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Malls Put On Show To Draw

Skeptics have been sounding the death knell for brick-and-mortar stores for years as e-commerce has garnered a growing share of sales.

But the predictions of demise may well be overblown, recent surveys and sales data suggest. Retailers as well as mall owners and developers are making changes in their real estate decisions to accommodate today's consumers, who crave the "experience" of shopping.

"The smart landlords and smart retailers see the attack of e-commerce, and experiential retailing is the way they're going to compete," said Garrick Brown, director of research at commercial real estate firm Cassidy Turley.

Experiential retailing, he says, creates an experience beyond shopping that emotionally ties the consumer to coming to the store. It's considered a component you can't get online.

Armed with a physical presence that permits real — not virtual — interaction and experiences, brick-and-mortar stores are winning a battle to lure cross-channel shoppers.

While online shopping continues to grow, shoppers still prefer malls because they offer a tactile experience in a social context, according to a recent survey done by C&T Marketing Group for mall owner Glimcher Realty Trust (GRT). It found that experiences, such as dining out or participating in community events, are the main reasons people prefer the mall to online shopping.

"The survey validated our belief that the mall must offer things to do, not just things to buy," Michael Glimcher, CEO of his namesake REIT, told IBD. "Throughout our portfolio, we're adding more restaurants, additional entertainment and premium services to complement the retail in our centers.

Hanging At The Mall

The attention to the consumer by retailers and mall developers is beginning to have an effect, says Bill Martin, founder of retail traffic tracker ShopperTrak. Malls saw a 4.8% rise in total traffic in 2012, he notes, the first increase since 2005. And physical retail stores represented 9.8 times more retail sales than those generated via electronic shopping and mail order.

The so-called Great Recession and commercial credit crunch late last decade, starting around 2007, took a toll on shopping centers and stores. They were already getting spitballed by the newer kid on the block, online shopping.

By revamping their space, among other strategies, retailers and mall landlords are positioning to rebound as the economy improves and shoppers return.

The U.S. retail vacancy rate will fall 40 basis points to 7.7% this year as asking rents grow an average 1.8%, predicts real estate investment service firm Marcus & Millichap — though Fed talk of pruning bond purchases has spurred worry about rising interest rates and hit some real estate investment trusts.

Glimcher, a $1.7 billion retail REIT, got socked hard in the recession — its stock dipped under $1 in 2008 and 2009. Executives there spent the downtime pruning costs and honing a retail approach for better times.

The company now looks for experience-oriented tenants in malls it owns, manages and develops. The approach has worked to its advantage. Occupancy is running an average of 95% in its property portfolio, Glimcher says. Sales are up $120 per square foot in the past four years, and average traffic is increasing.

Polaris Fashion Place in Columbus, Ohio, is one Glimcher-owned experiential retail destination. It features upscale retailers such as Coach (COH) and Saks (SKS) plus experience retailers such as Apple (AAPL) and Lululemon Athletica (LULU) — the latter known for its yoga classes.

In 2009, Glimcher finished a 155,000-square-foot open-air addition, expanding dining to eight restaurants from three. It added an outdoor play area with a bowling alley, and an 80,000-square-foot Cabela's (CAB) outdoor-outfitter store.

Full Plate, Yet More Noshing

Polaris is 100% occupied and generates $529 a square foot in tenant sales. To accommodate more open-air type stores and add more room for outdoor events such as concerts, Glimcher expects to add 125,000 square feet of retailer, restaurant and entertainment space.

"Landlords and owners of retail assets are embracing the experiential trend by targeting and leasing space to tenants that offer more than traditional retail," said Greg Maloney, CEO of the retail arm of commercial real estate firm Jones Lang LaSalle (JLL). "Shopping center owners that can offer something consumers can't get at home, online or anywhere else, are the owners that will be successful in this new age of e-commerce.

As shoppers shift to consuming more of the experience in order to buy products, he added, "smart landlords" will not only engage experiential retailers, but also work to make their centers a destination vs. a simple mall.

Elements Of Attraction

Take Missouri's Branson Landing, which Jones Lang LaSalle helped create by partnering with owners. It's a 95-acre retail and entertainment destination, with more than 100 shops and restaurants and what the firm calls a spectacular water attraction synchronized to light, sound, music and fire. You can find family-friendly adventures such as cruises on Lake Taneycomo, kiddie rides and miniature golf. And Branson Landing hosts more than 70 events, festivals and parades a year.

Experiential retailing comes in different forms. Take Cabela's, the retail outfitter of hunting and fishing activities. It designs its stores in creative ways to surround customers with a wildernesslike experience. Stores feature attractions such as mountain replicas, wildlife displays, aquariums, a bargains cave touting the best deals — and a restaurant.

Dick's Sporting Goods (DKS) has created shops-in-shops devoted to well-known brands such as Nike (NKE) and Under Armour (UA) to showcase store products and create aspirational types of buying, says Piper Jaffray analyst Sean Naughton.

In a twist attesting to the appeal of bricks and mortar, apparel firm Kate Spade, owned by Fifth & Pacific (FNP), is among outfits moving to bring some of the online shopping experience into the physical world. With eBay (EBAY), it's putting clickable screens on windows of various closed stores in a New York trial run so passersby can order via eBay and have a courier deliver a selection of its new Kate Spade Saturday goods right away.

Meanwhile, giant department store operator Macy's (M) focuses on an omnichannel approach, honing online and mobile marketing to drive store traffic and vice-versa.

Related: How Cabela's, Macy's And Dick's Are Changing Shopping