September 22, 2017
Think about how you shop — it’s probably different than five or 10 years ago, or even a year ago.
Maybe you research a product online and buy at the local store. Perhaps you try on clothes at the store and then search the internet for cheaper prices. Whichever method suits you, changing habits and demographics have forced a tectonic shift in how we shop, a shift that begs the question: Do malls still have a relevant place in the United States economy?
Will they eventually fade away? “My gut says no,” said Cynthia Eichler, CEO of Visit Fort Collins and former longtime general manager of Fort Collins’ Foothills mall.
“There’s room for both” the enclosed mall and lifestyle center, she said, depending on the market, Eichler said. “In some cases it means repurposing a department store. In others, it’s finding the right entertainment venue or department store. But one size does not fit all.”
While there may be a place for an enclosed mall, they will need to reflect their communities, she said. Foothills, for example, placed a premium on creating dining and entertainment in a city that loves its food and drink.
Of the roughly 50 stores that are open, about half are or will be restaurants or entertainment, including Cinemark. The rest is a combination of clothing, accessories and services.
“Different developments in different communities have responded in different ways,” Eichler said. Developers need to “know what works (in their communities) and execute it.”
A new mall hasn’t been built in the U.S. since 2006, and the 2008 recession dealt a huge blow to already faltering malls, according to the International Council of Shopping Centers, or ICSC. As indoor shopping hubs fell out of fashion, owners of existing malls found themselves lording over increasingly vacant, decaying kingdoms.
“Things are stacked against the malls, including their big anchor stores”
Doug Hoffman, CSU professor of marketing
Beginning in the late 1990s, the culture that supported American malls began to change.
Back in the day, “malls were cool, they were places we hung out,” said Doug Hoffman, professor of marketing at Colorado State University. “In the ’70s, they were great new places. Now they’re 40 years old and run down.”
Their middle-aged and middle-class consumers began to disappear as “lifestyle centers” popped up, offering newer shopping options. As suburban shoppers fled to newer properties, so did stores, leaving ghost towns in their wake.
“Things are stacked against the malls, including their big anchor stores,” Hoffman said. “Specialty stores are beating them on fashion and style” while big box stores are “beating them on price.”
Beset by failing anchor stores, aging infrastructure and an economic downturn a decade ago, owners of Foothills, Greeley Mall and Twin Peaks Mall in Longmont struggled to attract shoppers and tenants.
Facing those headwinds, Foothills and Twin Peaks found developers who created hybrid centers. They shrunk or razed the enclosed malls, rebranded — Twin Peaks is now Village at the Peaks — built new stores and created entertainment and dining venues beyond a typical food court.
Greeley Mall’s owners focused on value and attracting tenants that struggled to afford locations closer to the Interstate 25 corridor.
Each has adapted as consumers’ wants and habits changed, but it may take some time to refine the market and find the right tenant mix before they truly realize their success.
Online retailers take their share
Despite the popularity of online sales, the numbers tell a less dramatic story about the hit shopping centers in the U.S. took from the rise in online retail.
Only 4.7 percent, or $227.3 billion, of all retail sales in the U.S., came from online-only retailers last year, according to the ICSC.
Overall e-commerce, which includes catalog sales and online sales from retailers that operate physical locations, makes up about 10 percent of total retail sales.
“Ten percent is nothing to sneeze at,” said CSU’s Hoffman, “but it’s kind of shocking that most things that are bought are still bought in stores. Personal service still matters.”
Melissa Moran, formerly of Foothills Mall and Front Range Village in Fort Collins, agrees.
“Real estate is one of the strongest billboards for a brand,” said Moran, now a commercial real estate broker with CBRE.
Nearly a third of respondents to a recent ICSC survey said they would decrease their online spending with a store if it closed its physical store. That’s because consumers may like the convenience of online shopping but like the ability to easily return merchandise locally.
The report also says a significant share of consumers will only shop online from retailers who ship free, like Walmart or Amazon.
That so-called “Amazon effect” of shoppers being able to buy what they’re seeking online without paying for shipping is often cited as a reason for a dip in local sales. Whether that’s true is difficult to quantify.
Fort Collins is seeing a decline in sales tax revenue from Foothils this year. From May through August, revenue dropped to $664,000, down from $762,000 during the same period in 2016. But the reasons behind that decline are speculative because sales tax revenue in 2017 has been sluggish citywide.
