Alas…JCPenney was rescued from Chapter 11 by two of its largest landlords this week. Simon Property Group and Brookfield Asset Management now have the responsibility of managing Penney’s unwieldy fleet of 690 stores (following the imminent closure of another 146)…many at least 20 years past their prime and continuing to fade away in the public consciousness.
A Fool’s Folly?
The question must be asked: Why would two of the world’s largest and most respected shopping center owner/developers commit $692 million, and an unspecified amount of debt, to right such a historically challenged retailer?
In today’s highly virtualized consumer environment, in which physical stores and shopping centers have been substantially displaced by online providers, where is the vision of a future retail environment that will truly appeal to today’s consumers?
The more cynical players among us would note that keeping Penney alive maintains a live tenant in what would otherwise be empty space in hundreds of malls around the country. The deal also forestalls additional vacancies from a vast number of specialty retailers in these properties who likely hold co-tenancy arrangements with SPG and BAM that give them the right to leave if one or more major anchors depart.
But really…all of this energy, intellectual brainpower and capital expended to keep a conspicuously challenged retailer alive?
Past as Prelude
Way back in 2015 (ancient history by today’s standards) I directed the Envision 2020 initiative to define the future of retail environments for the International Council of Shopping Centers. Envision 2020 became a reference point for the shopping center industry, concluding that the only road to success involved a complete transformation: knocking down the walls and replacing them with an enticing and exhilarating mix of open-air retail, authentic local dining, live entertainment and acres of space for outdoor activities and social gatherings.
People — especially millennials and younger — would rush to occupy trendy apartments and inhabit the robust office space and shared workplaces built into these environments. And all of this would be connected with a vast quotient of technology, engaging consumers with personalized communications from tenants addressing their individualized needs and interests as they travelled the common areas.
At the time, industry leaders wholeheartedly supported this vision. There were even early signs of success, among them Brookfield’s Fig@7th mall which helped transform downtown L.A.; Westfield’s San Francisco Centre, which incorporated shared workplaces and activity space, and Simon’s Stanford Shopping Center in Palo Alto, which harnessed cutting edge consumer outreach technology in alignment with its namesake university.
Now, five years later (2020!), when it was thought the industry would have embraced this new and very promising alchemy of shopping/dining/living/working/playing, where are we?
Back on defense. Yes…the coronavirus has been a catastrophe for the retail real estate sector, depriving both malls and retail tenants of their lifeblood of shoppers and the energy level which would draw all of us to the mall — even if only to stroll and window shop.
But in today’s highly virtualized consumer environment, in which physical stores and shopping centers have been substantially displaced by online providers, where is the vision of a future retail environment that will truly appeal to today’s consumers? When will the Simons and Brookfield’s of the world invest their sizeable assets in creating places that are both memorable and engaging?
International Exuberance and Vibrance
The truth is that when malls are reimagined as vibrant, exuberant lifestyle experiences, the customer will follow…even in these most challenging of times. Regrettably, most of these success stories have occurred abroad, where developers are more willing to experiment and break the old models. Think of the Mall of the Emirates in Dubai, with its full-fledged skiing and tobogganing park surrounded by a balcony-level food hall. Or the K-11 center in Shanghai, with a world-class art gallery as its unique cultural attraction. Or Westfield London where an entire city block has been transformed into a dynamic retail-dining-nightlife district bringing energy and excitement to its center-city neighborhood.
Why not here in the U.S.A, the country that invented the shopping center? The leading developers have a deep war chest with billions of dollars in assets and widespread backing of the financial community. If ever there were a time for taking a bold leap into the future of shopping centers it is right now, when the timeworn model of big-box anchors with rows of small-box inline specialty stores in between has virtually ground to a halt.