BrainTrust Query: 7 Years for 7 Reasons – The Decline of the Power Center

Discussion
Sep 08, 2009

Commentary
by Doug Stephens, President, Retail Prophet

From
its inception as a commercial real estate concept in the 1980’s, the
long-term viability of the power center has been a topic of running debate. While
they are clearly not great achievements in design, the decline of the
power center will have much less to do with aesthetics and much more
to do with powerful social and economic forces beyond their walls.

The
power center will begin to decline in seven years for the following seven
reasons:

The Aging of
the Baby Boomer:
The
sheer size of many big box stores will begin to present real physical challenges
to baby boomers. As eyesight begins to wane, reflexes slow and hearing
diminishes, driving becomes less desirable and perhaps impossible. Look
for boomers to shop close to home whenever they can, favoring pedestrian
shopping venues, Main Street type business areas and mixed-use retail development.

The Gen X Deficit: Their
smaller size as a generation makes it virtually impossible for Gen X
to rise to Baby Boomer levels of consumption. Until Generation
Y moves into the driver’s seat, there will likely be a general decline
in consumption of many categories of goods and services.

E-commerce,
M-commerce and In-home Service Will Grow:
On-line
shopping will steadily increase due to improved technology, pervasiveness
of high speed connections and the added buying power of Gen X and Gen Y
consumers. Improved hand-held browser technology will make mobile
commerce progressively more comfortable, trusted and intuitive, further
reducing reliance on immense bricks and mortar stores.

Conspicuous
Consumption Isn’t Cool:
"Frugal
chic" has replaced the unbridled spending that fed the growth of power
centers over the last twenty-five years.

Rising Fuel
Costs Will Hurt Everyone:
The
big box business model is predicated on buying vast amounts of product
and shipping it via boat, truck and train across the globe. Rising
fuel costs will strain the efficiency of this supply chain model, if not
cause it to implode.

Generation Y: The
big box buying model is predicated on steady, dependable demand, annual
line-reviews and minimal assortment change, whereas Generation Y will
seek out retailers that respond to new and exciting product trends.
As a generation that has always been plugged into what’s new, they will
not simply accept the "stack it high and watch it fly" mentality of many
mass merchants.

Environmental
Pressure:
The
stripping of land for the development of these centers will be met with
increasing resistance by municipalities and citizens alike.

What
about the retailers that currently call the power center home? I
would look to brands like Wal-Mart, Home Depot and Best Buy among others
to start playing with smaller footprint concepts outside the power center
and big box formats. With smaller stores and at least a partial return
to domestic supply, they will work to become more responsive to changing
fashion and styles in an effort to capture a younger consumer base.

Perhaps
the greatest irony of all is that for some big box retailers, the next
20 years will be a matter of learning how to succeed in the very place
they started…on Main St.

Discussion
Questions: What do you think of the long-term viability of power centers?
If you agree that power centers are headed for a decline, what will replace
them or how can they be reinvented?

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21 Comments on "BrainTrust Query: 7 Years for 7 Reasons – The Decline of the Power Center"


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Anne Howe
Guest
11 years 8 months ago

I think the decline of Power Centers is already well underway. There are a number of more viable and attractive replacement alternatives out there. The one that most of my suburban Boomer friends are talking about is a return to city life in a walkable city in a more moderate climate. With the onset of Zipcar, a couple can realistically own one car, not two, and have a plethora of social, athletic and cultural options only minutes away. Hard for me to speak to Gen X, but two of my three Gen Y kids already live in the above described lifestyle and love every minute of it!

Bob Phibbs
Guest
11 years 8 months ago

These 7 reasons are less about Power Centers specifically, as about retail in general, with one exception: I don’t see grandma and grandpa boomers on fixed incomes shopping Main Street with the lack of close-in parking looking for Depends and the stuff of the mass merchants.

Power Centers grew as a result of cheap money; when it was someone else’s dime, not due to shopping habits, the needs of the neighborhood, or desire by consumers. They will fall like other retail centers built without those fundamentals in place.

Ralph Jacobson
Guest
11 years 8 months ago

A point about The Boomers retiring is that they will spend more than any previous generation in retirement. Boomers like to treat themselves well, and won’t gravitate to 100% frugality. This doesn’t necessarily affect the Power Center viability, but most of the reasons may prove to be cyclical in nature. None of these tends will be permanent.

Cathy Hotka
Guest
11 years 8 months ago

The sheer size and overhead cost of Power Centers meant that ticket sizes had to be high for them to remain viable. Home Depot’s EXPO concept comes to mind…once boomers had purchased all the Viking ranges and fancy faucets they needed, what was to sustain the model?

