The Retail Venue (R)evolution: The Future Of Shopping Malls

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  My name is Bil Ingraham, and I am from Centennial Real Estate, and I am excited to talk with you all about shopping centers and the revolution in the shopping center industry. Despite a lot of the rhetoric is in the world today, physical retail is going absolutely nowhere, although it is changing. So, at the end of this 20 minutes, hopefully, you will all understand what we, as owners and developers of shopping centers, are doing to keep them relevant for today, tomorrow, and hopefully decades to come. To start off, I wanted to talk about a couple of projects that Centennial is working on, and this is one of them.

  It's a property in the suburbs of Chicago called Fox Valley Mall, and it is what we call a 'super-regional enclosed shopping center.' How many of us have been to a shopping mall in the last 60 or 90 days? Yes, yes, yes? When you are at that shopping center, you probably went through what is commonly known as a center court space, and I’m wondering how many of you went through a center court space that looked or felt like this? That's very good.

  In Europe or in Asia, you may actually find a center court like this more commonly, but in America, there are not many people who are doing things like this, and I’m happy to say that Centennial Real Estate, the company I represent, is doing this as part of our reinvention efforts. Basically, when super-regional malls were built in their heyday—probably when many of us were teenagers, going to the arcades, and eating in the food courts, the malls were primarily made up of apparel-based retailers. There were many, many places where we could buy clothes, and today, that story is no longer true. What you'll find mall developers and owners doing more and more is creating immersive environments involving green spaces, encouraging customer dwell, and diversifying our tenant mix.

  So, instead of just coming to the mall to buy apparel, you're coming to the mall for wellness, to go to the gym, you're coming to the mall for different types of food. No longer just a food court; now you'll have fast casual, and sit-down restaurants. These are all ingredients that we have in our toolkit as developers. This Fox Valley Mall is just one example of the reinvention that we're making.

  On the outside of Fox Valley Mall, we are actually densifying the parking lots. Again, back in the day, when we would visit the mall, there were large fields of parking. Those fields still fill up, but only a few days of the year do they really get throttled. So, we now work with different municipalities to get permission to densify that parking lot, to build it out, to create a walkable urban village.

  Here at Fox Valley, we've recently opened two different luxury apartment buildings in a parking lot that used to have a Sears anchor store. We tore down the Sears anchor, we created a green space, an outdoor park, and we built two 400-unit luxury apartment buildings outside of Fox Valley Mall. Curious enough, we have RetailNext sensors on the entrances of this property. We like RetailNext sensors because they measure the impact of some of these developments.

  We're investing quite a bit of money, as you can imagine, in building out these parking lots. We want to understand the impact of this investment that we've made. I'm happy to report that at Fox Valley, where we have put in these 800 luxury residential units, we have seen double-digit increases in traffic through the mall entrance facing the park and the residential area. That's one way we leverage RetailNext and its technology to help inform the actions we’re taking, and the investments, and the ways we are spending our money to create vibrant communities.

  This is Fox Valley in Naperville, a suburb of Chicago. Here, we have a property called Hawthorne Mall. This is also in the Chicago suburbs, up north in Vernon Hills. Is anyone familiar with the north suburbs of Chicago?

  It's one of the wealthiest counties in the country, with lots of C-level executives and their families residing nearby. What you see here in the back is what has long been an enclosed super-regional mall. It has an AMC theater. It has a very successful Macy's.

  It has a JCPenney and a number of small shops, Eddie Bauer, Soma, H&M, the usual mall suspects. Here we also identified an opportunity to create what we call a walkable urban village. And we developed the out-parcel to add some sit-down restaurants. We found that there was a need in this community for better sit-down restaurants.

  I'm happy to say we signed Perry's Steakhouse, which is a national steakhouse chain, high quality. Despite the income levels, the household income levels in this community, most of the steakhouses are actually local and regional beloved steakhouses. We're bringing in a very strong national who will be able to add to the mix for the locals. Additionally, we have built this set of residential and then this strip of residential.

