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Who's hot in retail?

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Mirror mirror, on the wall, which tenants are hottest at the mall?

When SCT Senior Contributing Editor Edmund Mander asked a cross-section of professionals in the retail and shopping center industries recently which retailers they would put on their “A List” if they were leasing a new mall today, there seemed to be a degree of consensus. Several cited tenants that offer games and food, with some even suggesting these could be the mall anchors of tomorrow. As for the anchors of today, incidentally, none mentioned department stores.

Companies based outside the United States made a strong showing, as did some hitherto catalog and Internet retailers that are trying something new: opening stores. And while there was a high degree of consensus among our experts, they also disagreed about some retailers. Some, for instance, enthused about Zara. But one felt the Spanish fashion retailer is missing an opportunity in the U.S. market by failing to expand fast enough.

So who else made the cut in SCT’s admittedly unscientific survey of the hottest tenants in the industry?

H&M

Cut price, cutting-edge fashion and accessories for the whole family.
Headquarters: Stockholm, Sweden.
CEO: Rolf Eriksen.
First store opened 1947 in Uästerås, Sweden.
Operates 633 stores in 14 countries; will have 10 units in the United States by end of fiscal 2000, and plans to have 75 locations open in the next three years. Opening in freestanding and mall locations. Also sells via Internet (in Scandinavia) and catalog. Stores range from 3,000 to 35,000 square feet.
1999 sales: $3.6 billion.

H&M, all the rage now in 14 countries, forged a bridgehead in the United States this past spring, opening a flagship on New York’s Fifth Avenue that was immediately mobbed by young customers in search of cheap chic — or “flash and trash,” as some less-kind observers describe this retail segment.

“I think that H&M [Hennes & Mauritz] is the hottest new retailer on the screen,” said Robert Michaels, president and COO of General Growth Properties, Chicago, which has more than 130 malls with about 10,000 retailers. In March, the Swedish-based, high-fashion, low-price retailer is going into General Growth’s Brass Mill Center in Waterbury, Conn. “They’re going to do extremely well,” he predicted.

“It’s incredible. You walk in there at 4 o’clock on a Tuesday afternoon and it’s 10 deep at the cash registers,” enthused Ron Bondy, who is regional vice president for leasing at The Macerich Co., the Santa Monica, Calif.-based owner and operator of more than 50 shopping centers across the country. Macerich at press time was negotiating to bring H&M to one of its New York-area properties.

“There is not an hour of any day that that place is not jammed,” agreed Barbara Ashley, president of Retail Ventures, a New York City-based company that helps retailers reposition themselves through merchandise and marketing strategies.

But for all the consensus among the experts, there is also some disagreement. A recent report by WSL Strategic Retail, a New York City-based retail consulting company, predicted young people will grow leery of the quality of H&M’s clothing, and the time they have to spend lining up to pay for it.

Not so, said Ashley. “It’s a time-tested concept,” she argued, noting that H&M has maintained the enthusiasm of shoppers across Europe for several years. U.S. shoppers will remain equally enthralled, she predicted. “Now they’re able to get real fashion items at mass-market prices.”

Bondy argues that H&M has come up with a new concept in apparel shopping: “They’ve created what really is disposable clothing; people buy clothes for the week.” However, he predicts the chain will have to tweak its concept somewhat to appeal to suburbanites. “Right now it’s a really urban look.”

Sephora

Perfume and cosmetics.
Division of Moët Hennessy Louis Vuitton
Headquarters: Paris.
CEO: David Suliteanu.
First store opened in Paris in 1993.
More than 200 stores in Europe, five in Japan and more than 60 in the United States. Plans to have 70 in United States by end of year, and the company says it will open about 20 a year for the next few years. Freestanding stores and mall locations, ranging from 2,100 to 21,000 square feet.

So where’s the best place to get cosmetics and perfume?

“It’s hands down for Sephora,” said Faith Hope Consolo, vice chairman of Garrick-Aug Worldwide, the New York City-based retail leasing firm, praising the store for its mixture of brand-name cosmetics and perfumes and private-label products.

Sephora arrived in the United States in mid-1998, opening stores in New York City and Miami. It launched its 21,000-square-foot flagship store in Rockefeller Center in October 1999, and is continuing with an aggressive program of expansion, with plans to open about 20 a year.

“Sephora is the future of beauty” is one of the company’s several mantras. Its merchandise blend makes it very competitive with department stores, Consolo said. Moreover, the retailer’s stores are beautifully designed with “very soft lighting, so even the not-so-good-looking look pretty,” Consolo added.

