The Rise of Luxury Strip Malls

ATLANTA, United States — Pull into the parking lot of the Westside Provisions District, the mixed-use development in Atlanta's gentrified Westside neighborhood, and you might have to hand your keys over to a valet to help you find a spot — especially on a Saturday afternoon.

That’s because, unlike the downtrodden, two-penny outdoor shopping centres and abandoned enclosed malls weighing down the suburbs of the US, Westside Provisions is giving people a reason to swing by.

The two clusters of retailers and restaurants — divided by train tracks, but linked by a footbridge in 2008 — are a mix of the practical (wine shop, boutique law firm, barre studio), the discerning (Sid and Ann Mashburn, Steven Alan, Billy Reid) and the delicious (Taqueria Del Sol, Brash third-wave coffee, Little Star sundries shop). Woven in are a significant number of national chains, too: Lululemon for athleisure, Anthropologie for bohemian-inflected apparel and housewares, Design Within Reach for modern furniture.

Sure, it may be a glorified strip mall. But when Sid Mashburn was searching the country for a place to put his first-ever store in 2007, the former designer for Ralph Lauren, Tommy Hilfiger and J.Crew was drawn to the then-nascent development. The number one reason? The line out the door at Taqueria Del Sol.

“Part of our business plan and one of the reasons we’ve been successful is because we have a ‘good, better, best’ way of approaching business — we sell Levi’s jeans and handmade suits,” explains Mashburn, who now operates five stores across the US, many of which share space with Ann Mashburn, his wife’s newer concept. “There are like-minded [shop owners] in the centre, there’s a taco stand and a woman who won a James Beard Award [Star Provisions’ Anne Quatrano]. All ages come through, and it’s a great party. Really interesting people. It’s more fun that way.”

"Make shopping fun again" is no longer just a paraphrased tagline from an ancient Old Navy advertising campaign, it's the mandate for developers across the country looking for solutions to retail's greatest problems, many of which stem from the advent of e-commerce. While the majority of purchases are still made offline — only 8.4 percent of total retail sales in the US in the first quarter of 2017 were generated through e-commerce — the web plays a role in nearly every purchase. It's easier for customers to comparison shop — thus driving down prices — and there are simply more choices across categories and price points. Consumers no longer need to visit a physical retailer to run errands and tick off a list in one fell swoop.

"Today's pure play brands will take part in the physical future by creating brand experiences designed to connect with their customers from showrooms and galleries to restaurants and bars."

"Today's pure play brands will take part in the physical future by creating brand experiences designed to connect with their customers from showrooms and galleries to restaurants and bars," Stuart Miller, director of investment management at QIC Global Real Estate, wrote in an October 2016 op-ed for BoF. "Physical retail enhances e-commerce further by providing genuine connection and a tangible experience."

Perhaps that’s why outdoor centres — and in particular, the smaller, more specifically arranged developments like Westside Provisions — have fared better overall in this troubled market than fully enclosed malls, of which there has been very little new construction since 2006. The indoor-outdoor malls at Miami’s Brickell City Centre and Manhattan’s Hudson Yards and Westfield One World Trade Center are notable, ambitious exceptions.

But generally, the shopping destinations that are creating the most buzz are those that are taking the old-school strip mall concept — which originated in California in the 1920s with the advent of the automobile — and modernising it through a sharply defined high-low mix of retail and food. Unlike so many traditional American malls that were geared at the middle class, many of these new centers are targeting more affluent areas as well as more urban areas with young professionals.

“The overused buzzword these days is experiential, but it still holds merit,” says Elliott Kyle, the real estate broker and developer behind Nashville’s Edgehill Village, a strip of eight vintage masonry buildings, built in the 1920s, that he has populated with a J.Crew Men’s Shop, Warby Parker and Aesop, which sit alongside local independents like the Old Glory cocktail bar, Barcelona wine bar and Kore, which sells products made by local designers. “The younger generation is looking for something that they can attach their lifestyle to. They want where they shop to be an extension of how they view the world.”

There are a handful of developers across the US that are driving this trend, including Michael Phillips, president of Jamestown — the real estate firm behind Westside Provisions and Ponce City Market in Atlanta but also Chelsea Market in New York City — as well as James Rosenfield, who bought the historic Brentwood Country Mart, where he shopped as a child, in 2003.

