Deal with it.
This story first appeared in the December 8, 2014 issue of WWD. Subscribe Today.
In an era of declining foot traffic and rising Internet sales, developers say they’re defending their turf.
They’re renovating and re-merchandising their best properties, bringing in higher-grade restaurants and groceries, tapping technology and, in some cases, embracing the Web to improve the shopping experience and stay relevant.
“The food court is passé,” stated Michael Kercheval, president and chief executive officer of the International Council of Shopping Centers.
Aside from Christmas-tree lightings and appearances by teenybopper pop stars, malls have historically left it up to their retail tenants to market to and connect with consumers. Now landlords say they’re working to get a better handle on who their shopper is, to gather data, to establish ties with consumers and even to give the mall itself some ‘‘brand identity.’’
Those distressing reports on dwindling traffic, some developers say, are exaggerated, and don’t pertain to all malls. They report occupancy and productivity rates at many properties are healthy. They also say that currently about 8 to 10 percent of what people buy happens on the Internet, and that’s still a small part of the overall retail picture, though online activity is rapidly growing.
“Five years ago, the Internet represented 3 or 4 percent of sales. In the next five years it could be 15 or 20 percent of the overall picture,” said Ken Himmel, president and chief executive officer of Related Urban.
The key to staying relevant, Himmel advised, is investing in and re-merchandising your A properties, meaning those that are most viable and productive. “As long as you keep them current and fresh, these assets will just get better and better,” Himmel said. A focus on food and beverage is where Himmel sees “a lot of creativity….In fashion retailing, there’s not enough happening to make a difference.”
But of all the nation’s malls, A-listers represent roughly 20 to 25 percent; B and C properties, which are experiencing greater traffic declines, represent about 75 percent, and of that group, half are marginal, according to Himmel. A properties include Related’s Time Warner Center in Manhattan, and other projects Himmwl was involved in with other partners like Water Tower Place in Chicago, owned by General Growth Properties.
Euclid, a provider of in-store retail analytics, reported that traffic declined 6 percent on average during the first 11 months of 2014 and that the trend will continue through 2015. In the last three months, traffic dropped 11 percent.
According to Customer Growth Partners, which tracks people crossing lease lines intending to shop, not those in the malls just for food or a movie, saw a softer decline in mall traffic over the last three months — 3 percent at A malls, 6 percent at B malls, and 8 percent at outlet centers. “A side effect of the lower footfall is that conversion rates, on average, are slightly higher than last year, indicating that people who do go to the mall are slightly more likely to buy something,” said Craig Johnson, president of Customer Growth Partners. He pegged the decline in traffic to “the secular weakness in consumer spending, the migration to online and greater spending on non-discretionary items such as food and health care, and less at discretionary-focused mall stores.”
Does the Simon Property Group, the nation’s largest shopping center developer, see less traffic in its properties? “That’s a hard question to answer. We don’t count the cars,” said Thomas J. Schneider, executive vice president of Simon Property Group.
Simon’s Roosevelt Field mall in Garden City on Long Island, which attracts an estimated 22 million visitors annually, “is so crowded. I think we are getting the same traffic this year, or better,” Schneider said. “Volume here has certainly increased, from $800 in sales per square foot about five years ago, to currently over $1,000. The better malls do great. There is no question that some malls probably don’t do that well. But it’s a misstatement to say that the mall is dead. It’s just not true.”
William Taubman, chief operating officer of Taubman Centers, has a pat response to those pundits who say malls are dinosaurs: “I tell them, ‘What do you know about how women shop?’ ”
Still, Taubman acknowledged, “Traffic has somewhat declined. Consumers are researching online and are much more efficient about shopping trips. They may not be shopping as many stores, because they are doing research online. Before, they might have gone to five stores. Now they’re only going to three. But conversions are up. Mall traffic has been OK and has clearly picked up since the holiday season began.”
Taubman Centers is testing new technologies, including the StepsAway app, called SAMobile, that lets shoppers use their smartphones to search for deals by category or store name while at the mall. A number of malls with several national chains — including Express, Sephora, The Art of Shaving, Things Remembered and Kay Jewelers — are involved. From their headquarters, retailers use the cloud-based SAConnect to create and deliver promotions to smartphones. When the retailer hits start, it’s delivered to the mall’s guest Wi-Fi network.
