Last updated on August 30th, 2022 at 05:36 pm
The regional shopping mall, once a destination for teenagers to socialize, an escape for women wanting to get out of the house on Sunday afternoons and a place of wonder adorned with twinkling lights during the holiday season, is now in a state of upheaval.
With teens preferring to communicate through social media and busy adults turning to their tablets and phones to shop, the retail industry has undergone a massive transformation over the past decade. Those changing consumer habits have put stress on retailers, causing many to close brick-and-mortar stores or go out of business completely.
As a result, retail real estate is also undergoing tremendous upheaval as property owners are increasingly challenged to fill spaces.
This is especially true at regional shopping malls. The iconic destination of a generation ago has been forced to shift gears as its anchor stores increasingly disappear. Many mall owners and managers now find themselves in the unfamiliar position of mixed-use developer as they seek creative ways to replace lost stores.
The latest hit to the suburban shopping mall is the liquidation of The Bon-Ton Stores Inc., parent company of Boston Store, which for decades has been an anchor tenant in every southeastern Wisconsin regional shopping mall, occupying between 106,000 and 217,400 square feet of space in each location.
Having not turned an annual profit since 2010, Bon-Ton filed for Chapter 11 bankruptcy in February. The company hoped to find a buyer that would continue to operate the business, signing a letter of intent with a group of mall owners and a private equity firm to keep the Bon-Ton stores from closing.
But that deal fell through in April, and the only remaining bidders sought to liquidate the company. The winning bidder in the bankruptcy auction was a joint venture among Woodland Hills, California-based Great American Group, New York-based Tiger Capital Group and a group of Bon-Ton debtholders, which are now liquidating the company.
Milwaukee and York, Pennsylvania-based Bon-Ton’s 250 stores nationwide, operated under the Boston Store, Bergner’s, Carson’s, Elder-Beerman, Herberger’s and Younkers nameplates, will close by Aug. 31. Nearly every regional shopping mall in metro Milwaukee will be faced with the challenge of filling its Boston Store space.
“The closures are disastrous, potentially,” said a longtime Milwaukee retail real estate broker, who did not want to be named. “Change in retailing is inevitable. But you’ve got to be very quick and very nimble. The malls that have the right property in the right income area are going to be fine – if they reinvent themselves. But it will be a painful transition while that goes on.”
Bon-Ton’s effect on local malls
The loss of Boston Store will mean different things to each local mall. Two area brokers who did not want to be named said a class A mall like Mayfair in Wauwatosa will be able replace its Boston Store with another retailer.
Other malls will have to get creative and likely will turn to entertainment venues that offer a live experience consumers can’t get from shopping online.
Brookfield Square in Brookfield, Southridge Mall in Greendale and Bayshore Town Center in Glendale have already been working on plans to replace vacant former Sears stores at those malls. Now, they will also have to figure out how to replace their Boston Stores.
Bayshore Town Center was the first mall in the region to innovate. A massive redevelopment project, completed in 2006, transformed the mall, which first opened in 1954, converting most of it into an outdoor shopping center and adding a bowling alley and movie center to its lineup. In that format, Bayshore offers Milwaukee-area consumers a faux-Main Street shopping experience that differentiates itself from other area malls.
However, Bayshore has suffered from several store closures. Sears closed in 2014. The store was demolished, but plans to redevelop it have not yet moved forward, as Sears only recently allowed the Bayshore owners to re-lease the space, according to a retail real estate source. In 2016, Sports Authority closed all of its stores, including the Bayshore location.
Then, in December, Bayshore Town Center was purchased by its lender to avoid foreclosure. In March, iPic Theaters, a movie theater, restaurant and bowling alley at Bayshore, announced it would close.
Although it is located along I-43 in the affluent North Shore area, Bayshore’s geography creates some challenges, some retail real estate brokers say. Its proximity to Lake Michigan limits the number of shoppers it can draw from the east. And in lower income neighborhoods to the west, many residents lack disposable income.
In addition, rents for some Bayshore tenants were repeatedly lowered when those tenants were not making enough money and then they eventually left, according to a real estate source familiar with the mall.
“From a cultural aspect, Bayshore has an odd dynamic,” said Cory Sovine, senior vice president at Colliers International in Milwaukee. “People in Milwaukee do not like parking structures. They will drive around the streets looking for parking. This may have, in some form, impacted its attractiveness.”
At 1.2 million square feet, Southridge Mall is the state’s largest. Boston Store will be the third anchor Southridge is losing in less than a year. Sears, which announced it would close its last remaining Wisconsin stores in January 2018, closed the Southridge store in summer 2017. Kohl’s will close its Southridge store and move into a smaller space at the 84South retail development along I-894 in Greenfield later this year. Kohl’s has a lease with Southridge through 2020, however, so the store will be paying rent for two more years, according to Morningstar Credit Ratings.
That means the remaining anchor stores at Southridge will be Macy’s and JCPenney. Both retailers have struggled recently and have had to close stores. Macy’s and JCPenney closed more than 100 stores in 2017.
