Does Your Ailing Mall Need A Checkup?
Check your facts before you write off that underperforming mall.
Carol Gies

Sales and occupancy have been trending downward for some time. You may have even lost an anchor due to department store consolidation. You've tried stepping up the advertising and events, but nothing seems to be reversing the trend. Is it time to call in the appraiser? It pays to consider the facts before you make that decision.

Owners of failing malls usually point the finger to “changing demographics.” The fact is, most market demographics change very slowly over time. While we're not ruling that out, it's probably not the cause of a nosedive in performance. To prove this point, you have only to look at a comparative demographic report for your trade area for the last 5 years. You'll most likely see a very gradual shift in resident income, growth and density — not enough to explain a sudden shift in your business.

These three factors are more likely impacting your center's performance:

•Your customers' buying patterns have shifted.

•You have hidden competitors.

•Your problems — and opportunities — are within the center itself.

Let's take a look at each of these possible causes more closely:

Shifting Consumer Buying Patterns

You already know that time-pressured consumers are and making fewer — and shorter — shopping trips and driving less, but the extent of the change may surprise you.

In our interviews with 36,000 consumers in 30 shopping centers, we saw shopping time, trip distance and number of stores visited decline every year —while spending-per-visit increased. We found that shoppers were on “mission trips” on the average of 60 to 70 percent of the time. Women in our study visited less than three stores. Men were especially notorious mission shoppers, averaging just over a single store per trip (unless they were with female companions).

In order to capture these lucrative mission trips, your center store mix must be matched more precisely to your close-in consumers than ever before, because trade areas are shrinking rapidly. Even for super-regional malls, we've found that core trade areas (where half of total shoppers originate) averaged only 7 miles.

If your tenant mix has drifted away from alignment with the consumer profile around your center, you are probably feeling the negative impacts of these shifting consumer buying patterns on your business.

To begin adjusting your tenant mix to better match your market's consumer profile, you will need to dig deeper than simple demographics. Demographics can tell you only how much consumers are likely to spend…not what they are likely to buy. To uncover this information, you will need to do a Consumer Lifestyle and Shopping Profile of your close-in market.

A Consumer Lifestyle and Shopping Profile study is a combination of syndicated data and your own primary research. The results will reveal what type of merchandise categories that your customers currently shop for primarily at your center versus your competition — specifically when they make those valuable “mission trips.” The results will also indicate what specific stores, services and amenities they want to increase visits to the center.

Perhaps most importantly, the Consumer Lifestyle and Shopping Profile will tell you the highest potential consumers to focus on when adjusting your tenant mix. All customers are not equally valuable. The most valuable and productive consumers are in the highest density areas; are closest to your center at home or work; have enough disposable income; and are most likely to buy from the store mix that you have versus your competition. The profile study can tell you all of this in a user-friendly visual format. It will point the way to your retail plan.

(One note of caution: Beware of standard market research that uses the term “supportable retail.” The term is derived from government statistics and refers to consumer spending power in a given geographic area. It is much too general information to use in your retail planning.)

Upcoming new developments in the community can also affect the future success of your property, and need to be evaluated as well. Check with city, county and state planning agencies. Find out about zoning and developments in the pipeline for new retail competition, new office buildings (adding daytime consumers), and residential development. For example, if there are more high-rise condominium and town home developments zoned and planned near the center than single-family homes, your future store mix may want to reflect more of a childless household market. A new nearby large office or medical building may mean a new market for lunch-oriented restaurants.

In addition, ask about plans for new road construction and improvement. Both can dramatically affect travel time and your consumer drawing power over the long term. New roadways can also open up new pockets of consumers for your center, due to improved drive time. The cardinal rule in determining what consumers your retail plan will attract is: “think drive time, not distance.”

“Hidden” Competitors

Far less obvious — but equally as hazardous to your shopping center — are the new “hidden” competitors that steal lucrative mission shopping trips.

These guerilla competitors do not appear in reports from the major syndicated data companies, because they are small and scattered. Taking the example of teen merchandise, your center's hidden competition may be a cluster of trendy boutiques on a suburban downtown street that sell teen and junior apparel, outerwear, accessories, trendy shoes, lingerie, sports equipment, phones, electronics, music, books, makeup, or bath and body products — all categories that may duplicate stores in your shopping center.

And, because they are in small clusters, these hidden competitors are probably located closer to your prime customers, in terms of that all-important drive time factor. These street retail stores also attract your customers for other reasons: they are very visible from the street; there is pull-up parking; they are on the consumers' route to dining, work or other appointments — plus, they probably offer more unique merchandise and more personalized service that many of the chain stores in your center. They won't steal your customers away entirely — but they will skim some of the high-spending mission trips. The effect on your business will be gradual and cumulative.

