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VOL. 8 | NO. 12 | Saturday, March 14, 2015

Holding On

Enclosed malls face challenges, possibilities

By Amos Maki

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The national outlook for traditional enclosed malls is bleak. No new enclosed mall has been built in the U.S. since 2006. More than 24 have closed since 2010, and an additional 60 are teetering on the edge, according to data from Green Street Advisors. Around 15 percent of malls nationwide are expected to close in the next decade.

The dire situation facing the mall industry even helped coin a phrase – “dead malls” – and inspired websites dedicated to documenting the sometimes-haunting images of the country’s decaying malls. Even the long-gone Mall of Memphis has a website devoted to its life and death.

So, are malls in general, and the ones in Memphis in particular, really in danger of dying?

Not really, according to local commercial real estate experts, who say that many of Memphis’ malls have a good bill of health. High-quality malls with upscale or luxury department stores in prime locations are pulling ahead of their weaker counterparts, which are usually anchored by stores like JCPenney or Sears. Even healthy malls, though, may need to make some major changes to survive.

“There’s some challenging days ahead for some of these enclosed malls, but well-positioned and well-tenanted malls where management is paying attention, I think there is a future for them,” said Frank Dyer III of Loeb Realty Group.

Parrish Taylor of CB Richard Ellis Memphis said malls, especially well-located ones with well-known retailers, aren’t necessarily dying but they are changing.

“Generally speaking, it’s really predicated on the location and the quality of retail that is there,” Taylor said. “I think the enclosed mall concept, like a lot of retail, is going through an evolution that is good for the market.”

Trouble ahead?
Last year, Macy's announced it would shutter its 150,000-square-foot store at Southland Mall, one of 14 locations the storied retailer will close this spring as part of a national restructuring.

The Whitehaven store opened as Goldsmith’s in 1966 and was rebranded to Macy’s in 2005. It has long served as an anchor in the city’s oldest mall.

Fitch Ratings said department store closures could widen the gap between top-tier malls and malls not located in prime areas.

“In 2015, we believe second- and third-tier malls will continue to be at greater risk as the economic recovery for low-income consumers will remain slow, online competition continues and store traffic declines remain,” Fitch said in a January research note. “Second- and third-tier malls will be subject to relatively rapid and substantial performance declines that may lead to outsized losses if these closures continue.”

The loss of a major anchor like Macy’s usually spells trouble for malls, but Danny Buring, partner with The Shopping Center Group LLC, isn’t so sure the loss of Macy’s is the beginning of the end for Southland.

“If the department store goes away, it’s not always a bad thing,” said Buring, adding that Southland’s landlord could get creative with the Macy’s space and divide it into several smaller spaces that could welcome multiple retailers. “It requires landlords to spend some money, but they can see a return on investment.”

Taylor said other malls have had some success repositioning abandoned department store spaces.

“When Macy’s leaves, maybe it can be backfilled by something better for the community and that’s not just in Whitehaven, that’s all over the country,” Taylor said.

Other than the loss of Macy’s, Southland Mall, which opened as the city’s first enclosed mall in 1966, appears healthy. On two recent visits to Southland a throng of mostly African-American shoppers milled around the center.

A Sears store still anchors the other end of the structure. The mall is about 85 percent occupied and currently boasts more than 60 tenants as it approaches its 50-year anniversary, including many who cater to the Whitehaven community.

“I think the future is bright for that mall,” said Dyer. “When you see so many retailers in a mall, an enclosed mall like that where there’s not a lot of external signage or marketing, that’s proof there are dollars walking through those doors and down those corridors and people are spending money.”

While still healthy now, an increasing number of retail opportunities in DeSoto County, Miss., could pose challenges to Southland Mall going forward. The Macy’s closure could push more Whitehaven residents across the state line to nearby Southaven, where Tanger Factory Outlets is building a massive new outlet mall that will feature dozens of well-known retail tenants.

Life support
Opened in 1971, Raleigh Springs Mall was the city’s second enclosed shopping mall behind Southland. Developed by the former Edward J. DeBartolo Corp., one of the leaders of U.S. mall design and construction, it remained a citywide draw for years, with anchor stores Sears, JCPenney, Goldsmith’s and Dillard’s.