Marge Laney
Guest
11 years 8 months ago

I see a mixed bag here. The real Power Centers in metro areas will decline as downtown reclamation and renovation continues. Metro America is highly overstored. But, in Small Town USA, I see the Power Center growing. In Texas alone, there are dozens of little towns whose population survives on the local Walmart center offerings. These centers not only serve the shopping needs of these communities, they often serve as the social meeting place for the residents as well. I see consolidation of these small centers into larger destination Power Centers for small town America to have access to more brands and for brands to have access to more America.

Bill Emerson
Guest
Bill Emerson
11 years 8 months ago

I think it’s a little premature to declare the power centers dead and forecast a return to city living.

The power centers grew based on the environment at the time. That environment has certainly changed. And while there are a lot more alternatives to the power centers, people will continue to look for the social experience of shopping in large centers. Moreover, they will still enjoy the ability to see/touch a broad selection of merchandise along with the immediate gratification of taking their purchases home with them. Lastly, there is the convenience factor of having a variety of categories in one place.

The big challenge is how to adapt the current centers to the new environment. There is already much more in terms of entertainment and services being added with an objective of building the overall experience well beyond selling merchandise.

These are very savvy players. Don’t count them out just yet.

Anne Bieler
Guest
Anne Bieler
11 years 8 months ago

Agree that the Power Center is not the shopper magnet it once was. For all the reasons mentioned, many of the suburban centers are feeling the pinch. The recent shopper trip data continues to confirm that consumers are more thoughtful in choosing their destination–more trips to the same store, particularly for stock-up trips.

Most shoppers are much clearer about what good value means to their families, and it will be as much about the shopping experience and shopping time available as it it about products on offer. Longer term, definitely we will see smaller footprint stores that are easier to shop and reflect regional tastes and aspirations.

Carol Spieckerman
Guest
11 years 8 months ago

I’ll throw in my #8 reason: The distance standards for outlet malls have steadily shrunk over the past few years. Now, outlet malls are often a very drivable few miles from their full-price counterparts.

Back to the future: Pondering the possibilities for some kind of hybrid online/offline/kiosk-y concept kicked me into investigation mode. What in the world happened to Federated-backed Epicenter; the concept that promised to combine catalog, online and retail shopping under one roof and arm shoppers with “Buypods,” hand-held devices that would facilitate research and purchasing? (link to Retail Wire discussion http://is.gd/32nwM)

I would love to get something definitive on this; all I’ve been able to uncover are vague references to multiple delays and to possibly never getting off the ground. The launch location was to be in Delaware and up to ten locations were slated for 2010. Is Epicenter’s time right now?

Arthur Corbin
Guest
Arthur Corbin
11 years 8 months ago

I find most retail boring and repetitious. I buy as much as possible online. Unusual and distinct stores do get a visit but mostly because I want to see what they are offering and how they are presenting themselves.

Power centers that have a mix of local stores, better quality restaurants, entertainment, and an attractive environment will get a visit. Corte Madera Town Center is one example. The old town of Petaluma is another. The demise of the cookie cutter retail mall is already underway.

Kim Barrington
Guest
Kim Barrington
11 years 8 months ago
It’s all about connectivity…you’ve got to be able to get there easily, cheaply, and satisfactorily. If one has time, then one needs to be entertained as well. The mall provided the option for specialty stores to congregate in one convenient space, but the merchandise became stale, me too, expensive for what it was and if one couldn’t find what one wanted (and who can these days unless it’s groceries?) then one is reaching for their iPhone to check for it online somewhere. Malls will need to find a way to have a center where a consumer can get what they want from a kiosk at the mall. Like an Amazon online at the mall. This may seem counterintuitive to how the stores operate but the fact is, the footprint of the stores is too large…everyone understands the costs to operate these facilities is significant in this new age of “frugal chic” and it will be to the store’s advantage, the mall’s advantage, and the consumer’s advantage to be able to go to that kiosk and… Read more »
James Tenser
Guest
11 years 8 months ago

It’s possible that the problem with power centers lies not in their changing viability for today’s shoppers, but rather in their sheer excess number.

Over-storing makes any retail concept dependent on high volume riskier, because you can only split shoppers’ wallets into so many fractions. Here in the southwest, the excess of big-box stores is apparent; many locations are shuttered; and shoppers still have an excess of choice as to where they obtain the goods they want and need.

So what presents as a decline in the power center concept, may in fact be a simple thinning of the retail gene pool. This may have less to do with societal or demographic trends and more to do with supply and demand.

