Malls are fighting for shoppers with one thing their web rivals can’t offer: parking lots.
With
customer traffic sagging, U.S. retail landlords are using their
sprawling concrete lots to host events such as carnivals, concerts and
food-truck festivals. They’re aiming to lure visitors with experiences
that can’t be replicated online -- and then get them inside the
properties to spend some money.
“Events draw people to come to
the shopping center,” said Keith Herkimer, whose company, KevaWorks
Inc., is working with big landlords including GGP Inc. and Simon
Property Group Inc. to produce outdoor events. “They generate revenue
for the owner and offer a chance for cross-promotion, so they can try
and drive more customers into the stores.”
Mall owners across the
country are grappling with record store closings and declining rents.
Retail property values are down 3 percent in past six months, as all
other types of commercial real estate showed gains, according to the
Moody’s/Real Capital Analytics indexes. A Bloomberg gauge of publicly
traded mall landlords has tumbled 15 percent in the past year, the worst
performance among U.S. real estate investment trusts.
Amazon.com
Inc. and other internet retailers continue to grow, while department
stores including Sears Holdings Corp. and Macy’s Inc. have been closing
hundreds of locations. Payless Inc., the discount shoe seller, is among
the latest to announce a massive shuttering -- of 400 stores -- as part
of a bankruptcy plan.
“We expect to see a trend of more
closings,” said Carol Kemple, an analyst at Hilliard Lyons. “Most
retailers, if they’re still standing in September, will probably try to
make it through the holiday season.”
Creating ExperiencesRetail
landlords have already made a push toward experience-driven offerings
by adding restaurants, movie theaters and activity centers for children.
Many malls are also adding rotating stores around for only a short time
-- known as pop-up shops -- that are meant to attract young customers
who see shopping as an event.
Now, events are reaching beyond the
malls themselves. Herkimer’s task is to bring crowds to parking lots
with events that generate as much as $60,000 a week for mall owners from
the largest outdoor events.
The idea is gaining traction. Next
month, Simon Property is having the first carnival in its Round Rock
Premium Outlets parking lot, about 20 miles (32 kilometers) north of
Austin, Texas. Similar events are being held for the first time at
locations such as Central Mall in Port Arthur, Texas, managed by Jones
Lang LaSalle Inc., and a Cheyenne, Wyoming, mall owned by CBL &
Associates Properties Inc. In July, Simon Property’s Orland Square Mall,
southwest of Chicago, will be holding its first parking-lot food-truck
festival, with plans for live music performances, Herkimer said.
Movie Nights
Lisa
Harper, senior director of specialty leasing for Chattanooga,
Tennessee-based CBL, said the company has expanded its carnival business
at many of its 87 properties over the last couple years. She and
Herkimer have discussed the possibility of pumpkin patches in the fall
months and adding movie nights to some properties. CBL’s Triangle Town
Center, in Raleigh, North Carolina, is about to start its second mini
concert and food-truck series, called Creekside Wind Down, Harper said.
Retailers
rent the outdoor space in a structure that resembles their indoor
leases, Harper said. While each deal varies, the agreements involve a
base rent fee for the use of the space and a percentage payment after
the event reaches a certain threshold. Department stores, which
sometimes own or control their parking lots, are seeing more value in
renting the space after many years of restricting their use, she said.
‘Stick Around’
“Events brings that additional traffic and also encourage people to stick around longer,” Harper said.
There’s
no guarantee, of course, that people will go inside, said Tracey
Hatley, director of specialty leasing for JLL Retail. But the events
offer opportunities for cross-promotion. Customers receive fliers
advertising stores or restaurants inside the mall or coupon books to
help draw them in.
That works well for properties like the
Santa Rosa Mall in Mary Esther, Florida, Hatley said.
“They
are a property that’s struggling with occupancy, struggling with
driving traffic to the center, so they love doing parking-lot events,”
she said. “You can see it from the road and it gets people on the
property.”
Simon Property representatives didn’t respond to requests for comment.
Groceries, Doctors
Some
malls are doing fine even without renting out their outdoor space,
especially higher quality properties with upscale stores. They have been
drawing visitors with grocery stores, medical offices and high-end
restaurants -- all businesses that face less risk from e-commerce
competition than traditional tenants. Some retail REITs are adding
office space or apartments to their portfolios to diversify.
Sandeep
Mathrani, chief executive officer of GGP, said at a conference this
month that the perfect mall now would include one department store, a
supermarket, an Apple store, a Tesla store and businesses that started
out online, like Warby Parker, the purveyor of prescription eyeglasses
and sunglasses. Clothing stores now represent about 50 percent of the
average shopping center, down from about 70 percent, he said.
“Landlords
are trying to give people reasons to come to the mall, whether it’s a
Tesla charging station or getting local car clubs to host events in
their parking lots,” said Alexander Goldfarb, an analyst at Sandler
O’Neill & Partners LP. “It’s not a fun time to be either a retailer
or landlord, but it doesn’t mean every single mall or shopping center is
going to close. Far from it.”
And for some retailer landlords with better-performing properties, the industry’s turmoil could mean more opportunity.
