Mall-Mart
By George Anderson
Just as mall-based retailers such as J.C. Penney and Sears are increasingly looking to build standalone stores, others that have traditionally done business in freestanding locations are opening new units that often serve as mall anchor stores.
The latest such case has Wal-Mart agreeing to open a 150,000-square-foot store in the Richmond (Cal.) Hilltop mall. Unlike the standard single-story Wal-Mart box, this new unit will be spread over three stories.
“It’s a different format, but it has really been well received by our customers and they’ve been very helpful and successful in revitalizing these areas,” said Wal-Mart spokesperson Kevin Loscotoff.
Revitalization is something the area and mall were in need of, reports the Contra Costa Times. The Gap, the Limited and Eddie Bauer have all closed stores at Richmond Hilltop in recent years.
Steve Duran, Richmond’s community and economic development director is hopeful this is the start of good things for the community. “Once you have the Wal-Mart traffic in the mall, presumably the other stores at the mall will do better and we hope it will stimulate other retailers in the mall area,” he said.
Moderator’s Comment: Why are Wal-Mart, Target and other retailers that usually operate freestanding units opening stores in malls? Aside from operating
on multi—stories, are there other differences such as merchandise selection in Wal-Mart’s mall stores than in standalone units? Are the mall locations as profitable as Wal-Mart’s
freestanding stores? –
George Anderson – Moderator
This move by Wal-Mart, especially here in WM-resistant Contra Costa County, accomplishes three things: First, it garners the support of retail partners and commercial real estate brokers. Second, it obviates the need for negotiating costly parking rights, road building, traffic lights, access, and egress rights with the local government. And third, it eliminates the need to placate residential neighbors who object to the traffic, noise, and lights.
Wal-Mart is just reacting to an opportunity that mall decay has presented to them. Wal-Mart is so strong right now that I believe they can be successful in either type of location. And their presence in a mall should help the entire mall with greatly increased traffic counts. As has been mentioned, they will have much less resistance from the community and maybe even be welcomed as the mall saviors. What a turnaround!
The short answer is that they are going into malls because they see an opportunity to succeed where others may have failed and, in the process, invade and conquer more retail space.
One reason that Wal-Mart is going to some malls is because it’s a way for them to build a store in an urban area and be welcomed at the same time. In hilly areas (i.e. Ohio River valley), it might be the only developable land available. Landlords and community development departments are finding this is an excellent way to revitalize a “dead” mall that has succumbed to the realities of decaying urban areas. Still we get the radical anti-Wal-Mart extremists who fight this. So then you get a Target that doesn’t carry the same political baggage as Wal-Mart. I saw two recently in Ohio – Canton Centre Mall in Canton and another in Steubenville. In Milwaukee, an older crime infested mall anchored by a Target was torn down and replaced with a Wal-Mart. In most “mall” situations, Wal-Mart is probably looking to have some, or all, of the mall demolished and replaced with a new store. They have also been very innovative in getting local governments to help pay for the projects.
Could it be that Wal-Mart finds less public resistance to a mall location instead of a stand alone store? Perhaps any city that has a new mall going in is already resigned to the fact that many local stores will be hurt.
I agree that Wal-Mart and Target are probably getting favorable mall leases. Another important consideration is that, unlike other store anchors, these stores drive customer traffic to the malls. An observation I’ve always had is that many people that go to the mall appear to be there for social reasons (they aren’t carrying any merchandise). One hit against locating in a mall is that carts usually don’t translate well in mall parking lots, reducing the amount of goods a customer might purchase to what they can easily carry out.
Certainly an interesting proposition! We are seeing a true paradigm shift in consumer spending preferences. This can be attributed in some part to two factors. 1. Big box discounters are working hard to upgrade their assortments (Wal-Mart selling Nike and Sony, for example). 2. Traditional mall tenants and anchor retailers are losing ground and closing locations.
Consumers are not as satisfied with the traditional mall oriented retailers and are moving to value driven providers. Opportunistically, the very large vacant spaces open new opportunities for discounters such as Target and Wal-Mart. Additionally, with the prospects of long-term vacancy, leases on these spaces are favorable. As states and local government in the US continue to attempt to prevent new construction of stores over 100,000 sq ft., taking occupancy of a closed mall anchor store is a natural opportunity for the big box discounters.
Of course there are high remodel expenses associated with taking over a lease that does not have refrigeration lines or other necessary elements in place. However, when faced without an opportunity to grow due to local size restrictions, this is a natural opportunity for the big box retailers to grow. Successful retailers will always find a way to propagate their growth and their opportunities to grow.
The real question here is: will this move be good for the smaller retailers who in the past rode the coattails of traffic generated by traditional mall anchors? Increased traffic is certain, but big box discounters carry many of the products and services that the smaller retailers sell. They will face the same challenge all retailers face today, differentiate or die.
My mentor always told me that the key to site selection is “location, location, location.” OK, it’s not original. But think about this: malls located in the most advantageous space available based on drive patterns, population trends, and available space. Certainly malls have fewer options than stand alone stores because of the total space requirement.
As Wal-Mart and Target expand, mall anchor locations can provide very attractive “locations.” The economics of malls undoubtedly lead to attractive lease rates, although I do not know this as a fact.
The retailers (and I’ve seen Target overcome this) must overcome some logistical and operational difficulties associated with the space configuration. Carts don’t go up and down escalators very well, and seldom are elevators sufficient for rapid flow of customers in high traffic periods. Single check out locations are frustrating in a multi-level space, but having to go through multiple check out lines to buy things on different floors isn’t a great answer either. Stock rooms are spread out, and the floor replenishment labor management is very different than with a centralized large storeroom.
Malls themselves need to look beyond the short term and assess the actual fit of a “one stop” retailer with the mall concept. Malls themselves, in addition to being social, met a need by becoming a “one stop” location due to the breadth and number of stores under one roof. Retailers such as Wal-Mart and Target don’t really succeed by having customers fill the “market basket” from other niche retailers. It’s all about meeting as many needs as possible. So I would challenge mall operators to understand that the mix of occupants probably needs to shift based on the nature of the new anchor.
They are moving to malls because the cornfields are fewer and fewer. They need so much space for the store, fire lanes and parking! If they want to be in a “developed” area, that is most likely their only choice. Target, it seems, is changing their format – they are more like a department store and less like a Wal-Mart every day. Target may belong in a mall setting more than Wal-Mart.
Yes, they do drive traffic to the mall but how many customers actually go into the mall? I have a mall Target near me, I have never gone to Target and the mall. I treat it like a strip mall Target. I drive to the door, go in and out.
The selection of merchandise is the same at the stand-alone and mall locations.
I know that Wal-Mart and other retailers are getting some really good leases from mall operators who are afraid they are going the way of the dodo.
I’m not sure about merchandising differences between mall and standalone stores or their relative profitability. If you want to know more about malls, I suggest everyone read Call of the Mall by consultant Paco Underhill. Some fascinating insights.