Report after report has shown that the modern consumer, especially millennials, values experiences over material goods. Smaller homes, fewer cars, and closer proximity to urban environs are all definitive of a growing trend toward less consumption and more experiences. According to John Gerzema and Michael D’Antonio, authors of the book Spend Shift: How the Post-Crisis Values Revolution is Changing the Way We Buy, Sell, and Live, 77% of the American population values how they spend their time over how much money they make. Their research also found that more than “two-thirds of the U.S. population preferred a reduction in consumer goods, with less emphasis on displays of wealth.”

Paired with the growth of e-commerce, this consumer shift has malls across the country losing traditional department store anchors like Macy’s, Sears and J.C. Penney. Sears recently announced it would close another 78 stores by summer 2016 and according to research and consulting firm Customer Growth Partners, these stores have been losing market share year over year, leaving them with only 2.5 percent of the U.S. retail market in 2010. In the last few years, mall food court staples like Sbarro and Cinnabon, have filed for bankruptcy protection, along with several others in the same category. Consequently, developers are coming up with alternative mixed-use platforms like luxury high-tech movie theaters, bowling alleys, grocery anchors and outdoor programming like yoga and concerts to turn malls into more community driven “experience and lifestyle centers.”

From Department Stores to Whole Foods

In a recent New Republic article called “The Mall is Dead. Americans Shop at “Lifestyle Centers Now,” the author described these centers as a “21^st Century, community-oriented alternative to the soulless shopping mall.” The International Council of Shopping Centers (ICSC) describes them as “multi-purpose leisure-time destinations, including restaurants, entertainment, and design ambiance and amenities.” The Grove in Los Angeles, one of the highest grossing mall destinations in the country, is one such location; featuring a fourteen-screen Art Deco movie theater, live shows, and a popular farmer’s market—offering far more than the traditional mall model of the past.

Lifestyle centers have been cropping up in affluent zip codes for the last two decades, and feature a combination of mixed-use developments with surrounding apartments, restaurants, post offices, movie theaters and grocery stores. Whole Foods, Fresh Market and Trader Joe’s have replaced Safeway and Kroger for marketshare of consumers who want fresh ingredients, popular organic brands, artisanal cheese and craft beer. Williams Sonoma and Pottery Barn have replaced Macy’s and J.C. Penney for home furnishings, and movie theaters have become increasingly interactive with 3-D screenings, reclining seats and custom menus.

Large centers like the Mall of America and West Edmonton Center have always have large entertainment anchors, but more and more malls are moving toward the model of having equal parts retail and experiential to meet the demands of the consumer market. Today, one in four malls across the country features at least one non-traditional anchor tenant, according to research by Jones Jang LaSalle. And in order to maintain pace with competition, a mall can’t just plug in a traditional bowling alley or movie theater. In fact, White Hutchinson Leisure and Learning group, a consulting firm, recently reported that some centers are becoming responsible for both funding and operating their own entertainment values; a notion that runs counter to the traditional mall business model of managing and leasing individual brands and space.

The Rise of Mixed-Use Retail and Experiential Entertainment

 Vanity Fair recently reported that moviegoers are no longer interested in the greasy popcorn and boxed candy offerings at concessions stands of yore. They want dry rubbed pork belly and a handmade cocktail to accompany the latest installment of Captain America and the Hunger Games. Nitehawk, an indie theater in Brooklyn and Alamo Drafthouse in Austin are two such examples of theaters reinventing the movie going experience, with personal wine lockers, leather seats, thoughtful movie selections, and apps to pre-order food, tickets and seats in advance. At Harrisburg Mall in Harrisburg, Pa, Jones Lang LaSalle Retail brought in Broadway Classic Productions, a local theater company, as a replacement for the former Boscov’s department store.

