In 1999, when Los Angeles developer Rick Caruso razed an
under-used, 25-acre parcel housing an orchard and nursery near the historic
Farmer’s Market in Los Angeles, he replaced it with The Grove:
An “Urban Resort” of nearly 600,000 thousand
feet of retail and entertainment space that now gets more visitors than
Disneyland.
In the process, Caruso
Affiliated unveiled a type of high-quality, experiential shopping experience
that made him a billionaire even as retail sales moved increasingly online.
Whether intentional or not, Caruso’s focus on the upper end
of the retail spectrum has allowed his company to prosper at a time when the
economics behind commercial land uses is in flux. Today, many retailers are reducing their
footprints, boosting their online presence and merchandising fewer products in
their stores to avoid “showrooming,” in which customers compare products in
person but buy them online. As a result,
the future of the mixed-use project is also in flux, with the winners and
losers likely to be determined based mostly on how well developers match retail
stores with local and visitor demographics.
Since four of every five jobs in the country are in cities,
large retailers like Wal-Mart and Target have already been adopting their
suburban model to infill locations in which two-story buildings, multi-story
parking garages and even escalators for shopping carts are becoming
commonplace.
For existing shopping malls
such as South Coast Plaza in Costa Mesa, CA, remaining competitive is also
about offering experiential amenities including a VIP lounge, a meditation room
and even a “gentlemen’s room” where visitors can watch sports while enjoying
some wine or beer.
However, for other existing malls with less favorable
demographics and middle-market anchor tenants such as Sears or Kohl’s, the loss
of smaller retail stores including RadioShack, Abercrombie & Fitch or Eagle
Outfitters has forced operators to get increasingly creative. In the short run, businesses which can’t be
replaced by online shopping – such as health clubs, yoga studios, doctor’s
offices and restaurants – can take up some the slack, but in the long run the
very idea of the traditional retail store is being challenged.
Not surprisingly, these changes are also impacting the types
of smaller, mixed-use projects encouraged by cities, but often leave absorption
of the retail space to the whims of the market as well as the marketing
expertise of the local broker. So far, there seem to be two ways to goose
retail demand:
appeal to specific
demographics or create an in-person experience unavailable online.
In areas
with large Hispanic populations, developer José de Jesús Legaspi has
refashioned nearly ten failing malls into multi-generational cultural centers
in which grocery stores can co-exist with medical offices.
While grandparents can socialize for hours in
public spaces, many of the storefronts are actually business incubators helping
to build “the Mercado” (or central market) one at a time.
In the process, traffic at each of his malls
has reportedly grown to between four and six million per year.
At Caruso Affiliated’s Americana at Brand residential and
retail center in Glendale, CA, by including free community meeting space and
government-related offices in the mix, those visitors attending a book club
meeting or paying a traffic ticket are much more likely to stay for a bite to
eat or shop for a last-minute gift.
In
essence, Caruso’s mission isn’t so much to build town centers as it is to
“build the center of town.”
When it comes to experiences, since not everyone can
duplicate the special events, dancing fountains or streetcars at Caruso’s
larger projects, technology will certainly seek to level the playing field for
smaller operators. A perfect fit for a
mixed-use community would be those retailers who seamlessly merge off- and
online services so that it’s easy to order an item and either pick it up in
person (which has worked very well for both Wal-Mart and Best Buy) or have it
delivered the same day (which is being tested in select markets by Amazon and
Google Shopping Express).
To encourage repeat visitors and maximize per-visit sales,
some chains are experimenting with apps that will recognize a smart phone,
identify a shopper’s past history and immediately send them an active coupon
for a favorite item.
Other stores allow
customers to keep current on the latest promotions by downloading apps to
multiple devices.
Even better, should a
measure allowing all states the power to tax most internet sales pass, a more
level playing field for traditional retailers could give them just the boost they
need to remain competitive.
Please click here to see the edition of BuilderBytes for 5/29/14 on the Web. 
My column for the May 2014 issue of Builder and Developer magazine is now posted online.
