Power centers are pumping up retail development.
A new breed of shopping center that emerged in the late 1980s, power centers have become the darling of the retail sector.
“That’s what has regenerated the business over the last few years,” said Gary Pachucki, senior director of real estate at Opus North Corp. in Rosemont.
Like regional malls, power centers are large clusterings of stores. Unlike malls, which are anchored by department stores with the majority of interior space occupied by small specialty shops, powers centers are composed almost exclusively of “big box” stores.
These large tenants are typically discounters and “category killers”-retail jargon for stores that focus narrowly and deeply on a particular category of merchandise. Toys `R’ Us, Home Depot and Office Max are just a few category killers anchoring new centers.
There are about 300 power centers operating across the country, with 16 opening within the last year, according to statistics from the National Research Bureau in Chicago.
And stay tuned for more. Between 20 and 25 new power centers are forecast to open each year for the immediate future.
The number may not sound dramatic, but since regional malls are focusing on renovation and expansion of existing facilities rather than new construction, power centers-along with outlet malls-have become the primary engine for retail growth.
The popularity of power centers stems from several things: they are easier to build and operate, say experts. Also, tenants attracted to this format are the very retailers most likely to be expanding their store base.
“Power centers are providing a new vehicle for certain kinds of retailers to meet their customer,” said Dougal Casey, senior director of investment strategy at Jones Lang Wootton Realty Advisors in New York, speaking at an Urban Land Institute conference in Orlando. “Many of these tenants have never been in regional malls before. Power centers create a destination for these retailers.”
Power centers are still a small slice of the retail pie-only .6 percent of all shopping centers. Yet they generate four times the dollars their numbers would indicate, accounting for 2.4 percent of all shopping center sales in the U.S., according to the National Research Bureau.
What’s responsible for this kind of clout at the cash register?
“Consumers are more pressed for time than in the past and there is more emphasis on value,” said Mark Schoifet, spokesman for the International Council of Shopping Centers in New York.
Category killers, in particular, have catered to new consumer demands. “No one else has as complete an assortment,” said George Rosenbaum, chief executive at Leo J. Shapiro & Associates, a Chicago-based market research and consulting firm.
“You’re almost certain to find what you want there,” he said, explaining that traveling a little out of their way pays off for consumers.
In addition, category killers have “no regret” prices, or consistently low prices everyday. “When people go there they don’t have to shop defensively about prices,” said Rosenbaum. “They can focus on the merchandise.”
So where are these centers of power? The Midwest was home to about 19 percent of the country’s power centers at the end of last year, according to the ICSC. The highest geographic concentration lies in the South, with 36 percent, while the Northeast has about 17 percent and the West has 28 percent.
By industry definition, power centers are big-at least 250,000 square feet. And they’re getting bigger. The average size of a center in 1986 was 332,000 square feet, according to the National Research Bureau. This year the average power center is expected to be 530,000 square feet, and centers over 600,000 are becoming more common.
Case in point: Opus North is building Highland Towne Center, a 613,684-square-foot power center in Highland, Ind.
And Homart Development Co. this year opened Woodfield Village Green, a 619,700-square-foot power center in Schaumburg. Although Homart’s parent, Sears Roebuck, has put its development division on the auction block, projects are moving full steam ahead, said executives, including Shoppers World, an 828,000-square-foot center in Framingham, Mass.
Power centers like to settle near large regional malls. Yet the attraction is not so much anticipation of crossover traffic-indeed, studies show that consumers visiting a mall seldom visit a nearby power center on the same shopping expedition-as it is the population already in place.
“A regional mall is a landmark people learn to travel towards,” said Rosenbaum. By falling within the shadow of a landmark, power centers benefit.
This proximity would appear to make power centers a threat to mall sales. Yet many retail experts regard power centers as complementary rather than competitive.
“We don’t see it as a zero-sum game,” said Michael Gregoire, chairman and chief executive at Homart, which develops both regional malls and power centers.
Indeed, Homart’s new Woodfield Village Green is located just across the street from the Woodfield Mall, which has a Sears department store as one of its anchors. And outside of Boston, the firm is developing a regional mall and power center within a quarter mile of each other.
“Regional malls satisfy different needs,” said Gregoire. Experts say that power centers have 70 percent hard good sales, a sharp contrast to the 70 percent apparel sales typical of regional malls.
“Power centers don’t threaten the bread and butter (women’s apparel) of regional malls,” said Douglas Abbey, a principal of AMB Institutional Realty Advisors, a San Francisco investment firm that purchases power centers for pension funds.
Yet others believe there is still a toll on malls, citing the erosion of tenant base. It’s hard to replace large tenants such as Toys `R’ Us which leave a mall location for a power center, said Casey: “When the leading toy retailer elects not to be in a mall, it sends a signal to other companies.”
Malls are not sitting still, however. They have responded to the changing retail environment, expanding in scope to include more entertainment and services.
And though power centers are highly popular with consumers, real estate players agree that they do not perpetuate the same “community center” feeling associated with regional malls.
“People don’t hang around an open parking lot,” pointed out Donald Chasen, executive vice president at Homart. Enclosed malls are more conducive to a longer shopping trip, he explained.
Architecturally, power centers have been a relatively plain product up to now, especially when contrasted with malls.
Today’s power centers, however, are getting “flashier and glitzier,” said Michael Beyard, senior director of research at the Urban Land Institute, a real estate research and education group in Washington. That means more landscaping, better materials and signs.
One of the reasons power centers can afford extra embellishment today is the addition of restaurants and certain entertainment-oriented tenants, explained Beyard. These tenants draw a larger audience and extend the hours of a center.
“(But) you don’t want (power centers) to be cute . . . cute is not power,” said Nick Javaras, president of Terranomics, a San Francisco retail development firm credited with coining the term “power center” in 1986.
Too much emphasis on design detracts from the image of volume and value, said Javaras.
“You don’t want to make it look like you are going down Michigan Avenue,” agreed Abbey. “The theme is low prices and value. If you have fountains, landscaping and all sorts of embellishments, it doesn’t send the same message of being a low cost provider.”
How long will power centers stay powerful? Many experts predict growth to continue through the end of the decade. Yet others say saturation may be around the corner.
Pachucki at Opus North looks for power center development to start slowing down in the Chicago market within the next two years. “Although it’s hard to say what will happen nationally,” he said.
“In this area, most of the big players have come in and gotten their locations,” explained Pachucki. “It’s tougher to find large pieces of contiguous land that are well located.”
Indeed, as land becomes more scarce, developers will start looking at more complicated sites in inner urban areas as well as smaller markets where the consumer base is drawn from a greater distance, predicted Pachucki.
“It’s cyclical like everything else . . . although there still a lot of activity,” said Pachucki.