  We created here something called Hawthorne Row. We have the residential apartments built, and then underneath them, we have a strip of main street retail. This was very important because, as an owner of enclosed shopping malls, there are many brands that are not as excited as they once were to come into the inside of an enclosed shopping center. Even in a community in the northern suburbs of Chicago, where I think it's negative two right now, ironically, the tenants are asking for a physical product that is main street retail.

  We created something called Hawthorne Row. Just recently, when we announced Perry's, we also announced our first few leases on Hawthorne Row. So we have Sephora, we have Anthropologie, and we have Free People. We have a regional wine restaurant, and we announced Love Sack.

  Many of these, historically, you would find inside of an enclosed mall, but today if you talk to their leasing reps, maybe some of them are here, they will tell you that they like main street retail. They like to have that street-facing branded entrance to their store. Instead of just laying down and saying, "well, we don't have that product, we are a super-regional enclosed mall," we built a main street, and now we're leasing it up. Those of you who are in the industry might know that once you bring in a Sephora, and Anthro, and a Free People, the others will follow.

  So we are very excited; hopefully, the next time that you hear me speak somewhere, maybe I'll be telling you the other 10 tenants that we have finalized deals with, but we're turning over the space now so all of these brands can build out and be open by Christmas of 2024. This is not something that all of the mall owners and developers are doing. I think that's important to note. Many of you have enclosed malls in your community, I'm sure, and you might see them going up, and you might see them going down; they got to be doing something, or else they're going to go away.

  And Centennial- Let me rewind a little bit and tell you a little bit about Centennial and who we are. We are what I would call a boutique shopping center developer. We started with just seven enclosed mall properties and realized the need to redevelop them and reinvest in them. As such, many of us are from the enclosed mall world.

  I worked for Westfield, a company that develops malls globally, and many others of my peers were from Westfield, Brookfield, or Simon Malls. We come from what I would call the big mall guys. Centennial was formed as a boutique company to take this experience and figure out how we can change, how we can take this experience that we have in merchandising these enclosed malls and sort of reinvent communities. We had our portfolio of seven properties back in 2019 when I joined.

  When the pandemic happened, we decided to take on a managed business, so at the time, we owned 100% of our properties. Today, we own 40% of our portfolio. 60% of our portfolio is managing, leasing, and developing for others who want our creative services, to look at their properties and to advise and guide them in terms of how they can keep it fresh. This property is one that we own.

  It's a great case study for us because the property is of very high value. It's in a wonderful trade area, but the product that we were serving wasn’t making the community totally happy, That's why we were diversifying. What else you see here is another phase of residential that we will start on over the next 12 to 16 months. We're going to line another row of Main Street retail over here, and we also feel very strongly that there need to be places of dwell in the communities that we're creating.

  In the suburbs where many of these enclosed malls exist, there is actually a lack of a downtown. There may not be a walkable village in many of these suburbs where enclosed malls are located. If you go to your enclosed mall, you probably realize it's surrounded by a Walmart strip center, a Target strip center, and a—God only knows what. We really look at ourselves as community builders, and we really want to create a place that serves multiple day parts.

  By that, I mean we want to be relevant to people in the morning when they’re getting their coffee, getting their breakfast. We want to be relevant to them in the afternoon, and we want to be relevant to them in the evening. Another part of our toolkit is to add fresh food. Here at Hawthorne, you can see this building off yonder, and that's a 25,000-square-foot, boutique grocer called Dom's.

  Dom's was recently merged with a company called Foxtrot. Have any of you heard of Foxtrot? Foxtrot is disrupting the convenience store model by creating a fresh food, elevated grab-and-go product. Foxtrot and Dom's have now merged.

  Dom's is more of a 25,000-square-foot Whole Foods, with lots of fast, easy-to-pick-up fresh food at different food stations, as well as packaged products that a traditional grocery store would have. We're adding grocery, we're adding more relevant retail. Another component that we're adding here at Hawthorne is a fitness collection in the building where we have an AMC movie theater. We're adding a fitness collection.

