When malls were the disruptors of retail
To work in retail is to accept the inevitability of déjà vu. But what returns is often never quite the same, as can be seen in the current struggle by many shopping malls to generate enough traffic to remain viable. Let me take you back to the days of my initiation to retail in New Orleans (site of next week’s National Retail Tenants Association conference), when malls began rising in former fields and woodlands and store owners in all regions struggled to manage the change.
Before malls, North American consumers were serviced by small shops and, most important for our story, by thriving regional department stores. My family owned and ran one of them, Krauss Company, on Canal Street in New Orleans. Founded in 1903, it soon filled an entire city block — five stories (about 300,000 sq. ft.) connected to a warehouse by a four-story bridge riding low above Iberville Street. It sold clothing, shoes, books, appliances, bicycles and — its specialty — bolts of cloth for the many women of the Crescent City who still made their own clothes.
For most of the last century, department stores like Krauss were signature destinations in American cities, as important to the local economy and local atmosphere as major hotels and office buildings. Then came the malls, which took retail into the new American suburbs, not as individual chains but as grand, enclosed market squares containing multiple retail brands.
In 1969, when my father, Ludwig Behr, took over Krauss as chief merchant, the big question on the minds of department store operators was whether, where, and how to expand into the new malls. Expansion required capital investment and would risk cannibalizing sales at the flagship. The other two major department stores on Canal Street — Maison Blanche and D. H. Holmes — had already accepted the challenge and had grown into small but robust regional chains. Krauss had three affiliated stores in small Louisiana towns, but none carried the Krauss brand, all were much smaller and, most important, they also had no presence in suburban markets.
Krauss drew up plans for placing anchor stores in two suburban malls. The first was to be a three-story, 50,000-sq.-ft. full-service operation. Quickly enough, the lease was waiting to be signed in New York. It never happened. After my father died unexpectedly at the age of forty-eight (in 1970), enthusiasm waned for the project. Expansion plans were soon abandoned in their entirety. Krauss remained a beloved single-store monument in downtown New Orleans.
One by one, the great regional department stores were bought up or closed. In the 1980s, both Holmes and Maison Blanche were made into hotels. Of the big three, Krauss was the last to go, in 1997. Eleven years later, it was turned into a residential condominium. The bridge survives, connecting the condos to a hotel made from the old warehouse.
And now, déjà vu: Those great malls that had helped so upset the tradition of regional department store retailing are not, themselves, able to stand as sea walls, holding back the tide of retail history. Even as management at Krauss was debating expansion into malls, a computer terminal was brought into my high school for the first time, on an experimental basis. It was a bit smaller than a Volkswagen Beetle and nothing but a curiosity except to a handful of boys who could not get dates and who walked around with programmers’ punch cards in their breast pockets. Jump forward to now, and descendants of the microchips in that ungainly box are powering the online retail revolution. They have done it by changing how direct response marketing reaches customers and delivers product.
If history tells us one thing, it is that seeking ways to deal with expected new developments is essential but it is not enough. The winners will continue to be those who have the capability, flexibility and sometimes the simple good luck to handle change that is unforeseen. The only thing that is certain about change is that it will come.
Alan Behr is a senior partner at the New York office of Phillips Nizer LLP, where he chairs the firm's fashion practice.