Since then, Rosenfield has become the unofficial father of the movement, developing Country Marts in Montecito, Marin County and Malibu. Rosenfield's maze-like developments serve up a comforting, indulgent mix of experiences. In Brentwood, the post office and taco stand are just across from the Christian Louboutin, James Perse and Jenni Kayne stores. (Mashburn, eager to repeat his success in Atlanta, also has a store there.) In addition, there is Farmshop, a farm-to-table restaurant and market popular with celebrities who live on the Westside of Los Angeles, and Sweet Rose creamery, where the neighborhood's teenagers spend their Friday nights. When Goop opened its first-ever pop-up shop, it opened in the Brentwood Country Mart.

“We’re not really trying to make money,” says Rosenfield. “I know that sounds crazy, but I don’t think about money. I think about making a great village.”

That may be so, but Rosenfield’s success with the Brentwood Country Mart has allowed him to develop more properties, attracting backers including Berkshire Hathaway vice chairman Charles T. Munger. So, what makes a “great village”? What is the secret to making shopping fun again?

"We're not really trying to make money. I know that sounds crazy, but I don't think about money. I think about making a great village."

The major driver, it seems, is food, which is more experiential, and a greater part of the popular culture, than ever. “Food with a capital F,” as Jamestown’s Phillips says. “It’s fundamental to creating a real place. After all, millennials spend 44 percent of their food dollars on eating out compared to 40 percent of baby boomers, according the Department of Agriculture’s food expenditure data from 2014.

"Mickey Drexler used to ask me why I had so much food in my country mart. My response? Why is there so much food in the West Village or Upper East Side?" Rosenfield says. "What we create is sort of an urban environment in a suburban location… It's a good model when you're looking for ways to compete against the internet because most everybody eats three meals a day, and people do often leave the home to eat."

Of course, it needs to be the right food — chef-driven, local — and the right mix of retailers. Many of these developments like to test retail through pop-up shops. If they are successful, the developer will extend the lease. At Platform, a centre in Los Angeles’ once-rough Culver City neighborhood — now gentrified with art galleries, startups and film studios — Joseph Miller and David Fishbein have done trial runs with several brands and retailers since its opening in the spring of 2016.

High-end, multi-brand boutique Curve — which has outposts in New York and Los Angeles — didn’t jibe, but upstarts like the hatmaker Janessa Leone and shoemaker Freda Salvador’s successful stints earned them places in the development’s “permanent collection.” They also noticed early on that families were spending a lot of time there, so the second phase of stores openings included a children’s boutique.

“We had the dream of the customer who we wanted to attract, but we had no idea who was going to show up — so part of it was keeping that flexibility instead of signing all of our leases to five or 10-year terms,” Fishbein says. “We were also seeing just how much consumer tastes were changing, and that there were so many really great brands and designers out there who were interested in touching their consumer directly, but they were uncomfortable with the idea of signing an extensive long-term lease.”

Platform’s mix currently includes former fashion editor Josh Peskowitz's menswear shop, Magasin, the first West Coast outpost of Brooklyn concept store Bird, Aesop, Sweetgreen, SoulCycle and a Blue Bottle coffee. Prism, the swim and eyewear line by Anna Laub, is currently operating a pop-up there, and two new sit-down restaurants are slated to open in the near feature — as is Reformation. Upstairs, there are a slew of corporate offices — including those of Reformation, Sweetgreen, and SoulCycle — that help drive foot traffic on weekdays.

“Every time a new pop-up comes through they bring their Instagram following and host events,” Fishbein says. “We think the ability to incubate and test is very valuable in building the community here. It’s about being fluid and reactive to the market.”

Store size is also important. While Platform — which spans four acres of what used to be a car dealership — was essentially built from the ground up, most of these developments are taking old buildings and refreshing them, sometimes with a complete overhaul, sometimes not. (It’s called “adaptive reuse.”) But keeping a small footprint is essential for “soft goods” retailers — clothes and accessories, rather than food — in order to generate enough dollars per square foot. Rent is often negotiated based on scale of business, which means that a property manager may cut smaller brands a deal early on in the relationship. However, that preferred rate rarely lasts for more than a few years.

"Originally we were talking to a soft goods retailer in the biggest space we had,” Kyle says. “One thing that really worked out was getting Barcelona wine bar. Cooler brands are taking smaller footprints.”

That’s not to say outdoor centres can’t be modernised at the mass level. Consider the Grove, developer Rick Caruso’s supersised 575,000-square-foot version of this concept, which opened in 2003 connected to the “Original Farmers Market."

"Every time a new pop-up comes through they bring their Instagram following."

