Can su­per­mar­kets save dy­ing malls?

The Washington Post Sunday - - BUSINESS - BY THOMAS HEATH

For decades, depart­ment stores like Macy’s and Sears have an­chored sprawl­ing sub­ur­ban malls. Now as their busi­ness has lan­guished and they board up shop, an­other sort of ten­ant is try­ing its luck in their place: gro­cers.

“There has been a real ac­cel­er­a­tion of an­chors clos­ing their op­er­a­tions,” said Mark Or­dan, who knows both sides of the equa­tion as for­mer chief ex­ec­u­tive of Fresh Fields and a for­mer chief ex­ec­u­tive of a lead­ing mall op­er­a­tor. “As tra­di­tional an­chors leave, it’s an op­por­tu­nity for both the mall owner and the su­per­mar­kets.”

Just last month, shares of mall

real es­tate in­vest­ment trusts tanked after J.C. Pen­ney an­nounced plans to close up to 140 stores this year. The mall-quake fol­lowed a spate of bad news in re­cent months from Macy’s and Sears, two tra­di­tional mall an­chors who said they plan to close hun­dreds of un­der­per­form­ing stores.

Or­dan said malls are great lo­ca­tions for big gro­cery stores be­cause of their park­ing, the vis­i­bil­ity and the large for­mat they pro­vide.

“It makes it very at­trac­tive for the ten­ant,” he said.

It also suits the mil­len­nial shop­per, who prefers the ef­fi­ciency that com­bines a visit to the mall with re­triev­ing that week’s gro­ceries.

The gro­cery store in­hab­it­ing the mall isn’t ex­actly new, but “it’s cer­tainly an emerg­ing trend,” said Tom McGee, chief ex­ec­u­tive of the In­ter­na­tional Coun­cil of Shop­ping Cen­ters. “Part of it is con­ve­nience, the abil­ity to do things in one lo­ca­tion. Mil­len­ni­als value con­ve­nience.”

Kroger Co., the na­tion’s largest gro­cer with close to 4,000 lo­ca­tions, re­cently bought a for­mer Macy’s space at Kings­dale Shop­ping Cen­ter in Up­per Ar­ling­ton, Ohio.

At the Nat­ick Mall in Mas­sachusetts, ac­cord­ing to a re­port in the Wall Street Jour­nal, Weg­mans Food Mar­ket is leas­ing 194,000 square feet of space va­cated by J.C. Pen­ney.

365 by Whole Foods is set to open this year at Col­lege Mall in Bloom­ing­ton, Ind., the re­port said.

And other ne­go­ti­a­tions are un­der­way.

Gro­ceries or not, the tra­di­tional mall is look­ing dif­fer­ent.

Higher-end malls with un­der­per­form­ing an­chors such as J.C. Pen­ney, Macy’s, Bon-Ton and Sears are rent­ing to movie com­plexes, food courts, restau­rants and fit­ness cen­ters in­stead, em­pha­siz­ing ex­pe­ri­ences and fun over shop­ping.

“Part of it is a sur­vival tac­tic,” said Calvin Sch­nure, an econ­o­mist with the Na­tional As­so­ci­a­tion of Real Es­tate In­vest­ment Trusts. “E-com­merce is chang­ing peo­ple’s spend­ing pat­terns. But in the process, they are chang­ing the shop­ping ex­pe­ri­ence in a mall.”

Gro­cery store ex­perts say su­per­mar­kets would rather be the main at­trac­tion in a strip mall than take the an­chor po­si­tion in a sub­ur­ban mall.

“The fact that there’s va­cant mall space at the old-school, indoor malls and the hit they are tak­ing from on­line com­pa­nies is re­ally sig­nif­i­cant,” said Jef­frey Met­zger, pub­lisher of Food World, a pub­li­ca­tion cov­er­ing the gro­cery in­dus­try. “If you talk to Gi­ant, Safe­way or Kroger, the old-world mall is not their tar­get. They would still like to be on Main Street.”

