Archive for the 'Retail development' Category

Are “food halls” an answer for mall vacancies?

One of the biggest issues confronting mall developers is how to fill empty space (especially from vacant anchors). There just aren’t enough brick-and-mortar retailers to fill that space without coming up with some original ideas. One recent discussion on RetailWire focuses on the concept of “food halls” as a possible answer:

Anybody who has traveled the world (and has visited department stores in the process) can’t help but be dazzled by the food halls, especially in Europe but also in Asia and elsewhere. I realize that this is an extension of “high street” shopping in densely populated central business districts, so it doesn’t necessarily lend itself to the American department store model. And yet…wouldn’t a food hall (in the European sense) be more compelling than a Backstage installation in a Macy’s store?

The growth in self-contained food halls inside malls (but not necessarily inside a department store) is healthy for several reasons — and not just as a placeholder for another anchor tenant. It capitalizes on shoppers’ growing interest in cooking, healthy eating, locavore dining, etc. — and it provides an opportunity for retailers like Whole Foods/365 or Trader Joe’s to expand their footprint. Besides, if you’re waiting for one department store to fill the anchor space of another…you’re going to have a long wait.

Case in point (from another recent post):

“Signs of the apocalypse” are rampant in some segments, such as traditional mall anchors, but overstated in other high-growth areas like off-pricers. As regional malls suffer one tenant loss after another, it’s hard to see how all of those giant locations are going to be filled — especially if the anchors were in B and C malls to begin with.

One example, in my home market of Milwaukee, is the exit of Sears (three locations) followed by last week’s announced liquidation of Bon-Ton Stores. Boston Store (the local Bon-Ton nameplate) had five locations here — including two stores with over 200,000 square feet. If you’re a mall developer losing two of three anchors, it’s easy to feel like you have a black cloud hanging over your head.

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Is Aldi moving “uptown” too fast?

Here’s a recent comment from RetailWire about Aldi, and its decision to open more stores in upscale suburbs and neighborhoods. I think it’s a smart idea:

Many of the original Aldi locations (at least here in the Milwaukee area) were in lower income neighborhoods often suffering from “food desert” syndrome. The stores filled an important niche, but eventually Aldi started growing into middle-income and more upscale suburbs here. I’m sure the same phenomenon has happened around the country. If Aldi is serious about upgrading its merchandise content, the store experience has to keep pace.

Again, a local parallel: Pick ‘n Save stores (first part of Roundy’s, now a Kroger division) began as bare-bones stores with food displayed in cut-open shipping cartons stacked on empty gondolas. The formula worked for awhile (Pick ‘n Save became the market share leader here) but eventually customers expected a better experience. The same is true of outlet malls — from “piperack” operations to very upscale today.

So Aldi is making the smart move, especially where the trade-area demographics dictate, as long as they don’t simply duplicate their Trader Joe’s formula.

Is the off-price space already overcrowded?

Any student of retailing has seen segment after segment get overcrowded with imitators and then go through a period of consolidation — from department stores to discounters. Here’s a recent RetailWire comment that elaborates on this issue:

Every time a retail segment gets overcrowded with “me too” brands, a shakeout is inevitable. Between the key players like TJX and Ross, the luxury retailers’ outlet brands, and the new entries like Backstage and Off/Aisle, the market is ripe for consolidation. It’s no different from the waves of brand closures that swept the department and discount store industries, but I do expect TJX and Nordstrom Rack to be among the survivors.

Meanwhile, off-pricers keep expanding their brick-and-mortar footprints (often in other retailers’ closed sites) at the same time that most other big chains are working on omnichannel initiatives. You can argue that the “treasure hunt” appeal of off-pricers doesn’t lend itself easily to e-commerce, but this segment of retail needs to figure it out in a hurry.

Target finds small-format stores are more productive

Today’s RetailWire discussion centers on Target, which is enjoying more productivity in its expanding base of small-footprint stores. I don’t think this is rocket science:

Locating smaller-format stores in higher density areas (especially city neighborhoods) should drive more productivity. If these stores aren’t generating much higher sales per square foot, they are unlikely to be profitable given the higher occupancy costs (rent, loss prevention, etc.). So Target needs to hold these stores to a higher standard in the first place.

