The rise of lifestyle centers and other competing formats have left many questioning the future of enclosed malls. To gain clarity, we spoke with Madison Marquette's Managing Director of Investments, David Brainerd and Senior Vice President of Leasing, Chuck Taylor.

Q:   Why are some malls thriving while others are closing?

DB: Americans still enjoy shopping at malls as long they have a critical mass of good retailers. The large regional malls are doing really well because they have the size and marquis anchor tenants that are still in demand. The malls that are not doing well are the ones where anchor tenants have left and there is no room to assemble a compelling mix of tenants. Moreover, these malls are often in undesirable locations and in oversaturated markets.

CT: Over time, many of the traditional fashion and other in-line tenants fell out of favor with consumers. The new concepts—especially fashion and home furnishings—found success in lifestyle centers that reflected their freshness and style more than the "old" mall. The big regionals were so successful that they could attract these tenants while the average and below-average malls were not as persuasive.

Q:   What has been the impact of department store consolidation?

CT: A substantial number of closings occurred and many mall owners are still scrambling to fill the holes. Some have been successful by breaking up the space into smaller pieces and leasing to more traditional inline tenants or to non-traditional tenants such as health clubs, theaters, or restaurant groupings. It is also important to understand that department stores offer consumers a wide variety of merchandise. If they close, the mall must fill any resulting gaps in merchandising by adjusting its tenant roster.

DB: To a certain extent, department store closure decisions became a leading indicator of which malls had underlying problems and which ones remained in strong competitive positions.

Q:   What makes a mall a good candidate for repositioning or redevelopment?

DB: Indeed, not every decaying mall should be saved. The right conditions need to exist. It must first have a strong competitive position in the marketplace—meaning there should not be a new thriving competitor filled with all of the tenants that consumers want. Further, the market needs to be able to support it and demographic patterns need to be trending in a positive direction. For those malls that are not appropriate repositioning candidates, they will most likely slowly fade away, eventually be demolished and then rebuilt as retail again or other more appropriate uses.

CT: If done properly, lifestyle centers should not fit a narrow definition. Rather, they should fit into the carefully identified needs of the markets they serve. The fluidity in definition is what makes them special.

Q:   What does the future hold for lifestyle centers?

DB: The future will separate the men from the boys. You have to be able to develop the right place, in the right setting, with the right merchandising mix. That only comes with substantial experience, creativity and knowledge of the local market.
I also think there is a lot of opportunity in less affluent markets where more value-oriented retail concepts can benefit from the lifestyle center model. The grand architectural features and amenities may not be there, but the sense of place, convenience and appeal will attract value-conscious shoppers just like their more affluent neighbors.

CT: Enclosed malls were built to be once-a-week destinations and not for everyday shopping. The inline stores are simply too inconvenient to access. As a result, remerchandising will only be successful if it brings in "destination" tenants. Service tenants such as dry cleaners, pharmacies and banks will not work. To attract the right tenants the market must be able to support them.

Q:   What strategies work best for redeveloping/repositioning decaying malls?

CT: Successful repositioning consists of updating the physical plant to reintroduce customers who may be tired of the outdated look and also requires that the retail offerings be fresh and interesting. One remerchandising strategy is to replace anchor tenants with Target and other similar large-format concepts. Restaurant and service-oriented pad sites can also help increase activity at the center and drive additional income. However, these strategies do little to activate the interior space where foot traffic is critical to successful remerchandising. While a complete "de-malling" can generate excitement—it is often not financially feasible to destroy GLA to recreate it.

DB: Activating the exterior of the mall and connecting it to the interior is critical. The mall needs to be considered a destination for the community and entertainment uses are often great ways to draw in shoppers. Another successful strategy we have pioneered on the West Coast is to open up the common areas and available space to community groups to hold regular meetings and events. Shopping in a mall is a social activity and it is hard to feel social with no one around.

Q:   Will traditional enclosed mall development ever make a comeback?

DB: Probably not anytime soon. The malls that are successful will remain successful and the majority of the rest will die out. I don't see a market for enclosed malls when so many are closing and the successful ones can be kept updated through remerchandising and cosmetic improvements.

CT: The beauty of retail real estate is that it is constantly evolving. I would not be surprised to see enclosed malls—in some new fashion—reemerge in my lifetime.