Jeff Edi­son is chief ex­ec­u­tive of Phillips Edi­son & Co., which owns 339 shop­ping cen­ters across the na­tion, nearly all of which are an­chored by a gro­cery store.

“The tra­di­tional gro­cers are go­ing to con­tinue to be three miles from peo­ple’s houses as op­posed to the more re­gional lo­ca­tions like the malls,” he said. “It’s all driven by con­ve­nience.”

Edi­son said shop­ping cen­ters al­low gro­cery cus­tomers to park closer to the store and give eas­ier ac­cess by be­ing closer to their com­mu­ni­ties than malls.

“You may get your nails done and pick up dry clean­ing next to a gro­cery busi­ness,” he said, “but it’s driven on a ne­ces­sity ba­sis as op­posed to an im­pulse pur­chase, which is what the malls are driven by.”

Not all malls rent­ing to gro­cers are trou­bled. Some in­di­vid­ual ten­ants may be un­der­per­form­ing be­cause of lack of rein­vest­ments and up­keep while the mall over­all is healthy. But a gro­cer can be a wel­come re­place­ment to ex­ploit a prime piece of real es­tate.

Gro­cers can bring sev­eral as­sets to a mall, in­clud­ing heavy and rou­tine foot traf­fic. A Kroger could gen­er­ate $50 mil­lion in sales at its mall lo­ca­tion com­pared with an ag­ing depart­ment store gen­er­at­ing $10 mil­lion or $15 mil­lion a year.

“Los­ing a mall an­chor and re­plac­ing it with a gro­cery store adds a ton of value to a mall,” said Mar­garet Cald­well, man­ag­ing di­rec­tor at JLL, a real es­tate ser­vices firm. “Some of th­ese malls, the an­chors aren’t gen­er­at­ing a lot of foot traf­fic. If you put a gro­cer in there, peo­ple will be there do­ing their weekly gro­cery shop­ping ver­sus shop­ping once a month at Macy’s.”

McGee said it has less to do with the dis­rup­tion from on­line re­tail­ers and more to do with op­por­tunism be­tween land­lord and ten­ant. He pointed out that on­line sales are still dwarfed by the nearly $5 tril­lion a year at brick-and-mor­tar re­tail­ers.

“As space opens up in a mall or re­gional shop­ping cen­ter, the prop­erty owner and de­vel­oper looks at the de­mo­graph­ics and needs and matches up the space with the needs of the area,” McGee said. “It is all about driv­ing traf­fic, driv­ing folks to the shop­ping cen­ter. The best way to do that is to look at what is needed in that area and match up the needs with this space.”

Cliff Lo­gan worked as an ex­ec­u­tive at Gi­ant Food for 12 years and now runs a sausage com­pany in North­ern Vir­ginia. Lo­gan splits his time be­tween Boca Raton, Fla., and Ar­ling­ton. He said many malls, par­tic­u­larly older lo­ca­tions, are be­ing hit hard by Ama­ and on­line pur­chases.

“Ama­zon is putting a big hurt on a lot of th­ese malls,” he said. “There’s a mall in Palm Beach with two or three schools in it, a syn­a­gogue and news­pa­per pub­lisher in it, and a place where you can buy a cup of cof­fee and dough­nut. There’s not a sin­gle re­tail store in it.”


Sears and other tra­di­tional mall an­chors are clos­ing hun­dreds of their stores, leav­ing a vac­uum in many shop­ping cen­ters.


A cus­tomer shops at Kroger in Birm­ing­ham, Mich. Kroger Co., the na­tion’s largest gro­cer with close to 4,000 lo­ca­tions, pur­chased a for­mer Macy’s space at Kings­dale Shop­ping Cen­ter in Up­per Ar­ling­ton, Ohio. A Kroger could gen­er­ate $50 mil­lion in sales at its mall lo­ca­tion — far more than an ag­ing depart­ment store would gen­er­ate.

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