Redefining the space

Digital moves fast. Business people who disregard the devastating waves of changes it leaves will inevitably be engulfed by them. Consider this rising marketplace tsunami detected by Deloitte Consulting:

In 2013, smartphone sales in the U.S. surpassed regular cell phone sales for the first time. That year, Deloitte noted, online interactions influenced $300 million worth of in-store purchase decisions, which accounts for 14% of the total. This year, 56 cents of every dollar spent at retail will have digital beginnings, to the tune of more than $2 trillion.

“Any retailer who thinks they can build their own personalized experience to interact with customers anywhere near the extent of major digital platforms may be disappointed,” said Jeff Simpson, the study’s co-author and a Deloitte principal.

Smart retailers are concentrating on physical experiences. Developers are moving from building places that attract shoppers to builders of places that attract people, who in turn attract retailers. These may be brand-new mixed-use centers or master-planned communities. But more often than not, this re-socialization of shopping centers is being played out at redeveloped properties.

Sy Perkowitz, principal of KTGY Architecture + Planning, says tired retail centers can be transformed into entertainment districts that create opportunities for people to socialize: “Create a reason for people to go there, and they will get out from behind their computers.”

The dumbbell-shaped mall with shops connecting anchors on either end, floating in a sea of lined parking spaces, will soon be a relic of the past, Perkowitz said, though he insisted enclosed shopping areas would always remain relevant.

“There’s still a good reason for enclosed malls, but mall edifices aren’t very inviting,” he said. “You need to open them up in such a way that speaks to the community.”

KTGY has busted out and redesigned main mall entrances to turn them into open and inviting atria. It has filled parking lots with plazas that lead into malls, lining the way with sidewalks and restaurants. In some cases, the firm has taken exterior buildings that housed tire or battery shops and converted them into restaurant spaces, though Perkowitz does not view that as an optimal solution.

“We’ve done several concepts where you take the big box and demolish it altogether and create a kind of urban village that leads right into the mall,” he said.

Chuck Taylor, who executes shopping center architects’ plans as director of operations at Englewood Construction, also applies the term “entertainment districts” to describe gathering-place redevelopments. He has seen lots of shuttered department store spaces needing his company’s services in recent years, and has had plenty of creative ideas for transforming them into people magnets.

“We had one developer approach us with a concept to take over an empty Sears location — 240,000 sq. ft. — and turn it into an indoor experiential farm and food think tank with hydroponics, a test kitchen and a dining facility,” Taylor said. Three other contractors refused the job before Englewood took a crack at it. It ended up being undoable due to the steel columns throughout the structure.

But he applauds retailers and developers with seemingly outlandish ideas. That’s what it’s going to take to accomplish the task at hand. Plus, different ideas are a requirement for different regions of the country, Taylor said, whose company has done jobs in 36 states over the past five years. Open-air centers and town center thoroughfares don’t work as well in Fargo as they do in West Palm Beach.

Turning from merchants into entertainers is a costly endeavor for retailers. More open space, enhanced landscaping and signature exteriors can mean higher rents and common area maintenance costs. National retail brands may even find themselves unwelcome at re-socialized centers if they’re unwilling to invest in exploring new directions.

Tim Blum, managing director of the retail group at HSA Commercial Real Estate, said “de-malling” and creating gathering places at retail sites takes up the bulk of his time.

“What it’s all about is getting customers to change their habits of visiting one store and getting back in their cars,” Blum said. “Getting customers into multiple stores requires making it possible for them to accomplish multiple tasks.”

HSA transformed an obsolete industrial park in suburban Milwaukee into The District, a 69-acre retail, restaurant and residential community. The project’s first retail phase, The Mayfair Collection, features Nordstrom Rack, Saks Off 5th and Dick’s Sporting Goods.

Developers are always seeking full occupancy, but HSA is picky about the retailers they welcome into these projects.

“We have forgone a lot of revenue to not just do any lease deal,” Blum said. “We will forgo a retailer we deem not good for our brand.”

HSA endeavors to keep the common area maintenance cost for such gathering spots as plazas and fountains to a minimum.

“Because so many retailers are taking extra steps in the design and development process, we promise minimized CAM costs,” said Brenton Schrader, VP of retail leasing for HSA.

Starwood Retail Partners, which redeveloped and refreshed 30 malls in secondary markets over the past four years, has found that malls in smaller towns are already important community gathering places. So it’s played to its shoppers’ digital proclivities with novel attractions. The Digital Tree in the Louis Joliet Mall in Joliet, Ill., is a huge ficus that hangs 28 LCD displays that share community information, retailer tweets and shoppers’ selfies. At Southlake Mall in Merrillville, Ind., kids create fish on a computer display and release them into the Digital River that “flows” through the center of the concourse.

“These people appreciate what we’ve done with their malls,” said Jeanne Jordan, director of marketing for Starwood’s central region. “These innovations make them stay and appreciate them a little longer.”