Published in Shopping Center Business, May 2001  

The failure of Montgomery Ward and other department stores, along with the closings of Sears, Penney's and others has the shopping center industry, once again, facing the vacant department store dilemma. The industry had similar, but more extensive, problems in the later '80's and early '90's, following the department store leveraged buyouts, consolidations, and bankruptcies. This time, however, there are fewer department stores waiting in the wings to replace the newly shuttered stores. Additionally, some of the other solutions are not longer alternatives. Finally, the actions taken are dependent upon who owns the vacant department and what their objectives are. Unfortunately, they are sometimes incompatible.  

The most obvious solution to the problem is to replace the vacant department store with another department store. Unfortunately, that will only happen in a limited number of instances. Thus, other solutions must be identified, addressed, and implemented. In the recent past, one of the alternative solutions was to convert the vacant department store space into entertainment facilities including a Cinema, restaurants, and high margin kiosks. However, with the over-expansion of theaters and the subsequent failures, this may not be an option. In some two-level malls, the solution will be to seek two major tenants who can occupy a level. The prospective tenants might be a conventional retailer or a big box merchandiser. A major furniture retailer may be placed upon one level, and a supermarket or other big box retailer on the other level. Unfortunately, in a majority of cases, this option will not be available because of either lack of interest or no available large retailers or big boxes. Also, It is important to note that some big box additions may adversely affect a mall's specialty stores. Caution and prudence are called for in addressing the vacancy, lest a new problem be created.

 At the onset of the dark department store, a complete assessment of the mall's market should be undertaken. This includes, but is not limited to:    

 ▪ An analysis of market demand

▪ An evaluation of store performance by retail category

▪ A customer intercept or trade area resident telephone survey

▪ An objective competitive analysis

▪ A study of merchandising effectiveness

▪ A definitive analysis of tenant mix and price points

▪ An identification of likely tenant prospectives

▪ An assessment of physical needs; and 

▪ A parking placement and parking utilization review.    

 Next, a realistic list of feasible alternative solutions should be prepared, along with the probability of their likely success. Finally, a financial analysis of each probable alternative should be completed. The results of such a study will indicate what can be done, the needed actions, the probable costs, and the likely success, impacts and returns. It should be completed with complete objectivity. Otherwise, the final solution will be flawed and may create a situation worse than the current problem.

Generative Retailer vs. Obtaining a Rent Paying Tenant  

 Let’s examine some solution alternatives which include both retail and non-retail solutions.  

 ▪ Renovation and Innovation

• Renovation of a mall without the addition of another major anchor or sub-anchors usually will usually not provide the significant needed sales increase. Nevertheless, without any improvement, whether an offensive or defensive action, the mall will probably decline in sales, rents, and customer attraction. A combination of innovation and renovation is usually required. Convertibility must also be considered. If something does not work, it should be changed or perhaps be converted to something else. Adding a major anchor is the most desirable action since it creates new blood and permits both leasing of new space and re-leasing of existing space. This alternative, however, is becoming less of an alternative solution because of the lack of department stores or other major retailers large enough to both take the space and provide generative consumer attraction.

▪ Major Entertainment Additions  

• Adding a major entertainment venue was very popular in the '90's. Cinemas were the principal vehicles, combined with restaurants, food courts, arcades, family entertainment centers and other venues. Cinemas also included IMAX or I-Werks or some other generative variation. Today, with the cinema industry’s financial problems, this will be an alternative for only a few malls. Nonetheless, it needs to be explored. Entertainment can be a significant generator, bringing more customers to the mall on evenings and weekends as long as it does not create an adverse parking situation.
 

▪ Big Box Replacement  

• Big Box department store replacements to malls have had a mixed bag impact. Some are generative, while others simply fill space and pay rent and CAM charges. Big Boxes have usually done well, however, the customer attraction has often been limited. Occasionally, they have a negative impact upon some of the mall's specialty tenants. Big Box retailers such as Costco, Wal-Mart, Sam's Club, Best Buy, HH Gregg, and the Home Depot usually generate their own customers who shop their stores and get back in their car and go home or somewhere else. Target, we have found, often acts more like a department store, perhaps because of its department store roots. Big Boxes such as Hobby Lobby and large furniture stores, generally do not generate much Mall traffic and rather fill space. Moreover, most Big Boxes do not lend themselves to mall environments. Exceptions, of course, include Kohl’s, Barnes & Noble, Old Navy, the Container Store, The Sports Authority, Dick's Sporting Goods, Marshalls, TJ Maxx, and others. There are a few cases of Wal-Mart functioning well in a mall environment. Normally considerable store turnover takes place in that wing of the mall after the addition of a discount Big Box.
 
Additional problems arise when a major Big Box like Wal-Mart relocates and restricts the types of stores that can go into its former space. In one instance in which I was involved, Wal-Mart owned their store in a mall and would not permit another major Big Box retailer to take the space.

