As Americans flocked to the suburbs in the mid-20th century, the mall took off and, in the process, gave their department store anchors — many of them retailers founded in the 19th century — a new lease on life. The shopping centers quickly morphed into de facto town squares and cultural hot spots, where people not only shopped but also hung out for hours. Now, though, as many anchors close, tenants leave for other sites and traffic has ebbed at some malls, many observers see the concept as in flux.
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Brookfield Properties U.S CEO Kevin McCrain disagrees. Along with some urban retail real estate, Brookfield Properties’ U.S. portfolio includes more than 130 malls in 40 states, from Hawaii to Maine, according to a company spokesperson. That includes some from its 2018 acquisition of mall operator GGP. Speaking via video conference, McCrain gave Retail Dive his perspective on the past, present and future of malls.
RETAIL DIVE: You take issue with the idea that the mall concept is in flux. How would you describe it?
KEVIN MCCRAIN: “Flux” has a negative connotation to it, right? [It implies that] people don’t know what’s happening, and they’re trying to figure it out. I can’t speak for any other business, but we know exactly where we’re going. All of our assets — and any real estate asset — evolves over time.
You need to have the right strategy in retail real estate to curate that asset for the local consumers. We’re fortunate at Brookfield that we have an amazing team of people ... all focused on what is the right next best step for our assets, and investing capital behind that, to bring in the right brands for the local market and bring consumers back again.
Is there something going on with malls that we could paint with a broad brush? Or is each a local, case-by-case situation?
What you can say with a broad brush is that the death of the mall was a myth.
People like to shop, and they like to shop in places that they like to be at, and that includes malls, indoor or outdoor. We spend our time focused on curating the right brands and restaurants and entertainment concepts for those consumers in their local market. The more localized nuances are “What’s the right thing to put in there, and who has the right team to operate in those markets?”
Do malls, or many malls, need major facelifts? For example, we hear that open-air concepts are winning. Does that mean an enclosed mall should take its roof off?
I think you’d be hard pressed to find somebody that’s really taking a roof off. People talk about it, and then they realize it’s very costly and actually is not going to change anything.
I stand by this, and I’ll say it again: The narrative around the enclosed mall dying is just completely unfounded. Shoppers come back year after year, our sales go up year after year, our retailers perform year after year, whether that was before COVID or after COVID, that is one universal truth.
McCrain said that Brookfield’s Kenwood Towne Centre, in Cincinnati, Ohio, is an example of an enclosed mall that has attracted luxury brands.
A lot of observers believe the pandemic reignited or accelerated e-commerce’s disruption of brick-and-mortar retail. Are malls being tested anew by online shopping?
There are narratives out there that online retail disrupted the market or didn’t disrupt the market. But now every brand is very clear-eyed as to what their strategy is, and their strategy is 100% that stores matter and store growth matters. It matters to their bottom line, it matters to how they connect to their consumers, and they absolutely need it.
Do they still sell through digital? Of course they do. And they try and upsell you in their stores, and they try and drive you from online to their stores. But even digitally native brands — I don’t even know if that term should even exist anymore, because any brand that was digitally native now has stores. They’ve all come to us realizing they need stores. I had a digitally native CEO say to me, “I fought for years against stores, Kevin, years, and then I opened my first store and my eyes were wide open. I couldn’t believe it. I make so much more money through my store sales.”
But are the glory days over? This isn’t the ’80s or even the ’90s, when people would hang out at the mall all day.
It’s an evolution, right? Look, the 1980s model that was a giant X or T or plus sign, with four anchors and apparel running [through] — that was bound to evolve as consumers evolved and brands evolved. But you said that people don’t like to hang out at the mall anymore, and I think if you looked at studies of Gen Z and you walked our malls, you’d see Gen Z actually loves to hang out at the mall. They walk the mall and elderly people love to walk the mall — those are two groups of people, younger and older, still hanging out at the mall.
The mall has evolved, it’s just the nature of what people are looking for. People want to be able to shop brands, but they want to be entertained and go out to dinner. So you find more restaurants, and we curate our assets to cater to those brands. The right restaurants are in the right markets, so Tyson’s Galleria will have high-end restaurants, and more middle market will have will have appropriate restaurants for that consumer. Then we’ve got miniature golf, we’ve got bowling, VR gaming. Providing that to a range of people, from young to senior, is paramount to what we’re trying to do.
Last year Macy’s promised to expand its off-mall fleet of smaller stores, saying it would likely have to close a few full-line anchors in the process; this year it announced it would actually close 150 stores over the next three years, threatening several more mall locations. Do you see the move off-mall as just an experiment or is there a department store flight that is a problem for malls?
