It’s all about entertainment.
As mall operators and developers continue to battle the winds of change buffeting the sector thanks to e-commerce, the obsolescence of formats and changing consumer shopping patterns, their focus to attract the crowds has shifted from simply offering a string of stores and lots of merch to keeping them entertained — in myriad ways.
What about a theme park presided over by a pig? Or a new game that comfbines lacrosse, hockey, basketball and bumper cars, with an element of chance?
Those were just two of the ideas presented at the International Council of Shopping Centers’ annual ReCon conference in Las Vegas last week, which also had something that’s been missing from recent conventions: a sense of optimism.
ReCon 2019 saw new players such as Peppa Pig’s World of Play, a theme park based on the British animated television series for pre-schoolers, opening at Taubman Centers‘ Great Lakes Crossing Outlets in suburban Detroit, and Whirlyball bowing at CBL’s Brookfield Square in Brookfield, Wis., where bumper cars log speeds of up to 50 miles an hour, and the menu includes bites such as ribs, pretzel bites, wings and macaroni and cheese.
“We’re moving away from apparel,” said Tom O’Hern, chief executive officer of Macerich. “Since 2011, apparel square footage is down 21 percent; large format retail, up 24 percent; home furnishings, 12 percent; theaters and arcades, 21 percent, and restaurants, 9 percent.
“There are still a few retailers struggling, but more have open-to-buys,” O’Hern said. “Our leasing people feel pretty positive. There are more tenants to choose from. Some fledgling brands such as Peloton and Untuckit helped reshape malls as failed concepts with remarkably challenged balance sheets such as Charlotte Russe and Gymboree contracted.”
O’Hern said Macerich will open three Altar’d State stores. The Christian apparel retailer, which operates about 100 stores, has a mission statement that reads, “Serving as an inspiration, empowering others, by giving more than we receive, we stand out for good to glorify God.” Dresses range in price from $19.95 to $249.95, with the majority below $75.88. Mission Monday, a weekly initiative, sees the company donate 10 percent of sales directly to charitable organizations.
Stephen Lebovitz, ceo of CBL, said, “We’ve gone through the Bon-Ton closures. Sears has a lot of stores left in our portfolio. We have a dozen Dressbarns, and we’ll be glad to get them back. They weren’t productive and didn’t pay large rents. We’re looking for local and regional brands. This isn’t a cookie-cutter business anymore.”
“Retail footprints are shrinking,” said Mark Hunter, managing director of CBRE retail asset services, Americas. “Two of the most common things it’s being replaced with are residential and hospitals. Apparel is a very trendy business. Active wear was the hottest trend for 10 years, then it slowed down. Everything has its cycles. Right now, apparel is in a down cycle. But people will start to wear more business attire.”
Hunter sees most of retail’s growth coming from value/big box tenants such as T.J. Maxx, Marshalls, Ross and Nordstrom Rack, as well as food and beverage and entertainment, from theaters to escape rooms to fitness clubs. “The U.S. was over-stored 30 years ago, and that trend continued. In general, there’s just too much retail,” he said.
“There are still challenges, but you have a sense of greater momentum,” said William Taubman, chief operating officer of Taubman Centers. “We had a great first quarter. We stayed focused on dominant shopping centers with a distinctive point of view. There are shopping centers that aren’t that distinctive and have great dominance, but the ones with stronger merchandising are the stronger centers. Our sales per square foot are $919, which is head and shoulders above competitors.”
Taubman sold its 50 percent share in three Asian shopping centers to the Blackstone Group. “They’re successful centers, but we have a history of recycling capital for growth once value is created by developing the project,” Taubman said. The company acquired a 48 percent share in The Gardens Mall in Palm Beach Gardens, Fla., its third investment in partnership with the Forbes Company, following The Mall at Millenia in Orlando, Fla., and Waterside Shops in Naples, Fla.
While other developers are eager to add residential, office or hotel components to shopping centers to create density, Taubman said, “In general, we want to focus on creating a great retail project, and where appropriate, we’re adding hotels.
“My tenants are my children. Indigo at the Mall at Short Hills in Short Hills, N.J., is doing extremely well,” Taubman said of the Canadian brand’s first cultural department store in the U.S. “I assume all my compadres are chomping at the bit to get Indigo to make a second deal.”
“Street retail is performing very well,” said Christopher Conlon, executive vice president of Acadia Realty Trust, which in the last 60 days acquired six buildings on Greene and Mercer Streets in Manhattan. “We’ve identified firmness in the New York market, particularly in SoHo, but not on every street. SoHo rents were higher than retailers could afford and were willing to pay. We watched SoHo’s leasing activity and retail performance fall. Rents have recalibrated on many streets.”
Conlon characterized the lower rents as the new normal, and cautioned landlords not to expect prices to go up any time soon. “Those who think this is a temporary dip and are opening pop-up shops until the rents snap back — they aren’t going to be snapping back.