Madison Marquette recently added Silverspot Cinema, a 13-screen luxury theater featuring a dine-in restaurant and bar to University Place in Chapel Hill, NC. A boutique movie theater chain boasting an “enhanced entertainment experience” Silverspot is a prime example of where the aesthetics of movie theaters are headed.   Inc. Magazine recently made several projections on what the movie theater of the future will encompass, and the results were interactive, 4-D and customized. Linking the technologies of Wi-Fi, NFC, RFID, Bluetooth and iBeacons, interactive advertising and voice activation will become more integrated into the movie theater experience.

With immersive sound systems, 4-D technology and virtual reality, as well as subscription services that mimic Netflix, where you pay a monthly fee for unlimited access to movie viewings, theater owners are combining tech and innovation to sell tickets. Theaters are also beginning to offer alternate programming to appeal to broader audiences, such as opera and premiere symphony screenings, and other limited performances viewings. If consumers can access any iteration of iTunes, Netflix, Amazon Prime, OnDemand and Hulu subscriptions from one high definition screen in their living room, movie theaters and other virtual and gaming experiences need to continue enhancing their physical environment with interactive dining and luxury seating to lure a new generation of movie goers.

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The PLACES Team took a look at which malls and shopping centers are thriving in the post-recession millennial generation, vs. the ones that have failed, examining several components of “A Malls” vs. “B Malls” and their re-development across the country. We analyzed the common characteristics of “A Malls” and their growth, as well as the technology that is changing the face of how we learn about and consume products, services and retail goods.

“Malls Are Dying” Is Not the Whole Story

Overbuilding, a mass recession, the rise of e-commerce, and several big brand retailer bankruptcies have forced landlords and property managers to re-envision a Foot Locker into a health clinic, a Sunglass Hut into mixed-use office space. According to Greenstreet Advisors, nearly 25 enclosed shopping centers around the country have closed since 2010, and another 75 are in danger of failing.

The International Council of Shopping Centers (ICSC) reported that since 1990, when 16 million-square-feet of mall space opened, shopping center building has tailed off, and only one large new mall has opened in the U.S. since 2007. Technology and emerging entertainment alternatives have all subtracted considerable traction from America’s traditional enclosed mall model. But it’s difficult to compare apples to oranges.

A combination of socio-economic forces have revolutionized consumer habits and spending across generations and demographics. The number of individuals living below the poverty line has nearly doubled since the recession in 2008, wiping out a large group of consumers who populated the B and C mall brands. Department stores have experienced rapid consolidation, leaving fewer options for traditional department-style anchor tenants, and discount retailers like T.J. Maxx and Target have replaced J.C. Penney and Macy’s as the popular go-to retailers for home essentials and personal care products. In addition, millennials want a product no one else has. Shoppers want discount, but another portion of them want authentic and luxury. The middle has bottomed out. The Wall Street Journal recently reported that “A Malls” currently make up only 3.5% of malls, yet account for 22% of all value. According to Goldman Sachs 2015 list of top 100 malls in the U.S. 75 percent are home to an Apple store, up from 69 percent in 2014.

Short Hills Mall in New Jersey, considered one of the most high-trafficked, and maximum sales per square foot mall properties in the country, has anchor tenants Bloomingdale’s and Saks Fifth Avenue peddling luxury leather and skin creams to a much higher net worth demographic than the malls in tertiary markets with marginalized retail concepts that can’t compete in a more sophisticated retail scene. “B Malls” are traditionally classified by their location in secondary markets, and the range of $300-500 per square ft. in sales, according to National Real Estate Investor.

Century III Mall, once a bustling shopping hub among suburban Pittsburgh residents, recently closed after being burdened by a 70 percent occupancy rate with sales revenue hovering at $200 per square foot. Highland Mall in Austin, TX, suffered a similar fate with a 61% occupancy rate. So what is to become of all the overbuilt square footage in these shuttered properties?

Mayfield Mall in Silicon Valley was bought by Google, and re-purposed as office space for Google Glass. Hickory Hollow Mall became a satellite campus for Nashville State Community College and opened a practice rink for Nashville’s NHL team. Other properties have morphed into apartment buildings, botanical gardens and medical facilities.

