Galleria’s new luxury wing defies dying mall trend
Owner spends big into keeping its top properties fresh
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.”