Retail Traffic

Lakewood Center: Perennial 'Cash Cow'

WHEN LAKEWOOD CENTER opened in the early 1950s, the town of Lakewood, Calif., itself was new, one of the earlier postwar suburbs that eventually came to dominate the American landscape. The man who developed the community also developed the mall, which unlike most later shopping centers was planned specifically to serve as the core of the new city's downtown. More than 100 surrounding acres were left undeveloped to accommodate future retail and commercial needs.

When it opened, the property was entirely open-air, with several separate structures facing one another across an outdoor plaza and shops facing both the plaza and the parking lots at the rear. Shy of 600,000 sq. ft., it was small by today's standards though not by those of the time.

Lakewood originally had only one anchor, a 350,000 sq. ft. May Company department store that remains in place today. The single-anchor arrangement reflected typical '50s thinking, says Mace Siegel, chairman of The Macerich Co., Santa Monica, Calif., which has owned the property since 1975. "Department stores didn't want competition back then. They wouldn't let you bring in a rival," he explains.

As for the store's large size, Siegel says that too was characteristic of the time. Most retailers assumed stores needed to be as big as their preceding downtown counterparts. Today, he remarks, May uses only two-thirds of the space in its Lakewood building, having closed off the rest.

May's placement in the center also seems odd by today's standards. It was in line with the one row of shops with nothing across from it. The retailer wanted to be visible from as many sides as possible, plus it wanted a parking and drop-off plaza in the front.

The drawback to the single-anchor approach, Siegel points out, is that it fosters construction of many more malls, one for each department store chain, and the properties tend to limit one another's sales potential. May Company eventually did allow Bullock's to build a 250,000 sq. ft. store on a site away from the shopping center proper, he adds. Unfortunately, because Bullock's tended to serve a higher-end clientele than the other stores, there was little in the way of crossover shopping.

Competition prompts changes Over time, both May Company and mall management realized that when it comes to department stores, more truly is better. In the 1960s, JCPenney opened, enclosing the project's southern exposure. In the mid-1970s, Montgomery Ward built a store to enclose the northern exposure, giving the center a box-like configuration.

Business, however, had begun to decline due to the opening of a more up-to-date mall three miles away in Cerritos. By the time that Macerich took over the property in '75, Siegel says, shop sales had fallen about 50%, although May and JCPenney continued to prosper.

Immediately after coming in, he relates, the company began making plans to enclose the mall. In the process, Macerich added 35,000 sq. ft. of shop space directly opposite May and another 15,000 sq. ft. in the breaks between structures. It also installed 18 kiosks.

"It originally had seven or eight points of entry," Siegel says. "That made it very easy for shoppers to come to one store and skip almost all the others."

The work was finished in '78 and over the next 24 months, sales at the mall stores doubled, he says. In '81, the mall was expanded again, and in '95, it underwent a complete renovation to give it a more contemporary look. During that 14-year period, other construction also occurred. Mervyn's had a store built and, following Macy's closure of the Bullock's chain, the building was torn down and replaced by a Home Depot and Lucky supermarket with a total of 160,000 sq. ft. The change proved profitable.

"Bullock's was doing $17 million in annual sales in 250,000 sq. ft. Between them, Home Depot and Lucky are doing three times that much in two-thirds the space," Siegel reports.

Restaurant pads also were added over the years, to the point that restaurant business totals about $40 million annually. In addition, at various points Robinsons, Circuit City and Best Buy were added, and Siegel says he foresees bringing in still one more department store. Pacific Theaters expanded from two screens to four and now is in the process of building a new, 100,000 sq. ft. multi-screen cinema. Lakewood Center currently has about 1.75 million sq. ft. of space.

Because of the size of the original parcel reserved for the center, Macerich has not had to build parking garages. All parking is at grade. However, Siegel anticipates continued growth that, at some point, will make deck parking necessary. Fortunately, he says, the property is in an official city redevelopment zone, and the city likely would underwrite the costs if a garage were built.

In general, says Siegel, Lakewood Center has become the city's downtown, just as it was intended to be. Rather than being a single monolithic site, the property is divided into blocks by transecting streets. The tenants represent a cross-section of mall, power center and community center retailers. "It's been a constant evolution," he comments. "We're always responding to the needs of the surrounding community. As those change, Lakewood Center changes."

Yet for all the change, the tenant roster has been surprisingly stable. "We have many of the tenants who were in place in 1975 when we bought Lakewood. Some of them, like the May Company, have been here since the beginning nearly 50 years ago. That's very rare," says Siegel.

Another constant has been profitability. In fact, Siegel calls Lakewood "a real cash cow." The extent of its profitability to some degree can be traced to the manner in which Macerich acquired the property. The original 1975 transaction involved only the operating position, which it bought from the previous operator for $3.5 million. Prudential Insurance Co. owned the property and U.S. Realty held the leasehold.

Macerich, in partnership with Provident Loan, eventually bought out the insurance company. Later it bought the leasehold. All in all, says Siegel, the company spent about $50 million for acquisition. In '93, Macerich bought out Provident. The value at the time, he notes, was $165 million. He estimates that today it is worth substantially more than $200 million.

"Lakewood continues to grow and throw off an incredible cash flow. It's an incredible money machine," says Siegel. "If there were more deals like Lakewood, it would be a very easy business."

* Location: Lakewood, Calif.

* Owner: Macerich Co., Santa Monica, Calif.

* Opening: October 1951

* Trade area population: 624,338 within five-mile radius

* Average household income: $53,818

* Current GLA: 1.8 million sq. ft.

* Number of stores: 244

* Current anchors: JCPenney, Mervyn's, Montgomery Ward, Robinsons-May

* Original anchors: May Company

* Fun fact: Lakewood Center was conceived in 1948-49 by the late Joe Eichenbaum, the original developer, along with Ben Weingart to be a new type of downtown for the planned community of Lakewood.

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