When Madison Marquette stepped in to re-develop and manage Richland Mall in North Central Ohio, they knew they had to meet a growing need within the community beyond just retail. In 2013, Avita Health Systems bought the property, providing a new opportunity for food and other mixed-use concepts in addition to providing on-site jobs. By swapping out old infrastructure for the installation of drop-irrigation tanks, the building was retrofitted for a modern energy management plan. When Avita Health System opened Phase I in December 2014, center traffic increased by 15% with a 3% increase in overall sales, a successful model of a strong re-use development.

Since fewer, if any, retail properties are being developed from the ground-up, existing ones are looking for innovative ways to re-market their square footage, like Highland Mall in Austin, TX, which is being converted into a campus for Austin Community College, complete with classrooms, and a culinary arts center. Springfield Town Center in the densely populated suburbs of Northern Virginia, closed for renovation in 2012, after suffering double-digit revenue losses during the recession. It re-opened in October 2015 with a spa, a children’s lending library and a movie theater with recliner seating, and is being re-positioned to take center stage as a community retail and entertainment destination for surrounding residents and businesses.

Experiential Shopping and the Millennial Market

The rise of the millennial spender and the shift in consumer shopping habits is so complex, the Wall Street Journal has dedicated an entire series in their business section to examining the topic. Retailers’ longstanding model of saturating every market with outposts of their brand has been adapted into creating fewer, but more upscale stores and shopping destinations with a multi-purpose appeal.

Bloomberg News has reported that millennials aren’t that into malls, compared to the previous generation X who grew up in the “mallrat culture” of the 90’s. Developers, therefore, are not only focusing properties around housing, dining and entertainment options, as millennials want to live closer to work and play; but also have to think about how to integrate their merchandising into mobile-friendly marketing concepts that draw shoppers into their physical locations, and not just the screen.

Millennials and the next generation of shoppers desire outdoor spaces and garden rooftops, dining options that are local to their environment, and unique retail they can’t find online or in every chain across America. In losing traditional anchor tenants like Macy’s and J.C. Penney, once the go-to purveyors of appliances, lawn care equipment and towels in every color, developers are reinventing the experiential side of shopping, with on-site programming and events like wine tastings, movie nights, and interactive playgrounds to merge the evolving interests of a more connected than ever population of consumers.

The post The Decline of the Traditional Mall and the Evolution of Experiential Shopping appeared first on PLACES.

Q: You’ve got a stellar reputation for helping numerous retail centers revitalize, reinvent and get back on track.  Where should a center in this position start? 

JDF: Start small. You don’t need a big budget to dramatically improve the “curb appeal” of your property. A few hundred dollars’ worth of paint and a day or two of work by your maintenance staff can make your entrance look brand new. A small investment in landscaping can give a property an updated look and feel. Something as simple as repainting curb cuts with yellow paint or adding lighting to the “eyebrows” above the windows at a mall entrance can dramatically refresh your look. At one mall, we got positive customer comments for weeks by adding $50 of pink dye to one of the water fountains to promote breast cancer awareness month.

Q: If you gathered everyone together to discuss potential changes, who would you want at that table? 

JDF: The lead investors and other important stakeholders, of course, but you might also want to include more junior people as well. Once you have all the stakeholders around the table, make sure everyone – not just the lead investors – gets a chance to speak. This isn’t just about being polite. Sometimes the most junior person at the table has the best idea. Maybe it’s the part-timer in the food court who notices that young moms tend to leave when they find out your center lacks a family-friendly bathroom or a store specializing in gluten-free baby food. If they don’t speak up, you’ll never learn you need to do more to attract and keep this key customer segment.

Q: Do you need to re-staff in order to redevelop a property? 

JDF: No, the people you need to successfully redevelop your property are already all around you. Now is the time to get to know them – or to know them better. The trash collectors might tell you which tenant is tossing out the loose paper that makes your parking lot look like a dump. Someone on the zoning board might tell you about a new municipal parking garage the city would help pay for that could attract new and different types of customers to your mall. A congressman might alert you to a military recruiting center or post office that can drive traffic as well.

