January 9, 2009
Dark Anchors Threaten Malls
By Tom Ryan
With tons of stores expected
to close in the downturn, the biggest challenge to either regional or strip
malls is the closing of anchor locations. A high vacancy rate or the loss
of one or two anchor stores "can doom a mall, because shoppers and
new tenants go elsewhere," real estate experts told The Wall Street
Journal.
Anchors are expected
to leave the scene through stores closings – such as Macy’s
decision on Thursday to close 11 stores – as well as outright bankruptcies.
According to Alix Partners, a whopping 26 percent
of the 182 retailers with revenues topping $500 million face a high risk
of financial distress in 2009.
Among those that have
already filed, Mervyns and Steve & Barry’s had served as anchor tenants.
Goody’s Family Clothing, a sizeable mid-priced family apparel chain, announced
plans this week to liquidate its remaining 287 stores. J.C. Penney, Circuit
City and Office Depot also recently announced plans to close stores and
Sears Holdings, Borders and Pier 1 Imports are widely expected to close
locations.
Obviously,
the loss of key tenants inside the mall also impacts the health of shopping
centers. Linens ‘N Things, Ann Taylor, Talbots, KB Toys, Eddie Bauer, Gap, Foot Locker, Levitz, Zales and Disney are just some of the retailers that have
already closed stores or expect to in the coming months.
According to a survey
from Reiss Inc., vacancy rates for malls and shopping centers in the 76
largest U.S. markets rose to 8.3 percent in the fourth quarter from 7.8
percent in the third, the largest increase since 1999.
While dealing with vacancies,
malls profits will also be hurt by demands for concessions from existing
tenants. Retailers in bankruptcy or about to file are pushing to renegotiate
lower rents to stay in business. Stronger retailers are using their newfound
clout in the dismal market to haggle for lower lease rates.
Although the Journal said
many landlords are more open to concessions, given the economic climate,
some landlords claim they’re ready to let tenants fail.
"It’s almost always
in our best interest to keep a tenant if the tenant’s viable," said
Jonathan Gould, CEO of Stonemar Properties LLC,
which owns stakes in 30 U.S. shopping centers. "But if the lease is
well below market, I’m going to let them go out of business."
For retailers, the biggest
benefit goes to those few who are still expanding and are now able to find inexpensive lease rates offered
on locations previously out of their range. These include Best Buy, Costco,
Kohl’s, Forever 21, Au Bon Pain and Family Dollar Stores, among others.
Family Dollar, a chain
of 6,600 deep discount stores, intends to open 200 stores in its fiscal
year ending in August. "We are beginning to notice a little bit of
softening in real-estate rates, and our real-estate folks expect that to
increase over the next year or so," spokesman Josh Braverman told
the Journal.
Discussion Question:
What repercussions will the expected wave of stores closings, particularly
of anchors, have on malls over the next several years? What will this
mean for the relationship between mall managers and retailers?
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The traditional regional mall anchored by three or four department stores is an outmoded model, especially in older inner-ring suburbs. It’s no surprise to see Brookdale (outside of Minneapolis) as one of the Macy’s stores to be closed, and you can expect to see many other examples across the country in the years to come. (The future of Sears is going to be a key factor here.) It’s no surprise that the traditional department store model has lost share over the years to more innovative and value-focused competitors (Walmart, Kohl’s, Best Buy to name a few). The bigger issue is what happens to all the distressed real estate: If a location was untenable for one anchor, why does it suddenly become an attractive property for another–at any price?
One aspect of the change in real estate demand may be more aggressive and creative thinking in the design of malls. If there is a glut of anchor space for malls, the landlords may need to think outside the box (pun intended) on how the mall can be restructured from the anchor and smaller tenant concept to a structure more consistent with modern retailing. This can involve considering transportation issues, alternative uses for the venue, etc.
As more and more anchor retailers close down, shopping malls will become pallid shopping stalls. This will stimulate the innovative juices of the “retailers of the future” who will create new American shopping venues. Thus, all is not lost.
In the current economic environment it may be difficult to determine the cause of declining sales. Is it due to a departed anchor not bringing consumers to the mall or are consumers just not shopping? The latter is more like going to be the issue for the next 12 to 24 months. It simply will not matter that the anchor is dark.
