Wednesday, March 11, 2015

The Re-Malling of America

A couple of very interesting developments over the last few weeks may significantly shake up the retail mall industry in the United States. The first of these is the hostile bid by Simons Property Group of Indianapolis, Indiana to take over The Macerich Company of Santa Monica, California. Between them they own and operate over 425 malls and retail centers in the United States and foreign countries. (Macerich – 95 properties and Simons – 325+ properties, source Wikipedia). I would venture to guess that 90% of Americans are less than one hour away from one of their respective centers. The second and even more fascinating is that the Edmonton, Alberta based Triple Five Group that owns the Edmonton Mall and the Mall of America is proposing a 4 billion dollar super, humongous, enormous, colossal entertainment and retail “mall” near Miami.

I have been directly involved in one form or another in the mall design business since the days of Alfred Taubman in the 1970s. Then some of the most exciting changes to the retail industry were underway. And many of these changes wrought terrible things on towns, peripheral suburban communities, and even downtown traditional retail centers. This is not the place to get into the history of malls in America (and elsewhere), but it is the place to look at how the forces of the marketplace consumer seem to be one step ahead of the retailers and mall owners. We went from small town America, to mid-sized suburban shopping centers, to enclosed weatherproof malls and super-malls, to massive retail centers with a mix of enclosed and open pedestrian areas, to remodeling the traditional downtown, to massive failures due to high debt by some of the largest mall owners (example: General Growth Properties), and now to the restructuring of both the mall concept itself and the companies themselves.

The biggest change seems to be in the venues themselves. Most enclosed malls were isolated at their start, primarily due to location (freeways) and cheap land costs. These were the 70s and 80s, now these malls are surrounded by residential development as well as ancillary retail and office complexes. Some have even sparked “new towns” around them. These malls are redeveloping to now include housing and office uses.

Some are beginning to emulate the entertainment aspects of some of the larger malls. While questionable, if there are enough customers many things are possible.

Why would Simons want Macerich, I have my own ideas? Simons has been very aggressive in trying to increase its square footage. Five years ago during General Growth’s serious financial problems, Simons tried unsuccessfully to take over the company, eventually they walked away. Simon has properties in Europe and Canada and have aggressively expanded into the premium outlet market. Macerich, while having some outstanding properties (Santa Monica and Walnut Creek, California), is also a developer/owner of mid-sized sub-regional centers across the United States. These properties would complement Simon’s collection. Whether Macerich can fight off Simon as well as General Growth did remains to be seen. The concern is that the customer will suffer if these acquisitions go forward is of little concern. The customer is, and has, shown itself to be fickle and will go where there is the best value, venue, and variety to shop. Failure to provide this is not an option. My guess, it is the long-term leases of many of the high-end retailers located within the Macerich centers (Nordstrom, Niemen Marcus, etc.). GO HERE  

But, Triple Five’s direction is totally different. GO HERE  To used an over-worn phrase, the are trying to Disneyfy the retail experience. Their new Miami complex will include a ski slope, a water park, a sea-lion show (not in favor of these myself), miniature golf, bowling, as well as everything from the usual restaurants, hotels, and condominiums. There is even a rumor there will be retail stores and shops. Wow and double wow, the fun and games of the retail giants of Minnesota and Edmonton Central Plains of North America are coming to South Beach. Many of these enticements have been tried before, especially during the late seventies with circus type retail malls and themed venues (skating, park-like spaces, and roller coasters). Most failed or were junked.

I have also found that these centers can never create a new market. They can only steal customers from other markets; this is what caused many of the suburban problems in the 1980s when the enclosed mall did so much damage to the traditional downtowns of smaller communities. These things are very expensive, I will wait to see if they can find the funding.

And lastly the big can get bigger. It was announced that the “new” General Growth (after its literal resurrection for the dead three years ago), is expanding its flagship mall in Honolulu.  GO HERE  Its Ala Moana Center (the world’s largest open-air mall) is expanding by another 660,000 square feet. They also sold a significant interest in the mall to an Australian retirement fund, AustralianSuper. While Ala Moana is not performing to industry standards, GGP is obviously seeing a different future than what many analysts’ see. The world is flooded with money at the moment trying to find a home; many are betting that the American REIT industry is one of the best places to be. I wish them luck.

Stay Tuned . . . . . . . .

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