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CenterBuild Roundtable

SCW: James Heller, half of the enclosed malls opening in the U.S. in 1999 were designed by KA Inc. Architecture. What do you think was the big story during '99 in the shopping center industry and why?

James Heller: From our viewpoint, a big change is the way department stores now permit certain design changes. In the past, they controlled the design of the centers. But in each of the centers that we were involved in during 1999, we broke rules that five or 10 years ago the department stores would not have let us break. To us, that was encouraging and dramatic. The department stores we are working with today are encouraging better design and permitting more unique designs to occur.

SCW: You referred to "breaking the rules.' What do you mean exactly?

Heller: There was always a guideline relating to how much parking there should be out in front of the department store and how close other buildings could be. Entrances had to be visible from certain viewpoints, and nothing else could be around them. In some areas, we have moved entrances, eliminated entrances, angled entrances, and we've put parking structures in front of some of these buildings that the department stores wouldn't have permitted before. We've moved them in somewhat more unconventional locations.

SCW: James Ryan, are you seeing similar trends?

James Ryan: It's not so much a trend as a reluctance on the part of department stores to change the way they interface with the mall. We've been doing shopping center design with department stores for more than 30 years, and they're still in the same positions that they've always been in at shopping centers.

Until the developers have more power, or take back the power from some of these department stores, we'll continue to develop shopping centers the way that we've been developing them for the last 30 years.

SCW: David Parrish, how did it evolve that department stores have so much control over design?

David Parrish: How did they get that much power? Simply because there are so few of them. They are what make the deals go. You can't do a shopping center without an anchor, and those retailers know that. They have been very successful at enhancing their position over the years, particularly with lengths of leases. It's the law of supply and demand. The developers need them to attract the small to mid-sized tenants to fill up a center, whether it's a Main Street mall, a power center or whatever.

SCW: What is the average length of a lease today?

Parrish: It used to be a 40-year lease some 30 years ago. That's down to 15 years. For the smaller tenants, it's five to six years. It's just shrinking and squeezing developers more and more, making the deals tighter.

SCW: Couldn't you argue that 10 years today is considered a light year?

David Brotman: Especially regional shopping centers. Regional shopping centers are crapshoots today. While there are regional shopping centers being completed today, they are few and far between. They are the ones that will be successful because they are in the right locations. The future of the regional shopping center business is somewhat questionable.

SCW: However, based on the reports I've read, investors believe those fortress malls are the best long-term investments in the retail sector.

Brotman: In truth there will be those fortress malls that are good, long-term investments. The demographics are such that they are cash cows. They are no-brainers. All we have to do is keep them fresh and keep people coming. The retail industry in our country was based on building malls everywhere: the secondary markets, the tertiary markets. Meanwhile, the Costcos of the world, the outlet centers of the world are doing just phenomenally. They just opened an outlet center in my neighborhood that has an REI, a Barnes & Noble, Pier 1, Trader Joe's and an Old Navy. That's the whole center. You can't get a car into that center, it's packed. It's not enclosed and it's well-designed. That's where people are shopping today.

Ryan: We have what we know to be the typical four or five large players as the classic department stores. But it's taken on a different meaning with the value center approach. A department store now is 40,000 sq. ft. instead of 200,000 sq. ft. There are fewer players. From the architect's perspective maybe that's good, maybe they will come out of the box a little more and evaluate how they interface. There are many competing forces at their feet. The way department stores analyze their customer has to be taken into a completely different context today. I think that in the next five to eight years - maybe even sooner - they should be looking at a different way to do business.

Brotman: I.m old enough to remember going downtown with my parents to shop in Baltimore in the winter when it was cold and icy; it was a dirty city. You had to find a place to park. There were bag ladies in the street. It wasn't a nice place to go, and then Jim Rouse went and built Harundale Mall and it was great because it was hermetically sealed. You could take your coat off. The mall had fountains. You didn't have to pay for parking. It was so great that we killed the goose that laid the golden egg. We built a mall on every block. We had all these national tenants that decided that their brand was so important to them that they were going to build exactly the same store in every one of these shopping centers. Every mall looked alike because every tenant had the same look. So now 35 or 40 years later somebody decided to go back and renovate Main Street and create that serendipity. And now those same national tenants are adding to the richness of Main Street by adjusting to the old storefronts. The current generation that never really shopped Main Street says, "It's so unique and so quaint, I want to go downtown to shop.' And it's just come full circle. We'll kill that too.