The mall concept has been in decline for years. Consumers simply find malls a hassle to shop. Just like the Department Store, malls need to re-invent the concept to remain viable.
I absolutely agree with fellow panelists above, Gene and Lee, that these times should be viewed as full of the kind of opportunity that rarely comes along.
Our culture has for too long grown accustomed to retail sameness, to mediocrity and the mundane. The macro forces now shaping our economy will have a profound impact on inspiring more creative, bold thinking.
In retail, we are already seeing the outcome of survival of the fittest–fittest in offerings, value, engaging retail environments, intentional customer experiences, and how to win on authentic differentiation.
Paula and Greg get the nod. Consumers simply will not have the level of discretionary spending they had before, so square footage devoted to retail will have to shrink. The shuttered Linens N Things near my house looks mighty lonely…having a struggling mall nearby won’t help housing values.
For years I had always been of the opinion that malls were the new downtown. Well, not really that new, considering malls have been at it for a long, long time. Maybe a replacement?
Lately, with the expansion of plazas and outlying, detached retail, I thought that was changing. On a recent trip to our local mall, I witnessed something quite amazing. It was New Years’ Day. Most of the stores within the mall were closed. It was past the hours of even the anchor stores. Yet, the mall itself remained open. Weird I thought. Yet, in spite of the food court being closed, snack shops closed, and most stores, the mall itself was crowded and a buzz with people up and down the center of the mall. We visited due to a gift card for the local ‘Friday’s’. As best as I could surmise was that the only thing opened were a couple of restaurants and the theater. Even so, the mall was full, the play areas were jammed and people everywhere.
Why? Maybe it still is the ‘new downtown’–the community gathering place. So what’s with the stores? What’s with the anchor stores? Why are they failing? How could they be when the mall is jammed then and typically jammed most every weekend?
I think there remains the phenomenon going on where it remains the gathering place, but not necessarily the ‘shopping place’. What plagues outmoded retailing of the major department stores is the reality that today you can buy most anything, anywhere. That’s not to mention the net. The stores that line the interiors of the malls are mundane, if not boring. The days of ‘open it and they will come’ are gone. They still come, but they don’t buy. Why?
Consumers want a ‘reason’. The world around the consumer is constantly impacted with change and rapid change. They have adapted at a far faster rate than retailing in the ‘mall world’ has changed. Yet they still go there? There are tremendous opportunities just based on a captive audience, yet even a captive audience can resist the mundane or the lack of reason.
The customers are there, but they are buying elsewhere. The same things they would have bought there simply aren’t sold in a way that captures there interest. I suspect that things could change if some time was spent actually talking to consumers in malls as to why their arms are empty of bags and they are still there.
I do not minimize the dire situation of our current economy, but the mall problem has been around for some time (as Dan Gilmore points out).
With regard to lack of anchor stores, when Federated (now Macy’s) bought May company it hit critical proportions…you cannot have the same retailer anchoring both ends of a mall.
With regard to the stores inside the body of the mall itself, the reality is, most malls look alike. Perhaps the A malls don’t look like B malls or C malls, but go to a mall, close your eyes for a second and then re-open them…are you in Miami, Chicago, or Boston? Same stores…same products…it’s a sea of sameness.
Infinite growth is not a realistic proposition. We’ve ruined a lot of virgin land for malls and strip centers and now it’s not clear what purpose they will serve.
Greg Girard and I independently decided some years ago that excess mall space would end up as housing for aging baby boomers someday. The anchor stores would be the housing, and the body of the mall would be our doctors’ offices, exercise areas, and sure, a little shopping too.
This is clearly the most exciting time for retail in the last 30 years. Instead of the same-same rollout of bland, white bread, slat wall boxes and warehouses with no service, retail as we knew it is being innovated before our very eyes. Good riddance to the boxes at the end of the boring line of smaller boxes. Good riddance to the endless parking lots and miles of more small boxes feeding off the slurry. It’s time to innovate, time to think of something new. We should embrace this instead of fretting over it.
The demise of ubiquitous retail started with the internet and will be finished off by the consumer, who, due to a myriad of reasons, has finally started to see the light: boring = good for retailer, not good for me.