“It seems to be trending with what we are seeing in the rest of the city,” said Tiana Smith of the city’s sales tax office. “We are still seeing growth, but it’s been softer than in previous years.”
Sales tax collections from downtown retailers for 2017 decreased 3.2 percent from the prior year through August, while citywide sales tax collections are down 3.8 percent from what the city budgeted.
The numbers do not reflect back-to-school sales, which could reverse the trend, Smith said.
Mall owners choose different paths
Foothills, Longmont and Greeley malls all share another feature: All three were bought at a discount as they aged and began failing.
Alberta Development Partners and Walton Street Capital paid $40 million when it bought Foothills from General Growth Development in 2012. That was nine years after Chicago-based GGP purchased Foothills and two other malls for $221 million, with Foothills the prize among the three.
NewMark Merrill, with its Mountain States division based in Fort Collins, paid $8.5 million in 2012 for the former Twin Peaks Mall in Longmont, a figure 75 percent less than what former owner Panattoni Development paid in 2007.
Moonbeam Capital Investments bought the Greeley Mall in 2012 for a steal — $6.1 million, a sliver of what it was worth in 2006 when GK Development of Chicago purchased it for $41.4 million.
“Building Taj Mahals is yesterday’s game.”
Steven Maksin, CEO of Greeley Mall owner Moonbeam
What came next depended on developer and location.
Alberta pumped in another $300 million to renovate Foothills, with development spurred on through $53 million in financial incentives awarded by the city of Fort Collins. Foothills’ indoor footprint was reduced and replaced with a new movie theater, shops lining College Avenue and apartments along the Midtown property’s periphery.
Although Foothills is shiny and new, it has, by design, two true anchors, Macy’s, which has closed several stores across the country amid financial struggles, and Cinemark XD theater. One wing remains nearly empty as it waits for a new junior anchor, likely Dick’s Sporting Goods Store, before filling in the remaining stores.
The interior is clean and bright, but at this point, the enclosed mall has far fewer stores than Greeley. In total, Foothills is about 70 percent leased,
In Longmont, NewMark Merrill razed the entire Twin Peaks Mall and rebuilt with anchor stores, Whole Foods Market and a movie theater. It is about 90 percent occupied, despite the loss of Sports Authority, which filed for bankruptcy and closed.
Greeley sought to attract a new anchor when Dillard’s left its mall in 2008. A 124,000-square-foot vacancy was eventually filled by home goods store At Home, keeping the mall’s physical structure mostly intact.
Renovated in 2004, Greeley’s mall shows its age inside and out but is 92 percent leased and has four active anchor stores: Sears and Sears Automotive, J.C. Penney, At Home and a fitness center.
Steven Maksin, CEO of Greeley Mall owner Moonbeam, said his company has had inquiries from tenants of other Northern Colorado malls that can’t afford their rents. “Those economics just don’t work for them and they’re looking to move into Greeley,” he said.
By keeping lease rates relatively low, Greeley Mall was able to sustain and increase occupancy in the past five years, he said. Maksin expects Greeley Mall to be full within six to eight months.
Moonbeam is sitting on about $20 million in promised city incentives if it decides to redevelop, but Maksin said his company doesn’t plan to fix what isn’t broken.
“To be frank, even though the mall is in a redevelopment zone and has $20 million in funds to deploy, as responsible citizens we shouldn’t do that unless it makes sense for the community and for us,” he said.
Moonbeam will not use the promised financing “to raze part of the mall and build something meaningless,” Maksin said.
“Building Taj Mahals is yesterday’s game,” he said. “In the economy we are experiencing now it may not make sense to raze a mall and build something grandiose that is 60 percent vacant.”
This week we’re taking you back in time at the Foothills Mall. Mollie Muchna
While leasing up the aging Greeley Mall is working for Moonbeam, there’s little indication it would have worked in Fort Collins. The failing Foothills Mall was losing tenants long before Alberta and Walton Street Capital purchased the property.
The secret in finding what works for each property is different, Moran said.
Success “is based on region, local demographics and how you position yourself within that,” she said. “Every retail development has to figure out what makes their consumers tick.”
Those that figure out how to bring new and better uses to the table will survive.
Those that don’t will wither and die.
While many see Foothills as a glorified food court with a theater, the property will “morph into what Fort Collins wants over time,” said Aki Palmer, a director with Cushman Wakefield commercial real estate in Fort Collins. “It will take some time for the mall to settle in.”
