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New Formats Drive Retail Developers

The mood at last week’s ReCon convention in Las Vegas was relatively buoyant, as long as the focus is on so-called “A” malls.

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LAS VEGAS — The shopping center sector has always been Darwinian, but now more than ever, it’s survival of the fittest.

With attendance at last week’s ReCon convention here reaching a record high of 33,500 — a number not seen since before the recession — the industry’s mood is relatively buoyant, as long as the focus is on so-called “A” malls. Lesser properties, however, have their backs against the wall as retailers such as Sears Holdings Corp., Best Buy, Barnes & Noble and J.C. Penney Co. Inc. close stores, and a string of other chains go bankrupt.

Many mall operators are selling their underperforming properties. For example, Macerich sold 13 centers in the last 18 months, said Robert Perlmutter, executive vice president of leasing, adding, “They were in smaller markets and were lower-growth assets.”

“We’re also selling C and D malls,” said Joseph Coradino, chief executive officer of PREIT. “We sold three last year and have three for sale now and one in agreement. We’ll end up as a company that owns A and B malls.”

“The strongest survive,” said Robert Taubman, chairman, president and ceo of Taubman Centers Inc. “The mall’s value proposition is its great convenience to customers. If a center doesn’t have the assortment you want, you’re going to go elsewhere. This is a natural progression of what the industry is going through.”

“There’s a great lack of purpose for B and C malls,” said Anthony Buono, executive managing director of retail services at CBRE. “There will be adaptive reuse of buildings. I don’t see growth in the B and C sector. There’s lack of capital and a lack of demand from consumers. B and C malls have a limited life span. B malls will turn into B- and C. Many malls are hindered by Sears and J.C. Penney. Many retailers are now growing on streets in mixed-use developments.”

Even as B-, C and D malls struggle, developers are envisioning a slew of mixed-used projects in urban and ex-urban areas and shopping center expansions and even are reactivating several major projects that had been stalled.

CityCenterDC in Washington is an example. The 10-acre project is five blocks from the White House and will include 265,000 square feet of retail space as well as residential and condominium units, office space and a hotel. The center will open in November with 50 percent of the retailers in place. The remainder will bow in the spring. Michael Ewing, a principal in Williams Jackson Ewing, added that the project is 70 percent leased. Among the retailers are Tumi, Hugo Boss, Longchamp, Burberry, Zadig & Voltaire and Kate Spade, and restaurants such as Daniel Boulud’s DBGB, Del Frisco’s and Mango Tree. Three luxury tenants will reportedly anchor the plaza.

“This is a game-changer for Washington,” said Amy C. Rice, director of Hines, the master developer. “World-class retail is something Washington has been waiting for for a long time.”

Not only Washington. Developments are happening in cities nationwide.

“Although there’s a lot of things happening in malls, there’s interesting projects happening in Chattanooga [Tenn.] and Atlanta and there’s urban renewal in Miami,” said Robin Abrams, a principal of the Lansco Corp. “There’s more and more emphasis on street-front retail and synergistic cotenancies.”

Added Lisa Rosenthal, a broker at Lansco, “In terms of trends, there’s the fact that multiple projects are addressing the underserved commuter population. New York City, more than any urban environment, has a huge commuting population. Grand Central Terminal and the World Trade Center and other venues proved how successful this type of retail could be. It’s exciting to see these projects on a smaller scale, like Turnstyle [planned for Columbus Circle], providing a mix of food-to-go and retail.”

Shopping centers are taking an “if you can’t beat ’em, join ’em” attitude when it comes to the Internet, launching apps, installing Wi-Fi on their properties and experimenting with same-day delivery. They’re also signing leases with new (to the U.S.) retailers to give their centers a distinct flavor.

With so many retailers obsessed with the omnichannel concept, shopping centers are looking for ways to enhance the physical experience digitally. “The story is how do we all exist together,” said Sandeep Mathrani, ceo of General Growth Properties. “We embrace e-commerce. No online retailer is making money. Brick-and-mortar retailers are profitable. They work together symbiotically.”

“Brick and mortar is going to be the heart of omnichannel,” Taubman said. “[Online] companies are opening more stores. It’s essential to establish what the brand is about. We’re providing free Wi-Fi to customers. It’s a T-1 line and very strong bandwidth. We’re doing pickup and delivery. Strong retail stores will be at the heart of shopping, indefinitely.”