That being said, the focus on fewer categories and tightly edited assortments probably doesn’t hurt, either, and might be a lesson learned for the full-sized Target stores. I assume that most of the small-format stores contain much smaller grocery assortments, which is a good thing considering the low margins in an area where Target has struggled.

Groceries are battling too much space too

Excess square footage in general merchandising has been well-documented, especially with 2017’s wave of store closures. The trend hasn’t swamped grocery retail — yet — but don’t be surprised if the advent of online grocery shopping will take a toll. Here’s my comment, from a recent RetailWire discussion:

The grocery business is suffering from the same “overspace” problem that has plagued general merchandisers for years, leading to waves of store closures this year. The retailers in the middle — the old standbys like Kroger — are particularly vulnerable to increased competition from discounters, small-format stores and retailers doing a better job engaging with “foodies” and Millennials. (At least Kroger has a winning concept with Mariano’s in Chicago.)

There is no doubt that shopping behavior is changing. Some shoppers are opting for more frequent but smaller trips for fresher food, while others are bulking up at warehouse clubs. Aldi, Lidl and Trader Joe’s are offering smaller stores with curated assortments, and now Amazon is lurking in the background with its purchase of Whole Foods. As a regular shopper at Kroger’s “Metro Market” chain in Milwaukee, I can tell you that the overwhelming amount of choice (to fill all that space) makes even a simple shopping trip harder than it should be.

While some mid-tier chains are in a better position than others to survive, some industry consolidation is probably long overdue here. Meanwhile, here’s a related post about mall developers looking to fill empty space with food retail:

It’s ironic that we’re talking about food stores taking over vacant mall space today, after discussing excess square footage in the grocery business yesterday. There may be specific malls where it makes sense to add a small-footprint store like Fresh Market, but it’s hard to see how full-line mid-tier stores like Kroger can make this work on a large scale despite its test in Ohio. Presumably the grocery store would be the “last stop” on the shopping trip, if the shopper visits the rest of the mall at all.

The entire issue comes down to mall developers and how they reinvent all that real estate. Southdale (outside Minneapolis) is replacing a JCP store with a three-level fitness center; other malls are adding more dining and entertainment. But pulling off-mall retailers (TJX, Costco) into the fold may be a more viable solution if the price of entry is right.

JCP today, fitness center tomorrow?

The Simon development group is taking a three-level JCP store — soon to close at Southdale Center outside Minneapolis — and redeveloping the space as a fitness center. I’m among the RetailWire panelists discussing this smart “reinvention” strategy that can be applied to malls around the country:

Creating a fitness center out of an existing mall anchor is a creative way to reinvent excess real estate — instead of waiting for another retail tenant or tenants to energe (unlikely) in today’s overspaced environment. I’ve been in the JCP store in question and it was grossly overspaced for the volume it probably generated during the last few years.

Students of retail history (and Minnesota natives like me) know that Southdale was the first fully enclosed regional mall in the U.S. It served its purpose as a retail mecca — and community center — for many years, but the mix of anchors and nearby competition from Mall of America has made it less relevant in its current form. So the Simon team deserves credit for finding new reasons for people to come to Southdale and other malls like it.

Why would IKEA sell its goods on Amazon?

RetailWire panelists engaged in some speculation that IKEA may begin expanding its e-commerce footprint, including selling some of its products on the Amazon Marketplace. Here’s my rationale for the possible decision:

IKEA continues to open physical stores at a very deliberate pace. Here in the Milwaukee area, they are finally breaking ground this month for a store announced last year and opening in 2018 — their first in the market. Yet IKEA has broad name recognition and brand equity among potential customers who don’t live anywhere near one of their stores. Why not expand their e-commerce footprint, especially if the sales data uncovers potential new markets or localized changes in merchandise mix?


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