Upscale malls reach out as consumers pull back
Noontime shopping sprees at the mall for Pam Lewellen of San Clemente are decidedly less expensive than they used to be. These days, she says, “I am constantly looking for that deal.”
High gasoline prices and nagging uncertainty about the economy haven’t stopped her from prowling malls for fun, but she said they have pushed her away from her favorite department stores and boutiques to discounters such as Ross Dress for Less and Marshalls.
In recent months, consumers worried about the future have cut back on upscale binge shopping, according to analysts. That’s driving down profits for many retailers and putting the squeeze on landlords that rent space to stores and restaurants.
Particularly hard hit are owners of shopping centers and buildings that house businesses serving new homeowners such as furniture stores and electronics warehouses. Also taking a hit are upscale department stores and other shops that have traditionally drawn the middle-income consumer.
Middle- and upper-middle-class shoppers, once a mainstay for upscale stores, now often shop below their means instead of above them -- choosing Wal-Mart over Nordstrom, perhaps, experts suggest.
Retail sales started dropping off about a year ago and the slide is still going, said Peter Lowy, head of U.S. operations for Westfield Group, the world’s largest shopping center company and owner of 24 regional malls in California.
“We are operating as if this sort of environment will be around for another year or so,” Lowy said. “Retailers are cutting back their growth.”
Although Southern California mall owners say they are generally faring better than many of their counterparts in other parts of the country, they’re feeling the pinch and looking for ways to lure shoppers back.
“If you are complacent you are going to get hurt in this economy,” said mall owner Rick Caruso, who arranged free summer concerts and movies outdoors at his Grove and Americana at Brand shopping centers in Los Angeles County. The Wednesday night programs have produced sales spikes, he said.
“We’re spending more on marketing, programming and events,” Caruso said. “During times that are challenging you ramp it up.”
Times are definitely challenging for many stores and malls, according to the International Council of Shopping Centers.
The industry trade group said overall retail sales were up 2.6% in July compared with the year before, but the growth was mostly among warehouse-like club stores such as Costco and Sam’s Club. Clothing shops, department stores, jewelry stores and retailers catering to teenagers all reported declines in sales.
“For years the market strength was in luxury,” said Michael P. Niemira, chief economist for the council. “Now it’s Wal-Mart.”
Although retailers captured early back-to-school shoppers in July, the month’s results were dominated by clearance sales of spring and summer merchandise at sharp discounts, Niemira said.
The retail industry’s problems have been unfolding in waves, he said, starting about a year and a half ago when undercapitalized mom-and-pop stores began having trouble turning a profit and some had to close. By last summer, many major chains started dialing back their expansion plans or closing stores as the housing market sputtered.
Home furnishing chains such as Wickes Furniture, Levitz Furniture and Sharper Image Corp. have filed for Chapter 11 bankruptcy protection or called it quits.
“Today we’re living with the financial crisis aftermath and tightness of credit,” Niemira said. “That means a lot of retail real estate deals are not going to happen.”
Southern California malls have been hit less hard than those in other parts of the country such as Florida, Arizona and Nevada where many retailers are abandoning their unprofitable stores, said Al Williams of Excess Space Retail Services Inc., a Huntington Beach firm that helps retailers who have rented space they no longer want.
“There hasn’t been a precipitous drop yet” in retail rents or property values here, he said, but landlords are getting more generous with rents and concessions to tenants they want to attract or keep.
Some local retail hot spots have fallen victim to their own success, said real estate broker Michael Zugsmith, chairman of NAI Capital Commercial.
“In many prime retail areas like Rancho Cucamonga you have seen a fairly dramatic increase in rental rates in the past five or six years,” Zugsmith said. “We’re now seeing a point where retail sales can’t sustain these rents.”
In some areas recently lifted by the housing boom such as the Antelope Valley, Victorville and Moreno Valley, rents are leveling off or declining as much as 20%, Zugsmith said.
Softening rents are creating opportunities for some retailers, and others are sticking to their expansion plans, undaunted by the downturn. Nordstrom Inc.'s sales are down more than 5% this year, but the company is moving ahead with plans for eight new stores this year and three more in 2009.
“We look at our new store openings as a long-term commitment and long-term opportunity,” Nordstrom spokesman Michael Boyd said. “Our plans are not based on the current environment.”
Large shopping center owners such as Westfield and Macerich Co. are also plowing ahead with upgrades and expansions. Westfield has about $750 million worth of improvements underway at its Los Angeles-area shopping centers, Lowy said, to attract top stores and more visitors.
“Retailers are looking to clean out marginal stores but will invest in the best locations,” he said.
Santa Monica-based Macerich is also working on more than $500 million worth of large-scale upgrades at local malls including Santa Monica Place, where the company is wooing new high-end tenants for its oceanfront center.
“Retailers are taking a little bit longer to decide” about where to open, said Tony Grossi, chief operating officer of Macerich. “They need immediate results. They can’t afford to grow into a market or make a misstep.”