John Culpepper, owner of Culpepper Properties in College Station, Texas: Enclosed Malls Reach For New Kind Of Anchor.

17 Mar 1993
Women's Wear Daily; Page 1
Copyright 1993, Women's Wear Daily

NEW YORK -- While department stores have traditionally been the anchors of choice in enclosed regional malls, developers say they are increasingly switching to discounters and "category killers" for new properties or properties under renovation.

Developers explain that increased competition for today's tightfisted consumer is forcing them to think up new ways to draw traffic and help their malls be profitable.

"A large percentage of the population is price-conscious," said John Culpepper, owner of Culpepper Properties in College Station, Tex., whose current renovation of the Manor East Mall in Bryan, Tex., is highlighted by the addition of Wal-Mart. "They want anchors that concentrate on value pricing."

"People like ourselves look to these tenants because they are successful, even though they wouldn't have fit the mold in the past," said Marc Yassky, a partner with The Shopco Group in New York, which is considering converting one of its properties to a discoount orientation by adding three or four category killers - giant operations like Home Depot that dominate a particular category.

Industry observers agree that the addition of discount-driven retailers to enclosed malls is both a pervasive and a shrewd strategy.

"There are a number of major mall developers that are now adding a Wal-Mart or a K mart as an anchor," said Ted Kraus, president of TKO, a shopping center management company in Belle Mead, N.J., and publisher of The Deal Makers, a retail-leasing newsletter. "Seven or eight years ago, that would have been considered heresy."

"This is probably the most underreported trend that's gone on in the last couple of years in retail development," added a spokesman for the International Council of Shopping Centers.

And, speaking at the National Retail Federation's annual convention here in January, Margaret Gilliam, director of equity research with First Boston Corp., asserted that a key reason for the success of Mall of America, the huge shopping mall that opened last August in Bloomington, Minn., is because its anchors include both off-price and full-price stores.

Sears, Roebuck & Co.; Nordstrom; Macy's; Bloomingdale's; Marshalls; Perfumania, a fragrance discounter, and Kids "R" Us are among the major stores at the nation's largest enclosed mall. "There's no reason why an anchor has to be a department store," Gilliam-said. "Let the anchor be any store that can draw, like Ikea or Wal-Mart."

Executives agree that in the late Eighties and early Nineties, the combination of an overdeveloped retail real-estate market and a shrinking pool of department and upscale specialty stores began opening developers' eyes to the viability of discount anchors in previously full-price-driven malls.

"With so many vacancies caused by the exit of department stores, people started to be more flexible about their tenant mix," said the ICSC spokesman.

"There just aren't enough small retailers like Casual Corner to fill up the malls," said Shopco's Yassky. "A lot of malls are converting these smaller spaces into 25,000- or 50,000-square-foot spaces for bigger tenants like discounters or category killers."

The changing retail landscape -- one that now includes huge complexes like power centers, with category killers in spaces of 400,000 square feet or more -- has demonstrated that large discount-oriented stores are an effective tool for building market share.

As Gilliam of First Boston noted, traffic-building tenants are the tool by which "malls can compete with power centers."

Executives said that most of the conventional malls that are being converted to a more value-driven orientation are generally older, built in the late Sixties through the Seventies. In many cases, these centers have been unable to compete with nearby upscale malls that were built in the Eighties. So, developers have been forced to make a dramatic change.

Culpepper of Culpepper Properties, for example, explained that Manor East Mall, a 500,000-square-foot property, was the original mall in the community of Bryan, Tex. It was anchored by Montgomery Ward and J.C. Penney. But when a newer mall opened a few years ago, housing Dillard's and Foley's and eventually drawing over Penney's, Culpepper retaliated by bringing in Wal-Mart and a number of category killers such as Hasting's, a 20,000-square-foot discount music and book store.

