The Reincarnation of Traditional Malls

NEW YORK—For the past decade, the question of regional malls falling to the wayside has been a great concern for owners and retailers. Even this summer, GlobeSt.com published a bold statement from North American Properties that said, “Malls are giving way to hot retail  and restaurant concepts in urban mixed-use locations with strong walkability.” The firm’s managing partner, Mark Toro, said, “Nationally, consumers are shifting away from traditional malls and seeking a unique experience… This is what the new-class of consumer is demanding and retailers are listening.”

As proof, NAP pointed to its $600-million mixed-use Avalon in Alpharetta, GA, which had attracted more than 10 first-to-market retailers and restaurants and major retailers also relocated to the new mixed-use development.

But many sources say the notion of the American mall being dead is an overstatement. Irvine, CA-based Scott Hook, an EVP at Coldwell Banker Commercial Alliance, notes that the traditional mall is not going away any time soon. “While the dynamics of what we have come to expect from malls may be changing, this is still a viable component of the overall retail sector.”

Hook adds, “There are those that argue consumers have moved on from shopping at the mall in favor of online purchasing—the naysayers who claim it is just more convenient to place an order on Amazon.com or that the outdated post-Thanksgiving Black Friday has given way to the more popular Cyber Monday. But visit most malls on any weekend or during the holiday season and you’ll see firsthand that its demise has been greatly exaggerated—the classic mall is just in a transition period.”

In a recent video interview GlobeSt.com conducted with Joseph Coradino, the president and CEO of PREIT, seconded Hook’s point and called the notion almost silly. In terms of the transformation taking place, he says, it is to “improve the mall…to take it from a pure shopping venue to more of an experiential venue including restaurants, entertainment and internet experiences.” PREIT, for example, is looking at the mall as all of the aspects where people can shop, dine, be entertained and socialize. “The mall is becoming much more.”

Much like the fabled phoenix, malls will continue to survive so long as they are “reborn” with uses that are relevant and resonate with a discriminating public, agrees Los Angeles-based Derrick Moore, principal of urban retail properties at Avison Young. Like Coradino, Moore says to “look for malls to anchor themselves with food-related anchors—restaurants and specialty markets—as the public continues the trend toward healthier selections and increased entertainment in the culinary spaces.”

Foodies are everywhere, Moore observes, and “in order to remain relevant, malls will need to upgrade their food courts and full-service selections with trendier and more exciting restaurant concepts. Celebrity chefs and some of the successful food truck concepts may see an increase in offers from mall owners as well.”

A few essential factors for regional malls are the demographic make-up, the population density, trade area competition and the strength and performance of the specific mall anchors, explains Don MacLellan, senior managing partner of Faris Lee Investments. “The advent of big box, discount-oriented community centers has taken a significant market share from the older, middle-market department store anchors such as SearsJCPenney, etc. The strongest-performing regional malls are either in more affluent trade areas with higher disposable incomes or are the dominant malls in the secondary market locations.”

Population density plays a big part when it comes to malls in secondary locations, MacLennan adds. “In these secondary trade areas is that there is only demand for one regional mall, leaving the others forced to morph into alternative uses.”

Another issue that has kept troubled mall property owners up at night is the fact that typically the department store anchor tenants have control rights, MacLennan relates. Historically, anchor tenants, such as Sears, owned their real estate. “Without the cooperation of these large department stores, it is often times very difficult and costly to gain their approvals for any extensive redevelopment plan.”

The next several years will not be without its challenges, agrees Orange County, CA-based Charles E. Fancher Jr., principal director of Fancher Partners LLC and CEO of Mall Business LLC. He says, “It will be challenging times ahead for the class-B and -C mall owner who does not have the leverage and capacity of a Westfield or Simon scale operator. Average tenant space requirements are declining in size as the retailer chases efficiency. As department stores go dark, or landlords proactively take back unproductive anchors, the proactive mall owner needs to devise ‘contract and curate’ strategies in order to maintain or build value in their properties… Enclosed mall concourses may need to convert to open-air settings.”

