It’s no secret that 2017 proved to be a challenging time for mall operators as one by one their tenants stumbled or even collapsed in the wake of the seismic changes rocking retail. The issues gave rise to the now familiar—and despised, by some—retail apocalypse narrative. But rather than the end of the world, it seems malls are writing a different story for 2018.
And by and large, they’re doing it by shedding their reliance on apparel.
Repeatedly during the latest round of retail real estate quarterly reports, executives outlined how they’re intentionally pivoting from traditional mall tenants to new concepts—most of which are far removed from clothing.
“We continue to look for ways to improve the overall merchandise in the centers. There is an emphasis to find non-apparel opportunities, and we’re being able to do that,” said Robert Taubman, chairman, president and CEO of Taubman Realty, as transcribed by Seeking Alpha.
Among the new tenants Taubman is welcoming are Round One arcades, essential oil retailer Saje Natural Wellness, APM Monaco jewelry and Amazon.
GGP has a similar list of new concepts in its locations as well, including Lolli and Pops candy stores, Alex and Ani jewelry and Riley Rose, the new beauty concept from Forever 21.
And looking ahead to next year, apparel will continue to be a smaller percentage of the overall mix at GGP. “The new deals that we’re doing in 2018—only 25 percent of the new deals are apparel,” said CEO and Director Sandeep Lakhmi Mathrani. “So we’re half leased for next year and we’ve reduced our style exposure dramatically.”
Many of the new tenants GGP is seeing are coming from online, including Untuckit and Warby Parker, which both continue to expand in brick and mortar. Mathrani said what they have in common is they all want the best retail on the market. “That’s why I fundamentally go back and say that if you own the top billion square feet of the 8 billion square feet of retail in America, long term you’re going to win,” he said.
David Simon, chairman and CEO of Simon Property Group, sees the digitally native crowd as a great addition as well. “There’s a lot of that new business out there that is exciting for us because we are bringing in the up-and-coming retailers or food operators that know how to connect directly through the consumer,” he said.
To facilitate growth for promising brands, Simon has bowed The Edit, a retail incubator for emerging concepts that’s bowing at Roosevelt Field Mall in New York.
The demand from the upstarts has positioned A properties, in particular, to quickly fill space that’s been abandoned as stores have closed and retailers have gone bankrupt. The demand also allows owners some leverage when dealing with chains that might still be struggling and in need of negotiated leases, according to Richard Sokolov, president and COO of Simon Property Group. “If we don’t get the rent we like, the tenant is going to be gone and we’re going to bring in a new more productive tenant that’s going to pay us more rent,” he said.
That’s why the large vacancies left by shrinking department store fleets are often viewed as a chance to change the complexion of their centers.
“Across the board, what we’re seeing increasingly is an opportunity to replace some of these anchors with more relevant uses to the center and to do that, of course, we’ve got to get the space back,” said James Taylor, CEO and president, Brixmor Properties, adding his focus is on restaurants, fitness, home, value and specialty grocery. Redeveloping anchor boxes is the company’s first priority, he said because “we want to also get the follow-on impact of better quality and higher rent paying small shop tenants once we’ve recaptured and repositioned the anchors.”
Like most, Taubman is also faced with big boxes to fill and its doing so as creatively as possible. As an example, Taubman points to a location which was formerly occupied by Saks in its Shorthills Mall in New Jersey, which was all apparel and now will offer none with the new tenants. Instead, the mall is welcoming Indigo, a bookstore in Canada. While some might question why Taubman feels a bookseller will succeed today, it’s not exactly the books he’s excited about. “This is a classic experiential tenant that everyone is looking for,” he said, adding that he expects events like cooking demonstrations to be a draw. “It really creates a new anchor for the center. It’s another reason to come to the mall. It’s totally unique.”
At CBL, a former Sears now houses multiple retailers like American Girl and H&M along with The Cheesecake Factory; a J.C. Penney made way for Ross and Ulta Beauty; and Belk is now a Planet Fitness.
The changes reflect a larger trend for CBL. It is offering more food options from sit-down restaurants to grocers and additional entertainment outlets like Punch Bowl Social’s arcade/karaoke center. While apparel isn’t going away, they’re taking the shape of an influx of value-oriented stores like T.J. Maxx, Ross and Altar’d State.
“Only 25 percent of our new leasing year to date has been executed with traditional apparel retailers,” said Stephen Lebovitz, chairman, president and CEO of CBL & Associates Properties, adding the evolution is transforming its properties from malls to town centers. “We’re shifting from a heavy reliance on apparel and retailers that duplicate the same types of merchandise and creating over time a mix that’s more balanced, that’s more sustainable, that has uses that are going to offer the customer a different kind of experience, it’s going to bring them out of their homes into the properties, and generate more traffic.”
Ultimately, the apparel retail meltdown has prompted many property owners to envision their businesses differently. Simon said his company is not “running away from the mall business,” but it is shifting from a pure retail real estate company to one that’s exploring more mixed use properties.
Simon points to the way in which the Lord & Taylor flagship will evolve under the sale to WeWork as example of where real estate is evolving. “I know New York City and San Francisco is urban environment, but there are lots of places outside of those where people live and work and play and be entertained,” he said.
Ultimately, Simon characterized the evolving nature of the mall in a nutshell: “We’re diversifying away from the have-nots to the haves.”