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Are malls a dying breed?
Some former titans of shopping are coping with vacant storefronts
Sunday, February 22, 2009

From shuttered storefronts to near-empty corridors, hard times have hit some of the region's largest shopping malls.

Once the pillars of local consumerism, malls from Frazer to Monroeville to West Mifflin are struggling with vacancies as the nation's deepening recession takes its toll on retailers and shopper confidence.

At Century III Mall, one wing of the sprawling West Mifflin complex is nearly empty because of an exodus of stores. By a Pittsburgh Post-Gazette count, more than 30 storefronts are empty.

In Frazer, the Galleria at Pittsburgh Mills is coping with some 37 vacancies, as the huge ranch-style mall continues to struggle to find a niche since its opening in 2005.

And in the east suburbs, Monroeville Mall, where the 1978 cult classic "Dawn of the Dead" was filmed, finds itself amidst a real-life retail horror story, with roughly 20 empty storefronts by the newspaper's count.

Some local malls are bucking the climate, most notably Ross Park Mall, which has become an upscale mecca with stores like Nordstrom, Tiffany's, Michael Kors and L.L. Bean. But even it isn't immune. About a dozen stores were vacant during a recent visit, although new tenants have been named for six of them.

Experts say it's no surprise that area malls are taking it on the chin, with retail sales slumping nationwide and big-name chains such as Circuit City, Boscov's, KB Toys and Steve & Barry's going bankrupt.

"It's a tough environment for anybody serving consumers," said George Whalin, chief executive officer of Retail Management Consultants near San Diego.

Nor are the struggles limited to the Pittsburgh region. Erin Hershkowitz, spokeswoman for the New York-based International Council of Shopping Centers, said malls throughout the country are grappling with similar issues.

"People are afraid of losing their jobs as unemployment is on the rise. People are losing their homes. This certainly is going to have an impact on malls," she said. "There are just a lot of consumers who are unable to spend like they used to."

It could get worse before it gets better. The shopping center group reported earlier this month that chain-store sales were down 1.6 percent in January compared to the same month in 2008. It is predicting sales in February will fall one to two percent.


Too many stores, too much spending

The gloomy retail climate prompted one expert, Burt P. Flickinger III, managing director of SRG Insights, to predict 2,000 to 3,000 shopping malls and shopping centers nationwide could go belly-up this year.

He also estimates 200,000 retail stores and restaurants will file for bankruptcy in 2009, about 70,000 more than average.

"With consumer credit being cut and so many people being laid off, shoppers just don't have sufficient spending power for all the new shopping centers and shopping malls and retailers to produce a profit," he said.

Mr. Flickinger blames the industry crisis on a combination of factors, from overbuilding by developers to overspending by consumers. Last year, he said, it came home to roost.

"After 25 years of overspending and 25 years of overbuilding, retail went into the tank," he said.

Mr. Flickinger believes the retail industry is about 400 days into a 1,000-day recession. He doesn't expect things to bottom out until next year before a "good bounce back" in 2011.

As far as recessions go, "This will be the worst one in nearly 70 years," he said.

One recent survey found 40 percent of the people who redeemed gift cards at Wal-Mart did so for groceries.

"People can't afford the basics, so shoppers aren't buying discretionary items," he said.

That's not good news for shopping malls and the plethora of specialty retailers in them. Ms. Hershkowitz said specialty apparel spending is down significantly, along with luxury and department store buying.

Les Morris, a spokesman for Indianapolis-based Simon Property Group, said the occupancy rate at that company's 164 malls has slipped from 93.5 percent to 92.4 percent -- still "pretty healthy" but also an indication of the retail slump.

"It's a harder environment out there, no question about it," he said. Simon owns Ross Park, South Hills Village and Century III malls.


The view from Pittsburgh

Locally, demand for new mall space has fallen as retailers put expansion plans on hold or tumble into bankruptcy, said Jeffrey Ackerman, executive vice president of CB Richard Ellis/Pittsburgh.

Reading-based Boscov's, which filed for bankruptcy last year, closed its stores in Monroeville and South Hills Village. And two of the Robinson mall's three vacancies are the result of the financial woes of national chains B. Moss and Wilson Leathers.

"A lot of retailers are taking a more conservative approach, not opening many stores or in hibernation, as I call it," said David Glickman, vice president of the Grubb & Ellis retail group, Downtown.

One of the hardest hit area malls has been Century III, which has lost enough tenants that it has fueled talk the Simon-owned mall itself could be in trouble. Mr. Morris sought to downplay such speculation, noting Simon was "planning actively for the 30th anniversary of the mall" in October.

