The real estate giants are having an existential moment, rethinking how to put their square footage to work in a digital age and contending with split-personality retailers wanting to be both bigger and smaller.

This story first appeared in the June 10, 2015 issue of WWD. Subscribe Today.

“Most retailers’ expansion plans are more modest and more selective. Retail chains are undeniably getting smaller after growing for 50 years,” said Andrew Nelson, chief economist of real estate firm Collier’s.

That is, except when they’re getting bigger: “There’s also an increased focus on huge, outsized stores with lots of traffic and visibility,” he said.

Rick Caruso, founder and chief executive officer of Caruso Affiliated, agreed. “There are two paths retailers are focused on: bigger stores and more selective [real estate decisions]. We’re more focused on a curated approach. Our biggest challenge is space.”

And the stakes are high.

The so-called A malls are secure, but B, C and D malls are scrambling to make up for declining foot traffic and to establish shopping concepts for the Internet age. Everyone’s testing new approaches: installing fast-fashion chains in anchor spots, adding restaurants, introducing technology upgrades and generally searching for the magic mix between shopping and entertainment that will bring consumers back.

Those betting on bigger are going much bigger.

H&M just cut the ribbon on a 65,000-square-foot behemoth at Manhattan’s Herald Center, which weighs in as the chain’s largest store, although the Swedish fast-fashion wunderkind said it could unveil an even bigger flagship in the U.S. (Trophy locations don’t guarantee success: Joe Fresh may be downsizing with two of its large Manhattan stores, at 110 Fifth Avenue and 501 Fifth Avenue, on the market).

Mall owners are welcoming fast-fashion and the younger shoppers they bring in with open arms.

Bellevue Collection in Seattle recently gave space formerly occupied by a J.C. Penney to Zara and Uniqlo as well as an “urban grocery.”

“It took 12 years to get Penney’s out,” said Kemper Freeman, chairman and ceo, Kemper Development Co., which owns the center. “It took 30 days to find tenants to replace it.”

Cheap-chic chains are joined in ascendancy by home and furniture stores, taking space that used to go to fashion.

“There’s a job to be done of reinventing the concept of a shopping mall,” said Greg Miles, chief operating officer of Westfield Corp., who is keen on home concepts pitched to Millennials, such as West Elm and CB2.

Like other big players, Westfield is also talking to the U.K.-based discount chain Primark, which sells $1 thongs and $3 sneakers and drives big volumes in Europe.

The international invasion doesn’t stop there. While Inditex’s Massimo Dutti reportedly hasn’t connected with American customers, H&M’s spin-off & Other Stories was seen on many mall site plans at the recent ReCon convention in Las Vegas. “With the cross-shopping factor, H&M has come up with a formula that provides fashion at a slightly higher quality point,” said Stephan Stephanou, a principal at Crown Retail Services. “Have women moved away from brands like J. Crew and is & Other Stories moving into that niche?”

The answer to that question could mean plenty of profits.

Familiar names are also taking new approaches. Chanel, for instance, has unveiled a fragrance and beauty store at the Forum Shops at Caesar’s Palace in Las Vegas, offering a new look from a top-tier brand.

But pumping more life into anchor spots and bringing in fresh fashion names and formats is just part of the way forward for malls.

“Consumers are visiting fewer stores, but there’s higher conversion rates and higher sales,” said Robert Taubman, ceo of Taubman Centers. “We want to keep customers longer. We want to service consumers in a very dominant way. We want to have big assortments with lots of classifications.”

Food can be a point of distinction. And it’s telling that enormous specialty food markets such as Eataly are rolling out new units as shoppers demand healthier options than the fried- and monosodium glutimate-laced fare at food courts.

“We made a critical decision that a portion of the space will be food,” said Christopher Conlon, chief operating officer of Acadia Realty Trust, referring to the four-story retail building at City Point in downtown Brooklyn. The lower level will be dedicated to Dekalb Market, a 26,000-square-foot hall that will be operated by Anna Castellani, a pioneer of Dumbo’s retail scene and the owner of Foragers. At The Mall at Fairfield Commons in Dayton, Ohio, a department store anchor is being replaced by a dining district featuring three new restaurants.

While retail and the mall get reinvented in the U.S., real estate companies are also placing bets abroad, expanding into China, cutting deals to enter India or pumping money into markets such as Japan and South Korea. Some of the industry’s biggest players are looking to get more mileage out of their established nameplates abroad.

Even the beleaguered Russian economy is getting attention.

“We’re here to secure new retailers,” Olga Shevtsova, head of commercial development at Ikea Centres, said at ReCon. “We hope to get Gap and Victoria’s Secret. The middle class is growing fast in Russia and will almost double by 2015. We’re providing a secure route into Russia.”

Ikea Centres, a division of the Swedish affordable furniture giant, is the largest mall operator in Russia and owns and operates centers in Europe and China. It’s investing $2.1 billion to build and redesign shopping centers in the southern and northeastern parts of the country and acquire land in seven cities with populations of more than one million. “Russia is under-saturated in retail,” Shevtsova said. “We’re negotiating with Hollister. Coach would be great. We hope to get Victoria’s Secret beauty in a year. Russian women like fashion and premium brands are booming.”

Rethinkng Real Estate