Retail Traffic

Let Them Entertain You

In case it has slipped anyone's attention, entertainment has become the key word for retail development at the tail end of the 20th century. We are being carried into the next millennium on a wave of festivity. Both shopping centers and shopping districts seem as if they are being reshaped as staging areas for the earthshaking parties planned for New Year's Eve 1999.

Leading the way is what has come to be known as location-based entertainment, or LBE. One of those slippery expressions everybody uses but nobody can quite define, the phrase was invented by media and communications companies to distinguish physical attractions - such as Disneyland and Universal Studios CityWalk, which must be visited to be enjoyed - from entertainment products, such as films, television shows, books and recordings, which can be enjoyed in the settings of your choice.

The term has been expanded, however, to encompass virtually all entertainment venues, including movie theaters, family entertainment centers, bowling alleys, ice rinks, video simulation environments, game arcades and any number of other commercial establishments geared primarily toward amusement and recreation.

Stores like NikeTown, where sales take a back seat to brand-enhancing entertainment, often get classified in the category, as do themed restaurants such as Planet Hollywood, NBA All-Stars Cafe and Rainforest Cafe, where the entertainment elements tend to overshadow dining.

John Ecklein, president of Novato, Calif.-based Ecklein Communications Inc., suggests that any retailer that relies as much on presentation as product to attract customers merits, if not the LBE classification itself, at least ancillary consideration. He justifies his position with the observation that, for many people, shopping has become entertainment.

"One of the No. 1 things people do on vacation is shop," he points out. To a large extent, he continues, Americans have met their material needs, so consumer purchases today are driven not only by pragmatic considerations but also by the pleasure of the shopping experience.

Number of LBEs is mounting While Ecklein's observations are probably accurate, most retail analysts balk at the notion of classifying anything but a fraction of consumer sales as entertainment. They are content to limit the LBE appellation to exhibition venues and amusement/activity centers.

Cowen & Co., a New York-based investment analyst, refers to the former group as passive venues and the latter as active. Passive venues include movie and stage theaters, other performance spaces, galleries, museums, exhibit halls (such as Madame Tussaud's), theme restaurants and other places where the primary visitor aim is to absorb, or be absorbed in, the experience.

Active venues encompass amusement park rides, game arcades, play zones, driving ranges and miniature golf courses, bowling alleys, and other places where the visitor comes to engage in an activity. The number of LBEs is rising. The number of entries on Ecklein's online Entertainment Tenant Listing, which provides descriptive and contact information on entertainment-oriented retail tenants, runs into the thousands, he says, and it is growing daily.

Although the listing includes more than just LBEs, Ecklein says, the numbers of strictly entertainment-based businesses are increasing as fast as, if not faster than, other entries on his list.

Carole Sjolander, executive director of the International Association of Family Entertainment Centers in Hillsboro, N.H., says growth in her industry has been phenomenal. The organization is fairly new because the FEC concept itself is fairly new, but already it has grown to nearly 600 members, she reports.

As with location-based entertainment, there is no precise definition of a family entertainment center. Generally, says Sjolander, it can be described as an operation featuring a collection of activity nodes that can consist of playground equipment, amusement park rides, sports facilities and games.

Although the IAFEC grew rapidly in the first years, the rate of increase has slowed down. Membership grew between five and 10 percent last year, Sjolander says.

Membership does not tell the whole story, however, for most member companies are themselves growing. For example, according to Len Hoppe, vice president of marketing for Waltham, Mass.-based Jeepers, the company has 14 indoor family theme parks, with plans to open 11 more this year and 24 in each succeeding year.

Averaging 25,000 sq. ft., Jeepers centers are targeted to 4- to 12-year-olds and combine a children's play area featuring tubes, tunnels, slides and similar paraphernalia with five or six amusement park rides. The centers also have up to 80 video games, as well as more traditional games where players win points that can be redeemed for prizes.

Michael Fischer, vice president of development for Sega GameWorks in Universal City, Calif., reports his company has five GameWorks facilities open. It plans to open five per year for the next few years. In addition, the company in May opened its first GameWorks Studio, a smaller version of the same concept, and plans to have 20 open by the end of next year.

Many other companies, says Sjolander, are expanding at an equal or greater rate.

As significant as the rise in number is the diversification occurring in the FEC industry. On one hand, there are more types of commercial activity centers than ever before. On the other, formerly single-purpose venues are adding unrelated uses.

