The shopping center industry is reinventing itself so quickly that's it's hard to keep track. One thing is clear: A retail renaissance is in the making.
Anyone one who has been stranded on a desert island or otherwise not seen North American shopping centers for the past 12 years would be pleasantly surprised at how they've changed.
The faces of older regional shopping malls have been turned outward to create a "Main Street" flavor, as accessible and inviting as the new generation of entertaining regional malls. These days, shopping centers are just as likely to be open-air as enclosed. Parking is less obtrusive; the lots are frequently landscaped to resemble streetscapes; and power centers loom at major highway intersections.
"The volume of retail space in regional shopping centers hasn't changed, except that it's being spread around many different retailing and entertainment formats to accommodate a growing population of urban shoppers who want more choices." That observation comes from Gordon Harris, a partner in Harris Hudema Consulting Group Ltd., Vancouver, B.C. and former chair of ICSC's Canadian Division public relations and community services committee.
That's an improvement over the previous generation of malls, which had become predictable and boring. Still, one might wonder if the recent craze for 30-screen multiplex cinemas, themed restaurants and boisterous arcades is starting to peak. Have mall owners noticed theater chain operators fretting about overcapacity? There are, after all, only so many ear drums and eyeballs to go around.
"Multiplex cinemas may be oversaturated in certain markets, and may not be the fix most of us hoped for," says Patrick Donahue, executive vice president of Newport Beach, Calif.-based Donahue Schriber. "Themed restaurants [which preceded the multiplexes] are also showing their shelf life."
The retail food chain Entertainment certainly has its fans. For example, Scott Riddles, executive vice president of retail services, The Staubach Co., Dallas, observes that Barnes & Noble Bookstores prefers locations near multiplexes or restaurants in regional malls because they feed off them. Conversely, apparel retailers don't have a specific preference because they feed off other kinds of tenants and successful department stores.
Based in Los Angeles, Westfield America Inc. also is bullish on entertainment. The company recently opened a 53,000 sq. ft. multi-screen cinema in Annapolis Mall in Annapolis, Md., replacing an existing theater and some 16,000 sq. ft. of shops and restaurants. Another 18,000 sq. ft. of existing space was reconfigured.
"We opened a 20-screen multiplex in 1994, the largest in San Diego, and within the first year we attracted two million visitors," says Randall Smith, executive vice president of Westfield. "It became the premier movie entertainment destination in that market, and works in the evening as an anchor business."
The Rouse Co. of Columbia, Md., is not above mainstream appetites and has added a number of multiplexes in its classy malls. However, Anthony Deering, chairman and CEO, expects that will come to an end over the next five years because of an emerging glut of screens.
"We're going to focus on entertainment in the space itself and the quality of the retail experience - which isn't contrived - and high fashion, which is in itself the best entertainment," says Deering. "People go shopping to be entertained, and the best retailers entertain customers the minute they walk through the door."
Duane Bishop, senior vice president of Cleveland-based Forest City Commercial Group, believes that entertainment formats "are not necessarily as popular as they once were."
Forest City's projects are "entertainment and experience-driven," which includes some of the company's open-air "lifestyle" projects with apparel, home furnishings and restaurant tenants. The $236 million Short Pump Town Center, for example, will include Nordstrom, Lord & Taylor, Hecht's and Dillard's department store anchors in 1.2 million sq. ft. on a 147-acre site in Richmond, Va.
What goes around comes around The concept of open-air shopping centers is hardly new. Ron Fullam, senior vice president of Chattanooga, Tenn.-based CBL & Associates Properties Inc., says that one of the first malls in the United States, built nearly 40 years ago in Chattanooga, featured department store anchors but also separate buildings.
"Lots of developers are going to more of a lifestyle, open-air center. They've come full circle," he says. It's part of the back to Main Street retailing movement, with strong pedestrian connections, superior landscaping and distinctive architectural design.
