The Housing Chronicles Blog: Retail and the Evolution of Mixed-Use Developments

Tuesday, May 27, 2014

Retail and the Evolution of Mixed-Use Developments

In 1999, when Los Angeles developer Rick Caruso razed an under-used, 25-acre parcel housing an orchard and nursery near the historic Farmer’s Market in Los Angeles, he replaced it with The Grove:  An “Urban Resort” of nearly 600,000 thousand feet of retail and entertainment space that now gets more visitors than Disneyland.  In the process, Caruso Affiliated unveiled a type of high-quality, experiential shopping experience that made him a billionaire even as retail sales moved increasingly online.

Whether intentional or not, Caruso’s focus on the upper end of the retail spectrum has allowed his company to prosper at a time when the economics behind commercial land uses is in flux.  Today, many retailers are reducing their footprints, boosting their online presence and merchandising fewer products in their stores to avoid “showrooming,” in which customers compare products in person but buy them online.  As a result, the future of the mixed-use project is also in flux, with the winners and losers likely to be determined based mostly on how well developers match retail stores with local and visitor demographics.

Since four of every five jobs in the country are in cities, large retailers like Wal-Mart and Target have already been adopting their suburban model to infill locations in which two-story buildings, multi-story parking garages and even escalators for shopping carts are becoming commonplace.  For existing shopping malls such as South Coast Plaza in Costa Mesa, CA, remaining competitive is also about offering experiential amenities including a VIP lounge, a meditation room and even a “gentlemen’s room” where visitors can watch sports while enjoying some wine or beer.

However, for other existing malls with less favorable demographics and middle-market anchor tenants such as Sears or Kohl’s, the loss of smaller retail stores including RadioShack, Abercrombie & Fitch or Eagle Outfitters has forced operators to get increasingly creative.  In the short run, businesses which can’t be replaced by online shopping – such as health clubs, yoga studios, doctor’s offices and restaurants – can take up some the slack, but in the long run the very idea of the traditional retail store is being challenged.

Not surprisingly, these changes are also impacting the types of smaller, mixed-use projects encouraged by cities, but often leave absorption of the retail space to the whims of the market as well as the marketing expertise of the local broker. So far, there seem to be two ways to goose retail demand:  appeal to specific demographics or create an in-person experience unavailable online.

In areas with large Hispanic populations, developer José de Jesús Legaspi has refashioned nearly ten failing malls into multi-generational cultural centers in which grocery stores can co-exist with medical offices.  While grandparents can socialize for hours in public spaces, many of the storefronts are actually business incubators helping to build “the Mercado” (or central market) one at a time.  In the process, traffic at each of his malls has reportedly grown to between four and six million per year.

At Caruso Affiliated’s Americana at Brand residential and retail center in Glendale, CA, by including free community meeting space and government-related offices in the mix, those visitors attending a book club meeting or paying a traffic ticket are much more likely to stay for a bite to eat or shop for a last-minute gift.  In essence, Caruso’s mission isn’t so much to build town centers as it is to “build the center of town.”

When it comes to experiences, since not everyone can duplicate the special events, dancing fountains or streetcars at Caruso’s larger projects, technology will certainly seek to level the playing field for smaller operators.   A perfect fit for a mixed-use community would be those retailers who seamlessly merge off- and online services so that it’s easy to order an item and either pick it up in person (which has worked very well for both Wal-Mart and Best Buy) or have it delivered the same day (which is being tested in select markets by Amazon and Google Shopping Express).

To encourage repeat visitors and maximize per-visit sales, some chains are experimenting with apps that will recognize a smart phone, identify a shopper’s past history and immediately send them an active coupon for a favorite item.  Other stores allow customers to keep current on the latest promotions by downloading apps to multiple devices.  Even better, should a measure allowing all states the power to tax most internet sales pass, a more level playing field for traditional retailers could give them just the boost they need to remain competitive.

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