Tuesday, October 31, 2017

Shaping The Future of the Mall

For every industry news article I read full of dire predictions for retailers and retail properties of many types, there seem to be twice as many about the fate of the nation’s enclosed malls.

There are many malls in the United States, comprising a significant portion of the retail real estate landscape. Of just under 1,100 malls, quite a number are are facing severe challenges, and simply shouldn’t remain as malls; others still have a legitimate and even vital role to play in the overall retail environment.

Yes, traditional mall anchors such as major department store chains are going through a period of significant readjustment, and traditional smaller tenants such as apparel merchants are facing challenging times, or disappearing altogether. At the same time, new less traditional tenants are seeing the advantages of leasing mall space – notably health services and entertainment venues for all ages – and major retailers who have had no, or little, mall presence are looking at vacant mall anchor space in a new way. Target, for example, has been aggressively opening smaller format stores, and this effort has led them to consider space they might not have considered before.  And, ironically, retailers who started with an on-line presence, are, in some cases, trying out bricks and mortar too.  Owners and managers need to manage and lease carefully for the new retail environment – and sometimes reimagine their shopping center.

In our work on a number of malls of various sizes, for a variety of clients including special servicers, we’ve encountered many of the challenges facing mall owners everywhere, and helped guide our clients’ efforts through renovation, remerchandising, or complete redevelopment.  We oversaw the building of a full-sized skating rink within a mall we worked on in upstate New York – shifting the mall toward an entertainment destination years before this became a trend. Another New York mall in our management portfolio is in the final stages of “de-malling” into a much more robust center. The Latham Circle Mall was a 650,000-square-foot enclosed mall with Lowes, Burlington Coat Factory, JC Penney, and a 10-screen theater.  What exists today is a 500,000-square-foot open air center with a 185,000-square-foot Walmart SuperCenter, Bob’s Furniture, Lowes, and Burlington.  The final 45,000 square foot phase will be under construction in the spring of 2018.   We’ve shepherded malls through the process of being demolished and reborn. We’ve also helped move them toward revitalization.

A mall we manage and lease in Vermont is undergoing just such a process. University Mall (UMall), located on Dorset Street in South Burlington, is Vermont’s largest enclosed mall at more than 610,000 square feet. Built back in the heyday of malls, UMall is very much in the traditional mall mode, and has seen its share of ups and downs. UMall is anchored by Kohl’s, JCPenney, Sears, and (until recently) The Bon-Ton. Tenants include more than 80 retailers and restaurants such as Charlotte Russe, American Eagle, Zumiez, Christopher & Banks, Applebee’s, and many others.

The Bon-Ton, one of many venerable department store mall anchors now closing stores in these difficult times, announced this month that it will close its 60,000 square foot store at UMall. As you may have heard, our team has negotiated a lease with Target to open at UMall in the space that had been occupied by The Bon-Ton. This is major news because Vermont had been the only US state without a Target store. As Target noted in a release: “Target’s strategic priorities include reaching guests in new ways by expanding small-format stores in dense suburban and urban neighborhoods, as well as near college campuses. With Target’s small-format stores, assortments are tailored to meet the needs of local guests. The Vermont store will provide neighboring residents and University of Vermont students in the Burlington area a quick-trip shopping experience.”

Construction of the new Target will begin in early 2018, with a Fall opening projected.  The much-anticipated Target will become the centerpiece of an ambitious plan to re-merchandise UMall. Our team has negotiated many leases at the mall including L Brands to expand and relocate the Victoria’s Secret and Bath & Body Works stores.  Many other potential new leases are being considered.

With Target and other retailers adapting their store sizes and expansion parameters, and the rise of non-traditional tenants such as grocers  and other large-scale entertainment operators, as well as health care, service providers, and others, many malls (although not all), may not be down for the count. We’re keeping a careful eye on US malls and their future, and we’ll share our mall data, news, and experience with you in much more detail in the coming months, starting with the addition of a section of this newsletter dedicated to mall news. Stay tuned!
Chris Cardoni, Marketing Manager
CCardoni@KeyPoint Partners.com

KeyPoint Partners Company News

Employee News: Chris Black joined the Plymouth, MA office as a Property Manager. Chris had been at Jones Lang LaSalle. Tim Mai has moved to the Boston, MA office as an Assistant Property Manager. Tim has worked on the Accounting team in the Burlington, MA office for three years. Chris Domos joined the Burlington, MA office as an Assistant Property Manager.

