The Nordstrom Brainstorm: It’s time for a serious conversation.

Hardly a week goes by without someone posting on the IBJ’s Property Lines blog, asking first Cory Schouten, and, more recently, Scott Olson, more or less the same question: “What’s the latest news on the old Nordstrom space at Circle Centre?”  The city parted ways with its downtown Nordstrom nearly two years ago (July 2011), and, from time to time, Simon Property Group (the manager, but never the owner) has managed rumors about replacement tenants that have percolated across the blogosphere for the 210,000 square foot space.  But we have received no official announcement from Simon, the City, nor any other potential stakeholders.

 

Naturally, the persistently vacant status has allowed cynicism to creep into the discussion.  Some posters have suggested that all is lost for Circle Centre and it will eventually die a slow death.  It is admittedly likely that pedestrian counts along the streetscapes of Maryland, Meridian and Georgia, all of which front the old Nordstrom building, are significantly lower than they would be if the mall’s flagship department store remained open.  But is the current condition of the mall really that bleak?  Not according to a recent article from the IBJ, which actually revealed that non-anchor sales per square foot increased to $354 in 2012, up from $336 in 2011.  Non-anchor retail occupancy, however, has trended downward, from 91.3% in 2011 to 88.3% in 2012, and overall profit from operations declined from $8M to $7.7M.  While these numbers are inauspicious, they do not quite suggest dire conditions for the retail hub of downtown Indy.  In fact, Scott Olson from IBJ noted that several prominent tenants—Eddie Bauer, New York & Company, Wet Seal, AT&T, and Lucky Brand—renewed their leases last year.  However, over the long run, it obviously is not in the interest of the mall’s health to hold such a vast amount of vacant space.

 

In keeping with tradition, I offer my preferred method of judging the mall’s health: an empirical analysis.  For those who argue that such a report is completely rooted in my opinion, I offer this rejoinder: you betcha.  And so are all the assessments on Property Lines that assert that the mall is “hanging in there fine” or “dying”, or the rumor mill that churns out something new every week.  With photographs and explanations, followed by a new evaluation of the numbers, I hope to argue my own case for how we should interpret the conditions and the mall, and what those conditions bear in mind for the future.  The observations depend heavily on two factors: 1) my numerous previous observations of mall retail on my blog, American Dirt; and 2) my moderately informed opinion on how to make urban retail succeed against an increasingly challenging consumer culture.  I encourage all responses: affirmations, dissentions, pyramid moneymaking schemes—you name it.

 

Maintenance and Upkeep of the Mall

 

So let’s start with the physical condition of the mall’s non-leasable space.  How does it look?

(As always, I have to apologize for the inconsistent photo quality.  In malls, I have to be particularly subtle with the camera; don’t want to get kicked out…again.)  Judging from the typical parking garage (built concurrent with the mall itself), I’d say it’s starting to show its age.  While not in bad shape, I don’t believe the 17-year-old facility has experienced anything more than the occasional patchwork—the expenditure of the maintenance and operation budget.  No extensive renovations that would require temporary shuttering of portions of the facility.  In many of the mall’s garages, the plastic signage is cracked, letters are missing and paint is peeling.

These observations are quibbles, and I wouldn’t use them to paint a broad generalization about the mall’s condition, especially since the garage functions loosely as infrastructure to serve and access the showpiece, which is the mall itself.

 

As far as I’m concerned, the condition of the mall’s interior is good, if not very good.

Sure, some of the lunar iconography might vaguely recall that old Smashing Pumpkins music video (which I’m pretty sure was meant to evoke the very primitive experiments of film illusionist Georges Méliès like A Trip to the Moon).  But hey—that sort of bric-a-brac always dates itself quickly, and it would be unfair to expect property management to renovate the interior for fads that change every seven years.  Frankly, I have a sneaking suspicion they’ve removed some of it over the years; while the walls look less adorned than I recall in the past, it’s probably because those floating moonfaces had already lost a lot of their luster.

 

Who Leases Space at the Mall

 

The bigger determinant of the mall’s health, though, comes in its tenant mix.

