Gal­le­ria’s new lux­ury wing de­fies dying mall trend

Owner spends big into keep­ing its top prop­er­ties fresh

Houston Chronicle Sunday - - FRONT PAGE - By Kather­ine Blunt

What might have been a stan­dard trip to Hugo Boss turned ex­cep­tional when Amanda Goller spot­ted the new Ted Baker store at the Gal­le­ria.

She hadn’t vis­ited the high-end cloth­ier since she worked in fi­nance on Wall Street, a job she left two years ago for a cor­po­rate one in Hous­ton’s en­ergy sec­tor. The Lon­don-based re­tailer opened its first lo­cal store in the mall’s new lux­ury wing, a sparkling ex­panse of de­signer bou­tiques that re­minded Goller of her New York shop­ping days.

“Stores like this don’t come along ev­ery day,” she said. “It’s fan­tas­tic hav­ing them all in one place.”

The ad­di­tion, which opened in phases in re­cent weeks, de­fies a trend in an in­dus­try grap­pling with store bank­rupt­cies and shop­ping cen­ter va­can­cies. The $250 mil­lion Gal­le­ria VI wing, an­chored by Saks, in­cludes 35 lux­ury shops and sev­eral restau­rants, many of which are new to the Hous­ton area.

“There’s this whole the­ory that the mall is go­ing dead, but if you walk the Gal­le­ria, you know that’s not the case,” said Floris van Di­jkum, a se­nior an­a­lyst with in­vest­ment firm Boen­ning & Scat­ter­good.

In the new wing of Hous­ton’s best-known mall, high sky-lit ceil­ings il­lu­mi­nate a vast ex­panse of white porce­lain tile.

It’s an ex­clu­sive space for de­signer prod­ucts — and shop­pers with the means to af­ford them.

Ritu Gupta paid a lunch­hour visit to the Gal­le­ria to ex­plore the ex­pan­sion, a qui­eter side of a cen­ter known for its bustling cor­ri­dors. She left with a new Coach purse, an im­pulse buy, and ex­pects to re­turn, es­pe­cially if the wing’s lux­ury aura keeps the daily throngs at bay.

“It’s kind of like a toll­way,” she said. “It might be a lit­tle less crowded.”

A deep di­vide

The 110,000-square­foot ex­pan­sion is part of a broader in­vest­ment strat­egy by Si­mon Prop­erty Group, a real es­tate gi­ant that op­er­ates the Gal­le­ria and about 175 other malls and out­lets na­tion­wide. The com­pany has warded off va­can­cies and at­tracted new cus­tomers by pour­ing bil­lions of dol­lars into its most suc­cess­ful prop­er­ties.

“Chal­lenges in the re­tail in­dus­try have not caused us to change our ap­proach as it has for many others in the in­dus­try,” Si­mon Malls pres­i­dent John Rulli said. “We are con­stantly cu­rat­ing our mix.”

Other prof­itable mall own­ers have taken sim­i­lar ap­proaches, deep­en­ing a di­vide between the na­tion’s high­est- and low­est-per­form­ing shop­ping cen­ters. The most vi­brant malls have con­tin­ued to gen­er­ate money for rein­vest­ment, while out­dated ones suf­fer com­pound­ing losses as tra­di­tional re­tail­ers lose cus­tomers to e-com­merce play­ers and dis­count com­peti­tors.

This widen­ing chasm is ex­pected to has­ten the death of malls al­ready chal­lenged to stay in busi­ness. Boen­ning & Scat­ter­good ex­pects as many as 255 of the na­tion’s 1,080 malls to close within the next decade as the most com­pet­i­tive ones grab more of the mar­ket.

In the Hous­ton area, the Gal­le­ria and malls such as Bay­brook and The Wood­lands, owned by Gen­eral Growth Prop­er­ties, have evolved and ex­panded as others floun­der. North­west Mall, for ex­am­ple, closed ear­lier this year, and the sprawl­ing Green­s­point and San Jac­into malls have long been nearly void of shop­pers.

Si­mon, which plans to in­vest $1 bil­lion in its prop­er­ties this year, leads the mall sec­tor in re­de­vel­op­ment spend­ing. Part of its strat­egy in­volves trans­form­ing an­chor spa­ces once oc­cu­pied by depart­ment stores into re­tail and din­ing hubs that boost foot traf­fic.

