Fall 2003
Developing the Future

The world of shopping-center development is anything but static. Plans are on the board for 19 shopping centers—malls, urban villages, festival marketplaces and other major venues—to be built in the US through 2005, according to the International Council of Shopping Centers. While this number is small compared to the 28 centers built between 2000 and 2002, it is noteworthy nonetheless. And these plans don’t include expansions and renovations to existing centers (of which there will be many). Nor do they include the continuing trend of developers swapping properties by means of mergers and acquisitions. CBL & Associates Properties, Inc. alone acquired 36 malls since 1998, and is expected to add more to their portfolio. And (as of this writing) the Simon Property Group/Westfield America bid for Taubman Centers is in play, which, if successful, would also change the map of the world of malls. (Because action is pending, those companies declined to provide information for this article.)

When developers build or renovate, expand or acquire, they often increase and enhance their specialty retail programs. Developers need specialty retailers to fill the centers’ common areas—to set up shop and fill otherwise empty areas with attractive, profitable retail “stops”: carts and kiosks with the right product mix to attract shoppers to the common areas and keep them shopping longer.

What does all of this activity mean for specialty retailers? It means opportunity. Specialty retailers need strong, well-marketed centers to draw the right mix of customers through its front doors, down its aisles and right to the carts, kiosks and temporary in-lines. It’s a good match between developer and specialty retail; a balanced proposition.

It’s not easy keeping your finger on the developer’s pulse these days, but it’s necessary. New properties and new ownership equal new places to do business and new people to do it with. They’re the retail/entertainment destinations where sports enthusiasts come not only for the shopping but the doing—the skate parks, ice skating rinks, movie theaters… or the regional centers where a sense of community embraces the customer, and fair prices and family events are the big draw… or the tourist spots with outdoor shopping venues that let sun-followers shop without missing a ray. As a plant withers and dies without the right elements, so does a specialty retail business that isn’t planted in a location that feeds it the right “nutrients”—types of customers, and more—in order to survive and flourish.

But that’s not the only reason to study these movers and shakers. You need to learn about their philosophy, their vision, the way they do business. Every shopping center, and its staff, comes with different expectations, different standards, a different mix of stores and, yes, a different rent structure. While it’s tempting to pick up the phone and ask, “How much rent do you charge?” get to know the center a little better first. Then when the time comes to pitch your idea, you can confidently sit back, business plan in hand, and answer exactly why you came to them. And that just might seal the deal.

‘Bye mom-&-pop, hello specialty retailer

imageBack before people shopped with cell phones stuck to their ears, you could have square-danced in the common area. And when the Christmas displays came out, so did the carts, which disappeared when Santa left. “I remember when they cleared out the malls in January and did the floors,” says Deborah Georgetti-Piro, VP of Main Street Retail for The Mills Corporation (Arlington, VA). “Now [specialty retail] is budgeted income, and everyone’s doing it. The industry as a whole is growing up.” Heidi L. Cardall, director of specialty retail for CBL & Associates Properties, Inc. (Chattanooga, TN) concurs. At one time “it was extra money that was nice to have,” she says. “Now the income is necessary for our bottom line.”

Elaine Berger, VP of specialty leasing for the Pennsylvania Real Estate Investment Trust (PREIT), was hired more than 12 years ago to start their specialty-leasing program. The trust had four malls and a total of 12 carts when she signed on. Today, she oversees more than 300 RMUs in 17 malls. But size isn’t the big news: it’s how the specialty retailer has evolved from the mom-&-pop model to specialty retail as it exists today. The mom-&-pops, the “crafters,” are still here, but “now we have a new breed of retailer,” says Berger, “the common-area specialist” who operates several units as the primary business. This is in contrast to earlier days, when cart retailers focused on one cart and one product, usually as a second income.

Jeff Gregerson, VP of specialty retail for CBL, interacts with the new breed as well. “The experience and education level of the temporary tenant has changed greatly. They’re more sophisticated retailers,” he says. There they are, multi-tasking every facet of specialty retail: merchandise, display, marketing and selling. How? By putting multiple concepts in the same center—jewelry on one cart, hair accessories on another, and at Christmas, testing next year’s greatest thing on a third. “Before, you had 20 carts with 20 operators. Now you have three owners with three carts each,” says Gregerson.

It’s not just neighborhood retailers getting in on the game: national tenants are scoping out these opportunities, too. Retailers like Waldenbooks are testing different concepts, and looking at temporary retail as a big boost to their business. “[National retailers] are becoming much more involved in the temporary part of the business,” says Gregerson. “They’re using the program to test malls during the holiday season.” What better way to see how their products fit in the mall before signing a long-term lease for permanent space.

This also means a race for space: With the mix of experienced retailers operating multiple carts, nationals carving a piece of the action, and entrepreneurs who want to get into specialty retail for the first time, you now have competition. You may not be the only one pitching your concept of, say, silver jewelry. “There’s so much more competition,” says Coleen McNelis, VP of lease management for The Macerich Company (Dallas, Texas). This means that when you’re pitching your idea to mall management, it’s critical that you differentiate your product from the others—how your product is made, merchandised and sold. Make it stand out from the crowd.

Growing up

imageSpecialty retailing isn’t in its infancy anymore. While growth opportunities still exist, leasing professionals are using words like “grown-up,” “mature” and “stable” to describe the industry today. “The industry will continue to grow, but not at the accelerated pace it has in the past 10 years,” says Berger. So does McNelis: “It’s a pretty mature industry,” she says. “We have to try to continually keep it fresh.”

Predicting the future of a mature industry isn’t easy. In the developer’s crystal ball, more consolidation of property owners is a given. Some experts predict it will boil down to five and 10 major players. This might make it more challenging for specialty retailers to get onto a developer’s “in” list, but once they do, opportunity abounds, especially if multi-property deals are on the table. And when developers acquire properties, the possibility exists that the specialty retail program will be expanded. For example, at several centers that CBL acquired, specialty retail programs (carts and income) increased from 30 percent to 50 percent in the first year.

And expansion isn’t just limited to inside the mall. “Common-area spaces are diminishing due to [restrictions from] our permanent tenants,” says Cardall. As a result, some developers are looking to the parking lots, where carnivals, car shows, pumpkin patches, Christmas trees and other non-traditional parking lot activities and events provide an untapped, year-round source of income.

The Rouse Company (Columbia, MD) has gone a step further by combining their specialty leasing and marketing departments, with one manager overseeing the common area. “In the old days, we would squabble over who used it—for leasing or an event,” says Susan Houck, regional retail marketing manager. “Now we look at the common area as a total, and make the appropriate decision for what’s right for the property.”

As for the future of the specialty retailer, “it’s tough to say,” says Gregerson. “Their sophistication level will continue to develop.” But the fundamentals will continue to apply: Groups of new specialty retailers finding the right products at the right price, studying the market, devising the right merchandising plan, and then zeroing in on the right center for their enterprise. In some ways, the more things change for specialty retailers and the centers that house them, the more they stay the same: challenging and exciting, with the promise of a bright and shiny future.

Emily Lambert

Lambert, a senior writer for SRR, resides in Philadelphia. She can be reached at emilylambert@comcast.net.
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