“We’re having a lot of success with young, digital native brands such as Allbirds, Serena & Lily, Outdoor Voices and Reformation. Camp signed a lease at City Point shopping center in Brooklyn,” Conlon said, referring to the entertainment and retail concept inspired by summer camp experiences. “These brands are data-driven and they’re not opening stores for the sake of unit growth.”
Naveen Jaggi, president of retail advisory and capital markets of commercial real estate services firm JLL, agreed. “We’ve seen the market shift,” he said. “In New York, the word is out that Madison Avenue and Fifth Avenue rents are coming down. The difference between ReCon in 2018 is the buzz about store closures and pending bankruptcies doesn’t exist now. Dressbarn notwithstanding, we’re not hearing about store closures,” Jaggi said, referring to the Ascena brand, which on the convention’s first day revealed it would be closing all of its stores. Still, he said, “I don’t think apparel will come back to the scale that it had during the Eighties and Nineties.”
Jaggi and others said large flagships are becoming an endangered species in the wake of the closures of Ralph Lauren, Tommy Hilfiger and Henri Bendel on Fifth Avenue, and Calvin Klein’s Madison Avenue store. “I see flagships in general closing,” Jaggi said. “Retailers are getting smarter about where they put stores.”
Earlier this month, Nightingale Properties agreed to acquire from Coca-Cola the 18-story building at 711 Fifth Avenue where Ralph Lauren’s 38,000-square-foot flagship was shuttered, for $907 million.
“How many retailers are there that need multilevel space?” asked Karen Bellantoni vice chairman of RKF, a Newmark company. “You have to lease all of Tommy Hilfiger and all of Ralph Lauren [on Fifth Avenue]. Are there tenants out there looking for 25,000 square feet of space? It’s more like 5,000 square feet to 10,000 square feet.”
Bellantoni is betting that the coworking craze will end with the sector’s overexpansion. “It’s our next retail trend,” she said, likening the leasing activity to that in the mid-Aughts of banks, which opened on every corner and subsequently closed hundreds of units a few years later. “The banks are starting to come back. I think when there’s bank activity, that’s exciting.”
“The narrative of a retail apocalypse with online killing physical retail — we’re over that,” said Jean-Marie Tritant, U.S. president of Unibail-Rodamco-Westfield. “Westfield is bringing online and offline together. More than one-third of our customers are Millennials. The industry has changed, and new brands are coming such as Untuckit, Warby Parker and Bonobos, which were born online.
“Abercrombie & Fitch is a good partner. Now their stores have a new perspective, and they’re doing better and better. Hollister is doing great. These brands have done a good job of working on loyalty programs. Bath & Body Works is extremely successful, and [owner] L Brands will fix Victoria’s Secret. There’s a lot of experience and talent there.
“We have a plan for each asset, and all assets are in motion,” Tritant said. “At Garden State Plaza in Paramus, N.J., we’re building residential and coworking space on a remote parking lot. J.C. Penney, which is closing, will be a retail play. People today want to live where they work and shop. It’s retail, office and residential and having strong links between them. People don’t want to spend hours in the car. But, the mall in itself will no longer be relevant if you don’t bring to it the capacity to be social.”
Unibail-Rodamco-Westfield is in the midst of a major expansion of Valley Fair in Santa Clara, Calif., where Apple will open a flagship, and a new three-level Bloomingdale’s and dining district are underway. It also will oversee the retail leasing at a new terminal under construction at Los Angeles International Airport with a neighborhoods-theme and modern California attitude inspired by the Downtown, Mid-City and Ocean communities. Westfield Promenade 2035, a lifestyle community with office, entertainment, housing, dining and shopping, will be built on the Promenade Mall site on the corner of Topanga Canyon and Oxnard Boulevards in L.A.
“Luxury brands and home furnishing retailers are becoming more important,” Tritant said. “The entertainment component is something we’re working on. We’ve done lots of repositioning of food and dining. At Westfield Century City in L.A., we built a large central space for bigger activations. Louis Vuitton’s Time Capsule exhibition opened there, even though the mall didn’t have a Louis Vuitton store.”
Eric Sadi, chief operating officer for leasing at Simon Property Group, said he saw interest from international retailers including two from Australia, lingerie label Honey Birdette and the accessories brand Lovisa, which has opened 10 to 15 stores. “We’ve done a lot of stores for Casper. They have a fun and whimsical approach to sleep and wellness,” Sadi said. “Morphe cosmetics has a big social media following and brings energy to a center and Mackage, Canada, is opening stores in the U.S.
Sadi cited Stance, a sock company that’s doing lifestyle apparel, and Suitsupply, “one of our favorite concepts. The look they brought to men’s wear is a different look than everything else,” Sadi said. “We also met with several sneaker brands, including Goat and StockX. There’s a lot of demand in the streetwear category. I had a meeting with Guess, which has a really interesting edge. Carlos Alberini, the new ceo, is collaborating with hip-hop artists.”
