Mall Owners Facing Up to Facts

Discussion
Jun 01, 2006
George Anderson

By George Anderson


Drive past malls today and you’ll see sights that no one would have predicted even a few short years ago. Stores such as Best Buy, Home Depot and Target have become the anchors that drive consumer traffic to malls.


Traditional department stores, on the other hand, have focused on the high-end of the business to increase the average ring and profits even as overall sales slow.


Paco Underhill, president of Envirosell, told The Washington Times, “Most mall owners have woken up to the fact that the department store industry isn’t the traffic driver in 2006 that it was when many malls opened.”


“The higher end the shopping mall is, the higher end the department store is, the less the department store is depended on for traffic,” he said.


According to Mr. Underhill, the economics for department stores has changed. He cited Neiman Marcus as an example. One of its stores could get by on as few as 10 shoppers who spent $50,000 on a shopping trip. While this expenditure would seem ludicrous at the typical supermarket or other lower ring businesses, it is not out of the realm of possibility for Neiman Marcus.


Interestingly, while many department store chains such as J.C. Penney and Sears are looking at stand-alone locations to help them increase consumer traffic and bottom line performance, others are looking at malls as a means to increase their reach.


The reason chains such as Bed, Bath and Beyond and Linens & Things have done well in mall settings, according to Cynthia Cohen, president of Strategic Mindshare, “is that the demand for some of these category killers is still unfulfilled in many neighborhoods.”


Conversely, said Mr. Cohen, “You would not say that the demand for department stores is unfulfilled.” 


Moderator’s Comment: What factors do you believe are driving traditional mall stores to stand-alone locations while retailers that have focused on stand-alone
sites are now moving into malls? Of the two trends, which side (stand-alone to mall or mall to stand-alone) do you see benefiting most from the switch?

George Anderson – Moderator

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4 Comments on "Mall Owners Facing Up to Facts"


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Mark Hunter
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Mark Hunter
14 years 9 months ago

Shopping as a recreational activity continues to decline meaning people don’t want to go to a mall and linger from store to store as if on an exploration. Consumers today are more focused on buying and therefore want to be able to minimize the amount of time not actively engaged in buying. Simply put, consumers want to park close to the one store they intend to visit, get in, make their purchase and exit. The one who gets hurt in the decline of malls are the small shops that relied on anchor stores in a mall to create the traffic that would walk past their storefront.

Mark Lilien
Guest
14 years 9 months ago

People don’t sign leases unless they expect to make a profit. Mall owners know they need sustainable traffic. They’re well aware that most retail concepts are boring me-too stores incapable of drawing motivated shoppers. Mall owners have less and less leverage given the consolidation of the retail industry and the scarcity of credit tenants (tenants whose leases are finance-worthy at a bank). Big box retailers want to minimize rents and common charges, so they often look for locations in the parking lot outside the mall, or “snuggle-up” locations adjacent to malls. The lack of major mall construction is a blessing to the landlords. The real sufferers are the tertiary strip location owners. There is so much extra real estate of this type in some locations that the true rental value is close to nothing.

Don Delzell
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Don Delzell
14 years 9 months ago
Regional malls were sited in locations intended to maximize the draw from relatively high value shoppers. The density in the immediate area was insufficient to support critical mass for stand alone retailers. As time passed, stand alone operators became off-mall strip anchors, but insufficient real estate existed to support the growth of such destination retailers. Population demographics have changed. The suburban locations with insufficient density now HAVE the density to support limited niche destination stores (as opposed to mass purpose malls). This makes mall locations valuable for that type of operator. Added is the saturation within metro’s of the off-mall prime locations, coupled with the lack of draw by current malls reducing the drive-by component. Real estate siting software includes a ton of variables which very accurately predict and explain what is happening. Mall operators are seeking to fill space first, and create synergy within tenants second (because they have to fill the space). BBY and others fill space, are destination shops, and the mall itself is now sited within critical density parameters for the… Read more »
James Tenser
Guest
14 years 9 months ago

It used to be that specialty stores lived off the traffic that moved between several department stores that anchored opposite corners of the mall. The formula worked in the 70s and 80s because shoppers visited department stores as a form of recreation.

Today, the Macy’s, Penney’s and Sears of the world don’t have the same drawing power, in part because of the assortment depth of category killers and the price competitiveness of mass merchants. Today’s mall visitors are more likely to be drawn by 12 movie screens or a food court. They are more likely to linger at the Apple store.

Nothing ever stays the same in retail. If the old mall anchor paradigm has gone stale, it makes sense that mall owners would seek new tenants that bring more excitement to their locales. That implies that department store operators must reconsider their own ways of being – maybe a fresh look at the format is in order for those large operators.

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