Polaris Mall in Columbus Ohio is a good example of what will take place at the malls across the country worth saving: they tore down one of the ‘wings’ of their center and built a lifestyle center in its stead. More engaging, more consumer centric, easier to shop, better retailers and, last but not least: smaller. All those attributes being a sign of things to come. At last.
Not only will the lack of major tenants result in less traffic at the malls, but the loss of the revenue from these tenants will also result in lower revenues to the mall owners. The less revenues the mall owners receive, the less will be spent on the upkeep of the malls, and this will result in a lower quality shopping experience.
The mall owners will have to figure new unique ways to utilize this space. With the slowdown in the automobile industry, maybe it makes sense to combine the two. Maybe car dealerships should look to move into the empty spaces within the malls, and reduce their showroom expenses.
Mall owners need to rethink how they are approaching malls. Malls need to be more focused on being town centers of their local markets. While having a dark anchor is a problem, they need to see it as an opportunity to address the challenges that many malls are having. Far too many are not connecting enough to the community. They need to market the vacant box aggressively and pursue new marketing events to get more traffic into malls. While new mall development is unlikely, malls still have a competitive advantage in being enclosed. They have the advantage of a controlled climate which is an issue in all parts of the US during some part of the year.
Not for the first time, RW contributors are absolutely right in their assessments and suggestions. Reluctance to spend as well as reluctance to buy should provoke a creative and exciting response. Retailers getting started now have a fantastic opportunity to grab the imagination of consumers who are fed up with what has been available in recent years. If we are to encourage spending, we should offer something that is irresistibly tempting. Perhaps the theme “small is beautiful” should be renovated. There has been too much that is too big, including debt. This may well be the time for changing a whole lot of ideas.
While this will be painful, of course, as I have said in the past it seems to me the growth in overall retail square footage has far exceeded the growth of sales for some time, and so inevitably stores would have to be shuttered. This is just accelerating the process. Whether it will lead to a lot of entire strips/malls closing, I am not sure but it seems likely. Some stores that are marginally worth keeping at some malls will not be viable after an anchor leaves, leading to a more closures there, etc.
An interesting but unmentioned offshoot to this is the fact that Sears thought its major value was as real estate play, and a major investor in Target has been trying to get it to do the same (sell and lease back real estate and/or sell some locations to other retailers) as a way to boost stock prices.
Seems to me those real estate schemes are dead for a long while in this environment.
The closure of an anchor store at a mall is retail real estate poison. Imagine driving up to the mall, and seeing this huge deserted store jutting out of the building. But I don’t think the news is that bleak for mall management. There is always room for a discounter to move in and use the space. The mall’s reputation may come into play though when considering this option.
At this point in time, most mall managers in my network are taking leases from just about anybody. Dollar stores seem to be moving in for the kill and are popping up at a furious rate. Some major chains here in Canada such as Dollarama have taken over all or part of these empty anchor locations. Mall management should keep an open mind and fill the space. In terms of relationships, the mall is just another vendor and we have discussed how important it is to have a productive relationship with the vendor. Malls and stores must work together in marketing and customer service initiatives. There are so many opportunities for malls and stores to market themselves together to get customers back in.
A local mall here north of Toronto had a crazy midnight madness sale right after New Years with free hot chocolate and they turned the parking lot into an outdoor ice skating rink. Of course thousands showed up and I saw lineups and full shopping bags consistently through the night.
If the department store is over, this unfortunately leads to the end of the “day” of the “Mall” as well. The Mall was a great idea in the 60’s and 70’s when there were lots of potential anchors and lots of growing suburbs in which to build these ever larger centers of commerce.
The ongoing consolidation within the retail industry makes the possible stores to serve as “anchors” more and more limited. And consolidation will likely greatly worsen in the near future as the economic difficulties place further and further stress upon retailers already stressed to the max with competition and the apparent collapse of “middle of the road” retail.
