David Goll - East Bay Business Times
Despite fierce competition from big-box discounters that typically anchor retail power and lifestyle centers, regional and super-regional shopping malls are proving to be resilient rivals.
Written off by many industry insiders as leftover 20th-century retail dinosaurs, the memo apparently has not reached a sizable number of consumers. According to a new survey by the International Council of Shopping Centers, U.S. enclosed malls enjoyed their biggest sales increase in more than a decade in 2004: Sales of $366 per square foot for non-anchor tenants represented a 4.2 percent rise over 2003.
Furnishings, a category that encompasses furniture, decor and home electronics, was the strongest performer for the year, with growth of 5.8 percent. Also recording strong numbers were apparel and accessories, with sales 4.8 percent higher year-over-year, according to ICSC, a New York-based retail trade organization.
"This data sort of goes against the grain of conventional wisdom, but regional malls are, generally speaking, continuing to be a vital part of the retail industry," said ICSC spokeswoman Patrice Duker. "This is still a pretty young format, since the average regional mall is 28 years old."
Sales figures have been higher - about $425 per square foot in the booming 1990s - but last year's figure is the highest so far in this decade, according to Duker. And not many regional, enclosed malls are being built these days - especially in congested, expensive urban centers such as the Bay Area - but a fair number are being revitalized through remodels and new tenant mixes.
Gayle Speare, general manager of Newark, CA's NewPark Mall, isn't the least bit surprised at the staying power of traditional malls. Those owned by NewPark's parent, General Growth Properties Inc. of Chicago, the nation's second-largest operator of retail centers, come in higher than the national average in annual sales-per-square-foot at $416.
"There certainly are people who say the shopping mall is dead, but consumers just don't believe it," Speare said. "It's true there may not be a lot of new (regional mall) development opportunities, but owners of malls are reinvesting in their properties with remodels and adding 'lifestyle' components like restaurants and theaters."
Speare is about to have first-hand experience in that arena. Her 150-store center, which has more than 1.1 million square feet of gross leasable space, will undergo a major facelift beginning this summer.
The rather dated appearance of NewPark reflects the period in which it opened - 1980 - leading Speare and others to jokingly refer to its original decor as the "Miami Vice look."
Along with cosmetic changes including earth tone colors more reflective of 2005, NewPark will get a lifestyle infusion in the form of new restaurants and a 20-screen Century Theatres cineplex.
"There's no question you have to innovate and reinvent yourself to survive, especially in an industry as trend-oriented as retail," she said. "You don't want to become stagnant. Regional malls have always been community gathering spots, but I think some of our new features will increase our appeal to an even broader range of the community.
"You want to draw people here to do other things than just shop, such as entertainment and dining," she said.
And that communal experience may be exactly what is fueling the continued success of regional malls, according to Eric Soares, professor of marketing at Cal State East Bay. Malls that innovate and stay ahead of the trends - especially those that strengthen a sense of community - will thrive, he said.
"In recent years we have seen an industry shakeout and malls that didn't change with the times failed," he said. "No one likes to go shopping in a place that's run down and dilapidated."
But, he added, malls that have refreshed themselves with updated looks and tenant mixes are enjoying a resurgence.
"I think what we're seeing today we're seeing is a bit of a backlash against Internet shopping and the standalone big-box discount stores," he said. "People like to go to nice places, they like being around other people, and mall managers have gotten savvy to that. You can go to this community meeting spot now to eat and see a show. And go shopping in many different stores, too."
As Soares said, however, all is not rosy. Malls stuck in a time warp or in economically challenged areas have either closed their doors or are struggling. The Congress of New Urbanism, a Chicago-based advocacy group of "livable" communities, has identified 140 "declining" malls in the United States, with another 250 teetering in the "at-risk" category.
Those with visionary - and well-capitalized owners - are avoiding those traps, according to ICSC's Duker.
"No question some malls are declining, but many are doing very well," she said. "Those who pay attention to issues of tenant mix and cosmetic improvements are very successful."
A good local example is Concord's Sunvalley Shopping Center, first opened in 1967 but extensively remodeled a decade ago. Though his mall "falls a bit below" the average sales of $477 per square foot at developments owned by Taubman Centers Inc., Sunvalley General Manager Tom McCracken said the 1.3 million-square-foot mall is almost fully leased and year-over-year sales are up.
"We had a similar increase (to the 4.2 percent increase nationwide) here last year and had increases of more than 5 percent in March, a little less than 5 percent in April," McCracken said, referring to year-over-year sales at his 1.3 million-square-foot mall.
Along with the busy specialty tenants, anchor tenants at Sunvalley - including Macy's, Sears and JCPenney - do "huge" volumes of business and often rank among the most successful in their respective companies, McCracken said.
Although it does not have a theater complex, Sunvalley has added a wide array of eateries and a 24 Hour Fitness health club in recent years. Mixing new tenants with tried-and-true mall regulars such as department stores has proved to be a winning formula - along with having a central, accessible location on the busy Interstate 680 corridor.
"In my 19 years here, we have never had sales go downhill," McCracken said. "We might have had a few flat years, but never a loss. We just continue to do well."
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