Taubman cited Warby Parker and Piperlime as examples of online players that moved into the physical realm, as well as Boston Proper, a catalogue brand, which is owned by Chico’s FAS Inc. Sources at the conference said Yellowbox, an online retailer of footwear, is talking about opening stores, and there was the usual chatter about Amazon and Google planting stakes in the ground. La Garçonne, a multibrand online apparel e-commerce site, unveiled its first brick-and-mortar unit at 465 Greenwich Street in Manhattan’s TriBeCa.

“We absolutely will open more stores,” a company spokeswoman said. “This adds another dimension to our online business.”

David Ruddick, executive director of leasing at Westfield, said, “There’s a lot of reinvention and integration with digital.” The company has developed Westfield Labs, an entity that serves as “a global digital lab focused on innovating the retail ecosystem by leveraging the social, mobile and digital market opportunities that converge the digital shopper with the physical world.”

Greg Miles, U.S. chief operating officer of Westfield, said, “There’s an acknowledgment that you need a physical footprint. Some tenants are using their stores as distribution centers. The most proficient at it is Macy’s, which is using its 800 stores as 800 distribution centers. We’re doing things with apps and with ordering food by appointment. We’re using customer personalization information. People want the showrooming experience. There’s a convergence of store design and the digital experience. We’re rethinking efficiencies.”

Simon Property Group Inc. has been thinking of ways to get closer to consumers. The mall owner and operator just signed a strategic partnership agreement with Refinery29. “We’re developing a series of programs to bridge the gap between online and offline,” said Chidi E. Achara, senior vice president and global creative director. “There’s so much potential to create a sense of community, give the spotlight to smaller designers and connect customers with retailers. A lot of what we’re seeing in terms of digital innovation has an element of getting under the skin of the shopper more and learning about them.”

Simon is also rebranding itself. Achara redesigned the logo and united Simon’s three platforms — malls, premium outlets and Mills centers — under one umbrella. “There’s a unification and elevation,” he said. The official name is now Simon Las Vegas Premium Outlets. There’s a new fashion advertising campaign in publications such as Vogue, Vanity Fair, Elle and GQ. “Fashion is always driven by aspiration. We wanted to reflect that in our identity. We’re fashion-forward without feeling elitist or exclusive,” said Achara.

Claudio Del Vecchio, chairman and ceo of Brooks Brothers Group, said he comes to ReCon to “see things that keep me awake.” Looking over site plans at Jamestown Properties’ booth with chief operating officer Michael Phillips, Del Vecchio said he’s interested in Jamestown, whose properties include the Chelsea Market in Manhattan and Ponce City Market in Atlanta. “We have younger concepts, Flatiron and Red Fleece,” Del Vecchio said. “We’re focusing on a younger, arty customer. We’re experimenting with that. We opened Flatiron stores in Japan and Milan.”

Phillips said he’s looking for upstart retailers from the U.S. or abroad to give his properties a twist. “Serena & Lilly is the most interesting home furniture concept,” he said. “Ball and Buck is a men’s hunting and outdoor concept. There’s Sleepy Jones by Jack Spade, Malia Mills swimwear, John Lobb shoes, Civilianaire Japanese denim and Save Khaki.”

Edens, which develops, owns and operates community-oriented shopping places in primary markets throughout the East Coast, is so keen on new retailers that it sponsors a college challenge with 72 teams participating in the three-round contest. One winner, Follain, a skin-care brand, opened stores in Boston and Nantucket, and is looking for a third location. “There’s a cash award,” said Jodie W. McLean, president and chief investment officer of Edens. “We want to mentor the next generation of retail.” Another winning concept, Artís, a coffee roaster, has moved into wholesale as well. “We’re trying to incubate these concepts,” McLean said. “We want to be part of bringing on the next great wave of retail.”

H&M is bringing two new retail concepts to Manhattan — COS, opening on Spring Street and & Other Stories, bowing at 575 Broadway in SoHo. Daniel Kulle, president of H&M’s North American division, noted that the largest U.S. H&M unit will open this summer. The 55,000-square-foot flagship, which will bow on Fifth Avenue and 48th Street, will be the only Manhattan unit to stock the home collection. “Newbury Street in Boston is rebuilding this summer and we opened a 38,000-square-foot flagship in downtown L.A. [at 735 South Figueroa Street at Seventh],” he said.