As a society, we should look at better planning of development– such as “lifestyle centers” which can be associated with buildings of business, condominiums and apartments, as well as proximity to developments of housing —
I can think of several malls in several cities that are termed “dead” and are indeed largely –or completely– devoid of stores in general, let alone anchors. These malls are going to have to be re purposed or removed– In Cleveland Heights Ohio –“Severance Town Center” was completely removed and replaced with a Wal-Mart supercenter and a strip center with a viable mix of stores. — a considerable improvement in development–to the dying mall that it replaced.
Perhaps cost will prohibit redevelopment of some locations however. Real estate companies who will be able to change or modify their thought processes to deal with their older — mistakenly seen as undesirable– properties will benefit and prosper and continue into the future,just as the retailers will need to change and think in different ways as well. One thing is certain – the difficult times will definitely bring more “dark” anchors– the answer is to provide a mix of stores and services to a community which fits and is desired by the demographic served. In a lot of locations, that may not be optimized by a large “mall” building any longer.
Mall development and redevelopment can be stopped in its tracks by the lending drought. Almost all malls have big mortgages. If the developer can’t buy or build or renovate ’cause the bank won’t lend the money, everything stops.
#1 best things all mall developers can do: join the Greens and pay legislators to pass no-growth zoning. No more new malls. No more expansions. No more new strip centers, lifestyle centers, big box locations. No more new convenience store pads. Then turn as much existing space as possible into anything else: classrooms, medical facilities, offices, housing, indoor recreation, etc. Less retail space = less competition = better profits.
#2 best thing all mall developers can do: condo the retail space. It’s just buying wholesale (a mall) and selling retail (a store location.)
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The traditional regional mall anchored by three or four department stores is an outmoded model, especially in older inner-ring suburbs. It’s no surprise to see Brookdale (outside of Minneapolis) as one of the Macy’s stores to be closed, and you can expect to see many other examples across the country in the years to come. (The future of Sears is going to be a key factor here.) It’s no surprise that the traditional department store model has lost share over the years to more innovative and value-focused competitors (Walmart, Kohl’s, Best Buy to name a few). The bigger issue is what happens to all the distressed real estate: If a location was untenable for one anchor, why does it suddenly become an attractive property for another–at any price?
One aspect of the change in real estate demand may be more aggressive and creative thinking in the design of malls. If there is a glut of anchor space for malls, the landlords may need to think outside the box (pun intended) on how the mall can be restructured from the anchor and smaller tenant concept to a structure more consistent with modern retailing. This can involve considering transportation issues, alternative uses for the venue, etc.
As more and more anchor retailers close down, shopping malls will become pallid shopping stalls. This will stimulate the innovative juices of the “retailers of the future” who will create new American shopping venues. Thus, all is not lost.
In the current economic environment it may be difficult to determine the cause of declining sales. Is it due to a departed anchor not bringing consumers to the mall or are consumers just not shopping? The latter is more like going to be the issue for the next 12 to 24 months. It simply will not matter that the anchor is dark.
The mall concept has been in decline for years. Consumers simply find malls a hassle to shop. Just like the Department Store, malls need to re-invent the concept to remain viable.
I absolutely agree with fellow panelists above, Gene and Lee, that these times should be viewed as full of the kind of opportunity that rarely comes along.
Our culture has for too long grown accustomed to retail sameness, to mediocrity and the mundane. The macro forces now shaping our economy will have a profound impact on inspiring more creative, bold thinking.
In retail, we are already seeing the outcome of survival of the fittest–fittest in offerings, value, engaging retail environments, intentional customer experiences, and how to win on authentic differentiation.
Paula and Greg get the nod. Consumers simply will not have the level of discretionary spending they had before, so square footage devoted to retail will have to shrink. The shuttered Linens N Things near my house looks mighty lonely…having a struggling mall nearby won’t help housing values.
For years I had always been of the opinion that malls were the new downtown. Well, not really that new, considering malls have been at it for a long, long time. Maybe a replacement?
Lately, with the expansion of plazas and outlying, detached retail, I thought that was changing. On a recent trip to our local mall, I witnessed something quite amazing. It was New Years’ Day. Most of the stores within the mall were closed. It was past the hours of even the anchor stores. Yet, the mall itself remained open. Weird I thought. Yet, in spite of the food court being closed, snack shops closed, and most stores, the mall itself was crowded and a buzz with people up and down the center of the mall. We visited due to a gift card for the local ‘Friday’s’. As best as I could surmise was that the only thing opened were a couple of restaurants and the theater. Even so, the mall was full, the play areas were jammed and people everywhere.