Simon invested $1.5 billion last year on its properties, but “it’s not about department stores,” Sadi said. “We try to take a custom approach to each property. Macy’s is innovating and Nordstrom is introducing new brands and broadening the mix. We’re spending $5 billion over the next few years on redeveloping key properties.”
Many at ReCon opined about the recently opened Hudson Yards, with assessments ranging from dismissive of the mall format to praise for the vertical shopping center with Manhattan’s first Neiman Marcus on floors five, six and seven. Webber Hudson, an executive vice president of developer Related Cos., said the center’s opening exceeded expectations. “Fueling our optimism is the fact that three million visitors have already come to Hudson Yards and about 500,000 have walked the Vessel, [a 150-foot-tall honeycomb-shaped public structure]. We’re hearing anecdotally that tenants’ early numbers are rivaling the performances of their stores on Fifth Avenue or SoHo.”
Shopping patterns indicate that tourists are visiting Hudson Yards on the weekend, while “the real affluence of the local shopper comes on weekdays.” Hudson, who’s turning his attention to Related’s mixed-use project in Santa Clara, Calif., said, “The days of getting two or three department stores are over. We’ll have no department stores in Santa Clara. You’re in the heart of the Silicon Valley. We’re talking about concepts that haven’t hit the market anywhere.”
Joanne Podell, vice chairman of Cushman & Wakefield, said, “We’re seeing very big differences from last year. The attitude seems to be that we’re past the bad stuff, including rents. You’re going to see new tenants. We’re starting to talk to them. They have an opportunistic approach to finding locations.”
“Rents don’t make sense from a profit and loss standpoint,” said Steve Birkhold, executive vice president of C&W, and the former ceo of Lacoste, Bebe Stores, Diesel and Earl Jeans, who’s working with Podell on a project that will help young brands navigate the real estate quagmire. “Deals are getting restructured to give flexibility to tenants and an opportunity to landlords to accelerate leasing. How do you create more value for emerging retailers? I mentor a lot of start-ups and smaller brands. Real estate can be daunting.”
Joseph Coradino, chairman and ceo of PREIT, judges the success of the conference by the number of meetings with new brands on his schedule. “Last year, it was 76,” he said. “This year, it’s 118. Our [Fashion District] Philadelphia, [a joint-venture with Macerich], is opening in September. We started working on it 13 years ago. It’s taken on lots of different forms. Originally, it was a fashion outlet. Now, it’s full-price, outlets, off-price, entertainment, flagships and dining. It’s 85 percent committed.
“In the end, it will be a better project, for all the metamorphoses it went through,” Coradino said. “The consumer and the world were changing. Occupancy is running at 94.7 percent and sales are at historic levels of $621 per square foot. Traffic was up 6.5 percent at Easter, and 7.2 percent during a recent merchandising.”
Michael Goldban, Brookfield Property’s head of leasing, said its investment in seven storefronts on Manhattan’s Bleecker Street has been a success. Brookfield signed short-term leases with retailers to generate interest in the thoroughfare, which had fallen on hard times. “Bleecker has been great. The initial activations paid off. We’re seeing lots of brands wanting to sign deals and the rents are improving. The space has all this long-term value.”
Burberry plans to sublease its space on Bleecker Street and Prabal Gurung will leave in August. “The right kinds of brands know how it should be merchandised,” Goldban said. “We’ll always have challenges, but right now it feels like a pretty good time. Retail seems to be finding its footing. I feel like there’s a lot more activity. Sales and traffic at Brookfield Place are up, people are spending.”
Brookfield Place is trying to create a place where there’s more to do than shop. Convene, which opened a 73,000-square-foot coworking space, also opened two theaters with up to 500 seats. “It’s really a flex space,” Goldban said. “We programmed them with product launches, film festivals and live performances.”
Goldban also insisted that Shakespeare & Co., a new tenant at Brookfield Place, host a book signing or book reading once a month. Newly opened Amazon Go is “all about how the retail and shopping experience are evolving,” he said. It’s cool to see how the technology works. It’s like you’re going to the refrigerator in your house, you take something and leave.”
“The retail world today is very bifurcated,” said Steven Levin, founder and ceo of Centennial Real Estate. “There’s a lot of activity in restaurants, theaters and entertainment. When you get into the traditional fashion business, the world, unfortunately, has not been kind.”
Levin claims to be “a retailer at heart,” having grown up in his father’s off-price fashion chain, Margie’s, which operated 60 stores under three nameplates in the Southwest as malls were gaining popularity. “My background is as a retailer. We pre-dated Ross, but our stores were smaller and more upscale. I’m a retailer at heart. I don’t believe that retail is going away.”
Levin wanted to create a gathering place at Centennial centers. “When I was growing up, we didn’t go to the mall to buy a pair of jeans; you’d go because you wanted to hang out. That’s what we’re bringing with festivals and marketplaces. We’re investing millions and millions of dollars into place making.”