Ryan Mathews
Guest
11 years 8 months ago

I agree with the comment of the impact of online shopping. Once Boomers–as a generation–lose mobility the question is less about how much they spend then it is one of how they spend it. A few keystrokes beats a trip to the Power Center every time.

Ted Hurlbut
Guest
Ted Hurlbut
11 years 8 months ago

This just doesn’t ring true to me. The primary things that drove the growth of power centers were convenience and technology. Power centers were simply easier to get in and out of than malls, and technology enabled larger stores to serve a broader array of consumer items, at ever-sharper prices.

Convenience still is and is likely to remain a key driver, and technology remains the key to continuing to deliver ever-lower prices and the volume that these stores require. That’s not to say that some of these properties aren’t going to be reconfigured, subdivided or redeveloped, but the concept of the power center, to me, remains as viable as ever.

Carol Spieckerman
Guest
11 years 8 months ago

Quick book tout that expands on this: “Retrofitting Suburbia,” Ellen Dunham-Jones and June Williamson’s excellent and prescient pre-recession tome on over-development and over-retailing.

Bob Houk
Guest
Bob Houk
11 years 8 months ago

Bob Phibbs and Jamie Tenser have it right: To the extent that power centers decline, it will be an overall retail decline. These seven points a)are not particularly convincing to me, and b) to the extent they are valid, they are applicable to all retail.

Edward Herrera
Guest
Edward Herrera
11 years 8 months ago

Too many retailers and not enough credit. The buy now pay later credit crack drove the retailing industry. Credit crack is a powerful drug and if the drug becomes more abundant again, I hope many would be able to resist it.

As far as baby boomers, many will outlive their nest eggs and Alzheimer’s is eating more of the disposable income. Retailing will have to get leaner and focus more on necessities then fashion.

William Passodelis
Guest
11 years 8 months ago

Great responses so far and I am in agreement — the retail decline, I also believe, will be an over-all decline and I agree that the decline of the power center is well under way. I think that some of the very first “Mega Malls” of our country really portray this reality. I am thinking of the midwest – St.Louis, Memphis, Cleveland, Cincinnati. In these cities especially, malls that were opened as complete destination centers are now completely dead or struggling to find relevancy. Randall Park or the one time “Forest Fair” for example, and most of the outlet businesses in the immediate location of these mega malls are also now empty.

I agree with the seven points and I think they nicely cover the problems and difficulties facing these centers. Great discussion.

John Crossman
Guest
John Crossman
11 years 8 months ago

Power centers typically have no events, no real marketing, and thus are generic and do not promote community. They are the opposite of town centers and what community retail is truly supposed to be about.

Ed Dennis
Guest
Ed Dennis
11 years 8 months ago

The key to sustainability is value. Every power center thrives when it provides the value it’s customer base demands. When the value proposition falters, the business falters.

Walmart probably has the most sustainable model because of the breadth of its customer base. However, the value proposition at Walmart is heavily skewed to price while other retailers (Nordstrom) have value propositions skewed to service. If the value proposition is maintained and there are no major population shifts then a location will survive. Should a major population shift occur, then people aren’t going to drive miles for service or price.

Sandy Miller
Guest
Sandy Miller
11 years 8 months ago

Look at the issues from a different perspective.

The Aging – will be visited by middle aged shoppers at the time of the highest net disposable income: children grown, house paid for (except of course those who have lost their house).

The Gen X Deficit – will be replaced as the economy improves by shoppers wanting to buy items they desire as well as need.

E-commerce – most people like to shop in a store where they can engage and try products and get assistance from associates.

Frugal chic – this will very likely change as income rebounds.

Rising fuel – another major change is more local area buying which presents and opportunity for many retailers.

Gen Y – this is good news for retailers who are malleable and stay plugged into generational shifts in taste and behavior.

Environmental – the new trend is already to smaller centers, but periodic visits to major centers where shoppers can get more variety will still have their place.

John Fox
Guest
John Fox
11 years 7 months ago
I think it’s a little premature to call big-box centers and power centers dead and even calling for a protracted decline is a bit of a stretch at this point. Power centers are under pressure today simply from over-building relative to demand. About 50% of the space built in this decade was in power- and big-box centers and overactive lending and speculative development has brought us to where we are today. Power centers are inherently more nimble than regional malls when it comes to responding to market changes and the demands of shoppers. The open-air format and shorter-term leases enable power centers to respond more quickly and more aggressively. Let’s consider the points from the article individually. The Aging of the Baby Boomer: This point has some merit. However, power center developers have already developed a hybrid format known as a “power town,” that includes a main street section as in lifestyle centers. This addresses the issues of pedestrian shopping venues, Main Street type business areas and mixed-use retail development, and points to the ability… Read more »
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