New markets in Manhattan are being created by Hudson Yards, the mixed-use development by Related Urban that is rising on the far West Side between 30th and 33rd Streets. Time Warner and Coach have established headquarters at Hudson Yards, which will have seven levels of retail. Among those retailers said to be looking at the site are Neiman Marcus.

“We’re in discussions with people,” said Kenneth Himmel, president and ceo of Related Urban. “We’re not going to overluxuriate the project. About 15 percent to 20 percent will be luxury retail. It will be a nice, broad assortment.”

Part of the emphasis is on destination restaurants, which will occupy the fourth, fifth and sixth levels on the west edge of the project. In addition to Fairway, there will be three anchor tenants in the 20,000- to 25,000-square-foot range and 110 to 120 specialty shops, Himmel said. “There will be 20-plus food outlets and eight destination restaurants,” he said, adding, “[Restaurateur] Danny Meyer is a partner.”

Downtown, Westfield World Trade Center is 15 months away from opening. Miles said, “It’s really moving forward. We’ll announce names when they’re signed.” Giorgio Armani, Tom Ford and Tiffany & Co. appear to be in late-stage negotiations and other interested retailers include Apple, Hugo Boss, Zadig & Voltaire, J. Lindeberg and Victoria’s Secret.

Saks Fifth Avenue is said to be leasing 80,000 square feet of space for a two-story store at Brookfield Place, another project in downtown Manhattan. Ed Hogan, vice president of leasing for Brookfield Properties, said only five spaces remain unleased. “We have multiple offers on those,” Hogan said, declining to comment on prospective tenants. The project, which is opening in the spring, will have a long roster of luxury and contemporary tenants, such as Burberry, Ferragamo, Hermès, Michael Kors, Vince and Diane von Furstenberg. Also said to be part of the project or negotiating are Gucci, J. Crew, Bottega Veneta, Aspinal of London and Vilebrequin.

“I’ve been working on Brookfield Place for 10 years,” said Hogan. “It always comes together quickly at the end.”

His next project is Manhattan West, a 7 million-square-foot development between 31st and 33rd Streets and Ninth and Tenth Avenues. The project has been called the gateway to Hudson Yards. “Given the [population] density of the neighborhood, we think there’s a huge demand for retail,” Hogan said of the project, which is set to be completed in 2017.

Across the river in New Jersey, Triple Five is continuing its efforts to get megamall American Dream off the ground. The long dormant project in East Rutherford, N.J., on April 28 held a ceremonial signing of a project labor agreement with construction unions and Gov. Chris Christie. The center has planned 1.7 million square feet of retail space and 1.1 million square feet of entertainment. Triple Five unveiled new renderings of the facade, which is now a jarring combination of orange and blue panels. It will be replaced with a sleek glass exterior with visual displays of food and fashion, a tasteful logo and glass-enclosed water park. There hasn’t been much progress on the project, which was first envisioned in 2003 by Mills Corp. Triple Five, which operates Mall of America, and has set a 2016 opening.

In addition to the water and amusement parks, indoor skiing, ice skating, an aquarium and observation wheel, there are reports that Saks will operate a series of six stores for brands such as Fendi, Louis Vuitton, Gucci and Ferragamo. A spokesman for Triple Five declined to comment on retailers and Saks said it would “not speculate or comment on unconfirmed business.” Lord & Taylor, which also is owned by Saks parent Hudson’s Bay Co., is said to be an anchor and Toys ‘R’ Us and FAO Schwarz will have a presence along with restaurants such as the Carnegie Deli and Shake Shack. Triple Five has reportedly signed an agreement with Cirque du Soleil.

American Dream isn’t the only stalled project to come back to life.

“Grand Avenue’s back,” said Himmel of the Los Angeles project. “We’re starting to do a lot of leasing.” Grand Avenue was stuck in the early stages of development for more than a decade. The huge property was designed by Frank Gehry and has been built in stages due to the recession. A luxury condo tower is slated to open in the fall, followed by a condo tower in 2015. Construction on the final phase of the project, on a lot east of the Disney Concert Hall, will include two skyscrapers. The opening is set for 2018.

 

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