PRINT THIS STORY:

CHANGE TEXT SIZE:

WOOING LUXURY

Landlords court high-end tenants in effort to differentiate malls

By Curt Hazlett

Customers expect more than the signature monogrammed canvas handbag when they shop the Louis Vuitton at the swank Beverly Center, in Los Angeles. For one thing, they expect speedy access to the store — but that is something of a challenge, given that it is on the seventh floor of the crowded center.

The solution? An express elevator that swoops up patrons from the valet parking area on the ground floor and deposits them in front of Vuitton. “We have customers who appreciate the fact that they don’t have to deal with parking and a stop-and-go elevator,” said store manager Rodrigo Desouza, who added that the express lift also comes in handy when the store fills phoned-in rush orders. “Sometimes we’ll send the order down on the elevator, and the customer can pick it up without even coming in,” he said.

Welcome to the shopping mall version of luxe retail, where owners — in this case Taubman Centers — will go to great lengths to attract and keep the elite retailers that can raise perceptions of a property from good to great.

The luxury segment has led retail industry performance in recent years, reflecting the fact that the affluent have remained relatively untouched by the economic and employment weakness that have hurt lower- and middle-class shoppers. For evidence of the sector’s health, look no further than Neiman Marcus, whose sales rose in June for the 26th consecutive month.

“From Boston to Chicago to L.A., luxury continues to be the sought-after product,” said Faith Hope Consolo, chairman of the retail leasing and sales division of New York City-based Prudential Douglas Elliman. “It means, ‘I’m treating myself and I’ve arrived.’”

Such high-end department stores as Neiman Marcus and Nordstrom draw huge numbers of shoppers, and are always highly coveted by developers and owners. But some of the keenest competition these days is for smaller retailers without a ubiquitous presence in the market — Burberry, Coach and Kate Spade among them — and for the truly luxe brands, such as Cartier, Dior, Gucci, Tiffany and Vuitton.

Top-tier malls want luxury for good reason: The segment can produce square-foot sales two or three times the retail average of $300, in the process conferring status and value that makes it easier to attract other top retailers.

The industry’s biggest retail landlords are all working hard to woo luxury tenants. Both Simon Property Group and General Growth Properties, for instance, advertise their top properties in fashion trade bible Women’s Wear Daily to attract them. And Taubman, already well-known for its luxury focus, says it is investing heavily in making its centers even more appealing to the category.

Among the highest-profile efforts is the one by The Macerich Co., which created a division late last year to nurture its top properties in California and Arizona. This division, called Lumenati, includes nine Macerich centers that account for about 15 percent of its portfolio and post average square-foot sales of about $550.

Macerich says the new division will allow it “to capitalize on one of the fastest-growing and most profitable market trends” by creating specialists in luxury leasing, marketing, tenant coordination and development.

“We did a ton of research to understand where the sector was going, and we determined that it’s a viable category that we wanted to delve into,” said Tracey P. Gotsis, SCMD, Macerich’s senior vice president of marketing.

“All of our efforts have been pulled together so that we can offer in effect the personal-banking approach to our luxury tenants. Changing how we do business takes a lot of time,” she said.

What kind of change? For one thing, renovating properties whose luster may have faded. In all, five of Macerich’s nine Lumenati centers are set to be redeveloped, including the Biltmore Fashion Park, in Phoenix, where shopper research indicated a feeling that the premier property — anchored by Saks Fifth Avenue and featuring Cartier and Escada stores — had declined a bit from its glory days.

Macerich also conducted research on the needs of 75 luxury retailers (average square-foot sales $1,170) and found “that a lot of them were very interested in moving to the West Coast,” said Gotsis. “Most say that if we are going to choose a location, we need to make sure the property and co-tenancy complement our brand.”

Retailers also want to know that a market is big enough to support them and that the sales of upscale department stores and other luxury retailers there are strong, Gotsis says. They have specific needs, too, like valet parking and package delivery services, and they are keenly interested in seeing good marketing and tourism programs “that they can leverage off of,” she adds.

To sell the Lumenati concept, Gotsis has hit the road, visiting luxury retailers from New York City to Marin County, Calif., and the results have been good, she says. Lumenati has signed Tiffany to its Carmel Plaza, in California — “a huge win for us,” she says — and the plans for Biltmore Fashion Park have drawn “a lot of interest from luxury boutiques.”

Examples abound of luxury-magnet centers across the country. Among them: the Americana Manhasset, on New York’s Long Island; Taubman’s International Plaza, in Tampa, Fla., and Mall at Short Hills, in New Jersey; and in Dallas, NorthPark (of which Macerich owns 50 percent) along with Galleria Dallas. Their combined tenant roster reads like a who’s who of high style: Christofle, Ferragamo, Furla, Hermès, Jimmy Choo, Montblanc and dozens of others occupying spaces of a few thousand square feet or less.

David T. Weinert, senior vice president of leasing at Taubman, agrees that luxury retailers have specific ideas about where they want to be. They want dominant centers with a strong tenant mix, including a luxury anchor or two. Though there are exceptions, “luxury retailers by and large will not go into a shopping center unless there’s a luxury department store in the center as well, meaning a Saks or Nordstrom,” he says.

They also demand the right psychographics and demographics. “They’re really looking at accumulated wealth,” Weinert said. “They’ll look at a 10-mile radius and see if that compares with what they know to be a proven formula for success.”

Weinert points to Beverly Center as an example of a center with “the over-the-top psychographics and demographics that these guys are looking for.”

The shopping center’s metropolitan statistical area is first in the U.S. in both retail sales and the number of households earning more than $75,000 (it has 338,700 of them), and it draws a huge number of tourists, more than half of them from overseas.

To build on that appeal, Taubman has spent in excess of $20 million to renovate and create “an aesthetic and an ambiance” that attracts not just luxury retail but tenants with bridge price points, Weinert says.

Prudential Douglas Elliman’s Consolo lauds Taubman’s efforts there, noting that the center has successfully met the competition from not just the glittery South Coast Plaza, but from the shops of Rodeo Drive as well. Desouza, the Beverly Center Vuitton’s manager, says Taubman “runs a very good mall with a very good selection of stores.” (Those are soon to be joined by Christian Dior, he says, which will share that express elevator.)

The key to drawing luxury is tenant mix, says Consolo. “True luxury means that it’s very important to be with the right neighbors,” she said. “There’s no pure shopper today.

Even the luxe shopper shops in the mid-range stores, and they even shop the discounts. If an owner is able to get one or two luxe retailers, they’ll bring in the 1 or 2 percent of shoppers who wouldn’t otherwise come into the mall, and they’ll shop the other stores.”

Of course, attracting a coveted retailer can carry some costs. Owners compete “by doing build-to-suits and co-op advertising,” says Consolo. Macerich’s Gotsis asserts that owners “need to be open-minded when it comes to addressing their needs, because they have choices. Every deal is different, but their needs are more detailed and specific.”

Among the choices they have are street locations — be it Fifth Avenue, Michigan Avenue or Rodeo Drive — where many of the luxury brands first gained recognition. “There is competition with the street, but if there’s a [mall] location that makes sense for Louis Vuitton or Tiffany, they’re just going to do the deal,” said Weinert. “If there’s something they want, they’re going to find a way to do it.

“Generally speaking, if a luxury-brand tenant makes a decision that they want to be in a certain asset or street and it has the right brand image, if all these things point toward a successful store, then the economics fall into place quite nicely. If they want to be there, it isn’t about the deal.”