"We are seeing tremendous diversification," Sjolander notes. "Bowling centers and skating centers are adding games, redemption centers, and even things like motion simulators. This whole concept has become prevalent in [venues] we never expected to find it. Even such places as fitness centers are getting into more entertainment aspects."

At the organization's annual trade show, Fun Expo, a survey of participants indicated that one of the most prominent new trends is the inclusion of full-service restaurants in family fun centers, Sjolander reports.

"Snack bars or snack machines have been a fixture of the industry for a long time," she says, "but sit-down restaurants have not. Parents can bring the kids out for a full afternoon or evening's activity, including a meal. Or they can enjoy a leisurely meal while their kids play games."

Not just for children anymore When the IAFEC was formed, Sjolander says, it was assumed member businesses would focus on children and families. But lately, she notes, companies have developed FECs targeted primarily or exclusively to adults.

A good example is Dave & Buster's, whose venues combine a high-quality restaurant and bar with entertainment including billiards, pinball, sophisticated high-tech games and other activities.

According to Brian Spain, director of real estate for the Dallas-based company, the centers are specifically designed for adults. There are 12 units in the United States, with five more on the drawing boards. Units average 55,000 sq. ft. to 60,000 sq. ft.

The company, which was founded in 1983, recently introduced a smaller product, Dave & Buster's II, that contains 30,000 sq. ft. to 40,000 sq. ft. The first two will open late this year, with two added in each succeeding year.

Like Dave & Buster's, GameWorks targets the entire family, but a significant portion of the attractions are more suited for adults, says Fischer, with some evenings set aside exclusively for the over-18 crowd. All game stations feature interactive Sega technology. Some involve simulated environments, and all have an element of competition.

GameWorks units occupy an approximately 22,000 sq. ft. footprint, with a 15,000 sq. ft. second level surrounding a "dramatic" atrium, Fischer says. No two spaces, he adds, are exactly alike; each is designed to fit into its specific environment.

GameWorks Studios range from 6,000 sq. ft. to 20,000 sq. ft. and are almost entirely family-oriented, says Fischer.

LBEs are at home anywhere Along with the increase in businesses has come an increase in the types of locations that activity centers will consider - and that will consider activity centers as tenants. Jeepers, for example, has facilities in strip centers, power centers, enclosed malls and on freestanding sites.

GameWorks is designed primarily for downtown sites or freestanding sites in entertainment-oriented complexes, says Fischer. GameWorks Studios, meanwhile, can go in community shopping centers, power centers and regional malls.

The company has facilities in downtown Seattle; Las Vegas; Dallas; Orange County, Calif.; and Tempe, Ariz. By year's end, it will have additional outlets in Detroit; Miami; San Diego; Columbus, Ohio; and Schaumburg, Ill.

Dave & Buster's looks to place its larger product in centers with a significant entertainment orientation and in urban downtowns, Spain says, but will consider a wide variety of options. In his words, the company doesn't "look for the vehicle. We look for the place to park."

Among Dave & Buster's locations are the Irvine Spectrum in Irvine, Calif.; Palisades Mall in Nyack, N.Y.; and a freestanding site in Utica, Mich. Dave & Busters II is intended for standard malls, community centers and power centers, as well as smaller entertainment complexes in secondary markets. Cowen & Co. estimates there are 100 to 150 domestic markets appropriate for D&BII.

Operations like Dave & Buster's deserve to be considered anchor tenants because of their customer draw, Spain argues. The Cowen report supports this, noting that individual D&B outlets average about 800,000 patrons a year.

According to Spain, the introduction of one of the company's products along with a Borders Books & Music store and the Cheesecake Factory restaurant were the primary factors in turning around the ailing White Flint Mall in Bethesda, Md.

Ironically, comments Charles Hewlett, an analyst in the Chevy Chase, Md. office of Robert Charles Lesser & Co., a Los Angeles-based consulting firm, standard FECs - those such as Jeepers that could be described as miniature versions of the county fair or resort boardwalk - do not do particularly well in large urban entertainment complexes.

Projects such as CocoWalk or Sunset Place in Miami, the Irvine Spectrum and the upcoming Forest City-Tishman Speyer project in New York demand a more sophisticated experience, he says. Only if an operation is sufficiently elaborate and unique would it qualify for most of these kinds of projects, Hewlett notes.