This holiday season, Taubman malls set up ice palaces inspired by the movie “Frozen,” in partnership with Disney. The 30-foot-tall structures, rigged with snow, icicles and characters from the movie, have been drawing long lines. The tableaux includes “Frozen” stores that Taubman cobbled together. “For the first time, we are actually acting like merchants,” said Taubman.
At Roosevelt Field shopping center, Simon is bringing in Neiman Marcus; adding a specialty wing for upscale stores, right next to Neiman’s; and creating a restaurant area with indoor and outdoor seating and an elevated ambience that transcends the traditional food court. Annually, Simon has been spending $1 billion on 10 to 15 mall projects a year, including the Del Amo mall in California that is undergoing a total remake and adding Nordstrom.
“We have really been focused on improvement of the existing portfolio,” said Schneider.
Last fall, Simon partnered with Refinery29 to create “The Shopping Block” at six of its properties. The Shopping Blocks were one-day pop-up mini marketplaces aimed at Millennials, occupying around 1,600 square feet in the common areas and selling products from local and emerging designers and indie boutiques, as well as national brands. The format also had beauty bars with makeup artists and mini makeovers, sweepstakes for shopping sprees, “stylist concierges” to help Millennials learn about fall trends and where to shop them, DIY stations and local influencers like bloggers. The idea is to provide an event at the mall that will lure more Millennials to shop and get a lift in business.
“We have noticed that shoppers do tend to have more purpose in their shopping trip. So while traffic is rumored to be down nationally, conversion rates are up,” said Joseph Coradino, ceo of the Pennsylvania Real Estate Investment Trust. “We can probably attribute this to Web-rooming — shoppers researching what they want and where they’re going to get it in advance and then going directly to their destination, which allows the mall to be both a social gathering place and a convenience for those who are time-starved.”
“The strong urban retail districts haven’t seen any slowdown in traffic. Our urban malls are as busy as last year. We don’t have suburban malls in our portfolio,” said Ed Hogan, national director of leasing for Brookfield Office Properties, which concentrates on urban malls in New York, Washington, Houston, Los Angeles, Toronto, Calgary, London, Sydney and Perth. “If you’re just a standard mall, undifferentiated from another mall 100 miles away, people can buy the goods in those malls online. But if you have an exciting venue with rich experience, you can be successful in an urban or a suburban setting.”
“The top centers are seeing the healthiest traffic — from The Westchester and Short Hills to Bal Harbour and Aventura to South Coast Plaza, shoppers are buying some of the best luxury merchandise in the world and fine dining in the world,” said Faith Hope Consolo, chairman of The Retail Group of Douglas Elliman Real Estate. “Shoppers also are visiting the best midpriced centers, including Queens Center. Where do they not flock? To older B- and C-level properties, which may be skewing the statistics for everyone else.
At the Aventura Mall, an A center in Aventura, a suburb north of Miami, “We did have a lull in the summer because of the World Cup, but in general our traffic is very strong,” said Jackie Soffer, cochairman and ceo of Turnberry Associates, which owns Aventura Mall. “We are constantly improving our property and our tenant mix, taking out less-productive stores and bringing in stores in high demand. That all translates into traffic. We have more demand for space than we ever had.”
Among the changes over the last couple of years, Lululemon expanded, and Cartier, Brooks Bros., Louis Vuitton and Lacoste opened stores, and an expansion of the center is planned, mostly for small shops. “People still want to go out and be entertained, especially when they are on vacation and shopping is a big part of it,” Soffer said.
Among other service innovations seen at malls: apps that help find a parking place and remind drivers where they parked; stronger Wi-Fi signals; beacon technology that, via smartphone, welcomes customers to the center, notifies them where sales are happening and can organize home delivery of shopping bags. Some malls this season have Santa’s helpers to help with finding a store or a coat check.
