October 2, 2008
Lifestyle Centers May Be Losing Their Luster
By Tom Ryan
According to a few reports, lifestyle centers, which have dominated retail development in recent years, appear to be losing some steam. With the slowdown in overall shopping center building, lifestyle centers have not gained enough “critical mass” with consumers, claim some critics. Also, some projects have just underperformed.
“A lot of better retailers went into a lot of lifestyle centers, and not all lifestyle centers are created equal,” Steiner + Associates president Barry Rosenberg told Commercial Property News back in June. “A lot of lifestyle centers probably should not have been built.”
At the time, the article noted that developers were putting lifestyle center projects on hold as many retailers weren’t committing to leases due to the consumer spending slowdown. But the article also mentioned a number of “strategic misfires” in lifestyle center development. According to the article, “the new centers that have run into trouble lack the critical mass – and the right combination – of tenants that are necessary for the center to thrive.”
Aiming at well-heeled customers, lifestyle centers are large mostly-outdoor shopping centers that include fashion-oriented specialty stores and may also include upscale department stores, restaurants and entertainment.
The sober view from CNS was backed by a survey conducted by TNS Retail Forward that showed only about 20 percent of primarily household shoppers visited lifestyle centers in June 2008, down from 21 percent in 2007 and 24 percent in 2006. Among those buying clothing, 11 percent shopped lifestyle centers in June 2008, down from 13 percent in June 2007.
“Lifestyle centers still haven’t gained traction,” said Kelly Tackett, senior consultant at TNS Retail Forward, in the report. “Despite the acceleration of lifestyle center development in 2006 and 2007, only a fifth of primary household shoppers shop the format monthly. And although specialty apparel retailers are a cornerstone of the format, even fewer shoppers frequent lifestyle centers monthly for clothing.”
Finally, last week at Thomas Weisel Partners’ investor conference, Robert Dennis, president and CEO of Genesco Inc., said his company was slowing down its expansion partly because the open-air lifestyle center strategy “doesn’t work for us and doesn’t work for a lot of other concepts as well.” The slowdown for the owner of the Journeys, Hat World and Johnston & Murphy chains also reflected the overall reduction in retail developments. But Mr. Dennis implied that any retail developments would likely come from lifestyle or strip centers that don’t support Genesco’s concepts as well as regional malls.
“We think this is a multiyear problem,” said Mr. Dennis. “We don’t see the developers coming up with the next new mousetrap in terms of the kind of developments that are going to support us.”
Discussion Question: Are you hearing or seeing any signs of problems at lifestyle centers? Are they still the ‘wave of the future’ in retail development? What should lifestyle center developers be focusing on in order to thrive in the future?
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The number of active anchor retailers doing deals has decreased significantly due to current economic conditions making the development of new lifestyle centers extremely difficult. Making matters worse is the potential of some big box tenants closing stores or even considering bankruptcy. Lifestyle centers will make a comeback as the economy recovers.
Lifestyle centers grew at the expense of shutting down traditional shopping malls. Part of the growth occurred due to rising real estate prices because lifestyle centers take up a lot less land than the standard malls. Furthermore, lifestyle centers were thought to be profitable because their tenants produce higher revenue margins. They also don’t have traditional expenses such as indoor heating and air conditioning.
However, what was perhaps overlooked by the planners is that so much of the upscale merchandise and services sold in lifestyle centers are strictly destination items and despite the higher margins, they don’t generate enough traffic to make the gross profits needed to keep the stores open.
Everything new and exciting eventually loses momentum unless it can be reinvented. Lifestyle centers aren’t novel anymore, the country is overstored, and what exciting new unique retail concepts are fast growing these days, anyway?
Lifestyle centers are still likely to be the preferred shopping choice for mid to affluent customers going forward, primarily for the greater convenience they offer. But long-term, I think we’re likely to see a real downturn in commercial retail development as retailers rethink their expansion strategies, and the excess square footage that exists serves as a drag on rents.
One reason that lifestyle centers are suffering is because outlet malls are thriving. Upscale brands shamelessly push resources into their outlet operations, locating those stores closer and closer to their regular line stores and filling them with the same brands. Between 80 and 90 percent of the labels found at Saks’ “Off 5th” outlet stores are the same as those found in Saks Fifth Avenue, for example.
Far from the down-scale versions of a few years ago, outlet malls now feature runway shows, retail-tainment and upscale food courts. Developers are also getting tripped up by the fact that lifestyle center tenants tend to travel in packs. In the absence of big anchor stores, retailers wait for groups of complementary retailers to sign on before they will take the plunge …and, when nobody bites, this waiting game kills the project.