Everett Hatcher: Some of the centers we're doing are anchorless in the traditional sense. It's a powerful direction from the standpoint of developers because they don't have to deal with the issues department stores present. And tenants don't have to deal with the high cost of CAM charges. These anchorless lifestyle centers have all the same 200,000 sq. ft. to 300,000 sq. ft. of stores that you would see in a traditional mall. Those retailers are targeting a niche and are doing a great job by providing a unique product and service.

SCW: Everett, since the Avenue East Cobb opened last summer, what has been the public reaction?

Hatcher: We've had a lot of positive response. People are saying, 'We'd like one of these in our community.' When the project was first developed in Atlanta, we went through all the zoning issues - how to integrate ourselves with the surrounding neighborhoods - and a lot of restrictions. As people begin to see what's happening with these centers, you're going to get residential developments embracing these concepts. And rather than putting barriers between living and shopping spaces, hopefully we're going to see these neighborhoods seek better access. Retail hasn't cracked the code to the new urbanism yet. But it's coming in the form of mixed-use projects where residential, office and retail are combined in one project.

Lawrence Beame: We're having similar experiences. One of the big stories for me in '99 is that the retail industry is still alive and doing extremely well. Years ago everyone was talking about being overbuilt, and I guess all of us were a little worried about our futures. What I'm seeing is that our clients, the developers and a lot of the retailers, have made a lot of changes in the way they think. The developers are looking for unique niches and are really answering the demands of communities and filling a need. We're putting some full-line department stores in smaller shopping centers, almost like strip centers. We're seeing tenants that would typically go into enclosed malls go into outdoor centers.

Parrish: It's an interesting time for hybrid types of projects, but it's the TIF (tax-increment financing) that's the bottom line. Cities are jumping on the bandwagon, steering developers toward concepts that maybe the developers are a bit reluctant to do. Some developers are still reluctant about Main Street projects. That's why you're seeing some of these projects that are half power centers and half Main Street projects.

Robert Tindall: In the past, the department stores have always been the advertising drivers for the centers. When you have 1 million sq. ft., you need constant drive to get customers there. But when you do one of these lifestyle centers in the community, with 200,000 sq. ft. to 300,000 sq. ft. of retail, it's a small enough scale. The community embraces it. It becomes a daily stop. It's not such a giant hassle as when you go to the mall. It's a very different environment. They don't particularly have the types of tenants that go out and advertise a lot. It's very localized.

SCW: Mark, the Mall of Georgia is a regional mall but it has some of the same elements, does it not?

Mark Carter: It really begins to expand the merchandise mix to the point where it incorporates some of the things that you've been hearing. It has the traditional fashion array of department stores, but it does plug in the big box value centers. Things like a Haverty's furniture store, a Galyan's sporting goods, a Bed Bath & Beyond. The outdoor lifestyle village portion of the project has been done with themed restaurants, the typical kind of national tenants that you expect to see, a Restoration Hardware, a Pottery Barn. The mall was conceived to be a town center with a diverse mix, and it's beginning to draw all walks of life, all price points from a huge geographical region.

SCW: What did you learn about the Mall of Georgia now that the project is up and running? What's been the public reaction?

Carter: I think people appreciate the architectural vernacular, the gesture that was made to make it a piece of Georgia, to draw from the region. When you back up and look at it, however, you have to conclude that the size is still something enormous. It is unwieldy to a degree. You wonder if the Mall of Georgia would not have been equally or more successful if it were slightly smaller, so that walking distances were a little more human. I think though that the variety and the vitality that's going to be generated is going to be something that people do embrace. I think that as the Mall of Georgia evolves it is going to become part of the region and part of the culture.

SCW: Let's move along to e-commerce. There was a story in the Wall Street Journal a week or so ago detailing one shopping center owner's efforts to prohibit tenants from advertising their websites in store windows. What is the future impact of e-commerce on the shopping center industry?

Brian Tiedge: From what I've read and heard, most people coming up with e-commerce sites are basically retailers that have brick-and-mortar buildings. E-commerce is basically going to supplement that business. Conversely, the numbers I read are showing that people do a lot of searching on the Internet, finding and analyzing the prices and actually going in and making purchases inside the stores. A lot of different types of items are sold in stores, but travel and things like that - where you can't physically go feel what you buy - are widely available on the Internet. The issue of apparel is probably lower on the end, where you are getting into issues of trying things on for sizes. I've heard stories of someday being able to place your foot on the screen as a way of checking your shoe size. I know it sounds nuts now but there is probably going to be something like that. If I were a tenant, I'd be careful as to howlong a lease I would sign, as a precautionary measure.