National News

US retail sales recorded their largest increase in 2-1/2 years in September, the Commerce Department said. Retail sales rose 1.6%. The National Retail Federation (NRF) said September sales were 0.5% ahead of August on a seasonally-adjusted basis and up 3.2% annually on an unadjusted basis. Among retailers still reporting monthly sales, L Brands was down 2.0% and Costco was up 8.9%. See our sales reports on Page 4...Coach Inc. is changing its corporate name to Tapestry Inc., to update its image after Coach bought Kate Spade earlier this year and shoemaker Stuart Weitzman in 2015 to grow into a broader lifestyle company.

Accelerating News

Williams Sonoma opened its second standalone Williams Sonoma Home location in New York City. The 5,300 s/f store will feature a full suite of home furnishings and décor offerings targeted for city living…Teen retailer rue21 emerged from Chapter 11 bankruptcy. rue21 has 758 stores in 45 states…DICK’S Sporting Goods opened 3 new DICK’S Sporting Goods stores and 1 new Field & Stream store in the last weeks of September. DICK’S will now have 713 DICK’S Sporting Goods locations and 35 Field & Stream locations across the country...Uniqlo opened its newest US store this month at Union Station in Washington, D.C. The 3,400 s/f store is Uniqlo’s 46th store in the US and second in the D.C. metro area. Uniqlo has more than 1,900 stores worldwide…Nordstrom opened its newest full-line store, a three-level, 154,000 s/f location with a new design and new services, in Los Angeles. The retailer also opened its newest retail concept, Nordstrom Local, in Los Angeles. The 3,000 s/f format, which has no inventory, is designed as a neighborhood hub where customers can access the company’s best services…DSW announced a redesign of its stores with a new warehouse-like look that will allow 70% more merchandise to be showcased…Gymboree has emerged from bankruptcy with a reduced footprint and new owners. The children’s apparel retailer announced it has successfully completed its financial restructuring and emerged from Chapter 11 as a new corporation under the name Gymboree Group. Gymboree filed for Chapter 11 bankruptcy in June…Ace Hardware has acquired a majority stake in Somerville e-commerce startup The Grommet, the company’s first startup acquisition. Financial terms were not disclosed. The Grommet provides an e-commerce website that showcases new products created by entrepreneurs, and has served as the launching pad for brands like FitBit, IdeaPaint, OtterBox, SimpliSafe and SodaStream. The Grommet displays products at 400 Ace stores now, and will eventually cover a majority of the retailer’s 5,000 stores... Apparel brand Fiorucci, which acquired cult status and flourished in the 1970s-80s, has opened a 5,000 s/f flagship in London’s SoHo. A New York City location is planned for 2018…Sprouts Farmers Market will open 9 new locations in the first quarter of 2018, and approximately 30 new stores across the country by the end of 2018. Sprouts operates more than 280 stores in 15 states….CoreLife Eatery will add 40 new stores by the end of 2018, including 20 in the brand’s home state of New York. CoreLife plans to open 300 stores within the next five years...Teen apparel retailer Forever 21 is rolling out its beauty boutique concept, Riley Rose, at 13 US shopping centers. Riley Rose features mascara and lip balm, but also candy, housewares and other everyday essentials... Aldi plans to open 4 stores in New Jersey by next year as the supermarket chain continues its expansion in that state...Trader Joe’s has opened new stores in Allston, MA.; Kalamazoo, MN; and North Brunswick, NJ. The company has opened 14 new stores this year, rounding out its portfolio to 474 locations in 41 states....Target opened 12 new stores this month: 11 small-format stores and a standard big box store in Honolulu. The new stores bring Target’s total US store count to 1,828 locations…Ruby Tuesday, Inc. announced an agreement to be acquired by a fund managed by private equity firm NRD Capital. As of September, there were 599 Ruby Tuesday restaurants in 41 states, 14 foreign countries, and Guam...Bob’s Discount Furniture announced the opening of 6 new stores in the Los Angeles market, its first on the West Coast. Bob’s currently has 89 stores in 15 states across the East Coast, Mid-Atlantic and Mid-West regions, adding more than a dozen new stores in the past year... Five Below is set to open its 62nd store in its home state, a two-level store on Market Street in Philadelphia. The new location is one of approximately 100 Five Below stores opening in 2017... Tim Hortons Bakery and Café will open 105 Northeast Ohio locations starting in 2018. The chain owns or franchises 4,613 restaurants... Camping World detailed plans to open the first 15-20 re-branded Gander Outdoors locations by the end of the first quarter on March 31, 2018. Another 40-45 could open by the end of September 2018. CEO Marcus Lemonis led an investor group that bought out Gander Mountain’s intellectual property and store leases in a bankruptcy auction after Gander Mountain filed for Chapter 11 bankruptcy protections in March.

