'It's going to evolve': Why one size doesn't fit all as malls seek solutions to retail trends
Department stores have been the backbone of shopping malls since the birth of the concept, but with foundational anchor tenants like Sears and Carson's vanishing from the retail landscape, mall owners are facing challenges in filling those cavernous spaces.
For some, the solution is redeveloping their once retail-focused properties with apartments and recreational areas. Such projects already have made progress at Hawthorn Mall in Vernon Hills, Yorktown Center in Lombard, Northbrook Court in Northbrook and Fox Valley Mall in Aurora. Another is under consideration at Stratford Square in Bloomingdale.
But while some turn to housing, others are focusing on new ways to do what they've always done - bolstered by their ideal locations and quality of stores and other tenants - and industry experts see the evolving picture as an opportunity for malls to differentiate themselves from their peers.
Among the other factors driving the need to evolve are millennials gravitating toward more urban environments and the novelty that once drew shoppers to indoor malls long gone, said John C. Melaniphy, president of the Chicago-based retail consulting firm Melaniphy & Associates.
"Most of these malls are going to have to change and be more mixed-use," Melaniphy said. "They (are not) exciting as they had been in the past when they were developed."
Though there are malls where apartments would likely be a good fit, Melaniphy said more are probably going to try them than should.
The decline in department stores stems from several factors, including the growth of e-commerce and what Melaniphy calls the "dressing down of America," as apparel has become less important within the culture.
Brian Ruben, the Chicago-based U.S. Real Estate Clients & Growth Leader for the consulting firm Deloitte, said he doesn't believe the department store is going away entirely, but they also need to evolve and perhaps seek smaller spaces.
The 60-year-old Oakbrook Center in Oak Brook has been able to evolve and fill department store vacancies while staying true to its identity as a retail, dining and entertainment destination, without taking the residential route.
Officials from Brookfield Properties - which owns Oakbrook Center, Northbrook Court and many other malls across the nation - don't disparage adding housing, saying that every location has its own characteristics that dictate its best solution.
In Oakbrook Center's case, that includes housing its RH store (formerly known as Restoration Hardware) in a unique space that looks like a mansion with a restaurant on the roof, said Justin Lushing, senior director of leasing.
Senior General Manager Tim Geiges said regular changes and enhancements have long been a practice of the mall, including a more than $30 million renovation in 2013.
"Oakbrook Center has been doing that before it was necessary or required," he said.
Lushing said the center's location allows it to draw customers from Chicago, the South suburbs and the North Shore, and it experiences more demand from potential tenants than there is space available.
Woodfield Mall also has long boasted similar strength in the retail marketplace, and is new to the dilemma of repurposing department store space. The mall's Sears store, one of its original tenants, closed last year, joining the Lord & Taylor department store that vacated Woodfield in 2020.
Simon Property Group, which owns Woodfield, declined to comment. Both vacant department store spaces are owned independently by their former operators.
Schaumburg Economic Development Director Matt Frank said European retailer Primark is planning an $11 million investment to occupy the upper level of the former Sears. That would seem to preclude any radical change to the lower level of the store, which still is in search of a tenant.
Change is not a new concept at Woodfield, particularly since Simon bought it from The Taubman Co. a decade ago. The mall's common areas underwent a $13.9 million enhancement in 2015, and then even more was spent to carve out an 820-seat dining pavilion on the upper level of the Sears wing in 2018.
Frank said Woodfield's strong tenant mix and premium location is keeping village officials in an open frame of mind about future proposals for its vacancies. He said the quality of the last decade's upgrades demonstrates what's possible there.
"I think that was a major win," he said of Simon's reinvestment in the property. "It enhanced the ability of the mall to reinvent itself."
While there are no plans for housing on the Woodfield property, village trustees responded favorably last year to a proposed apartment building just across Golf Road to the north.
And this year, the village declared an area south of Woodfield and west of the neighboring Streets of Woodfield shopping center to be appropriate for high-rise residential buildings.
Melaniphy said the department store vacancy crisis and the pressure to adapt is felt more strongly by small and medium-sized malls largely because they've been more dependent on those brands. But the losses at regional giants like Woodfield and Oakbrook Center show that none are immune.
Melaniphy believes Woodfield and Oakbrook Center can avoid adding residential because they are still strong draws for business tenants that contribute more to the properties' commerce and consumer taxes. He said it's the smaller malls, with less regional draw and less attractive anchor tenants, that must change their land-use models in the current climate.
Besides his work as a retail consultant, Melaniphy also serves as the economic development director for Niles and applying his expertise to overseeing the redevelopment of Golf Mill Shopping Center there.
Wherever they're taking place, Melaniphy is optimistic about the chances of mall redevelopments succeeding, as they usually involve the most valuable commercial locations within their communities and attract strong investment.
"This is good real estate," he said. "It's going to transition. It's going to evolve."