By  on August 1, 2011

Simon Property Group Inc. is remaking the mix and aesthetics at its Mills properties, which were purchased four years ago and rescued from financial difficulty.

The Mills centers, generally dominated by mainstream outlets, are being cross-fertilized with an increasing presence of regular-price, but value-oriented tenants such as Victoria’s Secret, Aéropostale, H&M, American Eagle and Forever 21, and a higher grade of outlet, including many luxury and designer names. Among the changes, Macy’s will open at Gurnee Mills in northern Illinois outside Chicago, marking the department store’s first location in an outlet center.

Macy’s will be part of a new wing at Gurnee accommodating additional full-priced retailers, though Simon has other plans for significant additions at other Mills centers. To further the appeal and the remerchandising, there’s a push to upgrade common areas and seating areas, modernize bathrooms, and generally elevate the aesthetics in a way that enables tenants to better project their images and moves away from the original decor that brought some whimsy to the settings but stifled individual brand identities. The Mills is encouraging new retailers or those relocating within the property to rebuild storefronts, suggesting taller windows for greater visual impact, and providing allowances to offset costs.

Before Simon took over The Mills in April 2007, in partnership with Farallon Capital Management, “The Mills was basically development-oriented and focused on building the next project. They were not focused on the operating assets, major remerchandisings or expansions,” said Gregg Goodman, president of The Mills. “Now we are all focused on maximizing the assets and [re-designing] the centers in a timeless manner. Part of The Mills’ model was to build the interiors in a cohesive manner that in some cases hasn’t been changed in over 20-plus years. We feel much better served by taking more of a regional mall approach. Tenants will have their own statements.”

“Consumers want one-stop shopping — all the experiences in one place,” commented Richard S. Sokolov, president and chief operating officer of Simon Property Group. “That’s what’s encouraging us to do the new wing at Gurnee Mills. We are not at all concerned about mixing outlets with full price.

“It’s less about the price point moving up and more about the quality of merchandise operating in The Mills getting significantly better,” Sokolov added. “We don’t really view Mills as an outlet setting. We believe it’s much more than that. We marketed Gurnee Mills to Macy’s as a retail project that is serving the northern Chicago suburbs that Macy’s was not serving.”

Of the $500 million Simon is spending this year on redevelopments throughout its portfolio, The Mills division, which has 16 value-oriented retail destinations totaling over 24 million square feet, will get a big chunk. Simon, considered the nation’s largest developer, does not break out how much of the capital budget is earmarked for all of its divisions — the regional malls, the Premium Outlets, the community and lifestyle centers, international properties, as well as The Mills, adding up to 392 properties comprising 263 million square feet in North America, Europe and Asia.

Such nameplates as Macy’s and other regular-priced stores represent “a natural evolution” to The Mills, Sokolov said. He noted the one-level, 140,000-square-foot Macy’s in Gurnee is scheduled to open by spring 2013. The Macy’s wing will also have about 200,000 square feet for new specialty stores. “It’s really an interesting project,” said Sokolov. “It’s going to lead to more of the same in some of our other properties. Macy’s is very excited to see how their full-line store operates in this setting. If they like the results and we like the results, we certainly have other opportunities to market to them.” Judgment day on Macy’s is roughly a year after it opens, giving both companies enough time to monitor the Macy’s performance.

Among other Mills projects, the flooded out Opry Mills in Nashville is being redeveloped and scheduled to officially reopen in March though four anchors are expected to be in business for the holiday season, and Arundel Mills in Baltimore is converting parking lot space to a casino called Maryland Live, which opens in June. All Mills properties, Sokolov stressed, have “significant amounts of land that are available” to accommodate new tenants, particularly those with bigger formats that can have difficulty finding large enough spaces in other malls.

By moving The Mills model to a hybrid format, “customers are going to find whatever they want, independent of price point,” Sokolov explained. “If you go through our Mills properties, you’ll notice that we have a significant number of retailers that operate in power centers, malls and outlet centers...Neiman’s Last Call, H&M — these [retailers] are becoming very broadly positioned. When we open an H&M in a Mills, we find the per-square-foot productivity comparable to an H&M in a better regional mall.”

Over the last few years, outlet centers have generally outperformed traditional malls, but Goodman said that’s not necessarily the situation at Simon. “I don’t know if I would say that one format is outpacing the other. There are high-flyers and superstars in each sector,” he said.

The standout is Sawgrass Mills, near Ft. Lauderdale in Florida. It’s the most productive property in The Mills family of centers, generating in excess of $1 billion in sales annually and is considered the largest outlet destination in the U.S. with more than 350 stores, six restaurants, two major food courts and entertainment components.

Sawgrass is redeveloping its Wannado City space into 140,000 square feet of shopping including Under Armour Factory House, DKNY Company Store, and Outlet. Also planned is a 40,000-square-foot addition to The Colonnade open-air wing which houses The Mills’ most upscale outlets such as Neiman’s Last Call, Bloomingdale’s Outlet, Saks Off 5th and more than 40 luxury fashion brands such as Giorgio Armani and Prada. The addition will bring in more than 20 new stores, which will open in fall 2012.

“The tenants for the most part are not those with a lot of stores,” Goodman said. “They have a very short list of addresses.”

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