Mall owners take to carnivals, music and car parks to fight the rise of online stores
Malls are fighting for shoppers with one thing their web rivals cannot offer: car parks.
With customer traffic sagging, US retail landlords are using their sprawling concrete spaces to host events such as carnivals, concerts and food-truck festivals. They are aiming to lure visitors with experiences that cannot be replicated online – and then get them inside the properties to spend some money.
“Events draw people to come to the shopping centre,” said Craig Herkimer, whose company, KevaWorks, is working with big landlords including GGP and Simon Property Group to produce outdoor events. “They generate revenue for the owner and offer a chance for cross-promotion, so they can try and drive more customers into the stores.”
Mall owners across the country are grappling with record store closings and declining rents. Retail property values are down 3 per cent in past six months, as all other types of commercial real estate showed gains, according to the Moody’s/Real Capital Analytics indices.
Amazon.com and other internet retailers continue to grow, while department stores including Sears Holdings Corp and Macy’s have been closing hundreds of locations. Payless, the discount shoe seller, is among the latest to announce a massive closing of 400 stores as part of a bankruptcy plan.
“We expect to see a trend of more closings,” said Carol Kemple, an analyst at Hilliard Lyons. “Most retailers, if they’re still standing in September, will probably try to make it through the holiday season.”
Retail landlords have already made a push towards experience-driven offerings by adding restaurants, cinemas and activity centres for children. Many malls are also adding rotating stores around for only a short time – known as pop-up shops – that are meant to attract young customers who see shopping as an event.
Now, events are reaching beyond the malls themselves. Herkimer’s task is to bring crowds to the car parks with events that generate as much as US$60,000 a week for mall owners from the largest outdoor events.
The idea is gaining traction. Next month, Simon Property is having the first carnival in its Round Rock Premium Outlets car park, about 32km north of Austin, Texas. Similar events are being held for the first time at locations such as Central Mall in Port Arthur, Texas, managed by JLL, and a Cheyenne, Wyoming, mall owned by CBL & Associates Properties. In July, Simon Property’s Orland Square Mall, southwest of Chicago, will be holding its first car park food-truck festival, with plans for live music performances, Herkimer said.
Lisa Harper, senior director of specialty leasing for Chattanooga, Tennessee-based CBL, said the company has expanded its carnival business at many of its 87 properties over the last couple of years. She and Herkimer have discussed the possibility of pumpkin patches in the fall months and adding film nights to some properties. CBL’s Triangle Town Center, in Raleigh, North Carolina, is about to start its second mini concert and food-truck series, called Creekside Wind Down, Harper said.
Retailers rent the outdoor space in a structure that resembles their indoor leases, Harper said. While each deal varies, the agreements involve a base rent fee for the use of the space and a percentage payment after the event reaches a certain threshold. Department stores, which sometimes own or control their car parks, are seeing more value in renting the space after many years of restricting their use, she said.
“Events bring that additional traffic and also encourage people to stick around longer,” Harper said.
There’s no guarantee that people will go inside, said Tracey Hatley, director of specialty leasing for JLL Retail. But the events offer opportunities for cross-promotion. Customers receive fliers advertising stores or restaurants inside the mall or coupon books to help draw them in.
That works well for properties like the Santa Rosa Mall in Mary Esther, Florida, Hatley said.
“They are a property that’s struggling with occupancy, struggling with driving traffic to the centre, so they love doing parking-lot events,” she said. “You can see it from the road and it gets people on the property.”
Simon Property representatives did not respond to requests for comment.
The US is currently home to about 1,100 shopping malls, according to Laurel Durkay, vice-president and associate portfolio manager of real estate securities at Cohen & Steers. That number could be cut in half over the next decade, though it may not take that long to determine who the winners and losers are, she said.
“You’re going to see a resetting of the bar for demand,” Durkay said. “Ultimately, high-quality players will emerge stronger than before, but it’ll be a rocky road.”
Year-to-date store closings are already outpacing those of 2008, during the last US recession, according to Credit Suisse Group analyst Christian Buss. About 2,880 have been announced so far this year, compared with 1,153 for the same period in 2016, he said in a report.
Some malls are doing fine even without renting out their outdoor space, especially higher quality properties with upscale stores. They have been drawing visitors with grocery stores, medical offices and high-end restaurants – all businesses that face less risk from e-commerce competition than traditional tenants. Some retail real estate investment trusts are adding office space or apartments to their portfolios to diversify.
Sandeep Mathrani, chief executive of GGP, said at a conference this month that the perfect mall now would include one department store, a supermarket, an Apple store, a Tesla store and businesses that started out online, like Warby Parker, the purveyor of prescription eyeglasses and sunglasses. Clothing stores now represent about 50 per cent of the average shopping centre, down from about 70 per cent, Mathrani said.
“Landlords are trying to give people reasons to come to the mall, whether it’s a Tesla charging station or getting local car clubs to host events in their parking lots,” said Alexander Goldfarb, an analyst at Sandler O’Neill & Partners. “It’s not a fun time to be either a retailer or landlord, but it doesn’t mean every single mall or shopping centre is going to close. Far from it.”
And for some retailer landlords with better-performing properties, the industry’s turmoil could mean more opportunity.
“This very painful process will surely take more than five years,” Steven Roth, Vornado Realty Trust’s chief executive, said in a letter to shareholders this month. “It will also create enormous opportunity for those with the capital and management platforms to feed on the carnage.”
Urban Edge Properties, a Vornado spin-off, is one landlord adding to its holdings. The company is under contract to buy seven retail properties, with 140,000 square metres of gross leasable space, mostly in the New York City area.
Until malls can figure out how to bring in steady crowds, expect to see corn dogs and carousels in their car parks, Herkimer said.
“If retail turned around and vacancy rates dropped again, and all of a sudden these malls and shopping centres are full of tenants, I think there’d be a circle in the other direction,” he said. “They’d say: ‘We need the parking space for customers.’ ”