"It's a much more complicated format than dropping in a carousel — everything has to be relevant," says Caruso, who recently enlisted Platform's Miller and Fishbein to help build Palisades Village, a new development set to open in the downtown area of the tony neighborhood on the coast of Los Angeles' Westside. "It's about finding retailers that understand that they need to curate their store to represent the community that they are serving. Nordstrom at the Grove has a very unique offering, and that has paid off big for them. Same thing at Topshop, Elizabeth and James, Nike. They could go onto Nike.com, but the shopping experience is so pleasant and compelling. We've got to give them a reason every day to come to the property."

And although much of the inspiration for these concepts come from city streets, cities are now taking cues from the suburbs. The Howard Hughes Corporation’s South Street Seaport project, for instance, will include a 10 Corso Como alongside an upscale movie theatre. Redchurch Street in London’s Shoreditch neighbourhood — where one can shop at Club Monaco or Sunspel — or Bergen Street in Brooklyn’s Carroll Gardens enclave — with its stretch of stores including Clare V. and Diptyque — are examples of this new approach.

Retail still grows organically in cities, but more often than before, developers are coming in and buying chunks of properties at once in order to control both pricing and brand mix. That’s because, once the cool brands would help to gentrify a neighbourhood, the corporate chains would take over, “ruining” the experience. Take Bleecker Street, for instance, which has been plagued by store closures thanks to increasingly high rents. The neighbourhood cannibalised itself.

“What was great organic retail 30 years ago — something that was not managed by one person — eventually succumbed to pricing pressures,” Phillips says. “Common ownership means we are able to balance the whole mix, bringing in higher-volume retailers with more artistic ones.” That means charging rents based on volume, not square footage. The idea is that, long term, a well-balanced development will be more profitable than if it is able to charge extremely high rents for a short period of time.

But while outdoor centres may feel more modern and forward than what else is currently being proposed on the market — and an interesting alternative for brands like Warby Parker and Outdoor Voices, which would presumably not be caught dead in a traditional mall — they still face many of the same challenges, as well as different ones. Vacancy rates in community shopping centres increased in 30 of 77 metropolitan statistical areas in 2016, compared to 24 in 2015 and 19 in 2014, according to market research firm Reis.

“Better” retail concepts, as they’re called, might be an antidote to those stats, but there is still the risk of homogenisation. Hot direct-to-consumer brands like Warby Parker and Aesop tend to cluster together, creating a welcome vibe. But there is the risk of repetition beginning to feel as commonplace as sitting an Abercrombie & Fitch next to a Bath and Bodyworks. For developers, the key to avoiding such a trap is control.

“On a local neighborhood street where a hundred different landlords own the prime blocks of the street, there isn’t necessarily a unique vision and merchandising strategy. Once the Shinolas and Warby Parkers come in, it’s kind of a free for all— anyone who wants to latch onto that merchandising mix can just come in there,” Fishbein says. “I think, for us, being able to control all of the real estate and year-after-year, edit it and keep it relevant is a big differentiator.”

“There are a lot of layers to our thinking about which retailers to bring into our properties, there’s not a simple answer,” Rosenfield says. “People think I’m anti-chain, but I’m not. Apple is a chain, but it’s one of the greatest retailers on the planet of the day. We do like owner-operators, because they generally have better customer service. There’s a trickle-down effect.”

But even when the alchemy is just right, it requires quite a bit of maintenance, as many of the independent retailers that operate in these developments are less experienced with retail than a traditional mall tenant. "It's management intensive," Rosenfield continues. "I was lucky enough to have a lot of exposure at a young age to Fred Segal, who was a real estate developer but behaved like a merchant. We're here every day refining and making it better. Our tenants are not big national companies, many of them are one-of-a-kind businesses. It's an artistic, unique, different type."

“What we’re seeing today is that you have to be more proactive. You have to be coming up with interesting product and content and events that bring your customer down more than once a season and bring that personal connection that makes them want to buy your brand over another,” Fishbein adds. “It’s been challenge with some brands, just getting them to understand that they need to change their way of business as well in order to be successful in this new market.”

Developers must also manage the community around the project, especially in gentrifying neighbourhoods where long-term residents can feel marginalised. “When buying older property, it’s important to be thoughtful to the indigenous population,” says Kyle, whose Edgehill Village sits in a working class neighbourhood.

But more than anything, the biggest challenge is simply converting foot traffic into dollars. These centres may be meeting places, but that doesn’t necessarily mean people are spending on big-ticket items. For entrepreneurs like Miller and Fishbein — who secured $47 million to refinance Platform in February 2017 — there needs to be a return on their investment.

If the mix isn’t just right, that return could be elusive. As Mashburn says, “I don’t think I really realised the importance and the impact of who your neighbours are.”

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