And, of course, don’t forget your merchants and customers. Too many center managers spend too much time in their offices. You need to get out and learn the strengths, weaknesses and future plans of every business under your roof. Knowing that your anchor department store underperforms others in its parent company gives you an early warning to line up a replacement in case they close. Finding out which of their departments performs the best (athletic gear or children’s clothes, for example) signals there may be room for another specialty tenant selling that merchandise.  To find out what shoppers want, consider posting an online customer service poll or having your service desk keep a log of customer requests, then pay attention to them: The unfilled requests tell you what customers want but aren’t getting.

Q: Who else should you talk to?

JDF: A great resource is the brokers who sell retail space. To cut costs during the last two recessions, many mall owners outsourced their real estate function to outside brokers. Because the same broker may now represent multiple centers, the best of those brokers has a stronger understanding of industry trends, the market climate in your area and the best practices in retail real estate management. Interview every retail brokerage company in your area and ask them to prepare merchandising plans and creative uses for your center. Challenge them to identify specific, measurable goals and objectives for their redevelopment plans, and press for details such as their fees and whether they are willing to do short-term or temporary tenant placements. Worst case, you’ve gotten an outside perspective. At best, you’ve found a real partner who can creatively and proactively locate quality tenants for you.

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Located just 20 miles from the bustling Raleigh-Durham International Airport, Chapel Hill is also home to a significant Southeastern medical system, UNC Health Care, and to health insurance provider Blue Cross Blue Shield. The city comprises one of the three “corners” of North Carolina’s Triangle region. With the world-renowned Research Triangle Park nearby, Chapel Hill attracts some serious business, medical and technical professionals – and the salaries that go along with that talent. This gives Chapel Hill the distinction of being one of the most affluent and best-educated cities in North Carolina.

With its well-to-do population and vibrant college life, Chapel Hill – coined “America’s Foodiest Small Town” by Bon Appetit magazine – has a hunger for popular American cuisine and a casual lifestyle that encourages a sense of community.  But that community also demands a trendy, energetic vibe, and businesses that don’t have it simply fail.

University Mall had long been a beloved fixture in the Chapel Hill community.  Yet despite its longevity and community ties, as the center aged, it quickly found itself losing business to nearby centers like the Streets at Southpoint, which was gaining popularity among University Mall merchants and shoppers alike.

Less than three miles from UNC Chapel Hill, the once bustling University Mall had, by 2013, become nearly devoid of viable tenants – a sad conundrum for a shopping center in the midst of such potential. Despite its promising location, the previously popular University Mall had become a 1970s throwback – an enclosed neighborhood center masquerading as a regional mall.  Its two anchors were an aging, undersized Dillard’s store, which was not driving traffic, and the highly coveted Southern Season – an inspiring gourmet emporium, yet a destination that created few cross-shopping opportunities. As the recession lifted, the property was left with a high vacancy rate and no clear merchandising mix or marketing strategy.  In short, this mall needed dramatic changes just to survive.

The Situation

In 2013, Madison Marquette was tasked with revitalizing the failing University Mall, a 365,000-square-foot enclosed shopping center and area icon for over 40 years. Just minutes away from UNC Chapel Hill and two large healthcare employers, the center was not maximizing its potentially lucrative central location. With more than 130,000 households within a 20-minute drive of the mall, and nearby average household incomes over $105,000, the location was clearly viable, but was not offering the area’s consumers the attractive mix of specialty stores, commodity offerings, and unique dining and entertainment venues they so craved.

The Challenges

University Mall was a tired, outdated center with increasing vacancy rates that had lost its former appeal among a large segment of the population. The mall’s vacancy was itself a double-edged sword, discouraging shoppers from visiting as well as preventing prospective new tenants from embracing the opportunities the location had to offer. Focus groups revealed that previous marketing efforts had failed, with many university students reporting they were not even aware the mall existed.  While aesthetics and marketing were clear obstacles, perhaps the largest issue was a merchandising problem: The tenant mix was simply not resonating with the affluent locals who had very definite ideas about the “lifestyle” destinations they preferred.