Westfield is testing pre-ordering from the food court. If there’s a family with three kids — one wants pizza, another wants a burger and the third wants a taco — Mom can pre-order and pick up everything at one location. Earlier this year, Westfield’s Garden State Plaza, in Paramus, N.J., set up what looks like a giant iPad, where shoppers can buy from retailers items that would be online but not necessarily in the physical store. The device streams high-definition, larger-than-life photos of products from a host of retailers in the mall, including Nordstrom, Michael Kors, Ann Taylor, C. Wonder, Macy’s, Maje, Sandro, Vince Camuto, Microsoft and Bose, beckoning shoppers to scroll, zoom and rotate the “curated collections of ultrahigh-definition images.”
“Across the board, center operators are catching on. Westfield, Simon, Macerich, Taubman — they’re all recognizing who they must partner with to create seamless shopping experiences,” said ICSC’s Kercheval.
Today and Tuesday, the ICSC’s New York National Deal Making Conference is happening at the Jacob K. Javits Center, in a shift from the Hilton and Sheraton Hotels where it had been staged for years. The conference brings together owners, developers, retailers, brokers, lenders, municipalities, property asset managers and product and service providers to make deals, form partnerships and network. “The nice thing is now we are under one roof,” said Kercheval. “We outgrew the Hilton and Sheraton years ago. We’ve taken the lower level of the Javits. The exhibition space doubled,” from 162,000 square feet versus 80,000 square feet at the old venues, while the number of exhibitors has grown to 486 this year, from 310 last year. “If the industry is dead, this sure doesn’t show it.”
Kercheval agreed with Related’s Himmel that innovation and re-tenanting the mall largely revolves around food. “A number of food retailers — Mrs. Green’s Natural Market, Whole Foods and Trader Joe’s — have gone into some of those spaces and have done extremely well,” Kercheval said. “The share of space being leased to food has gone up significantly. Whole Foods brings big stores, but they’re also looking at smaller footprints. Mrs. Green’s is cherry-picking high-income niche markets. It’s not a huge store, maybe 20,000 square feet.
“In every country of the world except the U.S., groceries are anchors of shopping malls — but more and more landlords are liking grocery stores.”
On the restaurant front, years ago The Cheesecake Factory, Red Lobster and Olive Garden were mushrooming in malls. Now there’s a trend to higher-priced restaurants like Bahama Breeze and The Capital Grille, as well as Smashburger and Shake Shack.
“Food courts are passé and are being redone and replaced with these kinds of concepts, net net ending up with more food, higher-quality food, and greater diversity,” Kercheval said.
On the apparel front, fast-fashion chains from overseas continue to add space, Kercheval said. H&M, Forever 21 and Zara have a few years of expansion under their belts already while Uniqlo and Topshop are just beginning to grow. H&M is leaning toward two-level boxes, to fit men’s, kids and women’s in, as opposed to taking single-level sites earlier on. Primark will enter the U.S. with a 70,000-square-foot store in Boston in late 2015 on the site of a former Filene’s Basement unit, and has seven other sites lined up where space from existing Sears stores will get carved out.
“When you talk to the mall owners, they point to their sales and their sales per square foot, which are at record highs,” Kercheval said. “We have pretty robust year-over-year 4 percent comp sales at shopping centers. They are seeing rising sales, and it’s not because of inflation. It’s due to people buying more items.”
If each person visiting a mall spends more, then the traffic levels become less of a concern, Kercheval said. He expects spending to continue to rise. “People are feeling good about their jobs and incomes, and feeling more wealthy. A lot of debt was paid off in the recession. There is lot of borrowing capacity, but credit card debt is not going up. So the consumer is feeling pretty good from a balance-sheet and income-statement perspective.”
For every penny that the price of gasoline drops, another billion dollars is added to discretionary spending, he added.
Kercheval, who plans to retire in 2016 when he turns 60, said it was his decision to leave ICSC and that he plans to spend more time with his family and doing volunteer work, including youth leadership-development and community-service projects in Latin America. The search for his successor will begin in the spring, and he could leave ICSC sooner if a candidate emerges. During his tenure, ICSC membership doubled to 70,000 from 35,000, and the attendance figures at the conference are encouraging, at more than 8,100 people, which is about 600 more than last year’s. The increase is largely due to greater interest from outside the U.S.
Sometimes retailers complain about mall traffic, Kercheval said, to “manage expectations. There will probably be more upside surprise than downside surprise this holiday season, provided there’s no strange weather, economic or political event.”