Why? Maybe it still is the ‘new downtown’–the community gathering place. So what’s with the stores? What’s with the anchor stores? Why are they failing? How could they be when the mall is jammed then and typically jammed most every weekend?
I think there remains the phenomenon going on where it remains the gathering place, but not necessarily the ‘shopping place’. What plagues outmoded retailing of the major department stores is the reality that today you can buy most anything, anywhere. That’s not to mention the net. The stores that line the interiors of the malls are mundane, if not boring. The days of ‘open it and they will come’ are gone. They still come, but they don’t buy. Why?
Consumers want a ‘reason’. The world around the consumer is constantly impacted with change and rapid change. They have adapted at a far faster rate than retailing in the ‘mall world’ has changed. Yet they still go there? There are tremendous opportunities just based on a captive audience, yet even a captive audience can resist the mundane or the lack of reason.
The customers are there, but they are buying elsewhere. The same things they would have bought there simply aren’t sold in a way that captures there interest. I suspect that things could change if some time was spent actually talking to consumers in malls as to why their arms are empty of bags and they are still there.
I do not minimize the dire situation of our current economy, but the mall problem has been around for some time (as Dan Gilmore points out).
With regard to lack of anchor stores, when Federated (now Macy’s) bought May company it hit critical proportions…you cannot have the same retailer anchoring both ends of a mall.
With regard to the stores inside the body of the mall itself, the reality is, most malls look alike. Perhaps the A malls don’t look like B malls or C malls, but go to a mall, close your eyes for a second and then re-open them…are you in Miami, Chicago, or Boston? Same stores…same products…it’s a sea of sameness.
Infinite growth is not a realistic proposition. We’ve ruined a lot of virgin land for malls and strip centers and now it’s not clear what purpose they will serve.
Greg Girard and I independently decided some years ago that excess mall space would end up as housing for aging baby boomers someday. The anchor stores would be the housing, and the body of the mall would be our doctors’ offices, exercise areas, and sure, a little shopping too.
This is clearly the most exciting time for retail in the last 30 years. Instead of the same-same rollout of bland, white bread, slat wall boxes and warehouses with no service, retail as we knew it is being innovated before our very eyes. Good riddance to the boxes at the end of the boring line of smaller boxes. Good riddance to the endless parking lots and miles of more small boxes feeding off the slurry. It’s time to innovate, time to think of something new. We should embrace this instead of fretting over it.
The demise of ubiquitous retail started with the internet and will be finished off by the consumer, who, due to a myriad of reasons, has finally started to see the light: boring = good for retailer, not good for me.
Polaris Mall in Columbus Ohio is a good example of what will take place at the malls across the country worth saving: they tore down one of the ‘wings’ of their center and built a lifestyle center in its stead. More engaging, more consumer centric, easier to shop, better retailers and, last but not least: smaller. All those attributes being a sign of things to come. At last.
Not only will the lack of major tenants result in less traffic at the malls, but the loss of the revenue from these tenants will also result in lower revenues to the mall owners. The less revenues the mall owners receive, the less will be spent on the upkeep of the malls, and this will result in a lower quality shopping experience.
The mall owners will have to figure new unique ways to utilize this space. With the slowdown in the automobile industry, maybe it makes sense to combine the two. Maybe car dealerships should look to move into the empty spaces within the malls, and reduce their showroom expenses.
Mall owners need to rethink how they are approaching malls. Malls need to be more focused on being town centers of their local markets. While having a dark anchor is a problem, they need to see it as an opportunity to address the challenges that many malls are having. Far too many are not connecting enough to the community. They need to market the vacant box aggressively and pursue new marketing events to get more traffic into malls. While new mall development is unlikely, malls still have a competitive advantage in being enclosed. They have the advantage of a controlled climate which is an issue in all parts of the US during some part of the year.
