A crop of bankruptcies, store closings and corporate restructuring among national retailers is putting some local shopping centers and malls in a tough position.
Some are riding out the hard times by reimagining what it means to be in the brick-and-mortar retail business in the age of one-click web shopping and fast-fashion brands that sell for cheap. Others are stuck with money-losing retailers closing their doors, only to leave a bigger hole in the shopping center — giving people even less reason to spend an afternoon browsing at the mall.
The turmoil among national retailers has hit Oak View Mall especially hard over the past two years. The mall was about 80 percent occupied at the end of 2015, according to its owner, Chicago-based General Growth Properties, the country’s largest mall operator, with 128 centers in 40 states.
That puts Oak View at No. 127, second from the bottom, among General Growth’s retail properties in terms of occupancy. (General also owns Westroads, which is about 97 percent occupied — the same occupancy rate as the companywide average, according to its 2015 annual report.) Oak View was about 88 percent occupied at the end of 2014.
At the same time as Oak View and other centers are facing challenges, other malls and shopping destinations have found new ways to draw in shoppers with fresh entertainment and dining options, and new-to-market retailers that can’t be found anywhere else in town.
Oak View’s general manager, Ted Harris, and Jim Sadler, senior general manager of Westroads Mall, both declined to comment. A General Growth spokesman didn’t return multiple requests for comment.
But General Growth did flag concern about some of its malls’ troubled tenants in a recent earnings call with Wall Street analysts. Chief Executive Sandeep Mathrani said the “jury is still out on those tenants.” The company has booked a $20 million reserve to combat fallout from any more retailers’ closures this year. Its stock is down about 6 percent over the past year.
Wet Seal at Oak View was among 338 locations closed by the California teen clothing retailer last year. Eddie Bauer and Hollister also closed stores there. Those retailers left open their stores at One Pacific Place and Westroads. Aeropostale also closed its Oak View store last month, leaving only its Westroads store open in Omaha after the teen retailer declared bankruptcy.
Amid the churn among national retailers that are shutting their doors in shopping malls across the country, General Growth, the publicly traded mall operator, is likely feeling the pressure from investors and shareholders to turn around properties like Oak View — or to sell them, much as it did in 2013 with the sickly Mall of the Bluffs, whose occupancy rate had sunk to 73 percent in 2012. (It’s around 40 percent now for the Council Bluffs mall.)
“The company is steadily disposing of assets at the lower end of the quality spectrum,” Rich Moore, an analyst with RBC Capital Markets, told clients in February. The company already in January had sold four properties, suggesting it could be “very active” with additional sales through the rest of the year, he said.
There isn’t any sign that Oak View, at 144th Street and West Center Road, is on the block, and the mall still has four large anchors — Younkers, Dillard’s, Sears and J.C. Penney. But its status at the bottom of General Growth’s occupancy list does raise some eyebrows among retail watchers.
And it’s not just indoor malls that have suffered as some national retailers have turned in disappointing sales: Shadow Lake Towne Center in Papillion lost the Children’s Place at the end of last month as part of national closings by the retailer. Sports Authority will close its locations across the U.S. and in Omaha, including one in a strip center across from the Nebraska Furniture Mart on 72nd Street. And a Kmart store closed in a center off 144th and Q Streets earlier this spring.
Retail experts say the trouble among some national nameplates is a chicken-or-egg scenario: Are retailers suffering because mall and strip-center traffic and apparel spending are down? Or are malls and strip centers suffering because some retailers — popular during the height of mall culture — are being replaced by “fast fashion” brands like H&M, Uniqlo and Zara. (H&M has a store at the Westroads.)
Either way, the downsizing of brick-and-mortar stores is likely to be the new normal. “Retail is probably the worst segment of the real estate industry right now,” said Jay Lerner, president of Omaha-based Lerner Co.
A case in point of the new downsizing of the American retailer: Macy’s executives last month said they have too many stores and are expecting sales to fall up to 4.5 percent this year compared with last. Macy’s has no stores in Nebraska, but if other department stores follow suit, that won’t be good for malls — or the other stores that are located within them.
Sears, which does operate in the Omaha area, also is closing stores around the United States. Its stores at Oak View and the Crossroads remain open.
“It’s a vicious cycle,” said Ken Perkins, president of the Retail Metrics research firm in Boston. An index that tracks the stock performance of national retailers, the S&P Retail Select Industry Index, is down about 13 percent over the past year.
In such an environment, chains such as the Gap and Abercrombie & Fitch that once had up to three or four stores in a market now have just one or two.
Sales at the Gap, for example, have been suffering for more than a year: The company’s stock fell 11 percent in one day last month after the retailer reported weak sales. Gap closed its Oak View store in 2013 after opening a store at Nebraska Crossing Outlets in Gretna. The company also closed a Banana Republic store — a brand it owns — at One Pacific Place in 2014.
Still, some malls and other retail centers say they’re doing their best to make the most of a tough shopping landscape — and some of that has nothing to do with actual stores.
