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Shopping centers face new retail landscape

TRIBUNE PHOTO: JONATHAN HOUSE - Few U.S. cities have less mall space per capita than Portland, one reason Cypress Equities is putting $50 million into a renovation of Lloyd Center.The top floor of Pioneer Place is an eye opener. Pioneer is a flagship among Portland shopping malls — upscale, downtown and, when you consider the universe of malls, relatively young (the mall opened in 1990). But there are 13 vacant storefronts, most, but not all, on that top floor.

That doesn’t surprise Mark Hinshaw, a Seattle architect, urban planner and author, who calls malls “a creature of the second half of the 20th century.” Shopping malls aren’t cool any more, Hinshaw says, or in step with today’s consumer, especially if that consumer is a millennial, and doubly so if that consumer lives in Portland.

Traditional shopping malls — especially small ones — have been downsizing and closing all around the country, Hinshaw notes. A leading real estate analyst has predicted that 10 percent of the country’s indoor malls will close by 2022.

“We’re just not living the same way we were 10, 20, 30 years ago, when it was all about acquiring things, nesting and buying expensive furniture and rugs,” Hinshaw says. “People are a lot more mobile and they are interested in living more simply.”

Portland hits and misses

Shopping centers may be suffering in some areas of the country, but Dallas-based Cypress Equities is taking on a major gamble in spending $50 million to remake the Lloyd Center and inject just a little bit of cool, in the words of its new owners.

Overall, the large Portland malls are doing better than OK. Their vacancy rates are low, according to local brokers. They are getting lease rates that surprise out-of-towners who come looking for shop space.

Not that there haven’t been some notable losses in the Portland area. Jantzen Beach has transformed into a big box mall. Nobody even knows where the old carousel has gone. Eastport Plaza and Mall 205 have gone through transformations.

But in Portland, according to economists and retail consultants, there’s a push/pull occurring. On one side there’s the Portland consumer ethic, in which shoppers prefer handcrafted goods to mass-produced ones, small shops over large box stores, and commercial streets such as Northwest 23rd, Hawthorne and Division to sprawling suburban complexes.

“The tenant mix in a mall is not a good match for the demographics of Portland,” says Chris Zahas, an economist with Portland’s Leland Consulting Group.

But malls such as Washington Square, Clackamas Town Center and the Lloyd Center still offer free, easily accessible parking. Some people, especially families with kids, see malls as more convenient. And the fact is, there just aren’t that many of them — Portland is one of the few “undermalled” cities in the country, according to retail experts.

TRIBUNE PHOTO: JONATHAN HOUSE - Lloyd Center operations director Dennis Henderson talks about coming renovations at the malls showroom.

Sales tax impact

There are a couple reasons for that. First, economists say, is the lack of a state sales tax. A sales tax produces operating money for city governments, which leads cities to zone more property for retail. Portland and its suburbs never had that incentive, Zahas says.

Elsewhere, sales taxes encouraged developers to build more malls than are needed, leading to an oversupply of retail property. That led to depressed retail land prices in cities with an overabundance, according to Zahas.

The result? “You end up with Dead Mall Syndrome, or white elephant semi-dead malls or vacant big boxes,” Zahas says. “We don’t suffer from that much.”

Here, even vacant big box stores tend to fill up quickly with shops from other national, big box retailers.

The lack of a sales tax isn’t the only reason Portland has among the nation’s lowest rates of retail space per capita, says Portland commercial real estate broker Steven Neville. Oregon’s unique land use planning, specifically Portland’s urban growth boundary, has increased density in the metro area, making the large properties needed for malls hard to find and too expensive.

In addition, Neville says, almost every central city building in Portland, as per city requirements, has ground-floor retail space — just like in San Francisco and New York, two other cities, he points out, that have fewer malls per capita.

Some malls still healthy

Washington Square has been the revenue king among Portland malls. Owned by Santa Monica, Calif.-based Macerich, Washington Square has stores that average a little over $1,000 per square foot in revenue — a figure that puts it among the nation’s most profitable malls.

Industry insiders like to keep their revenue and leasing rates close to their vests, but Neville says rental rates are generally dictated by mall revenues. It’s fair to assume, he says, that Clackamas Town Center currently is the runner-up among Portland malls, with rents and revenues at about 85 percent of Washington Square. Pioneer Place comes in at about 75 percent of Washington Square and Lloyd Center at about 65 percent.

Department stores like Nordstrom and Macy’s for many years received free rent in many malls, because they were considered anchors — usually placed at the outside edges. The smaller stores that fill the interior spaces between anchors traditionally have “paid the freight,” according to Zahas. And that has meant rents twice as high, more than rents on retail streets such as Hawthorne or 23rd.

Anchors away

But the idea of what constitutes an anchor store is evolving. The best anchor store may be Apple, according to Todd Minnis, CFO of Cypress. A single Apple store can bring in $50 million in business a year. For a mall the size of Lloyd Center, that one store by itself can raise the entire mall’s revenue by $100 per square foot.

Macy’s recently announced it is closing 40 of its department stores nationwide, most of them in malls, and Sears is closing a similar number. Lloyd Center lost its Nordstrom anchor last year.

Zahas, incidentally, thinks Nordstrom’s decision to move out of Lloyd Center is revealing. Nordstrom shops downtown and in Lloyd Center were always too close together, he says. So it isn’t surprising the parent company closed one. But they chose to close their shop in the mall.

