Facing intense competition from lifestyle centers and other emerging retail concepts, many of the nation's 1,500 enclosed malls are reinventing themselves with new store anchors or glitzy outdoor plazas offering entertainment and a smorgasbord of restaurants.
As retailers merge, shutter stores and drive up vacancies, aging shopping centers are under pressure to adopt new formats. In at least one case, nature's wrath in the form of a hurricane has forced rebuilding.
“Older, low-performing malls began failing in the 1990s, and that's when new formats began appearing and customer preferences began to shift toward outdoor shopping,” says Michael Beyard, senior fellow at the Washington, D.C.-based Urban Land Institute. “Better-performing malls now are updating to keep pace with the competition.”
The redevelopment wave will continue for decades, Beyard predicts. “We've spent 50 years building malls, peaking near the year 2000, and we've lost perhaps 20% of them,” as consumer tastes changed.
A big spike in home foreclosures coupled with slower growth in consumer spending leaves aging shopping centers in even greater peril. Some 1,228 home furniture and furnishings stores closed in 2007, nearly five times more than in 2006, reports the International Council of Shopping Centers (ICSC). Bombay Company closed 508 stores while Pier I Imports shuttered 100 stores.
“Home furnishings is really taking a hit,” says Erin Hershkowitz, a spokesperson for ICSC. “Right after that we have a little problem with home entertainment.” Malls were left with hundreds of vacancies after 1,000 of those stores closed last year.
Redevelopment can help a company's bottom line. The Westfield Group, which trades on the Australian stock exchange, owns 55 U.S. malls and spends aggressively on redevelopment.
Westfield Chairman Frank Lowy emphasizes the strategy's value in his 2007 annual report. “On developments completed in 2007, the group achieved an average development yield of 9.3%.”
Westfield malls recently generated sales of more than $500 per sq. ft., says Suzanne Mulvee, senior economist at Boston-based research firm PPR. The average is about $350 per sq. ft., she says.
On the following pages, three case studies show steps taken to reinvigorate shopping centers in three regions. They include the Royal Hawaiian Center in Waikiki, the Destiny USA project in Syracuse, N.Y., and 321 North in Plantation, Fla.