Mergers and acquisitions will likely change the face of regional malls - East Valley Tribune: Business

Mergers and acquisitions will likely change the face of regional malls

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Posted: Sunday, August 7, 2005 7:15 am | Updated: 7:52 am, Fri Oct 7, 2011.

Scottsdale Fashion Square, Mesa’s Fiesta Mall and Paradise Valley Mall will each lose a department store anchor when the Robinsons-May chain is dumped in 2006.

Mergers and acquisitions among large retailers, such as the Federated Department Stores-May Co. marriage that will eliminate 68 department stores nationwide and scrap 10 traditional retail chains including Robinsons-May, are changing the face of the country’s shopping centers.

Some industry experts say the shake-up could spell the longforecast death of the regional mall, since there will be fewer department store chains to fill the allimportant anchor function.

Others say the recent turn of events could be the malls’ saviour, providing an opportunity to jettison an old and tired format and replace it with different kinds of stores or non-retail venues more enticing to younger shoppers.

It’s all in how you look at it.

Even the experts who think the industry shake-up will be good for the regional malls’ future, agree the traditional shopping center of the late 20th century — three or four department stores and a few dozen smaller retailers in a fortress-like enclosure — won’t survive the current retail revolution.

In an industry that is already overbuilt, retail development is burgeoning like never before, said Stan Eichelbaum, president of research firm Marketing Developments. Strong shopping centers will survive the onslaught, but weaker ones will innovate or die, he said.

For an older-format regional mall to stay vibrant, it will take a major makeover — cosmetic changes as well as new merchant lineups, he said. Dwindling department store options and the exodus of other traditional mall shops are catalysts for long-overdue change, he said.

"It’s forcing malls to update," Eichelbaum said. "Malls needed a shake-up of mentality, a shake-up of tenants. They were not responding to consumers."

SCORES OF CONSOLIDATIONS

Since 2000, there have been nearly 50 major retail consolidations from big-box giants like Sears-Kmart to upscale trendy brands like Chico’s-White House/Black Market to big multichain companies like Limited Brands-Intimate Brands, according to industry watcher Independent Retail Research.

Add to that, liquidations of mall-store brands such as El Portal luggage or Eddie Bauer Home, which vacated Scottsdale Fashion Square and Chandler Fashion Center just a week ago.

On Thursday, less than a week after Federated said it would shut down 68 department stores, Retail Brand Alliance said it will sell its Casual Corner Group, which includes typical mall merchants Casual Corner, Petite Sophisticate and August Max, to liquidators. That’s 1,000 more mall stores pegged to close or get picked off piecemeal by a competitor.

And while shops are exiting malls, so are shoppers.

Eichelbaum said today’s customers reject the traditional mall’s tomb-like exteriors. Adding sit-down restaurants, entertainment options or novel retailers and turning their faces to the street will be necessary to entice people out of their cars, he said.

A Cheesecake Factory, P.F. Chang’s or Crate & Barrel are much better draws than the bland backside of a department store, Eichelbaum said.

It’s a fact already motivating many traditional mall retailers.

The planned SanTan Village in Gilbert, pegged to be completed in 2007, originally was designed around a regional mall. Developer Westcor, which owns all the East Valley’s enclosed malls except Arizona Mills in Tempe, scrapped that concept, opting instead for an alloutdoor format with a Dillard’s and a Robinsons-May, now expected to be Macy’s.

The redesign was a response to what merchants wanted, said David Scholl, senior vice president for Westcor.

Longtime mall department stores such as JC Penney and Sears also are experimenting with stand-alone store formats.

And the specialty retailers that decades ago flocked to malls to be near the trafficdriving department stores have been moving into openair shopping centers anchored by such diverse attractions as movie theaters or giant sporting good stores.

Bath & Body Works has been flourishing in the socalled power centers — the industry term for the mallsized, open-air shopping centers packed with big-box stores like Target and Best Buy — almost since their beginning 15 to 20 years ago.

During the last decade, the emergence of the more upscale lifestyle center format — Kierland Commons, for example — has wooed such formerly mall-only chains as Victoria’s Secret, Guess and Talbots.

Kierland Commons proved you don’t need a department store as an anchor, Scholl said.

Kierland has several anchors, from a Barnes & Noble Superstore to Crate & Barrel to the new Tommy Bahama concept, which clusters several smaller shops into a single building.

NEW ANCHORS

Scholl said that’s another hot new option for anchoring a retail center.

"Take, for example Pottery Barn concepts (including Pottery Barn Kids) and its sister companies like Williams-Sonoma and West Elm, put them all in one large 100,000 square foot building, and it’s a new anchor being born," he said.

"The definition of what constitutes an anchor is changing, but anchors still are an important ingredient in shopping centers," Scholl said. "While there are fewer department stores, there are no fewer anchor possibilities."

Restaurants, big bookstores and category killers like Best Buy or Bed, Bath and Beyond also are moving into regional mall anchor spots, said Patrice Duker, spokeswoman for the International Council of Shopping Centers.

Even discount department stores like Kohl’s and Target are welcomed into malls, she said.

That’s a function of changing consumer tastes, said David Bodamer, managing editor of industry trade publication, Retail Traffic.

"There used to be a clear separation of product. People used to be loyal to a store or a price point," Bodamer said. "Today everybody shops everywhere."

Movie theaters, once dismissed as unsuitable for malls because they kept customers sitting passively for a couple of hours instead of shopping, are now being courted by savvy mall developers, he said.

"The movie theaters have proven to be beneficial in allowing the inclusion of better restaurants," Eichelbaum said. "It’s an economic model that works."

Theaters and eateries also keep malls buzzing through the evening hours, said Chris Stallman, marketing manager for Scottsdale Fashion Square.

The upscale mall, which has several popular dining spots and is adding a couple more, has developed a night life that led several retailers to extend shop hours and garner more sales, he said.

In fact, restaurant clusters alone are proving to be viable mall anchors, Scholl said.

And nonretail uses from condos to hotels are being added to malls around the country, providing captive customers for the shops, Eichelbaum said.

Westcor is on the cutting edge of many of those concepts, he said.

Renaissance is trying out its Club concept hotel at Chandler Fashion Center. And Scholl said Westcor is looking at the possibility of condos at Scottsdale Fashion Square.

So while nobody likes an dark big box, forwardthinking mall owners won’t mourn the loss of a department store for long, Bodamer said.

BIG STICK

Departing department stores also can be a financial boon for mall owners. In their prime, many chains did sweetheart financial deals with mall owners, winning big financial concessions and decades-long contracts, he said.

Their exit allows malls to replace the space with bigger earning venues paying bigger rents, he said.

Scholl said Westcor has lots of options for replacing the department stores to be emptied at Mesa’s Fiesta Mall and Paradise Valley Mall by the Federated-May merger. Another department store is even one option.

"Fiesta doesn’t have a JC Penney," he said.

And Westcor parent Macerich has a huge stick to swing at Federated that could help land a Bloomingdale’s at Scottsdale Fashion Square.

In a conference call Thursday with analysts, Macerich CEO Arthur Coppola said contracts require both Robinsons-May and Macy’s operate at the Scottsdale mall. Federated may have to ante up something better to get free of that commitment.

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