NEW YORK — Amid widespread consolidation in the department store channel, specialty retailers — looking to expand top- and bottom- line growth — are quickly learning ways to adapt to this change in the retail landscape.
As a result, the specialists are evolving their store formats to off-the-mall locations while also working to capture the hearts of their finicky core shoppers in increasingly creative ways.
At a recent roundtable discussion hosted by WWD here, five industry experts weighed in on the effects department store consolidation will have on specialty stores, the shifting nature of mall anchor stores and the most successful ways specialists can stay ahead of ever-changing fashion trends. The panelists comprised Jeffrey Roseman, executive vice president and principal, Newmark & Co. Real Estate Inc.; Howard Tubin, senior analyst, Cathay Financial Inc.; Annette McEvoy, founder, A. McEvoy & Associates LLC; Craig Johnson, president, Customer Growth Partners LLC, and Holly Guthrie, senior vice president, equity research, Morgan Keegan & Co. Inc.
WWD: How are the recent mergers and acquisitions activity in the department store space as well as the generally changing nature of traditional malls currently affecting mall-based specialty stores?
Roseman: What we are hearing now, and we really heard it loud this past convention in Las Vegas [held by the International Council of Shopping Centers], is that specialty retailers especially are looking for alternatives to traditional malls … .They are so tired of the traditional, regional malls, and I think they think they’re not getting the message across, as well.
Tubin: There’s been talk about Easton Town Center, a lifestyle center [in Columbus, Ohio]. I think there’s one department store there in Easton — it’s a Lazarus store — but there are restaurants there that are kind of becoming the anchors now, and movie theaters. And part [of the mall] is enclosed and part of it is not. You can kind of drive through it and park right in the middle of it. So it’s kind of like entertainment and lifestyle bringing people to the center, as opposed to traditional department stores as anchors.
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McEvoy: I think the recent M&A activity will heighten the betterment of malls whether the regionals take their roofs off [into a lifestyle center format] or go into the Disneyland [entertainment] format … .I think it’s sort of scary for the developers, and I think it’ll make the shopping experience better because they’ll have some big vacant spaces that they have to figure out what to do with, and that’s really interesting.
WWD: Do you expect, then, that new types of mall anchors could move into these vacant, large-format spaces, such as upscale grocery stores like Whole Foods?
Roseman: With Time Warner [Center in Columbus Circle, New York], for instance, with Whole Foods and then the other retailers — and New York is obviously different from everywhere else in the world, so it’s a bad example — I’m not sure the same person going into Whole Foods is going into Thomas Pink in the Center. I don’t think that they’ve tracked that yet, that the person coming home from work, who’s running into Whole Foods to get dinner, is probably not going to Joseph Abboud to shop. Two distinctly separate customers, I think, exist at Time Warner. Now, take it out to the suburbs and … I think the woman or man who is shopping would prefer a Whole Foods there more than a Food Town next to some of the other retailers. It just changes the whole atmosphere.
Johnson: You’ve got the Time Warner, which is a wonderful place, but it’s a little bit of a tricky market because for Whole Foods, generically, it is a concept where people are buying multiple [items], not just a single, carry-in-one-hand thing. But it’s very hard to walk out of Time Warner Center with something from Stuart Weitzman, Williams-Sonoma and a couple bags [from Whole Foods]. You almost need a car to be able to do it.
Guthrie: But I could also see that at established malls [with the addition of a Whole Foods or other supermarket], there could be traffic issues because typically a supermarket will add substantially to traffic during certain periods of time so that might actually deter traffic from specialty retailers.
McEvoy: I think it’s sort of the eat-now — with the more upscale food — and the wear-now that kind of goes together. People want it now. I could see that convenience-oriented [notion appealing] for a more higher-tier customer who still wants the convenience.
WWD: What will be some other options for mall anchor sites that may be vacant following the consolidation?
