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Demographic changes pose new challenge for center management

By Kevin Kenyon

When the owners of Montebello (Calif.) Town Center decided to use multilingual (English, Spanish and Chinese) signage a few years back, they did so with every intention of appealing to its rapidly changing ethnic market.

But instead of having the desired effect, the move backfired, alienating nearly every ethnic group that wasn't included by inadvertently telling them "this mall isn't meant for you."

Examples such as these are becoming more and more common nationwide, as developers strive to meet the challenges of appealing to diverse markets.

Dealing with such diversity is no easy proposition, said Thomas Schriber, president
of Newport Beach, Calif.-based Donahue Schriber, the center's owner.

He noted that over the years his company, widely recognized as a trailblazer in dealing with ethnic consumers, has learned from its mistakes, including the signage problem.

"Unless you can cover all of the spectrum, I wouldn't recommend it, because -- for example -- if you use English, Spanish, and Japanese, you offend the Korean customer," he explained. "Now we're trying to generically use English and then focus our advertising on radio stations and newsprint in the respective languages."

If the sweeping projections of change ring true, some believe the shopping center industry may be forced to adjust practices that have been followed for the last 20 to 30 years, from leasing and marketing, to the ethnic makeup of its board rooms and corporate offices.

The face of the nation is changing -- and the shopping center industry had better be ready to change with it, experts say.

According to Census Bureau statistics, the United States population is currently 73.6% Caucasian, 12% black, 10.2% Latino and 3.3% Asian.

However, by the year 2050, whites will barely be in the majority. The United States is projected to be 52.8% white, 24.5% Latino, 13.6% black and 8.2% Asian, due to shifting birth rates and rises in immigration.

Although the year 2050 may seem like light years away, a growing number of developers are discovering that the future is now. In some parts of the country, shifts like these are already a reality, rendering the term "minority" a thing of the past.

These shifts are perhaps no more evident than in California, where developers have been learning to cope with change for years.

Donahue Schriber applied lessons learned from Montebello at its Glendale Galleria. The 1.4 million-square-foot center is located in a trade area that boasts 17 Asian language and/or dialects, with a large population of Filipino, Korean, Japanese and Chinese consumers. The Glendale school district alone boasts some 52 languages, proving that the city is a true "melting pot," Mr. Schriber said.

"We've found that there is not one way of dealing with the change," he said. "It's new to all of us in the industry, but we feel the key is to stay on top of the change and be as knowledgeable as possible."

It also can be difficult, he added, to convince national retailers that adjustments need to be made upon entering the California market.

"A lot of times retailers are not based in areas that are affected by it, so they don't live with it day in and day out," he said. "Fragmentation is so difficult for retailers that many aren't paying particular attention to it or haven't addressed it to the level they should."

At Glendale, however, Mr. Schriber said independent retailers such as Jimmy Au, which targets Asian men with small sizing in mens' suits, and Carraz, a finer women's store that caters to Middle Eastern women, help fill the gap, but "quality niche retailers like these are hard to find."

Some national retailers have also learned how to cross the cultural barrier, including: JC Penney, The Gap, Miller's Outpost and KayBee Toys, Mr. Schriber noted.

One of the most important things developers can do to address rapidly shifting demographics is keep monitoring the change, he added.

This includes conducting exit surveys, holding focus groups in foreign languages, using micromarketing techniques, hiring from the market and training at all levels in cultural diversity.

Glendale's 1997 shopper intercept survey, for example, revealed that 19% of respondents were of Asian race/ethnicity, vs. 12.5% in 1995, and that those shoppers spend $100 on average per visit -- nearly 70% more than the $59 national average for all shoppers.

"I don't think there's any question that developers should be closely following these changes," said Nina J. Gruen, a principal at Gruen Gruen & Associates, a San Francisco-based demographic and social research firm. "In fact, they won't be around too long if they continue to ignore it."

While there's no denying that change is on the way, there is some debate as to whether drastic steps need to be taken in reaction to the trend.