The Vision

From aesthetics to branding and leasing, University Mall needed to be transformed into a destination that matched the unique requirements of the area’s varied consumer base. To start, the mall’s weary façade and entryways were renovated and over half of the center was reconfigured to turn interior-only spaces into exterior-facing ones, giving shoppers easier access and a more open, inviting space. The mall’s interior was modernized with new paint, lighting, skylights, and locally sourced furniture – including soft, comfortable seating that made it an inviting space in which to gather and spend time.

To begin drawing people back to the location, the local public library was invited to temporarily use a vacant space while its own renovation was underway, a move which drove significant traffic – and an educated consumer base – to the center.  Leasing also brought in Kidzu Children’s Museum, which attracted a similar caliber of clientele.  Art lovers began frequenting the mall to enjoy the new arts initiative – custom murals created by prominent local artists, iconic Chapel Hill pictures taken by well-known local photographers, and images from acclaimed artist Tama Hochbaum’s book Silver Screen, all of which were showcased to draw attention to the center’s plans for a new theater. These changes, combined with free Wi-Fi, an outdoor farmers market, ongoing community events and year-round concerts all worked in tandem to forge a new, loyal relationship between the community and the center as it underwent its two-year metamorphosis. To underscore these changes, the outdated University Mall was re-branded as “University Place,” a lifestyle destination more fitting of the wide array of tenants Madison Marquette was working to attract.

The Results

The changes paved the way for Madison Marquette’s leasing team to work its magic.  Underperforming retailers were phased out, select retailers were right-sized and revitalized, and the merchandising strategy focused on sourcing best-in-class local and regional concepts.  An emphasis on art, jewelry, housewares, women and children’s fashion, as well as quick-service and eat-in restaurants culminated in a dynamic and viable shopping destination.  The local and national leasing team at Madison Marquette secured boutique tenant offerings including nationally renowned custom jeweler William Travis Jewelry; Fine Feathers, a distinctive women’s apparel provider; Glee Kids, a well-known local children’s clothing and gifting boutique; and Peacock Alley, the state’s exclusive purveyor of high-end linens, china, home décor and decorating services. Leasing efforts also supplemented the merchandising mix with top-name, traffic-driving national tenants from Aveda Institute to Planet Fitness, and in the former Dillard’s space, the crowning jewel: a brand-new 53,000-square-foot, 13-screen luxury Silverspot Cinema featuring Trilogy, a dine-in restaurant and bar operated by The David Burke Group.

Today, University Place has been transformed into a retail destination that excites and attracts Chapel Hill visitors, residents, workers and students alike. A center that once sat quietly in the shadows has been reborn, and now, as the redevelopment of University Place nears its completion, all the hard work is paying off.  University Place, which at the start of its renovation was tired and unappealing, is now vibrant, energetic and 90 percent leased, the direct result of the de-malling of an aged center.

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 As competition for consumer loyalty grows stronger each year, retail centers must make every effort to stay relevant with their tenant mix and marketing platforms. Leasing and property management teams must work together to assess consumer needs to provide retail, entertainment, dining and service offerings shoppers desire. They must also create an appealing environment to enhance shoppers’ experiences — one that fits within the local community’s specific culture. While there is no exact formula for leasing and property management success, this article will explore some of today’s most popular retail and service concepts and the increasing demand for environmental sustainability.

Effective leasing strategies continue to require careful attention to local markets and their demographics. While consumer preferences differ across the country, there are universal tenant choices that make sense whether in California, Texas or New York. There is a sustained interest in craft breweries and localized eateries in all our centers – from gastropubs and craft-beer bars to an array of specialty fitness centers. When these are matched with centers that offer creative community events and programming, there is strong potential to maximize the center’s strength in the community.

