Carol Todreas, Todreas Hanley AssociatesThe recent announcement of the Macy’s store closings is no surprise. Nevertheless, it’s a chilly reminder that life in the world of retail real estate is challenging.
Problems we continue to hear about include: e-commerce and its convenient no-wait delivery; millennials changed values and buying habits, especially related to car and house ownership; huge student loan payments; the shared economy; and overall boredom with traditional stores and their lackluster environments. Other studies note the reduced size and effective buying power of America’s middle class.
Wealthy and upper middle-income groups still support class A malls, and the growing lower income population provide the market for well located class C malls. However, the country’s numerous B level malls are most at risk with older tenants, outdated design, department stores closings, and their waning mid-market position with no strategy for change.
But in this region, opportunities may be lurking. Consider the pluses:
• Boston has a growing population and economy and is not over retailed. Many project strong growth in its near suburbs and towns that have good public transportation.
• Off price retail is strong and international successful off price retailers look at Boston as desirable: e.g., Primark, Top Shop, Uniqlo, Aritzia
• Several U.S. stores have developed off price concepts, such as Nordstrom to Nordstrom Rack, Saks Fifth Ave has Off 5th; J Crew has Mercantile by J Crew, and Target’s City Express and City Target.
• Grocers are creating niche stores for millennials, B Fresh by Stop and Shop, Whole Foods’ 365, all of which indicates that many retailers are becoming more flexible than in the past.
• The Internet start-ups are realizing they need physical stores to re-enforce their brands. Examples are Ministry of Supply, men’s specialty clothing; Warby Parker, eyewear; Tom’s, casual shoes. Also entrepreneurs, entertainment/game creators, restaurateurs and successful in-line retailers are expanding and many are creating new concepts.
So let’s say you need to decide on the future of a class B mall.
Options are:
1. Invest significantly to either upgrade the property to a class A or to update to become a better performing class B with a focused niche.
2. Let the mall slide to Class C with some re-tenanting but minimal capital investment.
3. Look for non-retail uses for some or all of the property (including selling it).
4. Do nothing
Assessments are :
Look at Key Location Issues
It is safe to assume the characteristics of the location have likely changed, so evaluate exactly what has changed and what is expected to change. Examine:
1. How has the market changed? Who is now living in the housing that makes up the market area? Are people aging in place or selling to a different demographic? Is significant new housing or mixed-use being developed?
2. How has the area around the property itself changed? Are there new roads, new traffic jams, traffic lights, turn restrictions? What is the new competition or have competing centers closed, or almost closing?
3. Are there threats from more severe precipitation, stronger winters storms, flooding and sea level rise? Has flooding risks increased because of more upstream development with impervious ground cover? If the mall itself is not threatened by climate-change related impacts, what about your access roads, utilities, public transit? Could storms and flooding reduce accessibility for extended periods of time?
Look at the mall (realistically)
Critique and realistically evaluate the options for the mall.
1. What capital improvements are needed just to keep the facility safe, attractive and rented? Could these improvements be part of an upgrade? (For example, if you have to replace lighting, could you upgrade the quality of the lighting and increase the attractiveness and safety of the mall?) Or do you need a redo of the design to open it and make it more efficient and user friendly?
2. How are the tenants? Have they adapted to the new retail world? What are the sales per square foot? The quality of their appearance? Their technology and internet-presence? Their updating of their concept for the new century? Their customer service?
Look at the market and future possibilities
1. How would the class B mall perform in this market if it were upgraded to A quality or if it slid to a C mall? Does the data point to growth in either direction within the next decade?
2. What external events will likely impact the future of the mall? Are there potential changes in competition, climate issues, public transportation and other private or public sector interventions that could affect the market or accessibility?
Many answers to these questions are supplied by data collection, analysis and option development usually accomplished by outside consultants experienced in this work.
However, some of the research can be done by the mall manager and staff, or by other consultants if company time and staff are not available. The basic qualitative information to do lists start here:
1. Talk with the local planner
• What are they working on?
• What are they worried about?
• What public and private projects are in the works?
• What planned projects are delayed or in danger of being cancelled?
• What studies are being undertaken and why? When will they be completed?
• What do they know about adjacent communities plans and concerns?
2. Collect and analyze the mall basics, such as:
• What are lease termination dates, trends/history of sales per square foot?
• Do a store-by-store evaluation, who is shopping there now, what do customers think and where else are they shopping?
• What kinds of stores are missing?
• Does it feel good to be there?
• How is the parking? Easy in and out?
Such an evaluation will lead to either an ah-ha moment. Wow! What an opportunity or where is it, how do I find it ? The bottom line is: Make it work!
Carol Todreas is a principal at Todreas Hanley Associates, Cambridge, Mass.