"It's worked well, so we're going to be turning the whole center into a value-oriented mall," Culpepper said, noting that he is currently negotiating with several discount-oriented stores for the space abandoned by Penney's. He expects construction to be completed by fall 1994. The consumer response, he added, "has been outstanding."

"Basically," he said, "I think the industry is eventually going to end up with three types of malls: off-price malls, conventional department-store-anchored malls, and value malls, like this one."

Shopco's Yassky, on the other hand, said he is interested in combining discount-driven category killers with traditional mall anchors.

"You have to include tenants like Staples {office supplies} or Sports Authority -- tenants that people want to see," he said. "Stores like Circuit City {electronics} can work with stores like Penney's."

To be sure, some developers facing increased competition from newer upscale malls are opting to forgo the enclosed-mall concept entirely and convert to a traditional value-oriented strip center.

"In our case, we felt the idea of a small, enclosed mall with just one anchor was functionally obsolete," said Barry Milberg, real estate manager with Kimco Realty on Long Island, referring to the Mall at Fashion Plaza, a 340,000-square-foot property in New Brunswick, N.J., that had Burlington Coat Factory as its sole anchor.

"The Menlo Park mall, which is nearby, was redeveloped a year and a half ago, and they added Nordstrom and some new stores," he added. "We're going to try to compete as a more convenient strip center." Among the new tenants scheduled to open in the center is Wal-Mart, marking this retailer's third appearance in New Jersey.

Even large developers say they are intrigued with the idea of taking a more value-driven stance in some of their properties.

"One thing we're doing now is taking a good, hard look at our portfolio of centers to see what could be done to build their potential," said a spokesman for Melvin Simon & Associates, Indianapolis, which developed Mall of America. "There may be a decision that an off-price orientation is the way to go."

But developers add that they sometimes face problems when trying to give their malls a discount facelift. First, they say, it is sometimes difficult to attract the discounter to a mall location.

"Because the cost of operation is much lower in a strip center than in a mall, some retailers prefer not to be in a mall," said Walter Samuels, president of R.D. Management Corp. here, a retail management company that claims to be one of the largest owners of K mart properties. "They often like to be located near the mall instead."

Once the developer convinces the retailer to move into the mall, practical issues need to be ironed out.

"There are certain functional problems when you put a discounter in a mall," said Yassky. "For example, the discounter has a central checkout and carts, and you end up with carts in the mall."

To resolve these conflicts while offering consumers a wide range of shopping options, some developers are designing mall configurations that combine upscale and more mass-oriented tenants, but keep them at a comfortable distance from one another.

"There's a remerchandising of regional malls going on," said Kraus of TKO. "You may have a mall with a Macy's wing, where you'll have upper-middle merchandise, but at the other end you'll have a Wal-Mart with lower-end stores."

An example of this kind of layout is Tallahassee Mall in Florida, a 1.2-million-square-foot property whose tenants range from Parisian, an upscale department store, to Ward's.

"The leasing team had a plan to create a new wing that would be anchored by Parisian and other upscale retailers," said Shelley Montgomery, assistant manager with the DeBartolo Corp., the mall management company. Parisian was completed in May 1992. The other part of the mall, she said, has a Montgomery Ward, which was also remodeled last May, and a Gayfer's.

"There's also a vacant department store -- a space we are talking to K mart about -- and another 20,000-square-foot space that had been a McCrory," she said.

While this kind of combination is unusual, Montgomery said assembling such a tenant mix and spreading it out in this way appears to be a promising strategy. Specifically, she said, consumers have shown a decided eagerness to shop there.

"Traffic and sales have increased since May 1992," she said. "Parisian had its largest grand opening ever."

Also see John's listings under Attorneys and Who's Who.

Culpepper Ancestry. John is John Cecil Culpepper, Jr., son of John Cecil Culpepper, Sr. (of MS & TX). John is also a second cousin of Pat Culpepper, the University of Texas football star.  Pat, John and John's wife, Mary Ann, were all at the University of Texas at about the same time.