For example, CBL is clustering buildings, rather than having people drive around widely dispersed stores. "By clustering, we get people to walk, and that way they shop more of the shops," says Fullam. "In one of our projects, for example, we are congregating upper-end ladies fashion, Circuit City and Home Depot in the same area, so shoppers can walk from one store to another."
Donahue Schriber's First Custom Marketplace on a 70-acre site in Custom, Calif., is more of a classic open-air concept, with such big-box retailers as Staples, PETsMART and Michael's on board, as well as a Regal multiplex cinema and food vendors around a common area, which "softens the big-box edge," as Donahue describes it.
Atlanta-based Cousins Properties Inc. is developing the $30 million, 178,000 sq. ft. Avenue Peachtree City, an upscale specialty retail center in suburban Peachtree City, Ga., slated to open in spring 2001. The Gap, Banana Republic, GapKids, Victoria's Secret and Bath & Body Works already have signed leases. Cousins has opened Avenue concept centers - a mix of traditional national mall retailers, local merchants and specialty restaurants in open-air centers in affluent neighborhoods - in Atlanta and Rolling Hills Estates, Calif., with several others in the pipeline in the Southeast.
"It's a renaissance," says Fullam. "Everybody is making sure they have a fresh, appealing, attractive product. That wasn't true 15 or 20 years ago. There is a lot more thought going into design, construction and amenities."
Our own TV channel! Naturally, that renaissance includes merchandising. Donahue Schriber recently opened a $2.5 million, 20,000 sq. ft. Zone retail "district" in its 250-store Glendale Galleria, in Glendale, Calif. The Zone's market is geared toward "Gen-Y" (teenagers), with retailers like Hot Topic, Cat Walk, Van's and Juxtapose. There are flat-screen TV monitors to broadcast The Zone's customized programming and Internet stations, a lounge and stage areas.
The demographics are compelling. There are approximately 60 million teenagers in the United States. The ones who visit the 1.4 million sq. ft. Glendale Galleria spend between $2,700 and $3,000 per capita a year.
Would they, their parents, older relatives or adult friends buy electronic products or other commodities over the Internet, instead of going into Circuit City or Best Buy?
"Absolutely not," says Fullam. "I wouldn't buy a really good piece of stereo equipment until I listened to it, touched it, saw how big it is and how it fits the decor in my home.
"I've bought a sweater online because I knew the size and style, but I wouldn't buy a hard piece of equipment," adds Fullam. "Once electronics retailers figure out how e-commerce works, they're going to get their piece of that business."
Staubach's Riddles says retail has definite advantages vs. shopping over the Internet, especially when it comes to making an exchange. "Returns by mail are inconvenient, so physical locations have a real advantage, and consumers are concerned about online security," says Riddles. "It's not having a big effect. In fact, e-commerce is an additional opportunity."
Home delivery through the Internet is one of the issues facing the retail industry. "Operators of properties will look at putting in drive-through windows if home delivery on the Internet takes hold," says Donahue. "Drug stores used to be the in-line anchors. Now they want to be on drive-through corner pads.
"We have to figure out what will take the place of that 10,000 to 20,000 sq. ft. box if they move out to the corner," he says.
Online shopping is here to stay. Robert Welanetz, president and CEO of Atlanta-based Jones Lang LaSalle Retail, observes that a lot of e-retailing solution providers are on a consolidation fast track. "Retailers who figure out how to use multi-channels are going to be the successful companies, vs. the ones born on the Internet who try to become retailers," he says.
Running out of juice? Power centers are less immune to the inroads of e-commerce compared with other retailing categories by virtue of their big-box tenants. Because power centers have been overbuilt in some markets, lenders are understandably wary.
That isn't slowing down CBL & Associates. The company is going "full bore" on power strip centers, whose gestation can take as up to three years. "We can't slow down because we could be into a downturn and back out again before they [power centers] get out of the ground," Fullam says.
According to Donahue, the flat rents have turned lenders away from power centers. "While it's true power centers' susceptibility to e-tailing is worrisome, it's only because they are a distribution point for commodity products like books, toys and records," he says.
