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WINDS OF CHANGE

With fewer funds to go around, marketing directors are rethinking traditional methods of driving traffic to retail centers

By Joel Groover

Has shopping center marketing had its day? The shrinking of cooperative-marketing funds, which landlords and tenants use to help drive mall traffic, might lead one to conclude that the answer is yes. This dwindling of these funds began in the late 1990s, and the trend has been gradually accelerating at many centers ever since.

According to one shopping center marketing professional, who asked not to be identified, typical budgets for regional malls in major markets ranged from $500,000 to $1 million per year in the late 1980s and early 1990s, the heyday of mall marketing. Universally, today’s funds have been slashed by up to 50 percent, this professional says.

“Landlords are still paying their required amount per their leases, I am sure, but have cut added contributions for both implementation and salaries,” the marketer said. “Retailers are also less willing to pay in than ever before.”

Dire as such cutbacks may sound, it would be a big mistake to regard them as the death knell of shopping center marketing, says James W. (Wally) Brewster, SCMD, senior vice president of marketing and communications at General Growth Properties. Instead, he says, they reflect the imperative faced by both retailers and developers to be more strategic, flexible and efficient with their marketing dollars.

In part because of increasing competition, Brewster says, retailers and developers alike have become more willing to reexamine the traditional funding formula, in which developers automatically contribute, say, $1 to the fund for every $3 or $4 tenants kick in.

General Growth now focuses on investing in mall marketing as needed — no more, no less — rather than adhering to budgets determined largely by retailer contributions, Brewster says. The changes should be regarded as part of the industry’s evolution toward greater efficiency, he says, not as a devaluation of the business of driving traffic to centers and their tenants.

“People are seeing that marketing is becoming more critical in the context of increased competition,” Brewster said. “So in order to maintain the value of a shopping center or a product, you really need to make sure that you’re spending the right amount of money, and you need to be able to show the return.” The traditional approach to funding, he adds, “is kind of an antiquated model. We’re looking at evolving that.”

The flexibility landlords achieve by forgoing that traditional model may well benefit some centers, says shopping center marketing consultant Rebecca L. Maccardini, SCMD, president of Ann Arbor, Mich.-based RMResources.

“In some cases, you might contribute more than the usual 20 or 25 percent,” Maccardini said. “Maybe you’re redeveloping or rebranding a center. If you need new tenants and really want to make something positive happen, you could make a sizable contribution for a one-year period. It might be the first marketing contribution you’ve made in five years and the only one you’ll make for the next five. The point is that you were able to do what was needed under those special circumstances.”

Certainly, behemoth mall REITs like General Growth can use their considerable financial resources to bolster marketing at properties where retailer contributions have dwindled. And owners of elite triple-A malls who enjoy tremendous leverage in lease negotiations can insist that tenants participate in the marketing fund.

But landlords with a little less weight to throw around could face significant challenges when retailers balk at contributing.

“It always is a problem, because when you have the big department stores, they always say, ‘Well, we advertise, so we don’t need to participate in your co-op promotions,’ and then a lot of the national stores will say the same thing,” said Ian F. Thomas, chairman of Thomas Consultants, a global retail consulting firm based in Vancouver, British Columbia. “You end up with a budget that is conceivably much less than it should be. The poor marketing directors have to scrimp and try to find out what will get the biggest bang for that limited buck.”

At centers where retailer buy-in is just too low to generate a feasible marketing budget, landlords decline to operate a marketing fund at all. Instead, they leave it up to individual tenants to handle their own promotions. Costa Mesa, Calif.-based Donahue Schriber, for example, operates 71 neighborhood, community and power centers in the western United States but actively markets 31 properties (amounting to 8 million square feet of gross leasable area and some 1,200 tenants), says Elizabeth R. Schreiber, SCSM, vice president of asset management. Two marketing directors manage a total of $1.6 million in marketing funds for those properties, she says.

The degree of retailer buy-in is a determining factor in whether Donahue Schriber decides to operate a marketing fund at a given property, Schreiber says. “We’ve had a few centers where we ended up with budgets of $3,500,” she said. “That is just not enough to do something with.”

Unlike the nationals, however, the mom-and-pops at such centers often lack experience in running their own marketing campaigns. To help them, Donahue Schriber makes its marketing team available for close consultations at no cost.

“We’ve always been a firm supporter of marketing and really believe it helps the merchants,” Schreiber said. “But as budgets have gotten smaller, rather than shift our support of marketing, we’ve tried to get more creative.”

An example is the company’s initiative to share marketing costs across multiple properties. “We have centers that are across the street from each other or that occupy three of four corners. In those cases, we pool the marketing dollars and market them as a group,” Schreiber said. “Getting the merchants to buy in is never a problem, because we can say, ‘Look, instead of a distribution of 20,000 [households], we can do 35,000.’ ”

The same competitive forces that have transformed marketing funds are also significantly changing the role of shopping center marketing directors, marketing pros say.

“The marketing director’s sole responsibility used to be to drive traffic, and thus boost sales, which meant an increase in rent or percentage rent,” Maccardini said. “So they were one step removed from creating the money. They still do that. But now they also create direct, bottom-line revenue by generating sponsorship and partnership dollars, temporary tenant dollars and other kinds of nontraditional income.”

They are also collaborating more closely than ever with leasing and development executives to make sure the mall itself, and not just its marketing programs, captivates consumers, says Judi A. Lapin, president of Costa Mesa-based Lapin Consulting Group. Additional duties include serving as the gatekeepers for increasingly sophisticated consumer data and demographics, and demonstrating return on investment by tracking results with ever-more-scientific precision.

And as the mall-as-medium concept gathers steam, marketing pros will tackle new challenges, Lapin says. These include the tricky logistics of all those flat-screen TVs flashing sponsors’ logos and ways to send messages to shoppers’ bewildering array of techno-gadgets.

With apologies to Mark Twain, in other words, any reports of the death of mall marketing have been greatly exaggerated.

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