Brotman: E-Bay has just made a deal with the Mills Corp. to offer shopping sprees online at Mills. Clearly there is a developer who is looking for other ways to attract people to its center by using affiliations with the Internet. Clearly e-commerce and the Internet are taking us somewhat by surprise and this is growing exponentially. The retailers who are going to survive are those who embrace all forms of sales.

Parrish: We're focused on the design of stores. Well, there are people who are focused on the design of websites. The whole cyberspace design field is just like ours. How one navigates a website is just like how one designs and lays out a store.

Tindall: We're all social creatures. Frankly, I'm still one of those people who say this (shopping or surfing on the web) is too damn boring to sit in front of the screen and do for very long. I'll do a little research and sometimes buy something, but it's more of a convenience factor. E-commerce is a way of communicating the products and opportunities that you have.

Heller: Basically, the Internet is the next generation of the catalog. I believe over time, and I don't think it's too many years down the road, the Internet is going to cause some shrinkage in the size of retail that gets built. I think the retailer ends up being more of a showroom for that product.

Brotman: The brick-and-mortar side of the industry is largely controlled by institutions that are not inherently risk-takers, and so you see very little innovation. The days of the Jim Rouses and Mel Simons, who were entrepreneurs and had brilliant ideas and could get the money to test them, are behind us. We don't find that kind of innovation anymore, except in technology. All you need is a dot-com in your name and you can get venture capital. That's where the innovation is going to come from.

SCW: At the end of 1998, SCW research indicated that owners and developers expected e-commerce to grow incrementally, not exponentially. But it hasn't played out that way, has it?

Beame: E-commerce hasn't taken off nearly as much as it's going to take off. For all the kids and baby boomers with computers in their bedrooms, it's a way of life. I have two teenagers. They play on the computer, and when they get tired of it they go to the mall to see their friends, not necessarily to shop. They are comfortable ordering goods and communicating on the Internet. This is a huge group coming into the market, and I don't think we've seen anything yet. I agree that stores are going to shrink in square footage. But the whole social scene is going to remain. The Main Streets, the malls and the shopping centers will remain as places to see people.

SCW: Jim Ryan, your thoughts?

Ryan: We're going to know more about the customer than we ever knew before - how they shop, what their sports are, where they spend every minute of the day - I'm not sure that makes me feel comfortable knowing that my entire lifestyle is on the Internet at somebody's discretion. I think we are in the Gutenberg press stage of the Internet and the whole idea of the website. In a few short years we're going to definitely see a downsizing of stores. I'm going to miss that personal approach of being able to walk in and pick up a Boss shirt and buy it right there.

Carter: Do you think that will really ever go away, though? Think about some of the comments Paco Underhill made in the opening session about the need for romance in the sales process, the ability to sample and try things on and to experiment and play with the merchandise. It's hard to do that on a screen.

Tindall: If you took catalog sales that are now just Internet sales, I'd be curious to know what the real net number is because I don't think the growth is as big. No one talks about that.

James Flajnik: The only items we have bought online have been for the babies: toys, things where you don't need to feel the fabric, where you don't care about the weight. I haven't bought anything else. I don't know if that's a generational thing. I attended a presentation six or seven months ago regarding a study that tracked the incremental increases in sales via the Internet 50% a year, 100% a year. The incremental increases were huge, but when you realize where they are as a starting point, it's like one-fourth of 1% of all retail sales. Even after four our five years with these huge increases, Internet sales are only 1.5% of the total retail. So the message was, 'Don't worry if you are in the conventional world of retail. That's not really going to go away."

Brotman: Listening to this conversation is interesting because it is the same denial that I think a lot of the developers are going through, aside from companies like Simon, which is embracing technology and the need to integrate it into the overall process. I don't think anybody has said that the Internet is going to overtake brick-and-mortar sales. But clearly it is going to affect brick-and-mortar sales. We've all sat around and said that it is going to affect the size of stores. We think. That's the conventional wisdom. I would submit to you that that's probably going to happen. But there are going to be things that you can't even foresee today because the technology is changing so quickly. Who knows, maybe E-Bay will put on auction sales of very high-ticket items in center court and that will bring people to the Mills.