Decelerating News

Plus-size retailer Fashion to Figure, a 26-store chain with locations along the East Coast, announced plans to shutter as many as 10 locations after the holiday shopping season...Hudson’s Bay, the owner of Lord & Taylor and Saks Fifth Avenue, will sell Lord & Taylor’s flagship store on Fifth Avenue to WeWork, the New York-based marketer of shared office space, for $850 million. WeWork will convert the 11-story building at Fifth Avenue and 38th Street into its headquarters...Walgreens will shutter 600 stores early next year following its $4.4 billion Rite Aid deal. The closures will be mostly Rite Aid stores, but may include some Walgreens locations, and will consist of stores within a mile of another Walgreens or Rite Aid location. The closings will start next spring and will continue over an 18-month period.

New England News

61-year-old New England-based retailer Country Curtains will begin liquidating immediately, and a going-out-of-business sale has been launched in its 19 retail stores. The stores will close by the end of the year…Wegmans will open in Medford early next month, in a 120,000 s/f space at the Meadow Glen Mall... David Yurman has reopened the doors to its new, expanded 2,500 s/f boutique in Boston’s Copley Place. The boutique is one of more than 350 Yurman locations... Iconic Boston guitar store Bay State Vintage Guitars on Huntington Avenue is closing to make way for condos, ending 35 years of local music history. In its time the store, directly across from the New England Conservatory of Music and a short walk from Berklee, served The Rolling Stones, Bob Dylan, and Paul Simon among others.

NEW SECTION: Mall News

Amazon, which has plans for 23 new fulfillment centers, is placing one of them on the site of the now-demolished Randall Park Mall in North Randall, Ohio, once the largest mall in America. The footprint required for the 855,000 s/f facility and huge parking lot is around 67 acres, which the mall easily provides….Next month Simon Property Group, the largest US mall operator, will unveil a platform known as “The Edit@Roosevelt Field at the Roosevelt Field mall on Long Island, NY,which offers retailers early on in their businesses the opportunity to set up shop in 20 to 200 s/f enclosed spaces in a dedicated portion of the mall. Some of the first brands to be featured include Raden Smart Luggage, menswear brand Vitaly, athletic apparel retailer Rhone, beauty brand Winky Lux, dessert company JARS by Dani, and contemporary art gallery Uprise Art... The local government Brookfield, Wisconsin plans to build a conference center and hotel at the CBL & Associates-owned Brookfield Square mall. By creating a hub for conventions on 9 of the 29 acres currently occupied by Sears, the city hopes to boost CBL’s efforts to reinvent the property, the largest taxpayer in Waukesha County.

RETAIL SALES REPORT





























Notes: figures gathered from individual company websites, press releases, and Federal filings.  Not all companies report all figures; results not reported will be marked “n/r”. Quarterly results will be updated when available; quarterly figures are shown in italics. Figures from companies not calculated to one decimal point automatically received an ending digit of 0. 

COMMERCE DEPARTMENT MONTHLY SALES

U.S. retail sales recorded their biggest increase in 2-1/2 years in September, the Commerce Department said. Retail sales rose 1.6%. Excluding automobiles, gasoline, building materials and foodservices, retail sales increased 0.4% last month after being unchanged in August.

Source: U.S. Department of Commerce - commerce.gov

TREASURY YIELDS


















Treasury Yield Sources:  federalreserve.gov; ustreas.gov

CONSUMER CONFIDENCE INDEX

The Conference Board Consumer Confidence Index®, which had improved marginally in August, declined slightly in September. The Index now stands at 119.8 (1985=100), down from 120.4 in August. The Present Situation Index decreased from 148.4 to 146.1, while the Expectations Index rose marginally from 101.7 last month to 102.2.

Source: The Conference Board - www.conference-board.org

PURCHASING MANAGERS INDEX

Manufacturing expanded in September as the PMI® registered 60.8 percent, an increase of 2 percentage points from the August reading of 58.8 percent. This indicates growth in manufacturing for the 13th consecutive month and is the highest reading since May 2004, when the index registered 61.4 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Source: Institute for Supply Management - Manufacturing Report on Business - www.ism.ws