A good competitive analysis of this elusive, hidden competition takes footwork by an experienced retail analyst who can determine which of these store clusters offer real competition and what stores you will need in your center's retail mix to offset them.

Making the competition even more fragmented and hard to pin down, fickle consumers (that's you and I) are also increasingly splitting their shopping between full-price, off-price and discount venues. You may not have thought of Costco as apparel competition, but affluent men have proven to be avid Costco apparel shoppers. Even Wal-Mart is introducing an urban apparel collection. Grocery/drug superstore chains continue to add more and more mall-type merchandise to capture more consumer dollars per trip with “one-stop shopping.” And, if that isn't enough competition, this holiday season, Internet shopping is expected to rise by 20 percent.

Your Problems — And Opportunities

When you have studied your market, identified your highest potential consumers — and the complete range of your competition — you are ready to look inward to the property itself.

First, address some key physical issues that affect shoppers' perceptions of the center:

•Ambience, cleanliness, safety perceptions, parking convenience, lack of good food service, parking lot lighting, access and congestion, or a needed “facelift” of certain areas of the center, such as the food court, bathrooms, common areas or entrances. Even the condition of your directional signage says a lot about the quality of the shopping experience consumers can expect. Have an outside, impartial professional do an audit for you, prioritize and cost out a work plan, according to your research results.

•Badly-managed or merchandised stores are your problem, as well as your tenants,' because they lose shopping trips for your center and detract from your image.

•Vacant storefronts are “black eyes” for your center. Act on them immediately. Recruit temporary tenants that fit with your retail plan (below). They not only provide an instant income stream, but can be a low-risk way of finding a great permanent tenant. All vacant spaces should be covered with high-quality barricades or high-quality “pop out” window displays from other tenants.

1. Develop the retail plan: Assemble a team of experts in marketing, leasing, operations, development and, perhaps, a few key tenants. Review your research with them and together develop a specific market niche with the targeted consumers you have identified — a gap in the retail marketplace that you can “own.” These are your points of difference (i.e. your brand) in the minds of your targeted consumers.

The retail plan should remain fluid and responsive to competition changes, but it must lay out the strongest mix of merchandise categories that will attract the customers you have targeted. Within each merchandise category, name as many specific stores as you can to provide focus for your leasing agents. The retail plan should also identify the schedule when new spaces will become available. Your challenge will be to avoid filling these spaces with tenants who are “off-plan.” Given that tenant turnover is 10 to 15 percent annually in most shopping centers, within 3 years you can turn over one-third to half of your current store mix to match your targeted customer base.

2. Look for other sources of incremental income for the center: To help increase income in the short and long term, find out your potential to attract other sources of center income such as:

•Common-area retail merchandising units (RMUs) are valuable only if the center has foot traffic. Temporary merchants can add unduplicated retail uses to your tenant mix and allow merchants to “test” before making a permanent lease decision.

•Sponsorships for events and other marketing materials, such as store directories, signage, advertising and Web sites.

•Common area vending machines, phones, ATMs, etc.

•Use storefront barricades to advertise new stores, leasing contact information or sell as billboard advertising space to in-mall and out-of-mall businesses.

An experienced consultant can evaluate your potential in this area.

3. Develop fact-based sales materials from your research and outline strategy to your leasing team: Your market may not be the strongest in terms of population or average income, but research can clearly demonstrate to prospective tenants that you have their customer segments. Armed with the facts, your sales team will be more focused and successful in recruiting the tenants you want.

4. Save the big marketing program until you have something to show: Focus on tenant communication first. Marketing won't fix poor center performance — it can only communicate positive improvements as they actually happen. All marketing messages must be grounded in fact — if it's not yet there, don't waste dollars talking about it.

Your first marketing target should be your tenants. Announce your research and center improvement plans. Lay out what support you will specifically need from them and when. They can be some of the best advocates for you with prospective tenants.

5. Consider other uses for part of your retail space: Even the largest national developers are considering alternative uses for vacated department store pads. Does a mixed-use development make sense on your site? A residential/office study can assess the potential very quickly. How about an entertainment venue such as a dinner theater? Or other alternatives, such as a health club, hotel, medical facility, college extension building or library outpost? Any use that requires ample parking is a possibility. Or, turn a vacant wing into an all-season or outdoor “lifestyle” wing with cafés, restaurants and taverns.

Use your internal team and outside experts to help pinpoint the best and most productive uses based on current market conditions to minimize your risk.

Carol Gies is the president of 4 Insights, Inc., a Naperville, Illinois-based firm specializing in market research and strategy for retailers, restaurants, shopping centers/districts, mixed-use and community economic development. She can be contacted by e-mail at 4Insights@comcast.net.