SCW: Let's move along to another topic. Where are we at on the cycle of entertainment as a component of the shopping center experience? Has it reached its peak?

Tiedge: Obviously, two of the biggest entities in the entertainment grouping are the movie theaters and some of these specialty restaurants. We do a fair amount of work with the movie theater chains. They're now saying that 30 and 35 screens are too many. They now prefer about 20 screens. The big question is what are they doing with the 10-screen or the eight-screen they just shut down that is three miles from the big monster they just put in. Do you retrofit that?

Contrary to that would be the high-end themed restaurants that seem to be having trouble. I go to a restaurant in San Francisco that continually changes its theme because it knows it's going to get stale.

SCW: Could it be argued that customers are looking for authentic experiences, and some of these restaurants are simply coming up short?

Ryan: We do about 15 to 20 restaurants a year, and the number one ingredient that makes a restaurant successful is a memorable experience about the meal. Decor is an important part of it. but you have to know your customer. It's not necessarily a national idea. These are local restaurant concepts that work pretty well.

Carter: We are approaching the point where themed restaurants are becoming similar to in-line tenants. The same collection is showing up over and over. It's losing uniqueness. At the Mall of Georgia, we're seeing the same sort of restaurants being developed out in the village portion of the mall. It would have been nice had that been more local in flavor, with some great Georgia restaurants going in as opposed to another P.F. Chang's.

Parrish: It's a matter of knowing your market. Will your town embrace a Rainforest Cafe or will your town prefer local restaurants? Every project is different, every site is different, every city is different. We as design professionals need to recognize that to make each one successful.

Brotman: Just to focus on entertainment per se is maybe inappropriate. The most successful venues that embrace entertainment in fact create a sense of community in the mix and the spaces that are created, the serendipity created. You can think of the classic ones such as Old Town Pasadena, 3rd Street Promenade, places like Reston, Virginia, where people go there because it's fun to be there. They will buy clothes or they'll sit on the sidewalk and have a cappuccino, or they'll go to the cinema, or they'll go into the bookstore. People who set out to build an entertainment center by putting up the 150,000 sq. ft. cinema and four restaurants need to know that it's not all about the tenants that are in there. It's about the environment that you create, the spaces between those tenants, and the location of the places.

SCW: Jim, what lessons have we learned from this century in the architectural community that you and your company can take with you into the new millennium?

Flajnik: As I start to age, I start to think about retirement. The entertainment question is an interesting one because you ask yourself, 'What am I going to do? Am I going to going to a movie, or to a restaurant?' The real question to me is whether we all will be awash in this big mass of disposable income, because if we are I think we're all going to have much more available time on our hands and looking for things to do. You can only buy so many shirts. But if you have that disposable income, you're either spending it on yachts or taking more vacations. If the pattern holds, those involved in the resort business and all the linkages, including retail venues, will only continue to grow.

Tiedge: A lesson learned as a partner in a sizable architectural firm is to not put all our eggs in one basket in terms of the type of work we do. We all got a shakeup in the early '80s. Since then we've tried to get into other types of work. Should retail all close down, God forbid, that's where we got into hotels, restaurants and things like that. We're doing some work with cruise ship lines. We've learned it's never too early to investigate co-partnering with other firms.

Flajnik: To some degree, we're poised pretty well for the retail area because there has been such a boom in residential construction around the U.S.

SCW: Given the tight labor market we're in today, what is your company doing to attract and retain the brightest people in your industry?

Beame: We selected several colleges that we think produce the kind of graduates we want. We've gotten involved in sponsoring competitions and in other ways to get access to graduates. We found that at some schools you can't even get near the graduates because there are so many other architectural firms going there looking for the brightest ones. We've set up growth programs within our firm so that potential employees have something to look forward to. We talk to developers and everyone looking for potential employees.

SCW: Is architecture a popular career right now?

Beame: Well, there's definitely a shortage of architects. It's popular in the fact that at least there is work for graduates now when they get out. I think the salary levels for architects are still relatively low compared with some other professions. But at least there's work, and more people are going to architectural school.

Ryan: I think that in the next five years we're going to see a whole new plethora of types of talent. To me, that's very encouraging. For example, some of the most talented people in our office are women. As far as retaining employees, we've talked at several conferences about how important it is to stay in constant communication - from the president on down - with your most valuable employees. We need to build a career path for these people. They're our most valuable asset.

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