“It’s a big selection; the stores are very attractive,” agreed Ron Bondy regional vice president for leasing at The Macerich Co., Santa Monica, Calif. “Sephora is a hot concept right now.”

Its future looks pretty too, Consolo noted.

“The beauty industry is completely recession-proof,” she said. “People are still buying beauty products, even when they can’t afford that $200 sweater.”

bebe

Women’s high fashion and accessories.
Headquarters: Brisbane, Calif.
Founder, chairman, president and CEO: Manny Mashouf.
First store opened in San Francisco in 1976.
Operates 113 stores in the United States, and two each in the United Kingdom and Canada. Opening 12 more in the second half of this year, and at press time had six locations confirmed for 2001.
Stores range from 2,200 to 3,600 square feet.
Net sales for the year ended June 30, 2000: $241.8 million.

bebe is the U.S. boutique that likes you to think it’s from Europe.

“bebe has not only the right price point, but in terms of style they’ve been able to capture a very European panache,” said Faith Hope Consolo, vice chairman of Garrick-Aug Worldwide. And with stores opening in Europe, “they’ve been accepted by the very countries they’ve copied.”

The company makes its own clothes, using designs that can be worn by women of every age group, she added. “Their designs can be adapted for the grandmother, the daughter and the daughter’s daughter.”

People wearing bebe’s clothing include Britney Spears, Brooke Shields, Cher, Cindy Crawford, Daryl Hannah, Madonna, Raquel Welch and The Spice Girls, among many other current and former celebrities listed by the company. bebe has walk-on — and sometimes take-off — roles in such television shows as “Ally McBeal,” “Beverly Hills 90210,” “Buffy the Vampire Slayer,” “Friends” and “Party of Five.”

And, like Sephora, the stores will still be looking good even when the economy isn’t, according to Consolo. “I think they’re recession-proof.”

Net sales for the year ended June 30, 2000, were $241.8 million, up 20.1% from $201.3 million reported in fiscal 1999.

In addition to bebe’s company-owned stores, there are licensed stores in Israel, Singapore and Greece, and plans for more in Saudi Arabia and Hong Kong, according to Alison Quan, a company spokeswoman.

The company went public in 1998.

J.Jill

Specialty marketer of high-quality women’s apparel, accessories and gifts.
Headquarters: Quincy, Mass.
Chairman, President and CEO: Gordon R. Cooke.
Operates seven stores, with plans to open up to 15 more by the end of the year, and as many as 50 next year, all in upscale malls. Stores are about 5,000 square feet.

J. Jill, the catalog and Internet retailer catering to affluent women 35 and older, is now branching off in a radical new direction, one that lets customers see, touch and even wear merchandise before buying: It’s opening stores. Lots of them, with talk of 350 locations by 2007.

“Everybody seems to be excited about J. Jill,” said Robert D. Riedy, CLS, vice president at The Rouse Co., Columbia, Md.

The company put stores this year in some of the country’s most prominent malls, including Water Tower Place in Chicago; Mall of America, Bloomington, Minn.; Pacific Place in Seattle; The Westchester, in White Plains, N.Y.; and Tysons Corner, in McLean, Va. It plans to have another 15 or so open by the end of the year, according to CEO Gordon R. Cooke.

J. Jill is not alone in its decision to sell things the old-fashioned way.

“There’s a lot of clicks and bricks and catalog retailers turning to bricks and mortar,” observed Riedy, citing the recent opening of stores by J. Crew, L.L. Bean, and Smith & Hawken. Success, he said, will go to those Internet retailers who are able to thrive as conventional retailers.

J. Jill is well positioned, and will do well, opined Barbara Ashley, president of Retail Ventures.

Build-A-Bear Workshop

One-of-a-kind, build-your-own teddy bear retailer targeting children of all ages.
Founder and Chief Executive Bear: Maxine Clark.
Founded and based in St. Louis in 1997.
Thirty-nine mall stores in 22 states; more than 250 planned nationwide by 2007. Also sells via Web. Stores average 3,000 square feet.
1999 sales: Approaching $20 million.

Fashion and fragrance were not the only issues on executives’ minds when we asked them to identify their favorite retailers. Some talked about teddy bears.

“I love Build-A-Bear,” said Barbara Ashley, president of Retail Ventures. “It is totally customized, individualized; the customer is totally engaged by the merchandise.”