Mary Mokwa, general manager of Southridge Mall, sees the Boston Store loss as a “tremendous opportunity” for the malls. She said the store space will be in high demand because of its location along South 76th Street.
“Sears was re-leased within three months of closing,” Mokwa said.
The Sears space at Southridge will be redeveloped into a Dick’s Sporting Goods store on the first level and a Round 1 Bowling and Amusement complex on the upper level of the building.
Southridge also leased a portion of its 7,000-space surface parking lot to Marcus Theatres in 2015 for the company to open its first BistroPlex eight-screen theater adjacent to the mall in mid-2017.
Round 1 Bowling and Amusement and the Marcus BistroPlex are examples of the entertainment venues regional malls are seeking to reinvent themselves.
Milwaukee-based Marcus Theatres owner The Marcus Corp. has been looking at mall properties across the country, said Katie Falvey, vice president of real estate for Marcus.
“If we see good, strong, A-category malls that are interested in revitalizing the property, then we are interested in investing,” Falvey said. “Theaters are a destination, so there is a real opportunity there for both parties.”
Marcus Theatres is planning its second BistroPlex complex at Brookfield Square. Plans are in place to replace the existing Sears store at Brookfield Square with the BistroPlex and a Whirlyball entertainment and food establishment.
Chattanooga, Tennessee-based CBL & Associates Properties, which owns the mall, has been working with the City of Brookfield on the proposal that will encompass approximately 20 of the 29 acres of the Sears parcel. The city, which will provide $6.3 million in financing for the project, is planning to redevelop the remaining nine acres for a hotel and conference center.
About 65 percent of CBL malls contain Bon-Ton stores. Stacey Keating, a spokeswoman for CBL Properties, said there are no definitive plans for the Brookfield Square Boston Store space, but the company has been working on contingency plans for each affected mall.
“We are certainly disappointed with the outcome (of the Bon-Ton bankruptcy), but this is an opportunity to continue to evolve our properties through transformative anchor redevelopments,” Keating said. “We have several replacements under advanced negotiation.”
The biggest issue with an anchor store like Sears or Boston Store closing is not the loss of rent the tenant is paying the mall, but rather the loss of foot traffic its void creates and the impact on co-tenancy clauses, said Edward Dittmer, a senior vice president with Morningstar Credit Ratings. A co-tenancy clause in a retail lease allows tenants to reduce their rent or break their lease agreement if a large or key tenant leaves the mall.
“By redeveloping the Sears parcel, Southridge is in good shape,” Dittmer said. “They are losing Kohl’s and will have to find a taker for Boston Store, so that could trigger some co-tenancy. It just depends on the particular leases.”
Sears and Bon-Ton owned their buildings at Southridge, meaning neither store paid the mall rent. New tenants that go into those spaces, including Dick’s and Round 1, also won’t pay Southridge rent. The former Sears store is owned by New York-based Seritage Growth Properties, a Sears Holdings spinoff.
The ownership of regional mall anchor stores varies widely, Dittmer said.
“There really isn’t any rhyme or reason, it is just what the anchor negotiated when the mall was developed 30 or 40 years ago and the anchor was the powerhouse,” he said.
When the anchor does lease, the cost per square foot is also very different than what smaller stores pay. While an anchor might pay $4 per square foot, a store renting 5,000 to 8,000 square feet will pay between $20 and $30 per square foot, Dittmer said.
“The financial impact is not the result of an anchor leaving, it is what happens if multiple co-tenancy clauses are triggered,” Dittmer said. “If Victoria’s Secret, Express, Charlotte Russe and a few food court restaurants leave, then the effect can really be felt.”
Reinventing the shopping mall
Tom Treder, principal of Milwaukee-based Founders 3 Real Estate Services, said mall owners have known for several years that this transition is coming, first with Sears and now with Boston Store.
“While it is certainly unfortunate, the good news is retail is not dead, it is just transitioning into other creative uses,” Treder said.
Depending on where the mall is located, there are a number of options for anchor store vacancies, including restaurants – which generally pay the highest rent per square foot – entertainment and grocery stores, he said.
Fitness centers, which were once not even considered by mall owners, are still in expansion mode and are now sought after by malls.
“After you exhaust that list, you can go the non-retail route, maybe in less desirable areas,” Treder said.
Those non-retail uses include call centers or medical offices.
Before Sears announced it was closing all of its Wisconsin stores and before Bon-Ton filed for bankruptcy, Regency Mall in Racine was already struggling. Built in 1981, the 810,337-square-foot mall fought for several years to retain quality tenants. Sears closed its 89,119-square-foot store in 2014, and the following year JCPenney closed its 149,196-square-foot store.
Then in December 2016, CBL sold the mall to Hull Property Group for $9.6 million as part of a three-property acquisition. The Augusta, Georgia-based company specializes in buying struggling mall properties, stabilizing them, transforming them and then repositioning them.
In Racine, the Boston Store property is not owned by Hull Property Group. However, John Mulherin, vice president of government relations for Hull, said the company would be interested in purchasing the property.
