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Friday, May 17, 2024

Closed Stores Could Have Ripple Effect

This time next year your favorite shopping mall could look very different. The decision by Federated Department Stores Inc. to close many of the Robinsons-May units it acquired when it purchased May Department Stores Co., will leave four of the greater Valley’s nine enclosed centers, Glendale Galleria, Northridge Fashion Center, The Oaks and Westfield Shoppingtown Promenade, with big empty spaces where an anchor used to be. The impact on jobs as a result of those closures, along with the most recent decision to shutter the Robinsons-May corporate headquarters in North Hollywood, pulling over 1,000 jobs out of the local marketplace, is clear. Not so for the impact those store closures will have on the retail economy of the area. The good news is that the mall operators are protected long term leases ensure that they continue to collect rent, even if the stores go dark. But anchor tenants provide more than rent in a shopping mall. Besides the taxes these large retailers contribute, anchor stores drive traffic to malls, helping to provide a customer base for the hundreds of smaller retailers located at the center. If traffic drops, so does their business, and, in a worst case scenario, the fortunes of the mall itself. To be sure, there are other retailers who can take the place of the stores that are shuttering. But there are far fewer of those alternatives than there used to be, and those that remain are choosing new locations carefully. “It depends on the property,” said Michael Dillon, senior director at Marcus & Millichap who specializes in shopping center properties. “In certain malls there is a waiting list for anchor tenants to get in, and in certain malls there are a lot of anchors who would like to leave. It really is specific to the property.” Shopping center pundits point out that stores ranging from Nordstrom to Target are likely to be interested in some of the spaces that will be vacated. In some cases, they say, the especially low rents available on some properties where May held long-term leases, could persuade other retailers to take an opportunistic stab at mall locations where they have not before. “There are some 100,000-footers that will come into second generation space,” said Bert Abel, vice president at Grubb & Ellis who specializes in retail space. “They’re low rent payers and they wait for the space to appear. They’re going for the rent rather than the location, so some of those tenants may step into mainstream malls.” Finally, the coming vacancies could open the door to new concepts. Already, malls being built are incorporating movie theaters and other entertainment venues that were never imagined when the shopping mall first came on the retail scene some 50 years ago. “I think the industry over the last couple of years has already dealt with store closings,” said Patrice Duker, a spokeswoman for the International Council of Shopping Centers, the industry’s trade group. “So they already started thinking outside the box.” But while many express optimism that the retail industry will continue to adapt to the changing landscape, there are indicators that the process could be slow and, at least in the short term, costly. Many of the tenants in these malls already have exclusivity provisions in their leases that would prohibit a mall operator from adding, say, another electronics retailer or a furniture retailer if one already occupies the mall. That was not a problem in the days when department stores like Broadway and Bullock’s were still in operation and there were plenty of department stores waiting in the wings when one closed up. Some mall tenants also have so-called co-tenancy requirements which essentially guarantee that the mall will provide anchor tenants for the smaller stores that operate there. If the mall loses an anchor for an extended period of time, the other tenants are entitled to a discounted rent or to leave altogether. “You would not get these Victoria’s Secrets to go to the mall if not for the anchor,” said James Ashton, whose brokerage, AFC Commercial Real Estate Group Inc., in Westlake Village, represents property owners like Caruso Affiliated Holdings. “That’s why they have co-tenancy clauses and the right to go dark if those department stores go dark.” There is no single pattern to what’s happened as anchor stores have left shopping centers. When JC Penney shuttered a number of its stores, it opened the way for Fallbrook Center to re-engineer its space, adding Wal-Mart and Kohl’s among others and bolstering its position in the marketplace. On the other hand, Montgomery Ward’s liquidation in 2000 left a number of empty stores that still remain, including a gaping hole adjacent to the Panorama Mall in Panorama City. According to ICSC, nationally 30 percent of the Montgomery Ward stores remained vacant three years after the closure. And the rate of store closings has increased in recent years. An ICSC study showed that the number of store closing announcements totaled 6,108 in 2004, a 23 percent increase over 2003. Many argue that the closure of underperforming stores has advanced retail sales overall. “First, store closings generally lag the economic cycle,” the ICSC wrote in “Retail Real Estate Business Conditions,” the same report that detailed the record store closings in 2004. “This means that as the economy gears up to full recovery, retailers would only be in better shape and should have fewer underperforming stores.” Then too, new concepts seem to continually emerge to replace those that fail. “It’s just another speed bump in operating a shopping center,” Abel said.

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