Ever since the advent of the shopping mall, developers have strictly enforced a caste system.
At the top of the social structure were department stores such as Marshall Field’s and Macy’s. They were the Brahmins, the upscale and highly sought-after anchor tenants that would act as magnets, drawing other retailers and shoppers.
At the bottom were discount stores. These retailers were considered too declasse by developers to nestle next to the specialty stores, the malls’ bread-and-butter renters. When new malls were being built, discounters need not apply.
Now the tables have turned.
With the liquidation of Montgomery Ward & Co. and the bankruptcies of nearly a dozen other chains, mall owners and managers around the country are looking at more empty space than they have in a decade. At the top of almost every mall manager’s wish list: Target and Kohl’s, two discount chains.
It’s not that mall owners suddenly have become broad-minded. Rather, upscale shoppers have become bargain-hunters.
“People have really changed the way they consume,” said Bruce Kaplan, president of Northern Realty Group Ltd., a Chicago-based retail real estate brokerage. “The discount stores have been moving up in quality, and people have started to shop them seriously.
“Kohl’s and Target have the power right now to get a great deal.”
Indeed, Target and Kohl’s are two retailers that have struck a chord with middle-class consumers. Target has staked out a niche as an upscale discount store, doing deals with famous design names such as architects Michael Graves and Philippe Starck for everything from chairs to alarm clocks. Kohl’s Corp. has become a mainstay for many suburban families because of its constantly rotating sales on basic apparel items such as jeans and T-shirts, and home accessories such as towels and bedding.
Target Corp. already is taking advantage of Wards’ demise to increase what is now a tiny mall presence. Currently, the Minneapolis-based chain only has 45 stores in enclosed malls, less than 5 percent of its 991 stores around the country. But that number will increase by 16 stores when Target unveils 35 remodeled former Wards stores in 2002.
“If you did a survey of developers 10 years ago, 80 percent would have said Target was not acceptable. That’s flipped today,” said Scott Nelson, vice president of real estate for Target Corp. “We have become a preferable replacement as the department store industry goes through a contraction in a changing retail landscape.”
Case in point: A recent survey of community residents who shop at Chicago’s Evergreen Plaza mall found a large majority wanted to see Target, Kohl’s or Sears occupy the space left vacant by Wards’ closing.
What they definitely didn’t want was a low-end discount store such as Value City or Goldblatt’s, said Bruce Provo, an investor and general managing partner of privately owned Evergreen Plaza.
Provo was so concerned that a low-end discounter would clash with his mall’s full-price retailers that the Provo Group went to U.S. Bankruptcy Court in Delaware and won the rights to market the Wards lease itself. First on his list is Sears, because it will bring appliances and tools to the mall’s merchandise mix without cannibalizing other retailers.
That’s certainly an issue that mall managers such as Provo must confront. Will the nation’s department stores–many of which are struggling–welcome their discount brethren to the mall, given that discounters’ success largely has come at their expense? To be sure, struggling apparel retailer J.C. Penney Co. could be excused for not being happy to see Kohl’s locating in the same mall.
An about-face for Sears
But one major mall-based chain says it couldn’t be happier to have a thriving discounter as a neighbor. “We’re enthusiastic about discounters moving into malls where we have stores,” said Mary E. Conway, Sears, Roebuck and Co.’s president of stores. “We believe our merchandise is different enough that the additional traffic should benefit Sears and give us an opportunity to demonstrate our value proposition to more customers.”
Sears’ welcoming posture certainly is a change from decades ago when its Homart real estate development subsidiary was a major force in keeping discounters out of malls, real estate sources note. Sears was hardly alone then, and even now many developers of upscale malls feel exactly the same way. Yet the change in Sears’ attitude is a good sign, retail consultants say, because it shows that Sears has confronted reality. The Hoffman Estates-based retail giant has been competing head-to-head against discounters for years, whether they are located on the mall or off.
There is a risk, though, that discounters’ giant signs and crowded racks could inject a jarring note into malls that have spent major money creating visually pleasing environments.
Not to worry, says Target. Its vinyl flooring has been upgraded to carpeting, formerly an amenity restricted to the likes of department stores. But Target won’t be ditching its shopping carts, a hallmark of discount stores. There’s no need, Nelson points out, because carts are now being added by the likes of Sears, a mainstay in almost 900 malls around the country.
Kohl’s is slightly more cautious about its future as a mall tenant, noting that its 86,000-square-foot prototype store is about half the size of many anchor spaces.
`Power strip malls’ for Kohl’s
“That really oftentimes doesn’t work in larger mall-based locations,” said Susan Henderson, Kohl’s spokeswoman. Instead, Kohl’s favors so-called “power strip malls” anchored by low-price category leaders such as Best Buy and Linens ‘n Things.
Still, the Menomonee Falls, Wis.-based chain isn’t ruling out malls altogether. Of its 320 stores, 44, or about 14 percent, are in community and regional malls. Kohl’s repeatedly has declined to comment on whether it is purchasing any Wards’ sites although industry sources expect it to do so.
Will there ever be a day when less upscale discounters such as Wal-Mart Stores Inc. are a fixture in the nation’s shopping malls? That’s less likely, real estate experts say, because Wal-Mart’s no-frills setting, rock-bottom prices and large space requirements are a bad fit.
But never say never. Wal-Mart is not opposed to locating in malls, particularly in urban areas where real estate is in short demand, said John Bisio, Wal-Mart spokesman. Already, the nation’s largest retailer is renovating a historic five-story building attached to a mall in Baldwin Hills, Calif., near Los Angeles. Wal-Mart also has mall-based stores under development in a former Macy’s store in Richmond, Calif., and another in Branson, Mo.
“We are open to different concepts and venues,” Bisio said. “The general message is we try to be very flexible. Our folks are thinking out of the box, so to speak.”
