Dropping anchors: Mall owner PREIT more proactive about refilling big retail holes

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A few retail brands fall out of favor with consumers every year and move out. Trendier brands move in.

This year has been no different, said Heather Crowell, senior vice president of corporate communications and investor relations for Philadelphia-based PREIT, which owns the Capital City Mall in Cumberland County.

“It seems like a rapid pace of change, but retail has always been that way,” she said. “Retail has always been survival of the fittest.”

The holidays are among the biggest test, and the post-holiday period always claims a few old names, while new names with needs for bigger space occasionally force existing tenantsto relocate to smaller spaces in a mall. The Limited and Wet Seal were among this year’s retailers to close stores.

Capital City has seen some shuffling over the last year, especially with the arrival of a large H&M store, which shifted smaller retailers to the opposite end of the mall. The biggest change for malls is typically the loss of an anchor store.

Capital City recently lost Sears, which has been struggling financially for years, as part of a 150-store reduction of Sears and Kmart stores by Sears Holdings Corp.

However, PREIT was quick to secure Dick’s Sporting Goods to fill the old Sears space.

Crowell said the quick replacement wasn’t luck. Since 2012, PREIT has actively been looking to reduce its exposure to select department stores. The mall owner has sold some of its weaker-performing mall properties or taken back stores from retailers in some cases to reduce its exposure. It has done that with Sears and Kmart, for example.

“You can’t predict when retailers will go out and it’s been harder to predict (recently). But you can tell when someone’s struggling,” Crowell said. “Some of these are intentional closings (by mall owners). It doesn’t come off that way when it’s 150 stores. This was a situation where we called Sears and said, ‘We want these stores back.’ We had replacements.”

Mall owners need to be more proactive and have other brands in mind to backfill their anchors well before the current tenants announce store liquidation sales.

Sometimes that means recruiting multiple retailers and nontraditional alternatives to the mall.

Creative concepts have been thrown around by firms looking to fill old anchor spaces in the midstate and across the country. Medical office and educational uses often come up, as do entertainment venues.

Some mall owners nationally have razed old anchor storesSome mall owners nationally have razed old anchor stores and built new multi-tenant spaces. CBL & Associates Properties Inc., the owner of the York Galleria, has done that in Kentucky and Tennessee, for example. Those spaces are now home to restaurants and specialty retail shops, or so-called junior anchors such as H&M.

Gold’s Gym and H&M are new additions replacing the former J.C. Penney at the Galleria.

Several longstanding department store brands are cutting back on real estate needs today, including decisions on whether they even want to own their stores, as online shopping continues to cut into retail foot traffic. Leaseback deals are becoming more common.

“It’s really the right thing for them to do,” Crowell said. But that doesn’t mean traditional department store anchors are a thing of the past. PREIT and other mall owners have added some growing retail brands to their properties. PREIT recently brought in upscale department store chain Von Maur to replace Sears at the Woodland Mall in Michigan.

At a mall in South Carolina, PREIT signed a deal with offprice retailer Burlington to replace another Sears store that was closing.

“When you close up an (anchor) entrance, you can lose some traffic,” Crowell said. “But more in-demand higher quality replacements, when they open up, they drive more traffic to the property.”

There are plenty of retailers out there to refill the chess board, she said. Online retailers also are starting to look for physical stores, which could shake up the tenant mix at malls even more in the coming years.