But the vitality of Raleigh Springs began to ebb due to demographic shifts and as more shopping options became available.

The mall began hemorrhaging retailers, sales dollars and foot traffic. One by one, the anchor stores began to close in the early 2000s, mortally wounding the once-thriving retail destination. Sears, the last remaining anchor store, announced in 2011 that it was closing, and demolition of the vacant JCPenney store began in 2012.

Today, the dog-eared mall at Austin Peay Highway and Yale Road appears to be on its last legs. The tenant roster is thin, giving nearby residents and people who live outside Raleigh few reasons to visit. A large pile of rubble that was the JCPenney store remains on the site, a reminder of the mall’s faded glory.

The vacant anchor stores and unfinished demolition prompted neighborhood stakeholders and city officials to call for action.

The city’s plan is to leverage public resources – such as a library, a police station and traffic division, walking trails, a skateboard park and other improvements – to attract private investment.

“If we let it fail and just sit there, what does that say about what we think about Raleigh?” said Robert Lipscomb, director of Housing and Community Development for the city of Memphis. “Should we just throw our hand up and not try? Raleigh Springs Mall is too important to that community to not try something.”

The administration of Mayor A C Wharton Jr. is pursuing using eminent domain to acquire the mall property and begin demolition. Wharton’s team hopes to extend the same “town center” concept at the Southbrook Mall, located across Elvis Presley Boulevard from Southland in Whitehaven, and the Towne Center at Soulsville USA in South Memphis.

Happy and healthier
Two other major malls in the Memphis area, the Simon Property Group-owned Wolfchase Galleria in Cordova and Oak Court Mall in East Memphis, appear to be doing well, although challenges remain.

One of those challenges is public perception. Incidents at each mall – in March 2014 a man opened fire inside Oak Court Mall, striking a man in the chest, and a fight between a large group of teenagers at Wolfchase triggered national news reports – could cause some shoppers to think twice about visiting.

Public perception helped doom the Mall of Memphis. After several incidents there generated headlines, the mall picked up the moniker “Mall of Murder” and never regained its reputation, stature or shoppers. The Mall of Memphis closed its doors for good on Christmas Eve 2003.

Wolfchase is located in the heart of what is arguably the Memphis area’s busiest retail corridor along Germantown Parkway.

While the mall will lose the Malco Wolfchase Cinema when Malco Theatres’ lease expires in 2017, Wolfchase’s anchor stores – Macy’s, Dillard’s, Sears and JCPenney – are all open. Simon appears to be paving the way for the Cheesecake Factory, a wildly popular restaurant chain with a large menu and generous portions, to move in at Wolfchase.

Located along the Poplar Avenue corridor in East Memphis, which has become the city’s de facto central business district, the well-landscaped Oak Court Mall is still plugging along.

Although it is experiencing a metamorphosis – some big retailers, including Gap Inc., have been replaced by smaller stores catering to a different demographic – anchors Dillard’s and Macy’s remain open and the mall counts around 70 tenants on its roster.

But Taylor believes the status quo won’t sustain Oak Court as a viable retail destination forever.

“It’s holding on now, but will it evolve over the next five years, 10 years and 15 years?” Taylor asked. “I would absolutely bet on it.”

Taylor said there is an opportunity for Simon or another developer to radically transform Oak Court, making it relevant in the future. Some malls, even high-performing ones, are being redesigned as town squares with more entertainment and service elements, or as lifestyle centers like The Shops of Saddle Creek or Carriage Crossing.

“I think generally speaking Oak Court Mall would be ripe for a creative developer to come in and turn that mall inside out,” he said. “There have been similar-sized malls across the country that have been able to turn themselves out, where there is an enclosed portion and a part that is open where you can drive up.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 38 38 20,670
MORTGAGES 45 45 23,790
FORECLOSURE NOTICES 0 0 3,047
BUILDING PERMITS 187 187 42,781
BANKRUPTCIES 57 57 13,237
BUSINESS LICENSES 23 23 6,645
UTILITY CONNECTIONS 30 30 7,819
MARRIAGE LICENSES 27 27 4,670