Thank you, Alan Behr, for your article. My father, David W. Bermant, was one of those agents of change back in the late 1940's early 50's through 70's that created the anchored strip center and shopping mall. One of his first projects was in Buffalo, NY where he convinced McCurdy's and Sears to open up suburban stores to anchor the retailers in the shopping center. My father then went on to build and own 22 shopping centers through the northeast and midwest - city's and town's that were "only a one day" trip by airplane at the time. He was very successful even though his interest flagged as Mel and Herb Simon and Sam Zell and others began building more and more. The good news was the development of the strip center and shopping mall was clearly a disrupter providing customers with product closer to home. The downside was that the development of shopping centers decimated urban centers causing decay and urban flight. Finally after 50 some-odd years, we're swinging back around to where urban shopping is the fun thing to do again while at the same time we can get our necessities either on-line or in our local suburban neighborhoods. Some malls will die and/or become new urban enters. But one thing is certain as you noted, change will come. For more information about my father, you can visit www.cermakplaza.com or www.davidbermantfoundation.org. Andrew S. Bermant National Shopping Centers, LLC
Walgreens gets regulatory OK to buy Rite Aid stores
Walgreens Boots Alliance secured regulatory approval for a deal to buy stores from Rite Aid Corp. after a reduction in the number of stores and price. The deal will still enable Walgreens to dramatically increase its store footprint, giving it a total of about 10,000 U.S. locations.
The drug store chain announced Tuesday that it has secured regulatory clearance for a revised deal under which it will buy 1,932 stores, three distribution centers and related inventory from Rite Aid for $4.375 billion (and other consideration). The original proposal, announced in June, had included 2,186 stores and related assets for $5.175 billion.
“Combining Walgreens retail pharmacy network with a strong portfolio of Rite Aid locations is expected to help us achieve enhanced, sustainable growth while enabling us to broaden our reach and provide greater access to convenient, affordable care in more local neighborhoods across the United States," stated Stefano Pessina, executive vice chairman and CEO, Walgreens Boots Alliance.
The stores that Walgreens is purchasing from Rite Aid are located primarily in the Northeast and Southern U.S. After the acquisition is completed, they will be converted to the Walgreens banners in phases.
The three distribution centers being acquired are located in Dayville, Conn., Philadelphia, and Spartanburg, S.C. The transition of the centers to Walgreens will not begin for at least 12 months.
Along with the cash transaction, the deal also includes the assumption by Walgreens of the related real estate leases and the grant of the option to Rite Aid, exercisable through May 2019, to become a member of Walgreens Boots Alliance’s group purchasing organization, Walgreens Boots Alliance Development. Walgreens will also assume certain limited store-related liabilities as part of the new transaction.
Rite Aid expects to use a substantial majority of the net proceeds from the transaction to repay existing indebtedness which will improve the company's leverage levels. It also expects that the gain it will record on the sale of the assets will be largely offset by its net operating loss carryforwards, resulting in a minimal cash tax payment on this transaction.
Immediately following the completion of the transaction, Rite Aid will continue to operate approximately 2,600 stores and six distribution centers as well as EnvisionRx, its pharmacy benefit manager, RediClinic and Health Dialog.
"With a compelling and more profitable store footprint in key markets, enhanced purchasing capabilities and a stronger balance sheet and improved financial flexibility, we are well positioned to implement our plans to deliver improved results," stated John Standley, chairman and CEO, Rite Aid. "We are committed to supporting a smooth transition as we remain focused on delivering a great customer experience, improving our business and creating value for all of our stakeholders."
The transaction has been approved by the boards of directors of both companies and is still subject to other customary closing conditions. Store purchases are expected to begin in October, with completion anticipated in spring 2018.
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Texas developer partners with United Way on Harvey
Fort Worth-based Trademark Property Co. has launched fundraisers at its properties in Texas to aid victims of Hurricane Harvey. Proceeds will be distributed via United Way, which is waiving all general and administrative fees in the arrangement with Trademark.
Tenants, financial partners, customers, and the community are being engaged in events, and Trademark has pledged to match up to $150,000 in donations. Miller Capital Advisory has pledged a matching donation total of $50,000 for fund collected at La Palmer in Corpus Christi.
Trademark also owns Rice Village in Houston.
“As a company with deep ties to Houston, Corpus Christi, and the Gulf Region, we are inspired by the stories of resilience and communities coming together,” said Trademark CEO Terry Montesi.
Trademark is inviting the real estate community donate online at app.mobilecause.com/vfu/HARVEYHELP or by texting HARVEYHELP to 30306.
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