By Tony Wittkowski | Business Reporter | The Herald-Palladium
BENTON TOWNSHIP — Standing inside her future dance studio, Jennifer Loy breathes a sigh of relief.
For the past few weeks the St. Joseph resident and her business partner, Christine Waterhouse, have been working toward opening their new business called Fusion Center for Dance, and the work is nearing completion.
Loy and her business are in a unique position. While walls are going up and paint is being spread in anticipation for the Aug. 22 opening, residents from across the county walk by daily, looking in.
That’s because they are stationed in a retail space near Entrance 2 at The Orchards Mall in Benton Township. Loy was looking for a large space that could be replicated as a dance studio and after searching all over the Twin Cities area, Loy was told to look at Orchards Mall as a possible venue.
“At first we were like, ‘I don’t know,'” Loy said. “But the space was enormous and we were quite surprised. We even talked to parents about it to see if they would be OK with this, and they were.”
Other locations were too expensive, Loy said.
“Looking at the other spaces, it was going to cost me four times as what I was paying here, plus the build out,” she said. “That was a really large investment.”
The idea of starting out in a mall was new to Loy and Waterhouse. And like the two business partners, Orchards is now in the process of changing.
A different landscape
While many stores have come and gone since it opened in 1979, much about the environment at Orchards remains the same.
But there is no sugarcoating the fact that the 528,000-square-foot property sitting on 60 acres at 1800 Pipestone Ave. has seen its store occupancy rate decline over the years, and with it the number of shoppers. The loss of Sears several years ago, a longtime anchor store, further fanned the perception that Orchards is in trouble.
The mall also attracted a critical write-up on a website called Deadmalls.com, one of 12 malls in Michigan listed by the site.
Now, however, Orchards hopes to see a revitalization under new ownership and management. The mall was purchased by Kohan Retail Investment Group of Great Neck, N.Y., in December 2014, and Cindy Christians took over as Orchards’ new mall manager in early June.
She anticipates renovations will begin in the first quarter of next year. The biggest thing for the mall, Christians said, is to get organized in the mall’s effort to revitalize itself.
“For renovations, we’ve been throwing around three or four ideas, like taking out the roof in the common area to make it more open,” she said. “We’re not entirely sure what we will do yet.”
The Orchards Mall has 29 operating stores, including Fusion Center of Dance that opens later this month. With 63 available retail spaces, the mall has a 46 percent occupancy rate.
The process of attracting retailers can be a slow one, though Christians said the upcoming dance studio signed on after a week of correspondence.
“We’ve been on the phone talking with Cabela’s, Old Country Buffet, Starbucks and Biggby Coffee, trying to set up conferences and to get them here to look at what places we have,” Christians said. “It gets harder when you have more partners involved because no matter what group you have, there is always one skeptic that has to be coaxed. The hardest to reel in are the corporate-sized businesses.”
According to Christians, Orchards’ main strength can also be considered its biggest weakness – the mall’s location.
Christians said it can be hard to bring in national retailers because many are skeptical of nearby Benton Harbor and its well-documented socioeconomic problems.
“This city has been living in the shadow of its bad reputation from the riots,” she said. “When most people hear Benton Harbor they get scared. I think we’ve all grown past that and people are beginning to understand there’s more to this city than just bad news.”
The mall location is also beneficial, as Christians said her main selling point to potential retailers is accessibility.
“You can see our mall from (Interstate 94),” she said. “The highway brings in a lot of foot traffic.”
After purchasing Orchards through his investment company that specializes in rehabilitating old malls, Mike Kohan said he wanted to take a hands-on approach.
Kohan has spent the past 15 years buying distressed malls and trying to revitalize them. He admits that not all of his investments work out, but he is confident that The Orchards Mall can survive – and hopefully thrive.
“Sometimes it works, sometimes it is a point of no return with some of the malls,” he said. “Orchards Mall has potential. It sits in the middle of a mixed commercial area. It’s in a small town, but there are smaller towns around it to make up for it.”
Kohan said the goal is retain Orchards’ anchor stores and build around them with both national and local tenants.
“We are offering lower rent to locals to help them start,” he said. “When they get better it will increase to what it needs to be. It’s a scary thing going into something like this and we are here to help.”
One of Orchards’ main obstacles is competition from open retail centers, Kohan said. Open centers, similar to strip malls, have less expenses for janitorial clean up, electricity and security. They also provide easy access for customers who can park next to a store they desire.
In contrast, enclosed malls require more walking, searching and time.
Kohan predicts the mall business in America will shrink considerably in the next decade. The malls that stay have to do well in very dynamic areas, he said. From what he has seen, Kohan said smaller malls will suffer because they won’t withstand the debt and expenses that add up while incurring vacancies.