While Mr. Morris would not discuss specific plans, he said Simon was looking to re-tenant "in a way that's more attractive for the Century III shopper."

Mr. Ackerman said that mall is definitely struggling, in part because of other retail development, including the Waterfront complex in Homestead. But he does not see the mall closing, given its "very strong owner" in Simon.

Doug German, who's in charge of retail development for Howard Hanna Commercial, thinks better times could be ahead for Century III.

"That area has struggled for awhile. I think it has bottomed out. I think it's on a recovery. What has stymied the recovery is the current economic conditions," he said.

The closing of Boscov's has had a domino effect at Monroeville Mall. Several other retailers near the former department store also have shut their gates, leaving the east end of the mall looking rather desolate.

Still, the mall remains a "vibrant shopping destination" with some 150 stores, including a number of upscale retailers, Marketing Director Mindy Suhoza said.

She attributed the empty storefronts to a combination of factors, including expired leases and the economy. She predicted the mall would rebound, noting it recently landed the Deb Shop and Portrait Innovations. Jos. A. Bank Clothiers, an upscale men's store, opened in an annex in November.

"It's just a hiccup in the journey," she said of the vacancies.

"I've gone through periods like this before. I think everyone is looking at it as unusual because of the economic conditions all around us right now, but shopping malls go through re-leasing all the time."

Though still a strong mall, Monroeville could use enhancements, Mr. Glickman said, adding there is talk of a theater moving into the complex.

Further north, the Galleria at Pittsburgh Mills has struggled since its opening in 2005. The sprawling 1.1 million-square-foot complex never has been fully occupied. Shoppers have noticed.

"There's nothing here," a New Kensington woman said during a President's Day visit to redeem a gift card. "To be honest with you, I don't know how this mall even survives."

Owners have changed since the opening, from the Mills Corp. to Zamias Services Inc. The mall also lost one of its distinctive attractions, the upscale Lucky Strike Lanes bowling alley, a space now filled by Dingbats restaurant.

Mr. German still sees great potential for the mall, in part because of its location right off Route 28.

"I think they, like most developers, have to wait out the [recession]," he said.


Trying different things

A certain willingness to try different things is evident in the merry-go-round in the Pittsburgh Mills food court and a church in one wing. In addition, there is talk the mall may add a hotel and waterpark in the space once reserved for the NASCAR attraction.

Representatives for Zamias could not be reached for comment.

Nationally, more malls are trying a less traditional mix for their spaces, and that's a good thing, said Mr. Whalin. Some have added office buildings or residential space in a bid to stay relevant.

"They go through some metamorphosis or they end up going away," he said.

Those looking for new ideas might want to consider this: One constant theme in shopper interviews is that malls were catering too much to teens, with not enough stores for middle-aged adults with spending power.

Another potential option for under-performing malls could be a "de-malling," Mr. Ackerman said. That strategy, he said, has worked for North Hills Village, which has transformed itself over the years from a mall into a big box center that includes Best Buy, Target and Kohl's.


The brighter spots

Meanwhile, some local malls are thriving despite the storm clouds. With its recent influx of tony retailers, Ross Park has become a destination for shoppers from communities beyond the North Hills.

And despite losing Boscov's, South Hills Village, boasting an average household income of more than $87,000 within a three-mile radius of the mall, also appears to be doing well, with only a few vacancies.

At the Mall at Robinson, Forever 21 in December opened a much larger store in space previously occupied by five other tenants. The mall currently has three vacancies, one caused by the Forever 21 move, and has already lined up a tenant, Aldo Shoes, for one empty space.

Manager Beth Edwards said one way the mall has countered the retail slump was by running a promotion offering a $10 gift card to shoppers who spent $50. It proved to be successful.

Even for the malls with higher vacancies, appearances may be deceiving, Mr. German said. In some cases, retailers still may be paying rent even if they pulled out of the location, he said, meaning the mall is still getting its money.

"Nine times out of 10, the mall is not going to lose because they have someone on the hook for the rent," he said.

If there's a silver lining for local malls, it is that the overall retail climate in Pittsburgh is good, Mr. German added.

"In general terms, Pittsburgh is a very lively market right now. When it comes to retail, there's a lot of action. There's a lot of activity relative to retailers and developers looking at properties in Pittsburgh."


Correction/Clarification: (Published Feb. 25, 2009) A photo accompanying this story as originally published Feb. 22, 2009 about area malls coping with vacancies and the recession included a part of the Century III Mall's parking lot that has been blocked off from traffic.
Mark Belko can be reached at mbelko@post-gazette.com or 412-263-1262.
First published on February 22, 2009 at 12:00 am