According to The Wall Street Journal, “in the early days of craft brewing, a couple of decades ago, bottle shares were informal gatherings of home brewers and collectors.” Today, of course, there has been an explosion of interest in craft brewing and in the restaurants, pubs and bars where they are available. Placing craft brew stores in a center optimizes high customer traffic and a loyal clientele educated on the advantages of buying local, farm-to-table and quality beverages, food and retail.
Additionally, the conventional gym of decades past has made way for a proliferation of boutique fitness stores and chains. Many of these focus on newer approaches to cardio, strength training and
core conditioning. Soul Cycle is the hottest trend in spinning; Melt and Bikram Yoga are “hot” yoga chains that are predicated on the detox and muscle-warming advantages their system emphasizes; Orange Theory centers on the philosophy of high-intensity interval training using individual heart monitors; and REI’s training walls for rock climbers are all attracting a wide array of fitness needs.

Along with the heightened appeal of these fitness centers, specialized health and beauty services provide unique experiences that differentiate them from competitors. These include makeup and blow-dry bars; skincare experts such as Skin Laundry and Pucker in New York City; and countless chain tanning, nail and micro massage salons. Concierge cinemas like Silverspot and iPic have become a sought-after tenants for regional malls, mixed-use centers and urban infill projects. With their platinum level amenities including oversize leather seats, dining options and reserved seating, these theaters appeal to young and old alike.

Consumers today want to live and work near where they grocery-shop, work out and dine. Centers are therefore increasingly looking at alternative ways to drive traffic such as next-generation fitness and personal service options to meet demand.

Finally, centers that have developed active and strategic community events and organizational tie-ins retain superior customer loyalty and satisfaction. Whether with children’s events during the holidays, live bands on weekends or charity drives that benefit local philanthropies, centers can remain top of mind with a grateful and appreciative local audience and clientele.

Retail Centers Make the Environment a Priority

Sustainability is a mainstay as recycling, upcycling and reducing natural resource consumption becomes increasingly embedded in our daily routine. Retail centers and leasing management firms are hyper-aware of the need to create an environmentally sound practice, which requires commitment and cooperation of both tenants and property managers. “Green leasing” is becoming conventional as more and more centers are seeing environmental clauses built into their building agreements. With the operational cost savings, marketability and need to be on trend with developments in environmental standards, a higher number of property managers recognize the direct link green practice has in competing in the national and global marketplace.

There are myriad ways landlords are instituting environmental savvy with their properties, from adding in requirements and specifications to lease agreements to value-engineering and retrofitting older centers to make way for more modern materials and engineering, including solar panels and green roofs. And there are smaller ways to move toward the greening of centers beyond the large scale.

According to Entrepreneur, using greener, less toxic cleaning products, switching to energy-efficient LED or CFL lighting, foregoing the excess of a shopping bag for every purchase and keeping lights and other electronic devices on timers (to reduce electrical usage)—are all small steps toward greening the retail space.

According to Shopping Centers Today, landlords are finding ways to conserve water and reduce waste by re-crafting green roofs, (which filter storm water and lower HVAC costs) and installing resource efficient plumbing fixtures. Senior water attorney for the National Defense Council Larry Levine says, “Not only does investing in efficient water systems serve the public interest through conservation and pollutant remove, it adds to property value.”

The U.S. Department of Energy released data that commercial buildings account for 35 percent of electricity consumption in the U.S. and 40 percent globally. These numbers fuel an even greater need for an overhaul in environmental strategies for both chain and independent retail. President Obama’s Better Building Initiative, which seeks to reduce energy consumption by 20 percent a year through tax incentives, has created an inducement for building owners to engage in sustainable retrofits and encourages landlords and property managers to be creative in running the logistics of such measures. California has passed legislation mandating the disclosure of building performance to new tenants and buyers in an effort to increase efficiency metrics of existing buildings through retrofits.

More and more communities are requiring recycling programs, which provide an even stronger platform for local outreach, participation and education into the benefits of green living habits, both privately and commercially. By capitalizing on green technology and including green leasing requirements, properties can envision sustainable growth for the future of their business.

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