Mass Merchants Migrate Into Mall Space
Real estate companies have found a new way to reinvent the suburban shopping mall: They are bringing in the discounters.
Because of consolidation among department stores and evolving demographics, the traditional suburban shopping center has a new look. Many property owners are taking in anchor tenants they would not have dreamed of 10 years ago. In some cases, stores such as Wal-Mart are in the same malls as Nordstrom.
“It’s a trend,” said Malachy Kavanagh, a spokesperson for the New York–based International Council of Shopping Centers. “Years ago, the developers wouldn’t court them. Now with vacancies up and department stores closing, it’s a different story.”
Target Corp. recently announced it will build a new 150,000- square-foot store in the South Bay Pavilion (formerly known as the Carson Mall) in Carson, Calif., alongside Ikea, Sears and JCPenney stores. Target has also moved into a mall in Newark, Calif.
Bentonville, Ark.–based Wal-Mart plans to move into the Hilltop Mall in Richmond, Calif., this year. It already operates in malls in Los Angeles and San Diego counties.
With the recent merger of Robinsons-May into Federated Department Stores Inc., mass merchants are eyeing more opportunities.
“We’re looking at it on a case-by-case basis,” said Wal-Mart spokesperson Peter Kanelos. Three of Wal-Mart’s four mall locations were opportunities created by department store downsizing. Kanelos said the move into malls also stems from the fact that there is little land available in metropolitan markets. Wal-Mart traditionally has either leased or built its own projects in strip centers far from mid- and upper-tier department stores. Moving into the mall has forced the company to adopt multiple-level formats and take on different demographics in some cases. “The first time is a learning experience, and with each new store, we’ve been able to fine-tune the process,” Kanelos said.
Some specialty chains have balked at Wal- Mart’s mall entries with a “there goes the neighborhood” response, but when it comes down to it, mass merchants are helping everyone, said several property owners.
“Anything is better than vacancies,” said Joseph Farsakh, owner of Joseph’s Menswear, a 15-year tenant of the South Bay Pavilion, where Target is set to open this October.
Farsakh said he is uncertain about what Target will bring to the center. “ I hope it’s going to bring traffic to everyone, not just Target,” he noted.
Kavanagh said the stigma of shopping at discount stores has changed. “Perhaps there was once a stigma, but people cross-shop now,” he said.
When Wal-Mart moved into the Baldwin Hills Crenshaw Plaza two years ago, it was the first time the retailer had deviated from its single-floor format. The company took a space vacated by Macy’s and adopted the 60- year-old center’s art deco architecture. It also took on a more affluent demographic; the 360,000 people living within three miles of the center have an average income nearing $60,000.
“There were some concerns from the specialty store tenants back then, but many have changed their views,” said Jeanne Mesh, vice president of retail real estate for Baldwin Hills owner Hager-Pacific Corp. “Wal-Mart’s presence has brought a positive effect. A lot of the existing tenants are now expanding and relocating to better spaces. I don’t know if it can all be attributed to Wal-Mart, but things are happening.”
Wal-Mart’s numbers add up strongly compared with those of mall stores. In 2004, women’s specialty chains posted $214 in median sales per square foot, while department stores realized $143, according to the Urban Land Institute. Wal-Mart’s sales came in at about $375 per square foot.
The move from strip malls to enclosed malls is expected to continue, said real estate executives. Specialty retailers are moving from traditional malls into outdoor lifestyle centers, and consolidation is continuing, as evidenced by the merger of Federated and Robinsons-May. Kavanagh said that when Montgomery Ward shuttered 207 stores a couple of years ago, discount chains picked up 30 percent of the vacancies.
The new mall locations may also help build acceptance for mass merchants in general. Although several communities in California have been fighting the influx of new big-box retailers—arguing that the discount stores hurt established mom-and-pop retailers— voters near San Francisco recently voted against a ballot measure to ban Wal-Mart from building in unincorporated areas of Contra Costa County.
“We fill a need. And we create traffic, so we are gaining more acceptance,” Kanelos said.
