To keep shopping malls profitable, operators are getting creative May 10, 2017 | Alex Richardson

A few weeks ago, we wrote about the problem of mall death and what to do about it. Considering the bleak signs coming out of the brick-and-mortar retail industry, and malls in particular, it’s easy to write malls off as a dying industry.

That doesn’t quite capture the whole picture.

Not every mall is struggling, and among those that are, a few are beginning to find their legs in the brave, new, post-Amazon Prime world. Malls that have lost anchor tenants are surviving and occasionally thriving by replacing them with different classes of tenants or targeting new demographics.

Reading the trends in the tea leaves, it looks like malls will have to adjust to changing times – gone are the days where the ubiquitous, retail-filled shopping mall is profitable by default – but claims that the most American form of retail will soon be gone probably miss the mark.

 

Ethnic community malls

One of the most interesting trends to emerge out of malls’ recent troubles is the shift toward malls that cater to specific ethnic demographics.

Take Fort Worth’s La Gran Plaza, a 1.2 million SF mall. In 2005, investor Andrew Segal bought the mall at a point when it was well along in its death spiral. Just 15 percent of tenants were open and paying rent, according to The Daily Beast. The mall primarily served a working-class white population in a neighborhood that had become predominantly Latino.

Under Segal’s ownership and the leadership of mall developer Jose Legaspi, La Gran Plaza was retooled to target the local population with the amenities and retailers that they valued. These included things like an anchor supermarket, mariachi shows, and large, comfortable family bathrooms.

The mall quickly achieved 90 percent occupancy and is now looking to expand further.

“You do well if you target specific niches that are growing,” Legaspi said. “You can’t make it with a plain vanilla mall. We are creating in these places a Hispanic downtown.”

Similarly, Westfield Santa Anita has found remarkable success by catering to the local demographics, in this case, primarily East Asians, according to The LA Times. The mall is located in Arcadia, California, which is almost 59 percent Asian and has an average household income of $110,070 – about 25 percent higher than California as a whole.

Of the 26 new stores brought in since late 2015, 16 have been Asian or Asia-related. This, plus a reworking of the mall’s interior spaces, has helped to position it as a shopping hub for the local community, Asian and non-Asian alike.

“It’s the environment – shoppers like to come here to find new things,” said Claire Wang, general manager of SST&C, one of the Asian retailers. “We thought only Asians would buy our clothes, but it’s not the case.” Wang explained that about 40% of the store’s shoppers were white, the other major area demographic.

 

Experience is king

Another trend helping to keep struggling malls afloat is the shift toward experiences. On a basic level, this seems to make sense: Objects can be ordered online, but experiences usually can’t be. At least, not yet.

Anchor tenants are closing stores at an alarming rate across the country, and malls are looking to alternative tenants to replace them. Looking to the experiential trend, these tenants include entertainment, food and beverage, and artisanal goods tenants.

In some cases, the right tenants have been willing to pay up to four times the rates paid by traditional anchor tenants, according to Bisnow. In the case of Seritage Growth Properties, a REIT that owns hundreds of properties formerly held by Sears Holdings, rents are on average 4.4 times the previous rate, up to $18.55 per SF from $4.40 per SF.

“We’re seeing a shift in consumer tastes,” said JLL director of retail research James Cook. “The things that department stores have traditionally sold people, now the new generation, especially Millennials, are more interested in buying those things at discounters like Ross or TJ Maxx.”

While many millennials would likely counter that online retailers capture a larger share of their disposable income, both of the retailers mentioned by Cook have experienced dramatic stock gains since 2008.

 

Community hubs

At their best, malls are more than just a place to buy stuff – they provide central hubs for communities that are increasingly decentralized. Some malls are playing to this role to remain relevant.

David Levinson, Director of the Networks, Economics, and Urban Systems Research Group told Newsrecord.co that malls serve as a fair approximation of public spaces for urban areas.

“What do most urbanists want?” asked Levinson. “A lively, pedestrian realm, clean, free of automobiles, with a variety of activities, the ability to interact with others and randomly encounter friends and acquaintances. This is what the shopping mall gives.”

As Jed Kolko points out in The Atlantic’s CityLab, the “suburbiest” suburbs are growing faster than urban centers, and contrary to popular belief, older millennials make up the bulk of this growth. These superlative suburbs generally lack a real community center, and in some cases, malls have found success by positioning themselves in this niche.

The Daily Beast cites Sugar Land, a diverse suburb of Houston, as a prime example of this trend. The center of Sugar Land is a property made to look like an old, brick Main Street and filled with restaurants and chains stores. The news source claims that many of the town’s 83,000 residents see this outdoor mall as an important focus point for their community.

It is all but certain that the malls of the future won’t look just like the malls of today. Malls were overbuilt, and too little thought went into the specific needs and wants of the communities they served in the rush to make profits. Those malls that survive – and it seems that more of them will than many expect – will do so because they take these important factors into account and provide additional value to their customers.

About The Author

Alex Richardson is a staff writer at Aquicore. He writes about green policy, energy efficiency, and innovation that affects commercial real estate. Alex.Richardson@aquicore.com.