 ▪ Other One-Level Retail Alternatives  

• Other than the Big Boxes indicated above, there are major store-types that might be added to solve a problem with a mall wing:

▪ Large computer retailers

▪ Large home furnishing stores

▪ Unique attractions such as Bass Pro Shop's

▪ Strong major local retailers 

▪ Adding a Supermarket or Supermarket Combo Units  

• In some malls where a major department store has been lost and another could not be obtained, the department store was demolished and a major supermarket or supermarket combo store (includes a self-service multi-line drug store) was added. The concourse of the mall was then re-focused toward high frequency customer generators such as convenience goods stores and service shops. It is not the best solution; however, it beats vacancy. These have been fairly successful in medium to smaller communities.


▪ A Restaurant "Street" Anchoring A Concourse  

• Since this type of development has been done for entertainment malls, we expect to see it completed in existing malls as well. Mundo E in Mexico City is an example of entertainment and restaurant streets. Usually, a cinema is included and, in some cases, street themes combined with unique shops and boutiques. A small "live" zoo in conjunction with the theme might also be considered, especially if the mall will contain a Rainforest Cafe.

▪ Family Entertainment Centers

• Family entertainment centers such as Dave & Busters can anchor a "dead" concourse of a mall. The units are very weekend oriented and require significant parking on Friday and Saturday nights. Nevertheless, they bring a strong young clientele to the mall.


▪ Demolition  

• Demolition of the vacant department store, in some cases, may be the only solution. 
 

NON-RETAIL SOLUTIONS

Non-retail solutions generally are not addressed until all of the retail solutions have been eliminated. This occurs with malls that are simply too big for the current market or have lost their anchors and the anchors cannot be replaced with retail users. Still others may have been adversely affected by major Big Box development nearby. More often than not, the uses listed below are implemented to rent space and are not necessarily compatible with retail. Furthermore, the conversion costs sometimes exceed the attainable rent for non-retail uses. Nevertheless, for many old or poorly located malls, it is essential to consider "space fillers," or a basic revenue source to help provide revenues and CAM recovery.

Some of these include: 

• Hotels have been added to many malls in North and South America. Some of the more successful additions include the Florida Mall in Orlando where the hotel serves South American visitors.  

• Hewlett Packard took over an entire mall in California and converted it to an office complex.  

• Offices or an office building have been developed successfully in some malls by segmenting parking to eliminate parking conflicts. Also, the daily daytime working population provides purchasing power to the mall. 

• Casinos will be added to malls. While I have not seen one yet, I expect to. This may or may not have a positive impact upon the mall. Our studies have found that commuter gamblers do little shopping unless they are big winners   

• Factory outlet conversion of malls has been attempted in many parts of the country, some successfully. This represents a complete change of the mall and usually requires significant demolition and capital infusion.

• Auto Dealers showroom displays with sales representatives have been tried in various parts of the country. This makes sense in a densely populated area where limited land is available for sprawling car dealers. 

• Governmental offices, such as City Hall, county offices or federal agencies, have taken space in many malls with vacancy problems. When done properly, the offices can be isolated to one wing of the mall. The Canadians learned this long before U.S. landlords, especially in small communities. The daily employment provides additional purchasing power to the retailers and food court. Also, some governmental agencies generate people to their offices who are potential customers to the mall.   

• The addition of College or University to a mall has also helped to alleviate vacancy problems. This addition may generate increased pedestrian traffic and frequency of visit to the center.

• Major Health Clubs have been added to many shopping centers and malls. The facilities have a high frequency of visit and a significant parking demand because most users come alone. Nonetheless, this type of use can fill space and provide a generator to a dead wing.   

• Museums, such as a Children's Museum, can both fill space and generate family activity especially on the weekends. When combined with family-oriented restaurants, the weekend impact can be significant.     

• Flea Markets often represent the last attempt to add retail back to a "dead" portion of a mall. Nevertheless, when properly done, the Flea Market can significantly increase weekend traffic. Flea markets usually take four to five years to develop both the cadre of vendors and the attraction of buyers.     

• Medical and Dental clinics represent good additions to any mall because they add another reason for going to the mall.     •   • Churches have been successfully added to many shopping centers and a few malls. They usually are "quiet tenants" on other than Sunday. They simply represent space users.  

• Boat Dealers and Recreational Vehicle Dealers often prefer to be located on a major traffic artery where the action occurs. Their impact is usually seasonal and limited. However, they can fill "dead" space.

DEVELOP A REVITALIZATION STRATEGY

There are other uses that have been added to malls and shopping centers to provide revenue, attract customers, and fill space. Unfortunately, the majority simply fills space and do not add to the retail experience. Before "hip-shooting" a solution, I suggest that one develop a revitalization strategy designed to improve a "sick" mall. This usually requires:  

• Investing capital

• Creating individuality or a uniqueness, different from other malls

• Shrinking some common areas

• Adding or expanding the cinema

• Adding new tenants

• Strengthening the Mall with new interactive retailers

• Working with retailers to improve their attraction • Making the Mall more exciting; avoid sameness

• Adding interesting Kiosks or Wall Displays

• Strengthening the marketing budget and program

• Considering some non-retail tenants where space cannot be rented to retailers

• Preparing a reasonable budget and financial analysis

• Implementing the plan Front-end planning and research serves to avoid mistakes and maximize market opportunity.