Shopping malls may need to reinvent themselves

LAS VEGAS Wed May 25, 2011 9:51am EDT

Shoppers carry their purchases during ''Black Friday'' at a high-end shopping mall in Tysons Corner, Virginia, November 26, 2010. REUTERS/Jason Reed

Shoppers carry their purchases during ''Black Friday'' at a high-end shopping mall in Tysons Corner, Virginia, November 26, 2010.

Credit: Reuters/Jason Reed

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LAS VEGAS (Reuters) - Back when most shopping malls were built, cutting edge technology was color television and a mobile phone meant a land line with a really long cord.

Today, technology allows shoppers to compare prices while at the store or buy online and has become one of the biggest threats to retailers and their mall landlords. Many retailers have adapted or embraced new technology as another channel for their sales.

But malls are not so nimble. Some retailers such as Kohl's Corp and Macy's Inc, whose department stores anchor big regional malls, have said they want to shrink the size of their stores. That is much easier said than done. Malls can refurbish, upgrade lighting, change the decor or add space. But significant changes are difficult, both physically and legally, and take years.

That means much of the next phase of the evolution of the U.S. mall -- a concept that proliferated in the 1960s through the 1980s -- will be undertaken by developers of new malls, whose construction and financing are just beginning to look plausible.

"It's a transformation of the industry," said Grant Herlitz, president of the Howard Hughes Corp, a developer and diversified real estate company spun off from mall owner General Growth Properties Inc.

"Developers have to meld themselves with those retailers to figure out the mall of the 21st Century," Herlitz said.

Malls are great big organic beings, with the fate of the specialty retailers, department stores and mall owners intertwined. Legal agreements govern what department stores and landlords can do with the buildings they either own or lease and often require all parties approve major physical changes. Other agreements, such as operating covenants, dictate the hours and years a department store must remain open for business and what it can sell.

"It's not that simple," William Taubman, chief operating officer of luxury mall owner Taubman Centers Inc, said while attending the International Council of Shopping Centers annual convention in Las Vegas.

"They take enormous approval from the department stores as well as the communities," he said. "Where we've had department stores that in our view were underperforming and in our view were willing to downsize, by the time you get done figuring all the cost involved, it almost never works."

Retailers will shape new mall development, said Howard Hughes Chief Executive Officer David Wienreb.

The company has more than a dozen development sites or redevelopment projects, such as Manhattan's South Street Seaport, Hawaii's Ward Centers and Cottonwood in Salt Lake City.

"We create a user friendly experience that's an enhancement to the community and that speaks to what the retailer is looking to deliver to their customers," Weinreb said.

Australia's Westfield Group has been a pioneer in U.S. mall redevelopment, melding traditional mall retailers with atypical mall retailers. It was the first to add value stores such as Costco Wholesale Corp and Target Corp stores and grocery stores to malls that include high-end retailers such as Neiman Marcus or Nordstrom Inc.

USING TECHNOLOGY TO FIGHT TECHNOLOGY

Many retailers today are embracing technology. Walt Disney Co's Disney Store has been transforming its toy stores into high-tech playgrounds. The stores have become entertainment centers, where children can wave a wand and Cinderella appears in the mirror, build their own car that is based on the movie "Cars" or see clips of Disney films in an in-store mini theater.

Disney opened a dozen of the new stores last year. After those generated double-digit traffic increases, the company accelerated the roll-out and plans to open another 40 this year.

O'Neill Properties Group plans to use technology to lure shoppers to The Point, a planned development that includes a 3 million square-foot retail development on part of the 453 acres in Sayreville, New Jersey, 30 miles from Manhattan.

O'Neill plans to make massive use of LED (light emitting diode) video lighting to advertise the products and the websites of the mall retailers to the 800 million people who drive past the site annually.

"We have an opportunity to build a mall from scratch," said Brian O'Neill, founder and chairman of the company that bears his name. "We've gotten more signage approved, 10 times that of Times Square in terms of signage.

Plans for the property also include 2,000 residential units, and a hotel. But the first phase will be The Landing at the Point, a 620,000 square-foot high-end retail center.

O'Neill said he has received plenty of interest from investors, including sovereign wealth funds and pension funds to foot the $1 billion price tag. He is currently in talks with large mall developers, especially real estate investment trusts, although he would not name them.

"If you think of retailing today, it's going through the most significant metamorphoses since the beginning of time," O'Neill said. "Specifically, retailers are having to figure out how to sell goods in store and online, and the ability to use each of these two mediums to drive sales has not yet been incorporated into a mall."

(Reporting by Ilaina Jonas, editing by Dave Zimmerman)

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