“I think that tells a lot about how people have changed preferences,” Zahas says. “A few decades ago they would have closed downtown.”

New look at Lloyd Center

The renovation of the old Nordstrom building there provides a hint at the direction many malls are beginning to take.

Making Lloyd Center as cool as Hawthorne is out of reach, say Cypress executives. But maybe it can be cool enough to attract the high-profile independent restaurateurs who have made Portland such a culinary destination.

Cypress isn’t replacing Nordstrom with a new department store. It is remaking that three-story building into what Minnis calls “a very activated box.” Think first-floor restaurants with open-air patios and a specialty grocery, Minnis says, noting that Whole Foods has a number of locations in shopping malls around the country.

There are about 4,000 new Lloyd District residents moving into apartments just south of Lloyd Center, Minnis says. Judging by the small size of those apartments, most of those new residents will be millennials, and Lloyd Center will be their closest shopping alternative. For them, maybe a Kurt Huffman restaurant like Lardo or St. Jack would be the anchor to draw them in for an evening at the mall. A cool local restaurant might even get discounted or free rent, Minnis says, just like anchor department stores received in the past.

“There are lots of cool places in Portland,” Minnis says. “Nobody is ever going to say Lloyd is the coolest place. But you want them to say, ‘Let’s go to Lloyd because there’s a lot to do.’ “

But Minnis’ vision is a bit of a leap. Local independent restaurants have never been willing to place themselves in malls, says Huffman, whose ChefStable has opened 16 restaurants in Portland.

“That kind of food is trying to stay credible, and nobody who is in a mall has any kind of street cred,” Huffman says. “I would be petrified to do it. You can’t put a St. Jack next to a McDonald’s.”

But the redesign at Lloyd has those restaurant spots that open to the outside, away from the food court. And there is the potential for greatly discounted rent, according to Minnis. And in a mall, a ChefStable restaurant would not be limited to lunchtime and evening customers. Malls traditionally offer up hungry shoppers throughout the day.

“It’s going to take somebody courageous,” Huffman says. “But there’s huge potential.”

U.S. urbanized areas with least shopping center space per capita

1. New York

2. Long Island

3. San Francisco

4. Portland

5. Charlotte

6. Westchester/South Connecticut

7. Milwaukee/Madison

8. Los Angeles

9. Providence

10. Northern New Jersey

U.S. urbanized areas with most shopping center space per capita

1. Southwest Florida

2. Raleigh/Durham

3. Las Vegas

4. Hampton Roads, Va., N.C.

5. Richmond

6. Memphis

7. Phoenix

8. San Antonio

9. Orlando

10. Atlanta

Source: CoStar Group

COURTESY RENDERING - Lloyd Center plans to renovate its ice rink as part of overall imporvements.

Technology helping malls compete with web retailers

You’re in the process of buying jewelry in a mall store. You log on to free mall wifi. Or the clerk asks for your email address. You figure that’s so they can send you alerts about sales. That’s not the half of it

That store, increasingly, wants to know how to contact you digitally because of something called dbeacon technology. Your smart phone gives them your location.

So let’s say you’re walking by the mall. That shop in which you bought a bracelet a month ago will know you are nearby. So they’ll send your phone an alert — you’re close, come in now and get 20 percent off. Or, they’ve just gotten jewelry in by the designer of that bracelet you bought — come in now and get the discount. Or there’s a Starbucks just inside the door to your left, and if you’d like, baristas will start preparing that specialty mocha you always order so it will be ready when you arrive. And don’t worry about payment — we can handle that seamlessly through that smartphone app you downloaded.

“It’s marketing in real time and in real place,” says Jesse Tron, spokesman for the International Council of Shopping Centers. And it’s the future.

Malls vs. neighborhood commercial streets isn’t the biggest conflict facing retailers. Much more fundamental is the competition between stores and online shopping sites.

Over 90 percent of U.S. purchases are still made in stores, but that percentage has been dropping. The stores are counting on turning the tide by embracing digital technology, according to Tron.

Think of it this way, Tron says. Most of us, when we’re going to buy a computer or TV, research the choices online and go into a store to sample the possibilities. Some people sample in the store and then go home and buy online. That’s called showrooming. Others browse online and then buy in the store— webrooming.

That’s where the battle for the consumer’s heart will increasingly be waged in the future, Tron says. And malls are finding new weapons with which to go to war. Consider Tysons Corner, a Virginia mall where last month kids standing in line to see Santa didn’t actually have to stand in line. The mall offered an app so parents could wait in line virtually. When junior had made it to the front of the virtual line, parents were notified it was time to head over to Santa.

Kate Spade New York stores have been experimenting with interactive window storefronts. Shoppers walking by can use touch technology to view and learn about every item in the store, and pay for purchases when the goods are delivered to the shopper’s home, just like with take-out food.

That technology will be perfect for malls, Tron says. Stores that close in the evening still have potential customers walking by as they head to restaurants or theaters in the mall. With an interactive window the store is never closed. “Somebody walking by your store when it is closed can order something from the store window and pick it up the next day,” Tron says.

“It’s the great movement in retailing,” says Lisa LaManna, who oversees retail leasing at Harsch Investments in Portland. “They’ve gotten so savvy at tracking what I do with my phone they know my preferences and it pops up.”

LaManna thinks it’s especially significant that Amazon recently opened its own bricks-and-mortar bookstore in Seattle. “It tells you the consumer wants the complete retail experience,” she says.

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