It might be a mistake, for instance, to turn regional malls into niche centers, according to Edith Weiner, a noted futurist who is president of Weiner, Edrich, Brown, a New York-based trend analysis firm.

"One of the reasons that a lot of shopping centers in the United States are destination points for travelers is that they provide a mix of products that is already eclectic -- it picks up from the world -- and they should continue to cater to a global market," she said.

Drastic changes, if not approached in the right manner, could alienate current customers, including ethnic consumers, she added.

To illustrate her point, Ms. Weiner explained that her husband, who is an inner city teacher, recently discovered that many of his predominantly black and Hispanic students consider an upscale bridal magazine as their bible, mainly because it's similar to reading a harlequin romance, even though the magazine doesn't cater to ethnic readers.

"The point is if the magazine were to recognize its readership, it would make an absolute disastrous mistake, because it would lose its current readership, and the readership that dreams of having a lavish wedding one day," she explained.

Instead, radical changes may be better suited for strip and community centers, because they cater more to local markets, she added.

But while there may be some debate as to how, when and if the retail industry should react to these changes, one thing is certain -- a move towards a multicultural society will have major implications for the entire industry.

A recent study conducted by Ernst & Young, Los Angeles, concluded that record levels of U.S. immigration in the '90s -- the highest of any decade this century -- will present significant opportunities and risks for all sectors of the real estate industry, including retail.

"Companies and businesses in the real estate industry who ignore these immigration trends would be making a strategic mistake," said Stan Ross, vice chairman of Ernst & Young LLP. "Conversely, those who know how to capitalize on these trends could capture a larger market share and gain a competitive edge."

Mr. Ross, who described the immigration figures as "wake-up call with a very loud alarm clock ring for the real estate industry," said that developers can start by analyzing the makeup of their own organizations.

"What we're seeing is the retail pieces emerging in terms of ethnic-driven businesses, and you need to have someone on your staff who is able to identify these types of companies if you're going to go into these communities," he explained.

The potential impact of these changes on shopping centers, experts say, differs widely based on location, because the population shifts will occur mainly in six states -- California, Texas, Illinois, New York, New Jersey and Florida.

At first glance, six states might not seem like much, but each is a retail powerhouse; all six ranked in the top 10 in total new centers last year, according to the Chicago-based National Research Bureau's 1997 Shopping Center Census, and they accounted for 34% of the total number of centers built nationwide last year.

But the changes are not limited to these states.

According to the Selig Center for Economic Growth at the University of Georgia, some of the fastest-growing minority markets in terms of buying power (black and Hispanic) also include: Nevada, Minnesota, Arizona, Colorado, Wisconsin, Georgia, Delaware, Washington, Utah, Oregon, North Carolina, Maryland and Virginia.

In reaction to ethnic shifts, some developers are taking a proactive approach, including forming strategic alliances, initiating focus groups, offering diversity training and adjusting marketing strategies.

But for an industry that has historically catered toward the Caucasian female between 25-50, however, that can be easier said than done. And many are finding that the issue is more complicated than meets the eye.

At University Towne Center, TrizecHahn Centers' 1 million-square foot center in its hometown of San Diego, officials are making every effort to accommodate an expanding Hispanic market, according to Margaret Stephens, marketing director.

That includes, among other initiatives, providing security officers with nametags that detail the second language that they speak, and offering the mall's directory in English and Spanish.

In addition, the mall's customer service center boasts a language bank that maintains a list of tenants whose staff can speak various languages, in case such problems arise, Ms. Stephens said.

The mall's recent $12 million remodel, which included the addition of three interactive fountains and a children's play area, should also help, considering that the Hispanic market usually includes a large percentage of family households, she said.

The mall keeps a close eye on the market through intercept surveys, she added.

"It's very important to monitor cultural change, because if your customer is changing, you need to shift not only your marketing but your customer service and your retail mix if you want to thrive in the marketplace," Ms. Stephens said.