Donahue Schriber's power centers and community centers are strong, he adds, because they anticipate consumers' interests, such as the recently completed Regal Natomas Marketplace in Sacramento, Calif. "We have Wal-Mart, Home Depot and other tenants in a high-sales format," says Donahue. "We started with the biggest of boxes, but added entertainment and food to round the mix out a bit. We've always tried to have alternative uses to extend the business hours into the evenings."
Riddles claims lenders are more interested in grocery-anchored centers than power centers, which have declined in number. Some power center retailers have gone out of business or repositioned stores to different sizes, which creates vacancies, and the investment community sees that as an increased risk, he explains.
Milton Cooper, chairman and CEO of New York-based Kimco Realty Corp., says the power centers selling commodity products such as books and electronics have been affected by the Internet. However, not all power centers or stores - including Costco, Price Club, and Wal-Mart - have felt the effects of online shopping.
"If you prelease and watch your costs and bring projects in on budget, it's a wonderful business," says Cooper. "Retailers who aren't going into malls and have space in smaller centers are doing well. Earnings and sales for power centers keep rising, and they're the ones we're in business for."
Nothing is recession-proof Grocery-anchored centers, for all of their success, aren't recession-proof, but they are generally a safe bet for investors. "In an economic downturn, people will eat hamburger instead of steaks," says Donahue. "We'll do small shops - 10,000 to 40,000 sq. ft. - with some out parcels. But they'll be service-oriented, so if people don't have jobs or earn less, grocery stores will still sell goods.
"But what will happen to the small shops, which help pay developers' debt service?" queries Donahue. "I've seen grocery and drug store-anchored strip centers with all small stores empty."
In the meantime, grocery-anchored centers are thriving. Some observers maintain that the ideal model is a 10-acre site, with 100,000 sq. ft. of total GLA; a grocery anchor of 45,000 to 65,000 sq. ft.; a traditional drug store; an additional 15,000 to 20,000 sq. ft. of shop space; and a few pad areas.
Some trend-spotters foresee smaller, upscale centers of 200,000 sq. ft. that include 30,000 sq. ft. anchors and other shops, such as The Gap, in neighborhoods with average household income of $75,000.
Others lean toward a new generation of malls, typically 600,000 to 800,000 sq. ft. of department store space and 200,000 to 300,000 sq. ft. of small-store space. Some say department stores are in decline, while others say they have never been more resilient.
Despite the appearance of resilience, Deering notes that, "There are fewer and more powerful players aligning their interests so that there are fewer possibilities. We may be heading for eight or nine national department store chains," he says. "In the 1970s or 1980s, there were 150 independent department store chains."
While Rouse "battened down the hatches" on new development between 1987 and 1994 due to an overbuilt market and congested financial markets, the company has been busy with a number of new projects.
One of Rouse's latest and greatest projects is a makeover of the 869,000 sq. ft. Fashion Show, of 1981 vintage, on the casino/hotel strip in Las Vegas. The center will be reborn to include: Nordstrom, Neiman Marcus, Bloomingdale's, Saks Fifth Avenue, Dillard's, Lord & Taylor, Robinsons-May and Macy's.
With that 500,000 sq. ft. of retail space added to Fashion Show, it will encompass nearly 2 million sq. ft. when the redevelopment is completed in two years.
Rouse by no means has cornered the regional and super-regional center market, nor have the more traditional shopping center developers been shouldered aside by more venturesome rivals.
Westfield America, for example, is redeveloping its $250 million, 1.2 million sq. ft., super-regional West County mall in St. Louis. It will feature the only Nordstrom department store in the area; a flagship Lord & Taylor; a renovated J.C. Penney; 381,000 sq. ft. of new specialty store space; a new food court; and a 55,000 sq. ft. multi-screen cinema.
"The traditional mall is still our base business," according to Smith of Westfield, who indicates the developer's approach remains relatively unchanged. "Its lifestyle - the Pottery Barns, Crate & Barrel, books, music, etc. - is not very different than five years ago, although the centers are getting bigger."
