Developers and Retailers
Try To Be More Innovative

Once relegated to just the suburbs where the real estate they need was cheap and abundant, big box retailers are tapping a new consumer base and expanding their brands by entering crowded metropolitan markets.

"Going urban is one of the major trends right now," said Will Ander, senior partner at retail consulting firm McMillian/Doolittle. "Many of these retailers have already put their footstep in the suburbs, so the city is the next logical step."

But putting a 100,000-square-foot store in the middle of a city requires brands to be innovative -- building multi-level stores or moving into the ground floor of a residential building. Additionally, retailers may find that they can't simply transfer their suburban identity to a major city.

"These stores are really wedged into communities so they have to be built non-prototype," said Pat Matre, vice president of retail at Best Buy, which recently opened a four-story store in downtown Manhattan.

More floors may help customers navigate merchandise, but Matre also notes that the New York store has had to tone down its bright yellow Best Buy sign, stating that consumers didn't want "a suburban, parking lot store in the middle of their city."

Additionally, stores must stock merchandise to suit urban consumers. For instance, Best Buy stocks a large selection of flat screen televisions and home theater equipment at its Clark Street store in the Lakeview section of Chicago, a neighborhood full of young professionals.

Likewise, Kip Tindell, CEO and president of The Container Store, which has stores in most major cities, notes that customers in different markets have different tastes. In New York, for instance, customers prefer a more modern, stainless, industrial product look than in other markets.

Like many companies with urban outposts, The Container Store relies on smaller trucks to ship in inventory, rather than the 54-foot trailers used in its suburban outposts.

If companies are paying at least two to three times more rent in cities -- retail space in Chicago, for instance, generally goes for $50 to $100 per square foot, compared to $30 per square foot in suburban malls outside of Chicago -- retailers can expect twice the return, notes Ander, because of the population density.

"Proximity to the customer is the most important thing," agreed Mike Laferle, president of real estate at The Home Depot, which opened two stores in Manhattan last year.

Additionally, Laferle notes that more people are moving back to the city -- in part, due to the boon in residential construction -- so the consumer base in urban areas is expanding.

Looking forward, both Target and Lowe's are currently planning on entering Manhattan, according to Faith Hope Consolo, chairman of the retail and leasing sales division at Prudential Douglas Elliman.

But she cautions that while going into cities is an important part of a retail company's business strategy, stores still need to be in the right neighborhood within a city; it is not enough to simply enter an urban market. In addition, new stores need to ensure that they have plenty of staff on hand. New York consumers, she believes, expect to be catered to.

"People in Manhattan may not be familiar with the merchandise mix," said Consolo. "Stores need to have staff that can deliver a level of high-quality service to urban customers."

Taking a cue from the success of lifestyle centers, developers are incorporating components of these centers into traditional malls, adding touches such as outdoor plazas and restaurants to the standard mall format.

But what to call these new mall lifestyle hybrids? If "lifestyle center" is the new industry buzzword, the name some developers are calling updated malls is "town centers."

One large-scale example of such a project: the Jordan Creek Town Center in West Des Moines, Illinois.

Developed by General Growth Properties and opened in August 2004, the 2.2 million-square foot Jordan Creek Town Center incorporates both traditional mall aspects like department store anchors -- Dillard's, Scheels and Younkers -- as well as lifestyle center components like a "lake district" that includes a 3.5-acre lake, bike trail and pedestrian walkways.

Likewise, the Coastal Grand-Myrtle Beach, a 1.5 millionsquare- Beach, South Carolina, uses both indoor and outdoor space and boasts three large department store anchors -- Belk, Sears and Dillard's. Opened last March, the project was built by CBL & Associates Properties, which is currently adding the Village at Coastal Grand, a 60,000-square-foot lifestyle center, onto the mall.

CBL & Associates Properties owns 70 traditional malls across the country; 50 malls currently have some type of redevelopment going on, according to Stephen Lebovitz, president of CBL.

According to Lebovitz, the success of lifestyle centers has taught developers three important lessons: Add more restaurants, create convenience in terms of parking and accessibility to stores and be innovative in terms of design and architecture. But in many situations, it makes more economical sense to refurbish existing malls, rather than build new developments, according to Lebovitz.

"It can take five, six years to build," he said. "Most retailers don't want to wait that long."

Rick Latella, senior managing director of the retail group at Cushman & Wakefield, a private real estate services firm, says that mall developers are in the unique position of being able to capitalize on the recent flurry of department store chain mergers.

"As vacancies occur, mall owners are seeing opportunities to take back these spaces," said Latella. "They are realizing that it's not necessary to replace a department store with another anchor."

Instead, junior box stores -- like Best Buy or Bed Bath & Beyond -- are being added, according to Latella, as are restaurants, movie theaters and outdoor spaces.

The typical "mall lifestyle" look is a clustering of restaurants, a movie theater at the middle point and a courtyard plaza area, agrees Larry Feldman, CEO of Feldman Mall Properties, which is refurbishing four malls across the country, including the Colonie Center, a 1.2 million-square-foot mall in Albany, New York.

When it re-opens in Christmas 2006, the mall will have a half-dozen new restaurants and courtyard plaza, all essentially built out in the front of the mall, according to Feldman, as well as a 14-screen movie theater.

A typical, traditional mall refurbishment -- usually a job that requires new construction rather than any major dismantling of existing structures -- costs about $25 million, he believes.

At Colonie Center, the increased foot traffic, particularly to stores in the center of the mall, will translate to huge profitability, he believes. Currently, sales at Colonie Center are about $2.75 per square foot, but Feldman expects sales of $3.25 to $3.50 per square foot once the mall is complete.

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