Malls Forced to Reformulate. NYTimes Story.

[stephendare]

http://www.nytimes.com/2009/04/05/business/05mall.html?pagewanted=2&_r=1&sq=malls&st=cse&scp=1

In these desperate days in American retailing, mall owners are seizing on a new gimmick: wave-making machines.

A half-dozen malls across the country are planning to install a huge contraption called the Flowrider in vacant retail space. Where once people shopped for three-packs of underwear or sheet sets, they are now turning up in flip-flops and shorts to surf an artificial patch of ocean.

However good a business that turns out to be for the company controlling the Flowrider, it is also a sign of the times. With major retail chains like Linens ’n Things and Circuit City closing stores or disappearing altogether, mall and shopping center vacancies are soaring, forcing landlords to find new ways to lure traffic and stave off decline.

Downscale chains that landlords once kept out of shopping centers are suddenly being shown the welcome mat. Temporary stores are popping up. Once-small retailers are being invited to take over big spaces, while the strongest national chains are seizing the moment to move into new cities at low rents. And vast mall spaces formerly occupied by department stores may soon be carved up or turned into community colleges and dance studios.

“Landlords are scared,” said Suzanne E. Mulvee, a real estate strategist with Property & Portfolio Research. “Part of the reason they’re scared is dark space doesn’t pay.”

When the nation’s stores report March sales results this week, the numbers are likely to be down yet again â€" especially for department stores and mall chains, which have been the weakest performers for months.

That does not bode well for mall owners. As more stores have closed, mall vacancies are at their highest point in almost a decade, according to Reis, a research company, which said the vacancy rate at the end of 2008 was 7.1 percent, compared with 5.8 percent at the end of 2007. Other analysts have slightly lower figures, but all agree that vacancies are rising.

For some retailers, the brutal environment means new opportunities. That is especially true for the one major retail category faring well nowadays â€" discounters, like dollar stores and Big Lots, that are suddenly moving into more prominent locales.

“They were shunned for five years by the landlord community,” said Spence J. Mehl, senior vice president at RCS Real Estate Advisors. “And now everybody’s knocking on their door and they’re cutting incredibly aggressive deals, because they can.”

Of all the vacant spaces, the most difficult to fill are anchors â€" those big stores at the periphery of a mall. In recent months, Macy’s, Sears, Dillard’s, Mervyns and Steve & Barry’s have closed big mall stores. Last week, the bankrupt Gottschalks department store chain began liquidation sales.

Greg Maloney, president and chief executive of the retail group at Jones Lang LaSalle, a real estate brokerage firm, said that to fill empty anchor spaces, landlords were getting creative and were considering bringing in grocery stores, medical facilities, dance studios and even community or technical colleges.

“I think you’re going to see a lot more of that,” Mr. Maloney said.

Several schools â€" like New River Community College in Virginia and Hagerstown Community College’s Center for Continuing Education in Maryland â€" have been holding classes in malls for years. But industry professionals say the trend is likely to accelerate.

With Americans buying less, many chains are asking mall owners for rent reductions, and are sometimes receiving them. That adds to the malls’ financial woes.

One of the nation’s largest mall owners, General Growth Properties, is laden with more than $25 billion of debt, has missed payment deadlines on its bonds, and is trying to avoid filing for bankruptcy protection.

Landlords are willing to lower rents for their best retailers â€" but only those that can prove financial distress. The landlords may not be able to play hardball for long, though. More major chains are expected to file for bankruptcy this year, leaving behind empty stores.

In this economy, few chains need spaces as large as the ones coming onto the market.

“I talk to landlords and they’re taking an old Dillard’s box and putting a Best Buy on the top level and a Dick’s Sporting Goods on the bottom,” said Joseph Feldman, a retailing analyst with the Telsey Advisory Group.

Researchers who study land use point out that while the recession set off the latest round of vacancies, the problems faced by mall owners and developers have been building for more than a decade.

“There was really no relationship between development and the increase in consumer spending,” said Stacy Mitchell, a senior researcher with the Institute for Local Self-Reliance, an advocacy group.

Between 1990 and 2005, consumer spending per capita rose 14 percent, adjusted for inflation, yet retail space per capita in the United States doubled, said Stacy Mitchell, a senior researcher at the Institute for Local Self-Reliance, an advocacy group.

In her view, that created too much store space even for a good economy, and then retailers were hit by the recession. “All of this overdevelopment has pulled the rug out from under them,” she said.

While mall owners may be batting around plenty of unusual ideas, the Flowrider â€" a 10-feet-tall wave machine that sends 35,000 gallons of water gushing over a slope at more than 30 miles an hour â€" is among the most unusual.

The device is the centerpiece of a cult sport that got its start in water parks and on cruise ships. Lately, a retail chain called Adrenalina, which sells gear for extreme sports like skydiving and kite-surfing, transferred the concept to retail stores.

Because the machines can draw enthusiastic crowds, Adrenalina is getting sweet deals from landlords. Adrenalina executives said some mall owners were paying to install the Flowrider, upwards of $2 million, just to get the extra traffic.

“They know that we’ll pull people from a further distance than their regular tenants,” said Jeffrey Geller, president and chief operating officer of Adrenalina.

An Adrenalina store that opened last month at the Shops at Willow Bend in Plano, Tex., is already a popular destination. Steven Coyne, an Adrenalina district manager in Dallas, said that in the few weeks the store has been open, the Flowrider has garnered repeat customers â€" and stupefied gawkers who cannot believe people are riding waves inside a mall.

