Originally created 05/01/06

Malls look to reinvent themselves

LOS ANGELES - Here in the land of malls, one of Southern California's oldest indoor retail centers is no more.

Many of the boxy buildings at the Huntington Beach Shopping Center sat boarded up despite sitting astride one of Orange County's busiest freeways. Now, the site hosts one of the most extreme examples of a growing movement in mall design.

Noting the success of upscale, open-air shopping areas - "lifestyle centers" in mall jargon - the owners tore down the 1960s-vintage shell, and up sprang an airy shopping plaza with water fountains and a grassy amphitheater. The $170 million Bella Terra was born.

Lifestyle centers first arrived nearly two decades ago. But their success, even in cold climates, is now prompting traditional mall owners to invest millions of dollars in redesigns rather than new development. A shrinking number of major department stores also is spurring a change that is remaking the American mall.

In past years, a remodel may have included a paint job, new furniture, maybe marble accents. Not anymore.

"There's always been a need to update," said Anita Kramer, director of retail development for the Urban Land Institute, a Washington, D.C.-based think tank dedicated to land use and development. "Just now the update is a whole new configuration."

The "de-malling" of the Huntington Beach mall isn't the norm. Most developers looking at projects from Seattle to Iowa aren't starting over but instead adding "lifestyle" elements - outdoor streetscapes leading to existing entrances, destination restaurants and cinemas.

The redesigns are not cheap, and there's always a risk of misreading the market. Still, lifestyle centers are showing they can compete: They averaged $325 worth of sales per square foot of retail space in 2004, according to the most recent figures from the International Council of Shopping Centers. That's compared to $392 for enclosed malls in 2005.

And lifestyle centers have been proliferating nationwide.

Nationally, they will number over 100 by year's end, according to CoStar Group Inc., which tracks data for commercial real estate professionals. That's nowhere near the 1,077 enclosed malls CoStar recorded. But the number of new enclosed malls is shrinking - from a height of 387 built in the 1970s to just 47 so far this decade.

Some lifestyle centers have become bona fide destinations.

The Grove in Los Angeles often is credited with helping establish the viability of the lifestyle center.

There's The Cheesecake Factory, Nordstrom, a cinema and plenty of scenery - ranging from a minilake to a trolley meandering down the central cobblestone street. Each serves as a "minianchor," according to Rick Caruso, chief executive of Caruso Affiliated, owner of The Grove.

The result: 20 million annual visitors and sales per square foot that are 40 percent above the industry average.

Cherita McNeill, a 33-year-old aspiring actress from Los Angeles, was on a recent shopping trip to The Grove.

"It's about the atmosphere, the decor," McNeill said. "Not the same old look, the same old institutional feel. There's life out here."

Unlike classic malls, Caruso said, the Grove wants patrons "to shop, be entertained, to dine, but also to go hang out with friends.

"The days of putting one department store at each end and tenants in the middle are long gone," Caruso said.

Changes in the department store industry are accelerating change.

Last year's $11 billion merger between Federated Department Stores Inc. and May Department Stores Co. has provided a rare opportunity, as Federated - owner of Macy's and Bloomingdale's - looks to shed duplicate stores.

The Westfield Group, owner of 128 shopping centers worldwide, recently announced it was acquiring 15 stores from Federated, with plans to knock some down and replace them with outdoor entry plazas and exterior-facing storefronts. Although it means a loss of rentable space, Westfield hopes the outdoor element will help draw shoppers.

"We're having great fun with it," said Kenneth Wong, president of Westfield's U.S. division, "and we're having great success with it."

Westfield isn't alone.

As part of a major redevelopment outside Seattle, General Growth Properties Inc. opened up an entrance to its Alderwood Mall, creating an outdoor plaza with restaurants and shops.

"We shouldn't be doing the same look architecturally or otherwise that we did 20 years ago, let alone 10 or even five years ago," said General Growth chief executive John Bucksbaum.

The company continues to open new properties - it owns or manages more than 200 nationwide - and is not ready to abandon the indoor mall, particularly in colder climates. But General Growth is turning to hybrids, where outdoor elements merge with traditional projects.

In 2004, the company opened its $200 million Jordan Creek Town Center in West Des Moines, Iowa. The 46-acre project features an enclosed mall, street-facing restaurants, an outdoor amphitheater and a 3.5-acre man-made lake.

The success has been dramatic. The mall saw an estimated 15 million shoppers the first year - 3 million more than projected.

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