The retail market is highly competitive, he said, with larger anchors shrinking their footprints. It creates opportunity but presents challenges for existing property owners.
“We will continue to to see existing malls shifting and creating more hybrids where there is an outdoor component,” he said. “If there are large anchors in enclosed malls, they will try to redevelop around those. What they are trying to do is create a sense of place.”
Malls focus on experiences, experimentation
There’s a reason Foothills developer Alberta built an expansive lawn flanked by restaurants across from the mall’s new Cinemark theater.
Year round, the Foothills Activity Center brings thousands or people to to work out or shoot hoops on mall property. In the summer, the lawn is a place for concerts. In the winter, hundreds of skaters twirl around the pond.
Combined with the theater and restaurants, the variety of activities bring people to spend money inside and outside the enclosed Foothills mall.
At Village at the Peaks in Longmont, water features for kids, a theater and gathering places create a sense of place, said Palmer, who has worked with Foothills and McWhinney leasing space in Fort Collins and Loveland.
“Allen (Ginsborg) brought in entertainment, fitness, uses that historically other anchors shunned away from because of the parking challenges,” Palmer said. “Now the anchors like those types of uses because they bring bodies back to the property.”
Mall owners aren’t the only ones looking to redefine the shopping experience.
High-end clothing retailer Nordstrom is testing out a store without merchandise that provides personal shoppers and a concierge experience.
“It’s really about service,” Eichler said. “It goes to delivering how some customers shop now. Some are time crunched and there are those why may not want to wander around the mall for a couple hours.”
Amid what analysts are calling the “retail apocalypse of 2017,” the problems malls face are accelerating. But some malls are still performing well. James Briggs/IndyStar
If anyone is poised to make the model work, it’s Nordstrom, which opened a Nordstrom Rack at Foothills two Octobers ago.
“By assigning a concierge … if that person is well trained, it’s a home run for the shopper and another tool in the retail toolbox.”
It also taps into the popularity of some online boutiques, such as Zulily and Stitch Fix, which will pick out clothes tailored to a shopper’s needs and wants, and then ship the items to them. Unwanted items are shipped back, mostly for free.
“It’s another way to deliver the experience,” Eichler said. “If you’re a perfect size 6, those are delightful.” If you’re not, the experience can be frustrating.”
Moonbeam CEO Steven Maksin isn’t worried about his mall’s future. Even if it loses Sears or another anchor, he is confident he can repurpose the space into a call center or office space as the company’s other properties have done.
“We have spent a tremendous amount of time looking at each asset and how do we look at adaptive reuse and repurposing the property,” said Shawl Pryor, vice president of Moonbeam. “Where the retail market is forever evolving, we are now bringing in non-traditional retail to fill vacant boxes, from athletic facilities to high-tech telecom centers.
“Property owners have to think outside the box but don’t have to destroy the box to do something creative that brings in traffic and makes existing retailers successful,” he said.
At a glance: Foothills, Village at the Peaks and Greeley Mall
Foothills:
Address: 215 Foothills Parkway, Fort Collins
Retail space: 620,000 square feet
Mall interior retail: 158,902 square feet
Anchor: Macy’s
Residential: 402 apartments being developed by McWhinney Inc. of Loveland.
Entertainment: Foothills Activity Center and Cinemark; green space that includes summertime concerts and winter ice skating
Percent leased: About 70 percent
Redevelopment: $313 million
Website: shopfoothills.com
Village at the Peaks
Address: 1250 S. Hover Road, Longmont
Mall interior retail: None
Anchor: Whole Foods, Regal Village movie theater
Residential: None
Entertainment: Children’s play area, Regal Village movie theater
Percent leased: 90 percent
Redevelopment: $90 million
Website: www.villageatthepeaks.com
Greeley Mall
Address: 2050 Greeley Mall (off U.S. Highway 34)
Retail space: 504,800 square feet
Anchors: Gym, JCPenney, Sears, At Home
Residential: None
Entertainment: Children’s play area inside, Cinemark theater
Percent leased: 92 percent
Redevelopment: Negligible
Website: www.shopgreeleymall.com
Ferrier, P. (2017, September 22). Foothills, Greeley malls face changing shopping habits. Retrieved September 25, 2017, from http://www.coloradoan.com/story/money/business/2017/09/21/northern-colorado-malls-pursue-formulas-success-foothills-greeley-malls-face-changing-shopping-habit/665337001/