Lifestyle centers provide an alternative to the traditional regional mall, which is losing share partly because its anchor base is collapsing. There is only one viable traditional department store (Macy’s) and only one viable national mid-tier department store (JCPenney) operating as customary mall anchors.
Lifestyle centers also provide a more upscale, “aspirational” mix of stores than the power center, which functions as a collection of mass-market big-box stores. So the key to the problem might be the aspirational positioning in an economic slowdown, not the concept itself. Lifestyle centers are driven mostly by apparel specialty stores with the most vulnerability to slower consumer spending on discretionary goods.
There is still a long-term opportunity for the “lifestyle” concept but the current slowdown provides a chance for financially fit developers to rethink the tenant mix. Some combination of “need to buy” with “nice to have” may cushion the center against the next slowdown, whenever it happens.
It’s not just lifestyle centers. It’s just about all retail development. Seems like the only stores I see opening by the dozens are Aldis.
Lifestyle centers have proven to be legitimate competitors for regional malls and have clearly accelerated the decline of some weaker malls. However, lifestyle centers have never become retail powerhouses like A-class malls. They have not been able to produce the same level of sales productivity.
The issue with lifestyle centers now is they are overbuilt in a challenging retail environment and they have onerous co-tenancy provisions for property owners that are causing major problems.
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The number of active anchor retailers doing deals has decreased significantly due to current economic conditions making the development of new lifestyle centers extremely difficult. Making matters worse is the potential of some big box tenants closing stores or even considering bankruptcy. Lifestyle centers will make a comeback as the economy recovers.
Lifestyle centers grew at the expense of shutting down traditional shopping malls. Part of the growth occurred due to rising real estate prices because lifestyle centers take up a lot less land than the standard malls. Furthermore, lifestyle centers were thought to be profitable because their tenants produce higher revenue margins. They also don’t have traditional expenses such as indoor heating and air conditioning.
However, what was perhaps overlooked by the planners is that so much of the upscale merchandise and services sold in lifestyle centers are strictly destination items and despite the higher margins, they don’t generate enough traffic to make the gross profits needed to keep the stores open.
Everything new and exciting eventually loses momentum unless it can be reinvented. Lifestyle centers aren’t novel anymore, the country is overstored, and what exciting new unique retail concepts are fast growing these days, anyway?
Lifestyle centers are still likely to be the preferred shopping choice for mid to affluent customers going forward, primarily for the greater convenience they offer. But long-term, I think we’re likely to see a real downturn in commercial retail development as retailers rethink their expansion strategies, and the excess square footage that exists serves as a drag on rents.
One reason that lifestyle centers are suffering is because outlet malls are thriving. Upscale brands shamelessly push resources into their outlet operations, locating those stores closer and closer to their regular line stores and filling them with the same brands. Between 80 and 90 percent of the labels found at Saks’ “Off 5th” outlet stores are the same as those found in Saks Fifth Avenue, for example.
Far from the down-scale versions of a few years ago, outlet malls now feature runway shows, retail-tainment and upscale food courts. Developers are also getting tripped up by the fact that lifestyle center tenants tend to travel in packs. In the absence of big anchor stores, retailers wait for groups of complementary retailers to sign on before they will take the plunge …and, when nobody bites, this waiting game kills the project.
Lifestyle centers provide an alternative to the traditional regional mall, which is losing share partly because its anchor base is collapsing. There is only one viable traditional department store (Macy’s) and only one viable national mid-tier department store (JCPenney) operating as customary mall anchors.
Lifestyle centers also provide a more upscale, “aspirational” mix of stores than the power center, which functions as a collection of mass-market big-box stores. So the key to the problem might be the aspirational positioning in an economic slowdown, not the concept itself. Lifestyle centers are driven mostly by apparel specialty stores with the most vulnerability to slower consumer spending on discretionary goods.
There is still a long-term opportunity for the “lifestyle” concept but the current slowdown provides a chance for financially fit developers to rethink the tenant mix. Some combination of “need to buy” with “nice to have” may cushion the center against the next slowdown, whenever it happens.
It’s not just lifestyle centers. It’s just about all retail development. Seems like the only stores I see opening by the dozens are Aldis.
Lifestyle centers have proven to be legitimate competitors for regional malls and have clearly accelerated the decline of some weaker malls. However, lifestyle centers have never become retail powerhouses like A-class malls. They have not been able to produce the same level of sales productivity.
The issue with lifestyle centers now is they are overbuilt in a challenging retail environment and they have onerous co-tenancy provisions for property owners that are causing major problems.