“The funniest question I’ve ever had,” he said, “was, ‘Are those real people?’ ”

[thelakelander]

It will be interesting to see how this plays out locally.  At this point, it appears that Regency is the only major enclosed mall on the brink of collapse.  Since the beach is nearby, I don't know if the Flowrider concept will work here.

[JeffreyS]

They should turn the Regency mall into a theme park to support the retail.

[Springfield Girl]

I was thinking about Regency's future the other day. We have Recency Mall, The Avenues and SJTC all in pretty close proximity. We have Orange Park Mall that can easily serve the West side and the new mall on the North side which is nice but limited in store selection. I live in the Urban Core so I am biased but it seems like a mall Downtown would make sense. Areas such as Springfield, San Marco and Riverside/Avondale would all benefit from an intown location along with all close in areas. Any of these locations could service the Urban Core but for available land, Downtown seems the perfect choice. When I lived in New Orleans I did all my shopping Downtown on my lunch hour or after work.

[vicupstate]

Greenville SC is kind of a poster child for what has occurred in malls over the last decade.  When I moved here in 1996, there were three.  The oldest of the three was purchased by the local technical college.  They put the college bookstore and many of the admin functions in one wing.  Another wing was leased to an education consortium that supports off-campus classes for several colleges across the state.  The remainder is leased to non-profit type entities, many with an education focus. Still other spaces are leased to restaurants, temp agencies, and other businesses that support the larger users. 

It has been a great reuse in my opinion. 

The second one has been razed, with plans for a SJTC-type power center development in it's place.  That mall always sufferred from it's close proximity to the largest (and still remaining ) mall. The remaining mall is doing very well, and is nearly 100% leased.  However, I believe even it has seen it's best days.  Once the aforementioned power center is built, it will no doubt take a hit.  Enclosed malls are on the downside of their lifcycle, IMO.             

[thelakelander]

They should turn the Regency mall into a theme park to support the retail.

I was watching Roger & Me the other day.  I wonder if a theme park at Regency would suffer the same fate as Flint's AutoWorld amusement park.

AutoWorld was an indoor theme park in Flint, Michigan, USA, built to make the town attractive to tourists. The theme park opened in July 1984 and was originally set up as a Six Flags amusement park venture. However, it went bankrupt and closed during its first year. After an attempted revival in the summer of 1985 and other attempts at making the complex viable, it was demolished in 1997 and the land sold to the University of Michigan-Flint.

http://en.wikipedia.org/wiki/AutoWorld

[Deuce]

I know the malls that vicupstae is talking about. The remaining enclosed mall in Greenville, Haywood Mall, was the place to go when I was a teenager. The one being torn down, the Greenville Mall, I think, was already dead when I was in high school. Numerous attempts to revive it where never successful. The mall purchased by Greenville Tech also tired to revive itself as a mall at one point. It's a shame that it wasn't successful as it's the first enclosed mall in Greenville and I believe the first in the state.

[mtraininjax]

Bring back the old Phillips Mall - which is now Class 1 office space at Emerson and US1. Before it was a dump, about what Regency is today.

[reednavy]

The Avenues really needs to try and land a big name anchor like Macy's or Saks in order to continue to compete with SJTC. If not, The Avenues will slowly meet the same fate as RSM.

Belk needs to consolidate into one store, and vacate the other. I just really wish they wouldn't have purchased Parisian's.

[fsujax]

I agree Reednavy.

[Cliffs_Daughter]

The Avenues really needs to try and land a big name anchor like Macy's or Saks in order to continue to compete with SJTC. If not, The Avenues will slowly meet the same fate as RSM.

Belk needs to consolidate into one store, and vacate the other. I just really wish they wouldn't have purchased Parisian's.

Since Simon Properties owns them both, they're more bent on getting the new development filled first (SJTC). As a result, the leases are quite a bit cheaper there while they don't offer better rates for tenants at the Ave's.
They should be more concerned with being able to keep their current tenants in place and tweaking some lease agreements a little bit, or stores will begin to pull out of there.  Think about this: when a retail company files BK to reorganize, they have their lists of stores to keep or close - a location's rent is considered in that decision, sometimes disregarding ample sales figures, making it a target for closure.

[shanshan1218]

I was in Regency for some random reason on Saturday after RAM. Not sure why I ventured out that way, I think I was curious to see what had become of the place. After crossing my fingers not be robbed or shot at the first thing I noticed was that for a Saturday about 1pm the place sure had a lot of parking spots. There was the normal flow of kids in the mall and some adults with kids but overall it was dead. The number of vacant store fronts is alarming and it appears mall maintence is non existant (i almost tripped over a hole in the floor that they had simply covered with yellow and black duct tape). It is kinda sad, and I almost hate to say this, but I wouldn't be upset to see the entire mall redevolped as something useful.

[reednavy]

Cliffs,

I think you're refering to General Growth Properties, GGP, which is probably preparaing to file for protection. They have a ton of debt due up soon if they do not get extensions.

[Cliffs_Daughter]

nah...
I did mean Simon... but wasn't implying that THEY were in danger. Only that their management is not keen on renegotiating a lease to benefit a retailer. GGP/Regency offered too low a rent to get any kind of business in there, and look what a patchwork job that created - you can clearly tell one side of the mall from the other.

About the Avenues: I"m going from what a store manager in the Avenues told me about his store being on the 'consideration' list when his company filed a few weeks ago (and also his district manager's notes). If it wasn't for the good sales figures in that store, they might've closed it instead of another local one being chopped.
All because of the rent.

[TheProfessor]

I am guessing you are referring to ritz camera.  If Regency had a simon managing it I think it could go in a successful direction.  The east wing (old mall) seems to be the more profitable side.