“It’s a great piece of property and a redevelopment of some type will take place,” he said.
Last year, the City of Racine created a $15.7 million tax increment financing district for 24 parcels that total approximately 134 acres. The area includes Regency Mall, the mall outlots, Target, and High Ridge Center, including Home Depot and Toys R Us.
The plan for Regency is to improve the interior and market it to new tenants, Mulherin said.
Nine former store spaces, seven of which had been vacant, have already been combined and turned into a Planet Fitness.
Hull Property Group is an independent company, not beholden to stockholders, making it possible to take risks and invest capital into its properties, Mulherin said.
“What we need to do is get people off their phones and iPads and create an atmosphere in the middle of Regency,” Mulherin said. “We have vacancy. And we’re not afraid to tear down and demolish parts of the building if we have too much. We’re certainly not afraid to take a bold approach.”
Less than three miles west of Regency Mall is the planned Foxconn Technology Group development site in Mount Pleasant. Mulherin believes the mega manufacturer and the jobs it will bring, along with the additional population growth that could come to Racine and Kenosha counties, could help retail at Regency Mall and the entire Washington Avenue (Highway 20) and Green Bay Road corridors.
“If it is good for our competitors across the street, it is good for us,” Mulherin said. “If we do our business right, everyone wins. I feel like we are in a very good position with the right property and the right piece of dirt.”
Malls like Regency could become stronger as other retail inventory is taken out of play and the marketplace is corrected, Sovine said. Certain malls, however, will just need to be repurposed, he said.
For example, Memorial Mall in Sheboygan, once the city’s shopping hub, was partially demolished and replaced by a Meijer grocery store.
Other options are medical office or industrial.
“Whether it is a function of oversupply or American culture, there is a lot of (retail real estate) product out there,” Sovine said. “You have to look at it as a case-by-case basis. (Downtown Milwaukee’s The Shops of) Grand Avenue is great real estate. But it is just not great mall real estate.”
New forms of retail
Robin Lewis, former vice president at Goldman Sachs, who now serves as a retail consultant, said the industry will either understand the seismic shift it is undergoing and transform its business, or be wiped out.
“We are in a period of change that mirrors the industrial revolution,” Lewis said. “This is the technology revolution that will end with a lot of major retailers’ names gone who did not embrace it.”
From 1950 to 1980, the United States experienced explosive population growth, which plateaued in the late 1970s, while retail real estate supply did not, Lewis said.
In 1980, when annual population growth was at 1 percent, retail square footage continued to increase 4 percent per year. Today, there is 46 square feet of retail space for every person in America, compared to 9 square feet in Canada, Lewis said.
“Last year, we closed 10,000 stores, but another 14,000 opened,” Lewis said. “And every week, 100 new websites are launched.”
At the same time, baby boomers are downsizing and spending more money on travel. The other large population base – the millennials – has a smaller amount of disposable income and less interest in material goods, Lewis said.
“Price promoting has moved from a weapon of choice to a weapon of necessity, which kills retailers,” Lewis said. “You can’t price cut your way to growth. That is not sustainable.”
Lewis praised Menomonee Falls-based Kohl’s Corp. for its innovative thinking.
The retailer beat its competition in the 1990s by opening one-story stores with large surface parking lots in neighborhoods, which were all appealing factors for working mothers with no time to go to the mall.
Today, Kohl’s has partnered with Amazon and Aldi.
“Talk about visionary thinking,” Lewis said. “That, to me, is where the world is going. Online is forcing some shrinking back in brick-and-mortar and a lot of non-visionary stores to close, whereas Kohl’s and others are starting to fill their stores with more productive products.”
As shopping malls change, so has the way shopping centers are built.
In the Milwaukee suburbs, several large mixed-use developments have been built recently that include retail, restaurants and high-end apartments, including Drexel Town Square in Oak Creek, Whitestone Station in Menomonee Falls, 84South in Greenfield, The Mayfair Collection in Wauwatosa and The Corners in the Town of Brookfield.
With the exception of The Corners, the developments have included many lower-priced stores such as Five Below (imagine the checkout line at TJ Maxx), which appeal to young millennials and Generation Z, and discount designer stores.
The Corners, a development project that took nearly seven years to complete, opened a year ago. It landed Von Maur as its high-end anchor, and has brought several first-to-Wisconsin retailers to the development.
“The restaurants are doing spectacularly,” Sovine said of The Corners. “I get the general sense that the soft goods are not. Having Von Maur was an incredible victory for them. But that might not be the case anymore, given the history of mall anchors. But time will tell.”
Metro Milwaukee regional shopping centers
Shopping center Size (sq. ft.) Boston Store size
Southridge Mall, Greendale 1.21 million 217,434
Mayfair Mall, Wauwatosa 1.11 million 206,681
Brookfield Square, Brookfield 1.12 million 215,450
Regency Mall, Racine 810,337 106,157
The Corners, Town of Brookfield 700,000 N/A
Bayshore Town Center, Glendale 600,000 167,100