Irvine, CA-based Howard Wong, director of retail leasing at Passco Cos., says if the mall is in a great location, then it just needs to be transformed and geared toward the dominant demographic to thrive. “The malls built in the ’60’s, ’70s and ’80s were geared towards the Baby-Boomer generation. These malls no longer function today, since the largest group of consumers, the Millennials, has now surpassed the Baby Boomers in size. They do not want to drive long distances, which is standard for traditional malls that were seen as a destination, and were originally developed based on the growth of the suburban communities.”

The Millennials, Wong adds, are diverse. “They are tech-savvy, and are certainly buying online, but they do still find value in seeing and touching a product in person. Malls have the opportunity to create an enhanced gathering space for this generation.”

At the recent ICSC Western Division conference in October, Kemper Freeman, president and partner of Bellevue Square Managers Inc. pointed out that bricks-and-mortar retailers need to “provide the customer with a great, emotionally fulfilling experience, and Berkes added, “People are still social creatures. You must create some place people want to go, with ample parking, that’s clean, exciting and different. Pick retailers that embrace that. Be a differentiated shopping experience; you can’t be a commodity anymore.”

Despite the continued growth of online retailers, “which are convenient for item-specific purchases, the shopping mall will never truly die,” says Joseph Kelleher, president of Simone Metro Properties. Simone Metro just opened a new, 285,000-square-foot Target-anchored shopping mall in the East Bronx, NY.

“There will always be those who enjoy the total shopping experience,” he adds. “We continue to see emerging markets nationally that are considerably underserved by brick-and-mortar retailers.”

Some malls are simply updating interiors to mimic the feel of the outdoors without significantly altering a building’s design and without losing any of the comfort of being indoors. SunCentral, for example, revealed in October that it would install 36 SunBeamers at the Westfield Santa Anita shopping center in Arcadia, CA to distribute natural sunlight throughout the enclosed three-story mall. “Because they are so versatile, SunBeamers are a perfect way for malls like Westfield to update their interior design using something as simple and stunning as beams of natural sunlight,” notes Guthrie Cox, CEO of SunCentral.

According to Ramon Oseguera, general manager of Westfield Santa Anita, “We already have a beautiful outdoor promenade, but we were looking for a way to bring some of that natural open-air beauty inside that mirrored the feel of modern outdoor shopping malls.”

Another concept brought to malls that is helping customers linger is electric-vehicle charging stations, which have cropped up in Southern California centers recently. Retail real estate firm Simon Property Group’s VP of operational efficiency Ron Hanson recently told GlobeSt.com that customers with electric vehicles spend significantly more time at the malls than the average customer without an electric vehicle.

“We’ve been monitoring the length of time for the typical vehicle to charge at our stations and comparing that time with the average amount of time a typical customer spends at a mall,” said Hanson. “Customers with electric vehicles spend 50% more time at the malls. It’s advantageous for our retailers to have them in their stores for that time.”

Hanson added that this trend has been consistent in malls across the country. The average charge time is roughly 90 minutes as compared to the average shopping time of 60 minutes for a non-electric-vehicle customer. “It can vary from one mall to another and how much charge the vehicle has left when the customer arrives, but so far trends are indicating extended shopping time.”

Jim Lynch, retail practice leader for RiverRock Real Estate Group, tells GlobeSt.com that “although the traditional mall is changing—mostly due to the internet and changing demographics—I do not see it going away. ‘Going to the mall’ has been and continues to be an important part of our social structure. This is even more important now that we spend so much time disengaged from real people. Retailers may be downsizing and using their brick-and-mortar stores more as showrooms for goods that can be ordered online, but the mall will continue to be a place for people to gather with each other.”

So, despite the negative chatter, the classic suburban mall is very much alive and in fact, will likely never die, says Hook. “Even as online commerce grows year after year, consumers still need the personal touch and human interaction that you can only get from the traditional family trip to the local mall.” 

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