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Franchising could be the rescue of malls


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Photo by Nicholas Upton

It’s hard to keep track of all the countless closures and bankruptcies infecting the commercial retail world these days as venerable brands like Macy’s, Sears, Ruby Tuesday, JCPenney, The Limited, Gander Mountain, Applebee’s, Payless, Outback and others experience high-profile closures, bankruptcies and general turmoil.

Their struggles, along with generational and internet-led disruptions, have made malls the epicenter for a changing world that, so far, hasn’t been kind to retailers, restaurants and landlords. While many higher-end malls have held their own in this climate, countless mainstream malls and strip centers are struggling mightily, especially those anchored by failing brands.

Looking just at Macy’s, which in January announced plans to close 100 locations, that’s several malls, strip centers and downtown shopping districts that are about to become much quieter. Pay attention next time you’re in downtown Portland or Minneapolis, as two examples where massive voids won’t be easily filled. What’s more, several analysts expect Macy’s to close additional stores in the coming years—just one sad factoid in a sea of shrinking brands.

To meet this new challenge, progressive mall operators are changing their mindset and thinking of their facilities as mixed-use destinations that cover ground beyond clothing stores and restaurants. For some, this means turning their massive parking lots into staging areas for festivals, concerts and outdoor movies.

For others, this new climate necessitates physical changes like demolishing empty anchor stores and adding new uses like housing, grocery or office space to attract new customers. As this evolution-by-fire gains steam, I see major opportunities for franchisors of all stripes.

Autopsy of America: The Death of a Nation

 Don’t expect to see many scenes like the abandoned Rolling Acres Mall in Ohio, as operators are adding new uses to revive struggling malls and retail centers. Look for franchised concepts in fitness, medical and entertainment categories to get in the game.

Photo by Seph Lawless from “Autopsy of America: The Death of a Nation.’ Rolling Acres Mall pictured in Akron, Ohio.

Attracting new uses

Hearing the term “dead malls,” my mind wanders eastward to China where entire cities and sprawling malls were built during the Great Recession, but remained empty to the delight of “ruin porn” photographers. Here in the U.S., some malls and strip centers may meet this creepy/sad fate—especially areas facing long-term economic declines—but most are in places far too valuable to lay fallow for long.

Mall operators like Simon, Westfield, General Growth Properties and DDR aren’t resting on their laurels. They are pulling the trigger on several repositionings, including Simon’s recent announcement that it’s bringing a large-format Life Time Fitness to its chic Galleria property in Houston. The Indianapolis-based developer also announced plans late last year to spend $30 million to convert a shuttered Saks Fifth Avenue into additional retail and restaurant space, and a hotel and condo tower on the site of the former Macy’s at the same property.

With many high-end properties, the sky is not falling at Simon, as its most recent quarterly results showed its overall U.S. mall and premium outlet occupancy at 95.6 percent as of March 31, 2017—unchanged from the previous year. Base minimum rent per square foot even nudged up 4.4 percent compared with the prior year period.

As franchising further expands into the fitness, medical and senior care worlds, as a few examples, expect to see more mall operators and developers bringing in such uses, which can eat up square footage, bring in a steady stream of consumers at a variety of day parts, while also diversifying retail centers so they aren’t solely dependent upon food and clothes.

And speaking of food, as discussed in these pages in recent issues, food halls—higher-end food courts—are another traffic-generating option being added to many enclosed shopping centers. With many near suburban office parks, luring in worker bees with ample parking and a range of food options makes sense for populating weekday lunch hours, which are typically slow times for many malls.

Going where the jobs are

Gary Chou, first vice president and senior director at Matthews Retail Advisors, is a brokerage focused on retail, including malls, shopping, strip centers and single-tenant lease properties. He described the current retail environment as a “rich get richer” situation where the best malls in the country are looking good, especially with their ability to spend capital to change up their properties.

Chou predicts many malls will “reposition themselves to be more entertainment related, whether it’s more restaurants or more activity-related retail.” In franchising, I see concepts like Sky Zone, The Little Gym and other indoor, kid-friendly entertainment concepts as uniquely positioned to fill large anchor pads.

Beyond entertainment, medical concepts like dental offices, urgent care centers and even schools or daycare centers could be ideal new tenants for most shopping centers, giving busy parents a place to drop the kiddos off, then grab a bite to eat or do some light shopping while waiting—or before heading to work.

Bill Pierquet, senior VP of school development at Primrose Schools, said malls and shopping centers could be “a real part of the company’s future” as it continues adding units, which generally need to be located near major job centers. Rather than gobbling up darkened anchor spaces, he said the company is more interested in outparcel locations on the fringes of multi-use retail properties.

“Those type of spaces can be very good for us because there’s great traffic flow ability,” and parents are “not constricted by going into a million-square-foot mall,” Pierquet said. “That can be a very attractive opportunity for us especially in some of the malls, in more congested, difficult-to-develop areas.”

He added Primrose’s light parking requirements, which are generally counter to that of many store and restaurant tenants, has made the concept increasingly attractive to commercial developers looking to diversify.

A symbiotic relationship

As many experts predict, medical, fitness, education, pet-focused and personal care franchises are set to become a much larger part of the franchise industry. With prime suburban retail space remaining at a premium, franchisees looking to expand are going to also have to widen their scope and get creative to find locations.

Chou said that many of these concepts are expanding “almost like crazy”—especially medical. “Also hospice, extended care or rehabilitation centers,” he added. “I don’t doubt that they could be a solution for a lot of these larger retail areas.” Mirroring Primrose’s Pierquet, he said some concepts will only work for outparcels or shopping center locations with separate entrances.

In countless interviews, entrepreneurs who’ve started companies during tough times reflected on how seemingly dark conditions were fertile ground for their creativity and innovation. After all, necessity is the mother of invention.

At this challenging fork in the road for landlords and retailers in general, I’m not sure who’s the barnacle and who’s the whale, but franchising’s newfound diversity is clearly an opportunity for a healthy and symbiotic relationship.

Tom Kaiser, pictured on opposite page, is associate editor of Franchise Times and writes about urban tales  in franchising in each issue. Send story ideas to tkaiser@franchisetimes.com

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