New spending habits may spur changes at South Florida malls
One banner’s loss is often another’s gain, and Nordstrom is expected to pick up space at malls in South Florida vacated by Macy’s, Sears and the Limited.
But restaurants, entertainment centers, high-end grocers, and fitness centers also could replace anchors in South Florida. Dot-com boutiques looking to reach brick-and-mortar customers are expected to fill out vacancies within malls and shopping districts.
The refreshed occupancy might not happen overnight, said Barbara Byrne Denham, economist at Reis Inc., a real estate research firm in New York City. “We’re going to see some negative growth,” she says. “Landlords will have to wait it out.”
Still, South Florida in particular has reason to be optimistic, as the area’s job numbers are strong and it continues to be a shopping mecca for tourists, baby boomer retirees and snowbirds. “South Florida is doing much better than the rest of the country, for sure,” Denham said.
While the vacancy rate for retail real estate increased in the fourth quarter of 2016 in 25 metro areas, and rents declined in about 15 metro areas, Miami was a bright spot, according to Reis Inc. Miami’s vacancy rate declined 0.4 percent to 5.7 percent in the quarter from the prior-year period. Fort Lauderdale also saw a 0.4 percent improvement, bringing its vacancy rate to 8.9 percent, better than the 9.9 percent vacancy rate for the nation overall, Reis said. Consumers with the time and money to shop should keep South Florida malls hopping, Denham says.
A.T. Kearney partner Mike Moriarty said Florida malls might outperform their counterparts in other markets. He points to a clear distinction between top tier malls likely to survive and other centers that will become office space, universities, or mixed-use facilities. New boutiques could be important to South Florida malls, and many might have their roots as dot-coms. Witness the announcement of Amazon stores and boutiques like Warby Parker, which has a brick-and-mortar location in Wynwood and another coming to Miami’s Design District.
“Imagine a regional shopping center as a big computer and each storefront is another screen,” Moriarty said.
Watch for brick-and-mortar expansion from niche players like Birchbox, Untuckit, Frank +Oak, Combatant Gentleman, ModCloth, Trunk Club, Rent the Runway, and Baublebar, suggested General Growth Partners in a November 2016 presentation to investors published on its website. The company said it has successfully redeveloped 91 of 95 vacant department stores and mall anchor big box stores since 2011, generating an 11 percent return on its $1.5 billion redevelopment investment.
Most of Nordstrom’s new and announced store openings are Nordstrom Rack locations, including a 35,000-square-foot Rack in Fort Lauderdale at 1600 Commons that opened in October. More openings could be announced this year, because the company typically announces each new store individually, said spokeswoman Emily Sterken.
Morningstar senior equity analyst Bridget Weishaar expects Nordstrom Rack’s store count to rise about 50 percent to 300 locations throughout the nation by 2020 from 215 currently and 194 in 2015. Nordstrom Rack’s 3.9 percent comp-store sales increase in the third quarter of 2016 outpaced the core banner ‘s 0.9 percent comp-store lift, Weishaar said. But the company also could add new boutique stores, as it owns Trunk Club, HauteLook, and Jeffrey boutiques.
The expected growth reflects consumers’ changing shopping habits and the banner’s strength and ability to react quickly.
“We’re always looking for new opportunities,” Sterken said. “Additionally, Rack stores can be opened on a relatively short timeline, which allows us to be nimble. We can dial up or dial back our Rack growth, depending on how customers respond.”
Nordstrom’s expected growth coincides with what some experts say could be a difficult period for mall operators, as Macy’s and Sears close stores. Consumers increasingly are preferring to splurge on restaurant meals, entertainment, and fitness instead of a day of shopping, and department stores are feeling the rub, said Pam Goodfellow, principal analyst at Prosper Insights and Analytics in Columbus, Ohio.
“With considerable focus on buying less stuff, [consumers] want the experience,” she said. They are willing to spend money on going out to dinner or a movie.”
Macy’s reported a 3 percent decline in comp-store sales in 2016, Morningstar said, spurring its decision to close 68 locations this year, including CityPlace in West Palm Beach and four other Florida locations in Lakeland, Oviedo, Sarasota and Tampa.
Sears said it plans to close nine Florida Kmarts and a Sears in Lake Wales as part of its announced 108 Kmart and 42 Sears closings nationwide. The Hoffman Estates, Ill.-based retailer, whose majority owner, chairman and CEO Eddie Lampert has a home in South Florida, also is selling off real estate and divesting perhaps its most famous brand, Craftsman tools, to improve the company’s financial health and “fund its transformation,” according to a Sears Holdings release.