Build-A-Bear Workshop, which was founded three years ago by Maxine Clark, formerly president of Payless ShoeSource, is now in 39 locations nationwide. Customers assemble a wide variety of bears, from small ones costing $12 to big versions for $60 or so, and they also receive various accessories, such as bear condos. Its appeal by no means is confined to children, according to Ashley: Children and adults in cities and the suburbs are equally enchanted by the concept.

“It’s so clever and it’s so cute,” Ashley said.

Stephen King (not the horror story writer but vice president of leasing at North Hills Mall in North Richland Hills, Texas) also has a professional soft spot for the bears.

“It’s completely different,” he said, praising the ingenuity of a retailer that sends birthday cards on the anniversary of each bear’s purchase, and invites customers to bring their bears back to the store for a free “spa day” refurbishment. “Build-A-Bear is a great new retail concept.”

All Build-A-Bear Workshops are located in malls. The company likes to be in heavily trafficked locations, preferably near other children’s stores, at malls that are big on community activities, with average sales of about $500 per square foot. Sales at Build-A-Bear exceed $700 a square foot.

The company is facing an important anniversary: In 2003 teddy bears will be 100 years old. In 1903 President Theodore Roosevelt spared the life of a bear cub on a hunting trip, an act that immediately captured the popular imagination and launched the name, “Teddy” bear.

Wizards of the Coast

Games and entertainment.
Headquarters: Renton, Wash.
Founder and CEO: Peter Adkison.
First game center opened in 1997.
Eighteen stores now, with plans to open 25 more by end of year. Company also owns The Game Keeper Inc., a game retailer. Square footage ranges from 2,500 to 3,000.

Jillian's

Food and entertainment.
President and CEO: Dan Smith.
Headquarters: Louisville, Ky.
First one opened in Boston in 1988.
Operates 35 food and games entertainment venues in 20 states. Plans to open six to eight of them in next year. New locations range from 40,000 to 75,000 square feet.

Entertainment tenants are scoring high with retail executives and mall operators. At press time, Stephen King, vice president of leasing at North Hills Mall in North Richland Hills, Texas, was negotiating to bring Jillian’s to his mall, with its 14-lane bowling alleys lit with “black” lights; virtual reality games; hibachi grills; billiards lounges; and live music, dancing and restaurants. The family entertainment centers claim to offer something for all age groups, at least until 7 p.m.; after that they are only open to people aged 18 or over and, of course, only serve drinks to those older than 21. More than 90% of its customer base is in the 21 to 44 age group, 65% of whom are single.

“It gives people another reason to come to your mall,” King said, noting that while you can shop for apparel on the Internet, you can’t eat, drink or dance there.

While the company focused on downtown locations during its first 10 years, it now is expanding into suburban malls.

So keen is he on mall entertainment, King said he hopes also to get Wizards of the Coast, a game-playing chain owned by Hasbro Inc., which created the popular Pokémon trading cards. Wizards of the Coast allows people to play and purchase games at its stores, and also offers a range of computer-networked competitive activities to indulge fans on and off the premises.

Tenants like this help a mall differentiate itself from its competitors, King said.

“They’re appealing to us, because they’re not just another piece of apparel or jewelry,” he added. “Retail is a bit stale.”

Entertainment tenants that attract families could be the mall anchors of tomorrow, agreed Christopher C. LeTourneur, a senior consultant and town planner for Thomas Consultants Inc., a retail development strategy firm based in Vancouver, B.C. A favorite of his in this category is The Zone, a Vancouver-based entertainment center that offers bowling and a brewpub restaurant. It is planning to make its U.S. debut at The Mills Corp.’s The Block at Orange, in Orange, Calif.

“It almost feels like a nightclub for families,” LeTourneur said.

CB2:
One test store open so far. Number and size of future stores not finalized at deadline.

Elm Street (Pottery Barn):
2002 launch date for stores, online and catalog formats.

In the “most promising” category of hot retailers, several retail and development professionals listed home furnishings stores. In particular, new “down-scale” formats introduced by Crate & Barrel (CB2) and Pottery Barn (Elm Street) are getting their attention.

“Those have enormous potential,” said Barbara Ashley, president of Retail Ventures. “It is possible to offer great style at affordable prices” — something that, as yet, has not been done, she added.

The first CB2 store opened at a freestanding location in Chicago this year, but while the company is “looking around” for new locations, there are no “firm plans” yet, according to Bette Kahn, a spokeswoman for Crate & Barrel.

When Elm Street is launched in 2002, it will likely cause some fallout in the home furnishings sector, because there already is so much competition there, opined Robert D. Riedy, CLS, vice president at The Rouse Co., Columbia, Md. He characterized the lower-priced Elm Street, which will sell through showrooms, catalogs and on the Internet, as the home furnishings equivalent of Old Navy.