Westfield's Valley Fair in San Jose, Calif., in Silicon Valley, for example, will have a Nordstrom and Macy's, plus an additional 275,000 sq. ft. of more fashion-orientated, upscale specialty retail. That's hardly a surprise, considering the project will be located in a region where dot.coms, start-ups - and hopefully people wanting to spend - are plentiful.
At the other end of the spectrum, urban infill centers, invariably small because suitable sites are difficult to find and/or prohibitively expensive, are tough. "We've seen some parking garage designs that have some merit, but we can't make them work economically," says Donahue. "Nobody's cracked the code yet."
The code for successful development is sometimes obvious. "We're successful in markets where they're still selling the American dream, where housing is affordable and starts are at a brisk pace," adds Donahue. "We follow the starts and bring goods and services to those neighborhoods."
Something you can't hide Whether the project is small and tucked away in a quiet residential neighborhood or sprawling across a huge site on the edge of a city, virtually nothing that can be done to diminish the impact of traffic and parking.
Small centers can hide parking, or at least make it less obtrusive, unlike a 1.2 million sq. ft. mall, which has to provide five spaces per 1,000 sq. ft. of retail space, on, under or above ground.
Some neighborhoods apparently prefer a regional mall nearby - particularly if it has their favorite department store - because they won't have to drive 10 or 20 miles to the nearest mall, and they can take in a movie and eat something more fulfilling than pizza and hamburgers.
Nevertheless, most neighborhoods simply don't like regional malls in close proximity. As a result, municipal government approval for projects can become a major issue. Some industry observers think municipalities are making the development process more difficult.
One would imagine that's raising the bar to development entry. Not necessarily so, says Deering. He suggests the public approval process has become easier during the past few years, and that communities put out the welcome mat, particularly if a department store they crave is part of the mix.
But that's an abstraction that has more to do with finessing neighborhood sensibilities than that most critical ingredient - land. Construction is a non-issue (except that the cost keeps rising) because relationships with general contractors and their trades usually go back for years. They endure because the contractors make sure they get project doors open on time, particularly the anchors. Much of that also depends on what's being built; a strip mall or even a big box is considerably easier to build than a super-regional mall.
Watching the potential retail tenant pool shrink through consolidation is bothersome as well, particularly tenants with strong concepts and creditworthiness. "The biggest development challenge is finding sites that can be assembled and zoned," says Cooper. "If a development carries with it tenants that are `financeable,' then it's a piece of cake."
Not altogether, says Donahue. "The combination of big regional centers, strip centers, lifestyle centers, off-price centers and grocery-anchored centers, which represents an enormous amount of square footage built over the past decade, has made it difficult to identify markets with a real need for quality retail," he says. "That's our biggest challenge."
There are challenges in the new millennium to be sure, but they aren't insuperable, and the industry is making sure it has a fresh, appealing, attractive product. Far more thoughtful design and construction, many more amenities and an awareness that the customer really is king is pushing the shopping center industry across the threshold of an intensively interactive era.
Government regulation has been the greatest single challenge confronting and confounding shopping center developers for many years, according to Ron Fullam, senior vice president of Chattanooga, Tenn.-based CBL & Associates Properties Inc.
Starting June 3, he says, a new Environmental Protection Act (EPA) regulation mandates that developers seek an EPA permit for as little as one-third of an acre of wetlands on their development sites.
Previous EPA regulations did not require a permit unless there were at least seven acres of wetlands on the site.
"There virtually isn't a 100-acre-site in America that doesn't have at least one-third of an acre of wetland," says Fullam. "Under the Clean Water Act, we had to be careful about storm water runoff, and more so over the last two years. All states monitor tributary streams for quality on behalf of the federal government.
"If we do a development that flows toward a stream, we not only have to test the water but treat it as well," adds Fullam. "I agree we must have clean water, but all that adds time and hundreds of thousands of dollars to the cost and restricts the scope of our operations."
Fullam agrees that while there needs to be some control over developers, there also needs to be a level of compromise between the government, communities and developers.
Concludes Fullam: "Some people are against everything, no matter how sane it is."