There have been some department stores that have announced some recent closures. I would say other department stores are still leaning into their mall fleet because they know that their mall fleet is a huge driver of sales for their business. Department stores are evolving, as everything needs to evolve over time. But there is a place for them in the market, for consumers that are looking for a broad-based shopping in one place.
But, they have closed, and we’ve invested over $2 billion over the last 10 years redeveloping 100 department store boxes. We’re not afraid if a department store wants to close because we have an amazing team that’s going to redevelop that box into something amazing for the asset. We’ve redeveloped into apartment buildings, we’ve redeveloped into restaurants and entertainment concepts. It is an opportunity to further enhance our asset if a department store doesn’t want to be there anymore, for whatever reason. It’s not something that we shy away from. We lean into our assets because the lifeblood of our assets is our consumer and we’re always looking to make them better for our customers.
The Maine Mall in Portland, Maine, is a traditional enclosed mall owned by Brookfield, anchored by Macy’s, J.C. Penney, a furniture store and a now-vacant Sears store. Morningstar DBRS analysts in January noted that the mall’s “performance has not rebounded to pre-pandemic levels.”
You mention residential being one option when it comes to rethinking the mall, and “mixed use” is a buzzword right now. How much mixed use are we going to see, and is it going to be mostly new construction or an overhaul of existing malls?
It’s a new-development option across our portfolio, and I won’t speak for anyone else. We look at all the options for an asset to try and make the best decision for our customers and our tenants. At the end of the day, the site is a mall, a consumer haven for commerce, but sometimes the best way to do that is to put a 300-, 400- or 500-unit apartment building on it.
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We just finished a 325-unit apartment complex in Atlanta at one of our assets there, we’ve got a few 100-unit apartment buildings at Alderwood in Seattle, which is a great asset and was made even better. Usually when we do this, we enhance the profile of the retail part of the asset as well as make it more neighborhood friendly. That way there is some convenience and seamless connectivity between the apartment building and the retail asset, to create that center that the tenants at the apartment building are looking for. But it’s one lever that we use as we think about enhancing our retail assets overall.
In 2020, Brookfield and Simon Property Group acquired J.C. Penney when it was in bankruptcy. Now Brookfield owns 42%, with Simon and Authentic Brands Group owning the rest. More recently Brookfield and Simon made a bid for Express, also in bankruptcy. Why the interest in ownership of these tenants?
We have great a track record of doing this in partnership with groups. We are cognizant of a few things: One, these retailers are massive employers of people. We were very focused on trying to save as many jobs as we could. It was one of the reasons why we got into J.C. Penney. Two, we are a believer in retail real estate, as a driver of profit and growth for these brands.
And we think these legacy brands sometimes just need a different way of thinking about what their next evolution is. Brands evolve over time, and sometimes hit a little bit of a stumble. When you’re in a giant brand house, it’s OK to stumble, but when you’re by yourself, it becomes a lot harder to stumble and then regain your footing. This is just part of helping that brand into the next phase of its evolution while allowing it to leverage retail real estate and keep all or a significant number of its employees.
There’s no talk from J.C. Penney about leaving the mall, but there is talk about revamping stores. How important do you think remodeling is for some of these legacy anchors that are sticking around?
J.C. Penney just opened a new store at Willowbrook mall in New Jersey. They moved into one of our malls from an asset across the street. J.C. Penney has a billion-dollar plan on investing capital into its stores over time because they know that the stores are its lifeblood for generating sales.
I think it’s huge what they’ve announced, I think their plans make a lot of sense. They’ve got a great leadership team that’s leading them into the next generation of what a department store should be. They are very focused and know exactly who their consumer is, and they’re looking to cater to that consumer, which is exactly what every department store should be doing.
Simon seems to be pulling back on its retail investment. Is Brookfield similarly being a little bit more careful?
We’re disciplined in everything that we do, and we’re not going big. Simon invested in more brands than we have. We make these kinds of investments when we think there’s an opportunity. There isn’t a thesis on pulling back or diving in — we take opportunities one at a time and evaluate them as they come about.
You mentioned the new J.C. Penney store at Willowbrook. The departure from Wayne Towne Center across the street is likely to be hard on that mall, which Penney anchored for 50 years, and there are several malls that have closed or are emptying out. Do you think there is some shakeout still to happen? Is it just an inevitability that some malls are going to go away?
If they are, it’s at the margins. A lot of the shakedown has probably happened by now. I think the issue is less about whether there too many malls or not — that remains to be seen. There have been enough mall operators that have had issues over the last number of years that we can sort of see where the market has shaken out.
The winning companies have a great collection of assets. We’re happy that we were able to buy Brookfield Properties Retail, formerly GGP. We have some some truly iconic properties that are alive and well and thriving, and a hub for retail commerce.