The rich keep getting richer.
And so, too, do developers of malls for the rich.
Sales per square foot at luxury-mall owner Taubman Centers Inc.'s properties averaged more than $500 per square foot, a first ever for the industry. And The Neiman Marcus Group posted record profit of $248.8 million in fiscal 2005.
That's proof enough for a number of developers to make the monied their new niche at a time when the divide between the affluent and the rest of America is growing ever greater. They are creating rarified atmospheres with snob appeal, catering to those households with a net worth above $1 million. That demographic rose for the third straight year to nearly 9 million households, according to financial research firm TNS. And those figures excluded home values.
Taubman has been pursuing these elite consumers for decades — one reason why it leads the pack in store sales. Other developers, though, have big plans for remaking their properties in a more luxurious image. The Macerich Co., for instance, grouped nine of its topflight malls into the Lumenati division, while General Growth Properties Inc. dubbed 13 of its malls GGPlatinum (in trade areas boasting an average annual income of more than $125,000).
“Our objective is to give retailers one-stop shopping when they look to expand their brand,” says Wally Brewster, General Growth senior vice president of marketing. So far, this one-year-old program is mainly about making retailers aware of the toniest malls in its portfolio. But in the future, it might broaden to offer chichi amenities like free valet parking and personal shoppers.
Developers are eager to snag as many luxe leases as possible, to attract cross shoppers that might find Saks Fifth Avenue and Target equally appealing. Some store pairings work better than others, particularly when it comes to elegant boutiques that tend to be picky about their neighbors. Accordingly, mall owners are taking extra time to understand elite stores and their customers.
Swanky chains feel the love. Behavior Research Center Inc., a Phoenix-based survey firm, recently found that upscale retailers plan to open on average 20 stores this year — albeit in select locations.
“They are extremely focused and they know that there's a fine line between taking advantage of growth opportunities and becoming a mass-market retailer and watering down the brand,” observes Jim Haynes, president of Behavior Research. So, how will the retailers base their decisions about where to grow? “You can plan the fanciest shopping center in the planet, but if it's not in the right location they're going to pass.”
Time-proven elegance
The precedent for glam niche mall shopping goes back at least 40 years. A chic magnet, the Bal Harbour Shops, steps from the Atlantic Ocean in balmy Miami, has been racking up profits for retailers, and developer Stanley Whitman, since it opened in 1965. Stores at the lushly landscaped center last year reached four-decade-high record average sales of $1,550 per square foot — also a U.S. record.
“Luxury shoppers are looking for unique experiences,” says Milton Pedraza, CEO of The Luxury Institute. “When you're paying $1,000 for a belt at J.W. Cooper, you want a tranquil, relaxed and aesthetic experience. Bal Harbour is like a Japanese garden.”
Take another tried-and-true shopping experience, Americana Manhasset, which developer Frank Castagna nurtured from a string of budding stores to a luxe center in the 1980s. With sales per square foot averaging more than $1,100, the center is home to favorite fashionista haunts including Oscar de la Renta, Prada and Burberry.
This concentration of 50 stores sits on an immaculately groomed outdoor property in Long Island. In the past two decades, the center has undergone a top-to-bottom overhaul directed by New York modernist architect Peter Marino, who's also done work for tony retailers Chanel and Fendi.
At the Americana, luxury is not just about architecture. It extends to the level of service the center provides its customers. One entire storefront, for instance, is a dedicated customer lounge that offers concierge services, personal shoppers and tailors. The lounge also provides space for the center's retailers to host fashion shows and product-release parties.
But no matter how successfully shopping center owners market their properties to luxury retailers, there are only so many wealthy neighborhoods, and only so many nearby malls to serve them. Also, retailers are acutely aware that having too many locations would weaken the cachet of their brands.
Expect programs like Macerich's three-year-old Lumenati, then, to step up the quality of these properties in terms of other retailers and physical layouts. Macerich is also taking what it's learned from Lumenati and translating it to the rest of its portfolio.
“Lumenati has been an incubator of great ideas,” says Tracey Gotsis, Lumenati's senior vice president of development marketing. “It's returned us to the basics of merchandising a project to really meet the needs of a community, really matching demand with the right mix of stores.”