Guthrie: If you bring in a Wal-Mart or Target [to the empty anchor store locations], then some specialty retailers that are not as differentiated might have trouble competing. Some developers will take what was a big box or a department store and they’ll refurb everything, and they’ll redo everything inside and make it a sort of extension of the mall where you’ll have three, maybe four, boxes [for smaller stores].
Johnson: I think that’s going to happen more and more now as these department stores go under and they’re maybe not the right size or the right aesthetic for a Wal-Mart or a Target. The developers are going to have to get very creative, as you said, dividing them up into a couple [of] different [sections].
McEvoy: Crate & Barrel and the home stores would be a good fit for that kind of space because they need a large space. I think it’s hard for clothing. They really do need window space because they’re not advertisers, they just don’t spend on advertising and that’s really an important part of the mix. I think one way of looking at it is, how much window space does this one retailer need? Crate & Barrel seems to be able to do it more in depth and not suffer.
WWD: How will those whom specialty retailers consider their core shoppers be affected by the department store consolidation, that is, if specialty retailers are able to move into vacant anchor slots in some capacity?
Tubin: It probably depends on the specific retailer and the brand. If you have just a specialty apparel player who is taking more space for the sake of taking more space, then the store is not going to look compelling, it’s just going to be the same assortment, just more of it. If the brand can or has taken on a more complex — a more lifestyle — component, where you can go from apparel to footwear to accessories to home, and I can’t think of anyone who is doing that right now, but if you can expand and have space and there’s a meaning to it, then sure, it will be embraced.
WWD: Would specialty retailers consider leasing smaller, boutique-like spots within the vacant anchor format alongside each other?
Roseman: I think Fred Segal had something along those lines. I think clearly that model is fantastic. I think retailers are starving for new ideas and new concepts.
Tubin: When you talk to the teen retailers that I follow, they never complain when a teen retailer moves into the store next to them in the mall. They actually like it and there are certain malls where the teen retailers are grouped together, which they all like because then it becomes a teen destination. The more you have, the more the merrier. So maybe that’s an extension of that.
WWD: How frequently are historically mall-based specialty retailers looking to evolve out of traditional malls and into the popular open-air lifestyle centers?
Guthrie: All of my retailers that are looking for that particular customer that shop in a lifestyle center have all looked at and have embraced it. And it’s been wonderful growth; it’s probably growing faster than malls.
McEvoy: I think they’re sensitive to saying “The mall is dead” or “The mall is almost dead” or what have you. I think they’re sensitive to the fact that their primary mode of distribution is losing traffic and now that the anchors are losing, it’s a transitional, sort of scary, time. I think they’re very happy to embrace the new and to try it. And also, if it doesn’t work, then there’s something else to blame besides the assortment and the merchandise.
WWD: How do specialty retailers decide which trends will be hot next year when they’re still in the midst of a current season? How do they stay ahead of the trends?
McEvoy: There are color houses that are allied also with furnishings and textiles. Their presentations on color and style are made to all the specialists and to the designers. So there are themes: At least four out of five of the houses are saying that it’s going to be pink and you might as well place your bets; that influences. But then I think we’re seeing a trend where more things are coming from urban and the street and the embracing of that, and I think that will continue.
WWD: What exactly does “urban and street” style mean? And why is it important?
McEvoy: Meaning like hip-hop design, where a really inventive style can come from the street. If you work even for a place like Limited [Brands], you’re going to the street and you’re tracking trends, you’re going to urban bars and walking down to the East Village [New York] and looking at what they’re wearing. And you’re not going to find that from a trend house.
Johnson: You have to go to certain places, whether it’s the East Village, South Beach in Miami and maybe half a dozen places around the country … but even then, you’re still placing a bet at the end of the day. If they don’t go for it, they don’t go for it.
Guthrie: I have found the more successful retailers are those that are not just purely retailers, those that have some wholesale, some designer, so it’s the whole design process that you analyze the trends, a year, nine months ahead … So it’s much more vertically integrated than a traditional retailer.
Tubin: It’s heart, science; it’s guts, it’s good merchants. It’s kind of all of that rolled into one.