LOS ANGELES, United States — Do consumers still need shopping malls? One in four US malls won’t exist in five years, according to a June report by Credit Suisse. This year alone, American shopping malls will lose an estimated 8,640 stores to closures. That’s, in part, thanks to digital sales of apparel, which are growing fast and estimated to reach 35 percent of total apparel sales by 2030, up from 17 percent this year.
And yet, for those raised on the west side of Los Angeles, the Century City mall is an institution. On October 3, the latest, gleaming, iteration of the shopping centre — the third place of third places — will be officially unveiled to consumers by Westfield, the multinational mall operator which is doing its best to dispel the idea that the shopping mall is dead.
The new Westfield Century City, re-imagined in partnership with Los Angeles-based (and television famous) interior designer Kelly Wearstler, features outdoor dining spaces, acres of gardens, even a canopy of olive and palm trees. And yes, stores. Over 200 of them, including a three-storey Nordstrom, a Zara and a Bonobos.
Food, too: Lots of it. Along with Eataly, the first location of the high-end Italian food hall to open on the West Coast of the United States, there is an expansive location of the popular local grocery store Gelson’s and plenty of fast-casual and fine-dining restaurants, including Din Tai Fung (the first Taiwanese spot to receive a Michelin Star).
Fitness buffs can join the upscale Equinox gym, or take a class Gloveworx boxing studio. The company has even hired a “creative head of global entertainment” — well-regarded Broadway producer Scott Sanders — to run its live programming across its centres. Out of dozens of retailers, 50 of them have never before done business with Westfield.
But even with all the bells and whistles — Uber waiting lounge included — Westfield Century City is still, of course, a mall.
“The word ‘mall’ is a dated word,” says Steven Lowy, the corporation’s co-CEO. “It’s been lost in the vernacular.” The answer to making the word “mall” relevant again, Westfield and many of its competitors say, is to transform these properties into community centres that aren’t totally focused on apparel retail. The strategy rests on the hypothesis that the internet may be killing the mall, but humans still desire interaction.
In 2007, 42 percent of sales at Westfield developments came from department stores. Today, it’s only 28 percent. The company says that only approximately 12 percent of revenue from its two London malls — two of the most productive in its portfolio — come from department stores.
By shrinking its portfolio to 35 centres globally — which includes properties in the US, the UK and soon mainland Europe — the Sydney-based Westfield (which divested its Australian centres in 2014 to form a separate entity, the Scentre Group) says its properties, mostly located in urban areas instead of white-flight suburbs, are valued at $31 billion, with flagship assets currently making up 82 percent of the lineup. The rest are “regional” properties, many of which the company will likely sell off in the coming years.
“Ten years ago, Westfield had 69 shopping centres in the United States, today we have 33 and two in the UK. We probably will have quite a bit less over the coming years as we focus on being what we would regard as the highest quality retail real estate company in the world,” Lowy says. “We’re not far away from that right now, and the way we do that is by selling non-core assets and reinvesting that capital in assets like London, Milan, New York…Silicon Valley…etc.”
In 2018, after years of red-tape delays, Westfield will begin developing what is being touted as the city of Milan’s largest shopping mall, a €1.4 billion ($1.6 billion at current exchange) investment, built in partnership with Gruppo Stilo, which owns a quarter stake. Now scheduled to open in 2020, its crown jewel will be an outpost of the famous French department store Galeries Lafayette.
Westfield’s strategy is not unlike those of many of its competitors, who are betting that experience — including food, entertainment and health and fitness — will allow a certain sort of development to thrive even as consumers spend more time online.
“Changing consumer behaviours, attitudes and technologies have drastically altered expectations for a shopping experience, and we are facing this trend head-on by transforming our mall assets into community hubs, with varied offers that service each of our communities’ specific whole-of-life needs and aspirations,” says Skye Fisher, head of strategy at QIC Global Real Estate, a development firm with properties across the US and in Australia. “Offering more than a simple consumer transaction, we are creating places that encourage people to dwell, drawing in the community and ensuring people will visit again and again. By curating a more integrated, experience-led offer that responds to a broad range of customer needs, we’re supporting an uplift in sales across all categories including fashion and apparel.”
In the 12-month period ending June 30, 2017, Westfield said fashion sales in specialty retailers at flagship properties were up 1.5 percent, while leisure sales were up 6.4 percent. However, sales at general retail — which includes department stores — were down 5.8 percent. Today, food and dining make up 18 percent of the portfolio’s overall sales (from 15 percent a decade ago), while technology and auto make up 16 percent (from 9 percent a decade ago). “In some of our malls, Apple is the highest-grossing retailer, not the department stores,” Lowy says. “Apple is doing that out of 10,000 or 20,000 square feet. The department stores have 250,000 square feet.”
But can doubling down on these growing categories truly supplant the overall retreat from brick and mortar, and encourage consumers who visit these developments to actually shop? “I’ve seen the retail universe adapt to whatever changes consumers have thrown at them, but this generational change has created a conundrum for retailers of all types that it hasn’t been able to deal with,” says Richard Kestenbaum, a partner at Triangle Capital, a sell-side M&A and capital-raising advisory firm with a concentration in fashion and retail. “Every square foot of retail is worth less than it was 24 or 36 months ago. Once that is recognised, it changes the economics of retail. People will lose a lot of money in the transition, but there is money to be made.”
In order to eke productivity out of properties, developers not only have to change the mix of retailers represented, but retailers need to reevaluate the purpose of their brick-and-mortar stores. Today, many consumers view physical retail as a place to easily drop off online returns, rather than an opportunity to browse and shop. In October, the American value-driven department store Kohl’s will begin accepting Amazon returns at 82 locations in an unprecedented deal, underscoring the physical store’s role as a return centre.
Lowy, for one, is okay with that dynamic. “We all just need to evolve and not really care if the store is a store or a showroom. The consumer is going to shop how they want to shop,” he says, citing the prevalence of “click and collect” schemes in the UK and Europe. “I don’t really care whether the consumer comes to the mall and buys something or sees something and buys it elsewhere or returns something. We’ve just got to do what the consumer wants.”