  So we have a Pure Barre, we have a dance studio, we have a chiropractor. So, we have a wellness collection here, which again serves the community in a different way. But, what you're seeing is we're diversifying, and while you have this formula that you can take and you can apply, you really have to dive into each local community to understand what is it asking for, what is the opportunity. But, I find it much more exciting to work for a company that’s building walkable urban villages than it was to work for a company that was just in the space of apparel-based retail.

  We still love apparel-based retail, but as you all know, we can get our apparel in many different ways, at a brick-and-mortar store. Does anybody have any questions about Hawthorne Mall and the redevelopment, or just the general approach to reinvention here for shopping centers? All right, I'm going to move on. Oh, so this just gives you a bird's-eye view of the redevelopment.

  You can see the mall here, and then you can see where we've chunked off the Sears and built out the parking lot. That's the Main Street retail. That water feature hasn't been built—it may or may not get built. I’ll just keep it real with you.

  We do a lot of drawings, get very creative, and sometimes certain things pencil, and sometimes they don't. Unfortunately, lakes and ponds don’t always pencil, but you get the idea. We’re trying to create an interesting space where people can dwell. The enclosed mall building itself, does not have any residential on top of it.

  The residential is all around it. So we densified the parking lot with the residential, but in certain places, here. We created the Main Street, so you have the retail underneath and residential. So you stack the residential on top of the stores here.

  Some mall properties—I think there’s one in Scottsdale, Arizona, which is not a Centennial property, but I believe that they put a residential tower, or are in the process of putting a tower, where you would actually, when you leave your house, you could choose to go, feel like you're right there at the mall. That's really compelling. And actually, I think I would love to see more of that happening. I think in the suburbs, where many of these malls exist, there isn't necessarily an opportunity to go up with your developments, and that's why you're seeing the residential surrounding.

  And then here too, you can see where we put Dom's—that's the boutique grocer. And here we have our three restaurants. One will be a breakfast restaurant, another will be a brew pub, and we have our high-end steakhouse. So again, even when we're placing our restaurants, we think very carefully about the mix of the type of customer and type of food because you don't want to just stack it out there with a bunch of, you know, Olive Gardens and Red Lobsters.

  That was the old days. We still love Olive Garden and Red Lobster, but we don't want a whole, you know, sea of them. Great. Oh, so here’s Hawthorne Row.

  This is that actual main street that I was telling you about. In this—well, this will be retail. We are not diversifying the tenant mix here. We think it's very important to have what we call double-loaded retail because we want it to behave for the consumer similarly to the inside of a mall, where you have exciting, you know, similar, you know, exciting retail, like actual purchasable product on either side.

  So, services, beauty services, lash boutiques, or fitness will not be on this main street. We'll find places for that elsewhere on our campus, but this we are really reserving for, you know, Sephora and Lululemon and Anthro and all of those great retailers that one could cross-shop. Some direct-to-consumer brands will stack in here. There's a company called Leap that some of you may know, that works with direct-to-consumer brands to help them expand their physical footprint.

  We have a relationship with Leap in Chicago at another property called Northbridge on Michigan Avenue. Have any of you been to Michigan Avenue? It's one of the best retail districts, I think, certainly in the country, if not the world—I don’t know, keep me honest. But there's a shopping center there anchored by one of the country's strongest Nordstroms.

  And we have a lower level that connects the Nordstrom to Michigan Avenue, so it's a pedestrian bridge to Nordstrom. And down there we have three emerging direct-to-consumer brands. So this is another tenant that we are diversifying around with our mall properties. There's a company called Colors & Company, which was actually on Shark Tank, and we got their first brick-and-mortar store in the country at Northbridge.

  We hope to extend them—I mean, I would love if they would extend to Hawthorne. We just opened a casual apparel retailer called American Giants, which again, is a direct-to-consumer brand. I don’t know how many—not very many stores. We are among the first.

  And then we have one I think many of you are familiar with, called True Classic Tees. We were one of their early stores as well. So, you know, we're really looking at the direct-to-consumer pipeline. These are retailers who are realizing that having an online presence only is not going to best grow or serve their brand—that having a physical store does indeed create a halo effect that will drive more bigger purchases from your current customers.