Jeepers, Dave & Buster's and GameWorks all prefer locations near or amid other entertainment-oriented users and restaurants, according to their spokesmen. Fischer mentions Barnes & Noble, Virgin Megastore and Hard Rock Cafe as the kind of neighbors his company prefers. He says the ideal, however, is to be located next to a megaplex cinema.

Most important are theaters ... Without question, the single most popular entertainment tenant today is a movie theater. Hewlett considers theaters the key drivers of entertainment-dependent development.

Indeed, according to the San Francisco Chronicle, the April withdrawal of AMC Corp. from a planned entertainment center in the city's Fillmore district appears to have doomed that project unless another theater operator can be lined up.

One of the most famous movie theaters in the world, Mann's Chinese Theater in Hollywood, is the centerpiece for Hollywood & Highland, a major entertainment project pro-posed by San Diego-based TrizecHahn. The restored movie palace along with a new, six-screen complex will anchor the $350 million, 600,000 sq. ft. development. The project was up for approval in May.

Presuming the project goes forward, the developer also will build a new auditorium for live entertainment events, the most notable being the annual Oscar presentations. Project manager David Malmuth, a senior vice president for TrizecHahn, says the rest of the year the space will feature stage shows similar to those produced at New York's Radio City Music Hall and other special events.

Malmuth expects other tenants will include book, music and memorabilia stores and unique restaurants. The developer also plans to rent space to major film studios for creation of movie-related activity centers.

Not far from the TrizecHahn project, Pacific Theatres is using another famous movie theater, the 950-seat Cineramadome, as the anchor for a 225,000 sq. ft. entertainment project. It will include a new multiplex with seating for an additional 3,250 viewers, a bookstore, cafe and other tenants.

The demographics would support the project without the cinema complex, but it would be difficult to attract other tenants, says Neil Haltrecht, vice president of real estate and development for Los Angeles-based Pacific Theatres Corp.

"An entertainment complex revolves around the theater even when it's not really necessary in purely economic terms," he says. "Tenants expect the theater to be there."

Another theater-anchored project under way is Metreon, an entertainment center being developed in San Francisco by Los Angeles-based Sony Development Corp., New York-based Millennium Partners and San Francisco-based IDG Inc. A 15-screen Sony Theater and an IMAX theater will anchor the 400,000 sq. ft. center.

John MacLeod, senior vice president for Sony Development, says in this case theaters were not necessary to attract tenants because Sony Retail Entertainment will take most of the remaining space for three interactive installations built around Sony technology.

Nonetheless, he adds, the company would not have considered the project without the theaters.

While tenants in an entertainment center rely on the movie theater for traffic, it is not as important in other types of centers, maintains Haltrecht. He singles out power centers as the least likely to benefit from the presence of a cinema complex.

"We tend not to go into power centers very often. The kind of tenants found there don't add anything to the theater experience. They feel the same about us. It's not as synergistic," he says, adding that theaters' heavy parking requirements pose a serious problem for retailers.

According to Haltrecht, Pacific Theatres' development subsidiary, Pacific Theatres Realty Corp., does not even put theaters in most of its own projects. For example, neither the 338,000 sq. ft. Los Altos Centre in Long Beach, Calif., nor the 300,000 sq. ft. Westminster Gateway Center in Westminster, Calif., will have them. Both are anchored by Eagle Hardware & Garden.

... Followed by restaurants The second most important entertainment tenant is restaurants, most analysts agree.

With regard to entertainment-oriented centers, Hewlett says, "The success of these projects depends on getting the theater and some restaurants. Then and only then do you begin to draw the soft-goods retailers."

Themed restaurants are the big draws, and as a consequence companies are rolling them out by the score. "I've seen the evolution of 90 new concepts begin to take form in theme restaurants," says Ecklein.

But themed restaurants also have their drawbacks, as the financial setbacks experienced by Planet Hollywood clearly demonstrate. The problem, says Len Borograd, Hewlett's colleague at Robert Charles Lesser, is the restaurants' dependence on novelty.

When customers can find the same businesses everywhere, he says, they squander their trump card. This is what happened, he says, when Planet Hollywood began to expand to second-tier cities such as Sacramento.