Fine-tuning the mix of stores never stops, even at Lumenati properties. In improving a mall's overall quality, better restaurants are key. These offerings satisfy upscale tastebuds. The retailers are happy, too: Staff at stores like Neiman Marcus tend to be more mature and prefer sit-down restaurants to food courts, notes Stan Eichelbaum, president of the retail consulting firm Marketing Developments Inc. Owners also are pursuing classy retailers in the home decor and electronics categories, including Williams & Sonoma, Apple and Bang & Olufsen.
Ultimately, programs like Lumenati might result in malls that feature mixed-use components such as offices, boutique hotels, and condominiums. General Growth, for instance, is redeveloping its Natick Mall in suburban Boston to contain a luxury condo component, and Macerich is considering adding a boutique hotel to its Scottsdale Fashion Square. Both developers have high hopes for the results.
“Mixed use makes things more sustainable in the long term for luxury retailers,” Gotsis says. “It expands the hours they can stay open and attracts their preferred customer base.” And what's good for retailers, she hopes, can only be good for the mall.
Macerich's Lumenati division is talking with the developer's existing roster of upscale tenants — as well as desired ones — to find out what amenities or design changes they'd like to see at a property. It's learning that luxury retailers want a unique sense of place, Gotsis says. That encompasses everything from displaying tasteful art in common areas to offering shoppers complimentary bottles of mall-branded water, which Macerich is doing at La Encantada in Tucson, Ariz.
A mall's architecture can also heighten its sense of place. Ironically, though, many luxury retailers want malls to look more like lifestyle centers. While it's impractical to transform all enclosed malls into open-air oases, it is possible to redevelop portions of certain properties in this manner. Kristin Mueller, an executive vice president of Jones Lang LaSalle Inc.'s Retail Group, cites, for example, properties where mergers in the department store industry have resulted in anchor vacancies: At Rosedale Center, in suburban Minneapolis, Mueller's team is demolishing a former Mervyn's store and replacing it with an outdoor shopping area that will contain Coach, the Apple Store and other shops, as well as upscale eateries.
“An anchor vacancy might have frightened mall owners 10 years ago, but it's not so frightening now, because they look at that as an opportunity to bring in a lifestyle component,” Mueller says. “Luxury retailers are impressed by this because it shows we are listening to their needs and creating environments that are right for them.”
It's who you know
No two wealthy consumers look alike. To attract the attention of a luxury retailer, developers need to supply profiles of the luxe consumers in their midst. That means boning up on the finer distinctions in this rarefied demographic. The majority of affluent people in the U.S. are Baby Boomers, since, as Pedraza notes, it takes a few decades to accumulate wealth. They can afford that $5,000 Chanel dress on a fairly regular basis. The children of Baby Boomers are also an important market, although they're more likely to buy the Louis Vuitton handbag than the entire outfit. And finally there are consumers of more limited means, who limit their upscale purchases to special occasions — the ones who will shop at Tiffany & Co., but just for the engagement ring.
Retailers certainly recognize these distinctions. “Hermes would not look at Coach or Louis Vuitton as luxury: they'd look at them as accessible luxury,” says Bill Taubman, executive vice president of Taubman Centers Inc. “The reason is that Hermes is at the top of the price-point pyramid and the others are not.”
But there's obviously more to understanding retailers than their price points. Taubman's malls have always tilted toward the upscale end of the spectrum. To give it a leg up on other mall owners, it keeps abreast of luxury retailers' growth strategies by maintaining an office in Milan. “Having Italians working in an Italian office, who understand the way these stores think and know the right people to call, is a lot different from an American hopping on a plane to see the fashion shows,” Taubman explains.
It also helps to know the right people in the U.S., something that Macerich is discovering as its Lumenati division courts luxury retailers here. “The first questions they ask are: which charity galas do you sponsor and which socialites in the community should I know?” Gotsis says. “They also ask how we market our centers. They really understand the value of branding and they know their customers well.”
Luxury retailers go out of their way to listen to their regular customers. Although wealthy folks don't need to be treated like royalty, they do expect excellent service and this means allowing them to provide input on things like the development of new products. “Luxury clients want their voices heard and they want an inside track on things,” Pedraza says. “They want to meet people, just like you might go backstage at a concert or in the clubhouse.”
Neiman Marcus has perfected this concept with evening events that give customers exclusive access to designers. “It's not just a 10-percent-off sale, but it includes cocktails and classical music: what could be termed shopping parties,” says Stan Eichelbaum. “These events have created extraordinary performance for them. We're talking a week's volume in one night, easily.”