The Gal­le­ria, which at­tracts more than 30 mil­lion shop­pers each year, is among the com­pany’s high­est-per­form­ing prop­er­ties. Less than 40 other U.S. malls at­tract com­pa­ra­ble foot traf­fic, ac­cord­ing to Boen­ning & Scat­ter­good re­search.

‘A halo ef­fect’

The lat­est ren­o­va­tion of the mall con­verted the for­mer Saks build­ing into in­di­vid­ual shops. The depart­ment store last year re­lo­cated to a stand­alone space that con­nects to the new wing.

“As home to one of the top-per­form­ing Saks Fifth Av­enue stores in the coun­try, it be­came clear that there was de­mand for a deeper mix of lux­ury brands,” Rulli said.

Most of the new stores, in­clud­ing Sam Edel­man, La­coste and True Re­li­gion, opened at the end of June, while Robin’s Jean, Cuadra, b8ta, Soap Se­cret and Tré­sor Rare are ex­pected to open soon.

The re­de­vel­op­ment also made room for high­end restau­rants, which have de­throned depart­ment stores as ma­jor traf­fic driv­ers in many malls across the coun­try. Nobu, serv­ing Ja­panese fare, Fig & Olive, serv­ing Mediter­ranean, and Spice Route, serv­ing In­dian and Asian cui­sine, are set to open in the com­ing months. The restau­rants are all new to Hous­ton, and mall ex­ec­u­tives say they’ll an­nounce a fourth restau­rant soon.

“Re­tail­ers want to be here,” said Christo­pher Lane, the Gal­le­ria’s direc­tor of mar­ket­ing and busi­ness devel­op­ment. “It has sort of a halo ef­fect.”

Ted Baker had been search­ing the area for months be­fore seiz­ing the chance to open its first Hous­ton store in the new Gal­le­ria wing. Spokes­woman Court­ney Mor­row said the com­pany felt its brand would fit well among the mall’s other lux­ury stores and ap­peal to the mix of lo­cals and tourists who shop there.

“We in­quired as soon as we learned about the new ex­pan­sion,” she said.

Fayd Cyn­ndy, in Hous­ton on busi­ness, darted into Saks hours be­fore catch­ing a flight home to Saudi Ara­bia. His first trip to the Gal­le­ria landed him squarely in the mid­dle of the new wing, which he said re­minded him of shop­ping cen­ters in his coun­try’s ma­jor ci­ties.

“It’s nice to know these kinds of stores are here, too,” he said.

In­vest­ing else­where

Si­mon has taken sim­i­lar ap­proaches to re­de­vel­op­ing other malls, which has yielded sub­stan­tial re­turns for the com­pany by rais­ing prop­erty values and rental rates. It has in­vested the most money in its high-per­form­ing malls, which ac­count for about two-thirds of its $110 bil­lion port­fo­lio.

At the Stanford Shop­ping Cen­ter in Palo Alto, the com­pany re­lo­cated a Bloom­ing­dale’s store to a new lo­ca­tion and added 50 re­tail­ers and restau­rants in place of the depart­ment store. And it added more than 150,000 square feet of re­tail and restau­rant space by con­nect­ing two re­tail ar­eas at the King of Prus­sia mall in Penn­syl­va­nia.

“We think this is one of the best uses of cap­i­tal a real es­tate com­pany can have,” the an­a­lyst van Di­jkum said.

Goller, 42, ul­ti­mately skipped the register at Ted Baker, ad­mit­ting that she might have out­grown some of its trendy styles. But the tai­lored dresses and fem­i­nine shoes in the win­dow of the nearby L.K. Ben­nett store beck­oned her in­side, and she left the bou­tique with a bag in hand be­fore head­ing back to Hugo Boss.

“Hous­ton de­serves stores like this,” she said. “There’s a lot of money here.”

Jon Shap­ley / Hous­ton Chron­i­cle

Peo­ple min­gle dur­ing an event to cel­e­brate the open­ing of the $250 mil­lion Gal­le­ria VI wing.

Jon Shap­ley / Hous­ton Chron­i­cle

Al­li­son Pic­cir­illo, a fash­ion blog­ger, gets a tote bag from Chris Brown, a sales as­so­ci­ate at Ted Baker, dur­ing an event Thurs­day to cel­e­brate the open­ing of a re­mod­eled lux­ury wing at the Gal­le­ria.

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