According to Hewlett, an increasing number of retailers are willing to accept a movie theater or cluster of restaurants as a replacement for one of the traditional shopping center anchors. Sometimes they even demand that a theater be present.

Is oversaturation a possibility? It's easy to understand why theaters and restaurants are gaining in stature. According to Haltrecht, one of today's large multiplex theaters can attract 2.5 million customers a year, and even the lesser performers can bring in 1.5 million. With those kinds of numbers, a theater is all but bound to generate cross traffic.

As for restaurants, Ecklein notes that restaurants all across the country are full every night.

As a result of improved status, theater operators are becoming increasingly tough negotiators. As Hewlett puts it, "Movie theater operators have been beating up landlords and getting sweet deals."

Haltrecht acknowledges that theaters usually pay somewhat less than other tenants of comparable size, but he says so many theater operators are competing for the better sites that landlords of well-located projects do not have to give much of a break.

The level of competition has some observers concerned. So many multiplexes are built or planned, they worry the market will very quickly become oversaturated. Cowen & Co. projects construction of 15,000 new screens in the United States in the next five years.

Haltrecht says he is not worried. "What's going on is not unique to theaters. It happens to every category of retail. Yes, there's too much building going on in some areas, but the competition will gradually weed out the weaker locations," he says. "I think the long-term outlook for movies is great."

As for entertainment in general, Ecklein says, "Entertainment has been around forever. It's not going to go away."

Nonetheless, he cautions that the shelf-life of entertainment concepts tends to get shorter and shorter. As a result, he says, companies that frequently renew their concepts will be the ones that survive.

"I would look for tenants who put more investment into software and creative thinking than into hardware. Those who can adapt quickly to changing tastes will have the edge," he says.

LBEs are 'more like going out' With the combined backing of three of the most successful entertainment companies in the world - Sega Technology, Universal Studios and Steven Spielberg's Dreamworks - Sega GameWorks has the key to survival, says Fischer.

"We're always changing the environment," he says. "Because of our relationship with Sega, we're on the cutting edge of technology. We preview and introduce new games almost every month. This includes large-scale attractions as well as small. We test in one site, then roll it out to others."

For Metreon, Sony is developing concepts unlike anything seen before, says MacLeod. The three planned installations, which will have a total of 140 interactive stations, are based on well-known books.

One, primarily for children, will feature characters and activities based on Maurice Sendak's Where the Wild Things Are. Included will be a family restaurant developed around the award-winning author and illustrator's In the Night Kitchen. MacLeod calls this an "evergreen" attraction.

The installation also will sell Sendak's books along with a new line of quality toys and collectibles based on Sendak characters.

Designed not to change significantly, it will be the kind of place parents will take children to, he says - and that those children will take their children to.

The second attraction, targeted to older children and adults, will bring to life the work of David Macaulay, whose books feature elaborate and highly detailed drawings explaining the workings of castles, cathedrals, ships and other complex man-made structures. This area will have frequent updates, the Sony executive explains.

The third attraction, designed with adults in mind, will focus on The Airtight Garage by French illustrator Jean Giraud "Moebius."

Based on the reception of these attractions in San Francisco, Sony is contemplating rolling out either these specific concepts or similar ones as independent retail operations, says MacLeod. All would be placed in areas with high tourist counts.

One interesting aspect of the growth in entertainment and entertainment retailing, says Borograd, is the customer's apparent preference for visiting these uses in a Main Street-style setting.

"It makes it feel more like going out," he says, "more like going to Greenwich Village or Georgetown than a regional mall.

"Some malls do a better job than others of making it a more entertaining experience," Borograd continues, "but a more urban feel seems to be preferred. People want the liveliness of urban setting where the constant flow of p eople is part of the experience."

Malmuth says the trend expresses a desire for greater authenticity.

"People feel they are being forced more and more into little bubbles. When they go out, they don't want to feel cut off from the world. That's one of the points of going out," he says.

One of TrizecHahn's goals with Hollywood & Highland, he continues, is to make it a real place, something that genuinely reflects the experience of Hollywood and not just another mall.

That is why the developer wants the auditorium for the Oscars and wants the film studios to develop a series of attractions that showcase the film industry in various ways.

"We're not taking anything off the shelf. Everything will be unique to this project, and everything will relate to Hollywood," he emphasizes. "Hollywood is one of the most famous brand names in the world. People come in search of Hollywood. We plan to make it true."

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