Some developers are also finding that overcoming perceptions and biases can be the most difficult hurdle in a rapidly changing market.

Such was the case at Lincoln Mall, a 1.1 million-square-foot center in Matteson, Ill., which was featured on "60 Minutes" episode last year that focused on changing demographics.

Once a mall with a predominately Caucasian customer base, the market has changed drastically in recent years to the point where it is now 50% black and 50% white, according to Barbara Nicklas, vice president of marketing for General Growth Properties, Chicago, which manages the center.

"The biggest challenge has been changing the perception of the community, the retailers, and the customers," she explained. "We discovered that blacks and whites really want the same things, but there were nuances that had to be addressed."

That process involved talking with retailers and getting them to adjust their merchandise mix, including offering a wider variety of sizes and colors, she added.

The dynamics of the new market was also reflected through the mall's specialty leasing program, which brought in various retailers from the local community, such as a merchant who sells heritage art.

But while mall officials have taken the approach that it's not their job to change the biases of the community, Ms. Nicklas said they do promote bringing the two groups together through the various events they sponsor, one of which is a diversity training program that will bring together employees, retailers and the community."

"When people have biases and stereotypes they always talk about the 'we' and the 'they,' she explained. "But once you start putting a face to the 'they' and a name to the 'they,' it becomes personal, and that's what we're hoping to accomplish."

GGP officials have also stressed the value of having a business at Lincoln Mall to potential retailers, showing them that they can benefit from the preponderance of professional African-Americans in the market.

"We've adjusted our leasing materials to show the opportunities of coming to Lincoln; that yes, we may have a customer base that is half black and half white, but we also have an opportunity for you, the retailer, to do business in this mall," Ms. Nicklas said.

Looking ahead, Ms. Nicklas added that GGP is taking steps to partner with universities in an effort to educate people of all ethnic backgrounds, and is looking to do more of the same through its Mall 2001 future initiative, which focuses on who the customers and employees will be in the new millennium.

"All of us in marketing, all of us in business, no matter what the business may be, are going to have to grab hold of this and understand how our customers are changing."

In the eyes of Mike McCarty, senior vice president for Simon DeBartolo Group, Indianapolis, the first step for developers in dealing with change is to understand who their customer is today.

"I suspect therein lies the greatest challenge for us as landlords," he explained. "If you think your market is changing, it's even more important to know who your market is today -- otherwise how would you know if it's changing?"

Because Mr. McCarty believes these changes will not happen nationwide, he emphasized that not all markets will face this challenge.

But in markets where change is anticipated, a number of factors put developers in a difficult situation, he added.

"The easiest thing to do is change your marketing strategy. But changing your tenant mix is a bit tricky, because you may not be able to do anything radical for a number of years, unless you're willing to spend a lot of money to buy out leases," he said, adding that once you get beyond two to three years forecasting can be difficult.

One way that developers can stay ahead of the game, however, is by conducting consumer research on a routine basis. Mr. McCarty said Simon officials do so as often as possible, which can be difficult considering its portfolio boasts well over 200 centers, he added.

An equal challenge facing landlords, according to Mr. McCarty, is that the people making most of the decisions often don't match the profile of some of the emerging ethnic groups.

"While our customers are not homogenous, pretty much the management, marketing and leasing of those shopping centers are homogenous -- they're used to leasing to typical consumers in typical shopping centers -- that's what they've done for the last 20-30 years."

Consequently, Mr. McCarty believes that diversity is important not only in marketing and leasing, but in terms of who is making those decisions. "Diversity is important inside and out if you want to have the ability to relate to your customer," he said.

So while opinions may differ when it comes to how the shopping center industry should react to these expected shifts, all factors suggest that rapid change is on the way. For some, that change has already arrived, and there's growing sentiment that how those retail enterprises react could determine their survival.

"If you don't embrace the ethnic changes, and really understand them," Mr. Schriber warned, "you're missing a huge opportunity."