“If a mall is making more than $400 per square foot it will survive,” Kohan said. “I’m willing to spend good money if it gets good results. If I have a tenant who is willing to come in who wants me to pay for a build out, we’ll sit down with them. Sustaining success doesn’t happen overnight.”
The reason for closures
Earlier this year, many national retailers began announcing they would begin decreasing their square footage at malls.
In January, J.C. Penney said it would close 40 of its locations this year – which is about 4 percent of its stores in the U.S. Aéropostale said it would close 120 stores, a significant increase from the 40 or 50 it had originally planned to shutter. Sears, which is trying to turn around its performance after a string of declining sales reports, said it would accelerate the number of closings during the year from 130 to 235.
According to Green Street Advisors, a real estate and REIT analytics firm, about 15 percent of U.S. malls will fail or be converted into non-retail space within the next 10 years.
Several factors are driving these trends, retail analysts say.
Tom Scott, Michigan Retailers Association senior vice president, said the demographics no longer make sense for stores to exist in certain suburban locations, as more Americans are flocking to cities. Many of the retailers closing stores are facing company-specific problems that force them to downsize.
“The deterrent is higher rent and additional charges to pay for the upkeep of the mall,” Scott said. “A retailer has to balance the cost against how much they think they can sell.”
One of the biggest issues is retailers are “overstored.” He attributes this supply vs. demand imbalance to the fact that retail sales growth has been too lukewarm to account for an increase in retail real estate.
Like Christians, Scott believes location plays a large role in a mall’s success.
“Generally, the attractiveness of the mall is it provides a larger number of shops than other venues do,” Scott said. “It also depends on the community and the health of the downtown shopping center. Malls have been going through different periods, just like downtowns do. Some malls try to redevelop and attract new customers. If they don’t, they go under.”
Continuing to evolve
While the future of malls can be described as morbid, the International Council of Shopping Centers paints a less dismal picture.
Data released in March by the group shows U.S. mall occupancy rates hovered above 94 percent at the end of 2014, which was the highest level since 1987. Base rents also rose 17.2 percent and net operating income increased 21.3 percent.
Jesse Tron, a spokesman for ICSC, said larger outlet malls and shopping centers have made a significant rebound since the 2008 recession.
“One of the things that gets lost is there’s a lot of evolution within this industry,” Tron said. “We are seeing a ton of redevelopment. Companies are pumping a ton of money into their facilities. If you have an aesthetically pleasing facility, you will be successful.”
As an industry, Tron said malls have spent $14.5 billion in redevelopment construction last year. However, with the vast majority of money being pumped into pre-existing projects, there will be a low amount of new malls sprouting across the U.S.
Rejuvenating a mall can be tricky, but Tron said malls should not limit themselves to national retailers.
“You don’t have to have national brands as long as the brands you have speak to your market’s demographic,” he said. “Know your customer base. Not everybody has to have Gap or the Banana Republic.”
University Park Mall in South Bend seems to have found the formula for success.
Recent major renovations at University Park Mall include new interior features and amenities, such as additional seating and updated restrooms, plus new flooring, lighting and paint.
The 922,000-square-foot mall, anchored by Macy’s, J.C. Penney and Sears, has seen a positive impact from those renovations. Several of its retailers – including Victoria’s Secret and Kay Jewelers – chose to reinvest in the shopping center by expanding their current locations as a result of the mall’s work.
Ryan Ginty, University Park Mall general manager, said the mall has seen an increase in foot traffic and welcomed a few new tenants.
“We saw a dramatic uptick in new retailers following the announcement of our renovation in 2014,” he said. “In the last 12 months, we have welcomed several retailers, including Starbucks, Rue21, Champ’s Sports, Lids, GNC, Garage, Torrid, Little Princess Treasures, and Piano Market Plus.”
Since taking over at Orchards Mall in June, Christians said she wants to see more local businesses at Orchards, while keeping a healthy mix of national retailers, like anchor stores J.C. Penney and Carson’s.
With plans to hit the reset button, Christians has high hopes for Orchards in the next five years.
“I see us back in the game,” she said. “That’s what I’m striving for. We want to build her back up and bring her back to life.”
Meanwhile, Loy continues her final preparations for the dance studio with a watchful eye on the calendar. She also sees the benefits of starting out in a mall like Orchards.
Going back to her process of finding a venue, Loy said mall management was more than accommodating.
“I think this will be a really good partnership,” she said. “We’ll be bringing in lots of families every night who maybe haven’t been to a mall in years. From a business perspective, I would be crazy to not take this space. I got almost double the space for about a quarter of the cost.
“We’re really excited to do this.”
(Author’s Note: This article was originally published on Aug. 9, 2015)