  But it's also a fantastic way to acquire new customers instead of just relying on online ads and the changes to algorithms that Instagram or Facebook have, which is a primary way that direct-to-consumer brands drive awareness and sales. So this is more of Hawthorne Row. It's actually built—I could have put a picture, but it's winter in Chicago and it wouldn't look this cool. This is our phase two.

  This is the enclosed mall. So once you get to the end of Hawthorne Row, this is one vision of what that park might be at the end—that green space with dwell areas and more retail, basically turning the mall inside out. So there's still a mall back here, but on this side, we turn all of the retailers outward-facing. And this is not an inexpensive exercise, and for every mall in the country, it wouldn’t warrant this kind of investment.

  You really have to have what we call good dirt. Certain suburbs and certain municipalities just have that kind of— they're worth putting the money into because you can actually pencil it back out. So I'm going to talk now about something a little different than the physical retail, which is, I think, one of the most important things, to be perfectly frank. But I want to talk about how shopping centers are leveraging technology to either support and enhance the customer experience or the tenant experience.

  One way we do that is with an e-commerce platform called ShopNow. We were an early adopter of what I'll call a sort of search database technology that will help shoppers find products they’re looking for in the stores, in our actual properties, in our shopping center. Now, before COVID, this was not something that was easily done because retailers did not actually track their store inventory to their e-commerce site. I don’t know if any of you remember that, but when COVID happened, retailers started to wisen up and say, I really need to know exactly what product is in what location so that I can fulfill the e-commerce.

  When stores were closed, retailers turned them into little fulfillment stations. Once that happened, it allowed us to partner with a firm called AdeptMind that created a tool to "scrape", for lack of a better word, our retailers' sites to understand what products they actually have. So basically, as a shopping center, we created ShopNow so that if someone was looking for a black dress, they could come to ShopNow and do a search for a black dress. It would scan all of the retailers within our shopping center, to then produce results for the black dresses at those retailers whose sites we were pulling data from.

  At first, we thought this was cool because we had an e-commerce play. We quickly learned this was not an e-commerce play; it was a search play. It was helping our customers know if that black dress is in that store now, right? Getting them to actually transact, buy it, and come pick it up is a whole other presentation I could do for you all.

  We iterated different pilots of that, and we found that our shoppers were not necessarily looking for us to do that whole e-commerce loop to fulfillment. It was a "sexy-sounding" project for us as a landlord, but we quickly found that it really wasn't something the consumer wanted. So now we have it, and it’s very active. This past holiday was one of our busiest seasons with ShopNow, and it's a discovery tool.

  People can look and see if a specific sneaker they’re looking for, what are the choices that I have in terms of black dresses at this retailer? That’s one way we’re investing in technology to make a better experience for the customer. And create that omnichannel capability in malls. Lastly, I'll talk very quickly about our loyalty program.

  I think we’re really just scratching the surface of what we can do with loyalty. Our current loyalty database, I think, is around 35,000 or 40,000 people. We approach loyalty differently than some traditional mall developers. We provide all kinds of physical benefits, including member lounges.

  Malls can be very chaotic places, especially during the busiest shopping seasons, so we created MyPerks lounges, which are similar to airline lounges like an Admirals Club, where you can go to get a cup of coffee, have some tea, or relax. We often partner with retailers to offer product demonstrations, or services. Permanent jewelry tenants, for instance, love our MyPerks lounge because they can activate their permanent jewelry. Here’s an example of some of our MyPerks lounges.

  You can see we’re really investing to create beautiful spaces. We hold loyalty events and we are really driving value for our consumer, but also for our tenants, because it becomes a platform for our tenants to connect with our shoppers directly. You all have been fantastic. I could go on all day, but I will spare you.

  And I want to thank you again for listening. I'm with Centennial Real Estate. We have thirty shopping centers across the country. Look up our website centennialrec.com, maybe there's one near you.

  Go and shop it, and let me know how it went. Thank you.