General Growth’s Westroads, at 102nd Street and West Dodge Road, for example, underwent a $12 million renovation in 2014. When retailers like RadioShack — which declared bankruptcy last year — closed their stores there, the mall replaced them with Flagship Commons, a food hall run by Omaha-based Flagship Restaurant Group. Flagship is now eyeing expansion of the concept to other cities, and the food hall could pop up in other General Growth malls in the coming years.
The existing food court was leased to the Container Store, which will open its first Nebraska location there this fall. Westroads also has carved out large spaces for Omaha’s first H&M and Forever 21 stores — two retailers at the forefront of the “fast-fashion” trend: styles that come to market quickly and are sold cheaply.
Those kinds of things are what malls and other shopping centers need to be doing to stay relevant, retail watchers said: rethinking what constitutes an anchor tenant (they used to be department stores; now they can be an Apple Store or an H&M), adding dining options and offering something new and different that other centers don’t have.
“You have got to cater to somebody who’s a consumer and a shopper in 2016, not in 1995,” said Jon Bird, global managing director of LabStore, a global retail and shopper marketing research firm in New York.
And it’s not just malls, Bird said. Owners of all kinds of shopping centers have to make sure they have the right mix of stores, restaurants and other attractions to draw a steady flow of shoppers, he said.
Village Pointe shopping center and Regency Court, managed by Red Development, for example, offer brands that can’t be found anywhere else in town, including Sephora, Apple, Lululemon and Athleta at Village Pointe and Pottery Barn, Williams-Sonoma and Borsheims at Regency.
One Pacific Place at 103rd and Pacific Streets, on the other hand, has experienced turnover due to national brands consolidating. The Gap, Banana Republic and Abercrombie & Fitch all once operated stores there that have since closed. Red also operates One Pacific Place. Red isn’t publicly traded and wouldn’t disclose individual properties’ occupancy rates.
“We really see these changes in the global retail landscape as an opportunity to continue to refine the store offerings available at our properties,” Red spokeswoman Stephanie Whitlow said in a statement.
“Shopping centers and retail developments are continuously evolving and more and more are becoming all-encompassing ‘live, work and play’ environments.” That means the right mix of dining, entertainment and retail, plus in-person-only draws like grocery, service tenants and gyms.
For instance, a Trader Joe’s grocery store replaced the now-shuttered Abercrombie at One Pacific Place. That new use for a once-vacant building is an example of how shopping centers can successfully evolve, said Jay Noddle, president and chief executive of Noddle Companies, which developed One Pacific Place and Aksarben Village.
Also more important than ever is adding office, residential and service components — like a nail salon or dry cleaner — to retail developments in order to cater to the immediate neighborhood and community, he said. Noddle said the company hasn’t built a development with strictly retail tenants in about 10 years.
Sometimes that means bringing local, one-of-a-kind retailers to the forefront.
“We find that an emphasis on local with some national is the most successful combination,” Noddle said.
In this new age of shopping, like much of the rest of the United States, the Omaha market may simply have more retail space than it needs, some retail watchers said. Property owners and managers will likely have to come up with new uses for some of their space if they want to survive, Perkins of RetailMetrics said.
“The pickings are slim in terms of potential growth tenants that can fill these spaces, which lends itself to the absolute necessity of these guys having to find alternative, outside-the-box tenants for these locations,” Perkins said. Few American retail brands are expanding, while Swedish H&M, Irish Primark, Spanish Zara and Japanese Uniqlo are adding U.S stores.
Large chain retailers, too, are cutting back. Walmart has already closed many stores this year, although none in the Omaha area. When Kmart at 132nd Street and West Maple Road closed at the end of 2014, that left a 94,000-square-foot vacancy at the shopping center. That’s a hard deal to make when many retailers are downsizing, said Jay Lerner, president of the Lerner Co., which is handling leasing for the space. The plan is to break it up into several smaller storefronts.
According to Lerner’s annual retail market summary, the vacancy rate inched down across Omaha from nearly 11 percent in 2014 to 10.15 percent in 2015.
Lerner said Oak View’s issue may be partially chalked up to oversaturation of retail in Omaha.
“To have Crossroads, Westroads and Oak View that close to each other in a town this size is really hot and too close together for that kind of retail,” he said.
Rod Yates, who plans to redevelop Crossroads in partnership with Frank Krejci of Century Development and also revamped Nebraska Crossing, said Crossroads, at 72nd and Dodge Streets, will be different because it will have a mixed-use component of retail, dining, entertainment, office space and apartments. That’s something that Jon Bird, of LabStores, said is essential to survival in the new normal of retailing.
The development, Yates said, also will be focused on first-to-market stores unavailable anywhere else, new restaurants and events. The project has stalled until Yates and Krejci work out a financing plan.
Meanwhile, the outlet and off-price business is booming. Yates said Nebraska Crossing, near Gretna, which was redeveloped from a distressed, mostly vacant outlet center in 2013, is now entirely leased.
Construction on an expansion that will eventually add 70,000 square feet should start “any day,” Yates said. Sales are up 18 percent over the first quarter last year, he said.
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