Not for the first time, RW contributors are absolutely right in their assessments and suggestions. Reluctance to spend as well as reluctance to buy should provoke a creative and exciting response. Retailers getting started now have a fantastic opportunity to grab the imagination of consumers who are fed up with what has been available in recent years. If we are to encourage spending, we should offer something that is irresistibly tempting. Perhaps the theme “small is beautiful” should be renovated. There has been too much that is too big, including debt. This may well be the time for changing a whole lot of ideas.
While this will be painful, of course, as I have said in the past it seems to me the growth in overall retail square footage has far exceeded the growth of sales for some time, and so inevitably stores would have to be shuttered. This is just accelerating the process. Whether it will lead to a lot of entire strips/malls closing, I am not sure but it seems likely. Some stores that are marginally worth keeping at some malls will not be viable after an anchor leaves, leading to a more closures there, etc.
An interesting but unmentioned offshoot to this is the fact that Sears thought its major value was as real estate play, and a major investor in Target has been trying to get it to do the same (sell and lease back real estate and/or sell some locations to other retailers) as a way to boost stock prices.
Seems to me those real estate schemes are dead for a long while in this environment.
The closure of an anchor store at a mall is retail real estate poison. Imagine driving up to the mall, and seeing this huge deserted store jutting out of the building. But I don’t think the news is that bleak for mall management. There is always room for a discounter to move in and use the space. The mall’s reputation may come into play though when considering this option.
At this point in time, most mall managers in my network are taking leases from just about anybody. Dollar stores seem to be moving in for the kill and are popping up at a furious rate. Some major chains here in Canada such as Dollarama have taken over all or part of these empty anchor locations. Mall management should keep an open mind and fill the space. In terms of relationships, the mall is just another vendor and we have discussed how important it is to have a productive relationship with the vendor. Malls and stores must work together in marketing and customer service initiatives. There are so many opportunities for malls and stores to market themselves together to get customers back in.
A local mall here north of Toronto had a crazy midnight madness sale right after New Years with free hot chocolate and they turned the parking lot into an outdoor ice skating rink. Of course thousands showed up and I saw lineups and full shopping bags consistently through the night.
If the department store is over, this unfortunately leads to the end of the “day” of the “Mall” as well. The Mall was a great idea in the 60’s and 70’s when there were lots of potential anchors and lots of growing suburbs in which to build these ever larger centers of commerce.
The ongoing consolidation within the retail industry makes the possible stores to serve as “anchors” more and more limited. And consolidation will likely greatly worsen in the near future as the economic difficulties place further and further stress upon retailers already stressed to the max with competition and the apparent collapse of “middle of the road” retail.
As a society, we should look at better planning of development– such as “lifestyle centers” which can be associated with buildings of business, condominiums and apartments, as well as proximity to developments of housing —
I can think of several malls in several cities that are termed “dead” and are indeed largely –or completely– devoid of stores in general, let alone anchors. These malls are going to have to be re purposed or removed– In Cleveland Heights Ohio –“Severance Town Center” was completely removed and replaced with a Wal-Mart supercenter and a strip center with a viable mix of stores. — a considerable improvement in development–to the dying mall that it replaced.
Perhaps cost will prohibit redevelopment of some locations however. Real estate companies who will be able to change or modify their thought processes to deal with their older — mistakenly seen as undesirable– properties will benefit and prosper and continue into the future,just as the retailers will need to change and think in different ways as well. One thing is certain – the difficult times will definitely bring more “dark” anchors– the answer is to provide a mix of stores and services to a community which fits and is desired by the demographic served. In a lot of locations, that may not be optimized by a large “mall” building any longer.
Mall development and redevelopment can be stopped in its tracks by the lending drought. Almost all malls have big mortgages. If the developer can’t buy or build or renovate ’cause the bank won’t lend the money, everything stops.
#1 best things all mall developers can do: join the Greens and pay legislators to pass no-growth zoning. No more new malls. No more expansions. No more new strip centers, lifestyle centers, big box locations. No more new convenience store pads. Then turn as much existing space as possible into anything else: classrooms, medical facilities, offices, housing, indoor recreation, etc. Less retail space = less competition = better profits.
#2 best thing all mall developers can do: condo the retail space. It’s just buying wholesale (a mall) and selling retail (a store location.)