonmall expansion among jewelers is Savannah, Ga.-based Friedman’s, which has from the start focused on power centers anchored by a Wal-Mart, Target or some such big-box discounter. About two-thirds of the retailer’s 665 stores are in power centers (the rest are in regional malls), as will be most of the 50 new stores it plans to open this year. Friedman’s says it believes that its power center strategy has the potential to take it to 3,000 stores.

Friedman’s had the strip center market pretty much to itself during its aggressive expansion over the past decade from 50 stores to its current size, but it could soon have plenty of company.

• Sterling, the nation’s second-largest jewelry chain, with about 1,050 units, says it will test 10 Kay stores this year in power and lifestyle centers and other strip center formats. The Akron, Ohio-based retailer also is moving ahead with a national expansion of the 67-store Jared The Galleria of Jewelry superstore format. The company plans to roll out 12 to 15 more of these “off-mall” units by the end of this year. “We see a lot of growth potential in real estate not necessarily anchored by department stores,” said Sterling CEO Terry Burman.

• Zale Corp., the nation’s largest jewelry chain, with nearly 2,300 stores, said recently that it is looking beyond traditional outlets for future expansion of its 90-unit Zales Outlet clearance division. The Zales Outlet concept “adapts well to power strip centers and similar growth formats,” said Sue Gove, executive vice president and COO of the Irving, Texas-based retailer, during a recent presentation to analysts and investors.

• Helzberg Diamonds is eyeing those same power, lifestyle and other strip center targets to further roll out its successful “freestander” (stores that stand alone or are attached to strip centers) superstore concept. The 250-store retailer, based in North Kansas City, Mo., currently has about 205 mall units and 45 freestanders. “If a city is not served by a major mall, it makes it a great candidate for our freestander format,” said Chairman and CEO Jeffrey Comment. “Having a dual real estate strategy gives us great flexibility to adapt to any demographic scenario, and we don’t have to be a slave to the malls.”

• Samuels Jewelers, a 125-unit chain based in Austin, Texas, has inherited strip center units through acquisitions. Now the company is developing a prototype for “megapower centers” anchored by several big-box retailers. Samuels favors these power centers over regional malls because they draw more direct “destination” traffic, are more profitable, attract customers with a higher household income and ring up higher average sales, says Randy McCullough, the chain’s president and CEO.

• Reeds Jewelers, a 92-store chain, said it will test its first off-mall concept in a lifestyle center next March in its home base of Wilmington, N.C. The unit is a prototype to determine whether an upscale lifestyle center format is viable, says Reeds President and CEO Alan Zimmer.

• Ultra Stores, a 105-unit chain based in Chicago, said it is “exploring” the possibility of opening units in strip centers.

Some smaller chains setting their sights on national expansion view strip centers as their growth vehicle as well. The Diamond Center, an East Sacramento, Calif.-based chain of 10 West Coast stores that caters to customers with less than perfect credit, is planning a major national push that would give it 500 stores in strip centers — and $500 million in jewelry sales — within five years. Another is Goldenwest Diamond Corp., a Tustin, Calif.-based chain with 13 stores, each one in a major metropolitan market. The company, which expects to hit $120 million in jewelry sales this year, has four additional strip center units on tap.

Gassman says jewelry chains’ considerion of strip centers for future growth is mainly a reflection of a decline in mall traffic.

“Add to that the fact that mall jewelers have high common-area costs and pay among the highest rents in the mall, and it’s understandable why more and more chains are looking at strip centers. This is a wake-up call to the mall industry.”

Not everyone buys into that assessment. Some insist that regional malls are likely to remain the real estate vehicle of choice for many jewelry chains and other retailers.

“Traffic is still the biggest advantage for mall tenants,” said Barbara Grandinetti, vice president of real estate leasing at Johnstown, Pa.-based Crown American Properties. “You can’t compare the value of the traffic you’ll get at a strip center to the traffic you’ll get at a mall.”

Jewelry retailers would do well to remember a few basics, Grandinetti said.

“A lot of jewelry is bought on impulse, and when you move to a strip center, you lose those impulse purchases, because you become a destination,” she said. “Malls may be more expensive, but it’s a situation you can’t afford to lose.”

Kimco Realty Corp., the nation’s largest owner and operator of neighborhood and community strip centers, has several Friedman’s stores in its portfolio. Though Kimco has yet to see a mass migration of mall jewelers looking for strip locations, its executives say they wouldn’t be surprised to see that occur in the near future.

“We’ve heard from many tenants how expensive it is to operate in the mall compared to a strip center,” said Scott Onufrey, vice president of investor relations at Kimco Realty.

Onufrey theorizes that if national jewelry chains were to make a big push away from regional malls toward strips, it could put a significant squeeze on the small, single-store operators that have traditionally claimed neighborhood strips as their turf.

“Any time you have a mall operator looking at strip centers for growth, it’s generally a positive for strip center landlords,” Onufrey said. “A big chain typically has better credit, takes more space and longer leases, and, if the chain has a national brand name, this means increased traffic for the center. The only potential downside is if a landlord has to pay a lot of money to get the national chain into the space.”

© 2008 ICSC. All rights reserved. | Terms and Conditions | Privacy Policy | Contact ICSC | ICSC Home |