“That could be very interesting, because that category continues to be an important one,” he noted.

Consumers spent $77 billion in U.S. stores on home furnishings last year, a 51% increase over 1989, according to the U.S. Commerce Department.

And what can parents buy with all the money they save shopping for adult furniture in off-price home furnishings offshoots? Fancy kids furniture, of course. Furnishings for young people have become a lucrative area, executives say, with new lines in children’s furnishings being launched by Pottery Barn (Pottery Barn Kids) and Ethan Allen (E.A. Kids), among others.

At press time Pottery Barn Kids, launched in January 1999 as a catalog retailer, was building a store at Rouse’s Park Meadows, in Littleton, Colo., reported Robert D. Riedy, CLS, vice president at The Rouse Co. The retailer, which sells a range of furnishings, from desks to draperies to love seats, opened its first showroom in September at South Coast Plaza in Costa Mesa, Calif., and plans to have a half dozen or so open by the spring.

Ethan Allen’s line of children’s furniture, ranging from computer and homework stations to beds with bookcases built into the headboards, arrived in stores in June 1999. Some of the products also can be obtained over the Internet, but Ethan Allen has not set up separate stores or a catalog to sell its children’s furniture.

“Ethan Allen has a niche,” said Faith Hope Consolo, vice chairman of Garrick-Aug Worldwide, describing junior furnishings as the fastest-growing retail segment. “They have been able to keep their customers even while upgrading their looks.”

Another newcomer, nmchild is a catalog being put out by Neiman-Marcus, featuring clothing, furniture and accessories for youngsters.

Gadzooks

Mall based specialty retailer of casual apparel and accessories for people age 14 to 18.
Headquarters: Carrollton, Texas.
Chairman, president and CEO: Gerald Szczepanski.
Founded in 1983.
Operates 338 stores in metropolitan and middle markets in 33 states. Plans to open another 50 by end of year.
Average stores to be increased from 2,300 square feet to 2,700 square feet. Revenues for fiscal year ended Jan. 29, 2000: $241.6 million.

Hot Topic

Mall- and Web-based purveyor of rock music-themed clothes, accessories and jewelry.
Headquarters: City of Industry, Calif.
Founded by CEO Orv Madden in 1988; publicly traded.
More than 270 stores scheduled to be open across the country by end of year. Opening 60 more in 2001. Stores range from 1,500 to 2,000 square feet.

Hollister Co. (Abercrombie & Fitch):
West Coast lifestyle brand targeting high-school youths.
Abercrombie’s headquarters: Reynoldsburg, Ohio.
First store opened in Easton Town Center, Columbus, Ohio, in July; total of five open at press time, all in malls.

“The kids’ field is exploding these days,” said Robert D. Riedy, CLS, vice president at The Rouse Co., Columbia, Md. Teen fashion also is “on fire,” he added, what with the growth shown by such youth clothing stores as Hot Topic and Gadzooks.

Newcomers to the field include Abercrombie & Fitch’s recently launched West Coast-style Hollister Co. stores, offering “surf and skate” style clothing. While the company is staying mum about the store — its media relations staff claimed not even to know how many of the stores were open at press time — Abercrombie’s Chairman Mike Jeffries has been quoted saying that, if the test proves successful, Hollister could grow into a chain of up to 800 stores.

There were 38.3 million young consumers in 1998, and that number is expected to peak at 41.8 million in 2007, Dennis C. Van Zelfden, senior vice president and retail analyst for Robinson Humphrey Company LLC, an Atlanta investment banking firm and brokerage firm, told Reuters recently. These children of the baby boomers spent an estimated $153 billion in 1999, with as much as 40% of that, or more than $61 billion, going to apparel, Van Zelfden said.

Two relatively new stores with youth appeal have made it onto the list of current retail favorites kept by Christopher C. LeTourneur, a senior consultant and town planner for Thomas Consultants Inc. Seattle-based Tommy Bahama, which manufactures a line of casual clothing that used to be sold in other stores, is now setting up its own stores and selling on the Internet.

“Their whole idea of the resort beach style lifestyle is a theme,” said LeTourneur, noting the company’s logo, “Life is One Long Weekend.”

Skechers, which again used to sell footwear through other stores, is now a store, a catalog and a Web site.

“They don’t mind where you make the purchase — online, catalog or in store — so long as their product gets out there,” LeTourneur noted.

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