Circle Centre still boasts some pretty choosy retailers: Coach, Talbots, Swarovski, Banana Republic, American Eagle.  Such mid- to upscale tenants would likely have departed the mall months ago—at the end of their previous leases—if it were truly in trouble.  And, despite some publicized melees over the last year, IBJ reports that Eddie Bauer, Lucky Brand, Hot Topic, and Wet Seal have all renewed leases recently.

 

But the situation is hardly optimal.  Check out that last photo, with American Eagle in the background.  The foreground shows a dude leaning up against a vacant kiosk.   It’s hardly the only one.

A few vacant storefronts as well, not surprisingly most concentrated along the end with the shuttered Nordstrom.

The departure of Hollister last year was a pretty serious loss.

Fortunately, the presence of teenybopper titan Forever 21 helps to offset at least some of the feeling of emptiness along the Nordstrom wing.

 

While the mall is lightly peppered with vacancies, some of the tenants that have signed leases in more recent years fully suggest some serious compromises.

I see absolutely nothing wrong with Go Fish, a Christian-themed clothing, art, and jewelry retailer.  It can claim about a dozen locations, mostly in the South, but also New Jersey and this one here in Indiana.  But twelve locations does not make for a nationally recognized name.  One would be hard-pressed to find this tenant in one of Simon’s premier malls.

Indy Swank is unabashedly as local as you can get.  Its original location in Fountain Square offers “high fashion vintage clothing”.  Interestingly, this new Circle Centre location seems to feature overwhelmingly Indy-themed paraphernalia, some of which could attract the locals, but just as easily would target tourists as well.  It reminds me more of the sort of storefront one might expect to see in the airport.  Indy Swank, though still a relative newcomer, is hardly the scrappy mom-and-pop one typically associates with truly dying malls. It may very well be here to stay.  But only entrepreneurs with particularly deep pockets would afford the lease rates at Circle Centre if it were a top-tier mall.

 

And I’ve never been able to figure this one out:

I’ve seen Go! Games Toys and Books at a handful of malls across the country.  But I can’t even find a website.  It doesn’t appear to be a widely recognized newcomer into children’s retail.  Lastly, a few new tenants reveal an obvious lapse in the standards.  I failed to capture a picture of it, but a new eyebrow stylist is opening along the spine of the mall between Carson’s and the former Nordstrom.  It’ll be the second one.  Here’s the first:

Eyes by India  has done bang-up business in the region over the last several years—apparently enough to attract competitors.  But the presence of two eyebrow-threading shops in a relatively small mall such as Circle Centre suggests a bit of desperation.  In the long run, the tenant mix resembles two malls I featured on my personal blog, American Dirt: Oxford Valley Mall in Bucks County, PA and Quaker Bridge Mall not so far away in Windsor Township, NJ.

 

Conditions of the “Bookend” Floors

 

Eyes by India claims a spot in the interior of the first floor, which I suspect has long been among the cheapest leasable space in the entire mall.  It can’t boast very flashy company nearby:

But it sheds light on a persistent weakness in the design of Circle Centre Mall: even in the peak of its popularity in the late 1990s, the mall consisted of a flourishing second and third floor, wedged between an anemic street level and fourth floor.  The current condition of these bookend floors actually augurs well for the mall, in that they might be performing better than they have for years.  Just a few years after the mall opened, conventional retail tenants learned that the first floor “pods” were simply too small and disconnected to capture much foot traffic.  But they proved very lucrative for restaurants with entrances exposed to the street: Champp’s, Harry and Izzy’s, P.F. Chang’s and California Pizza Kitchen all lease space along the mall’s first floor, facing onto some of the busiest sidewalks in the Wholesale District.  Incidentally, it looks like the mall will soon claim another high-profile national chain restaurant on that first floor: Granite City Brewery.

But wait—it looks like it’s going to occupy an interior space with no external exposure, making it DOA, right?  Not so fast—the City granted approval for extensive interior renovation so that, for the first time, this space (formerly belonging to Bella Vita restaurant) will directly connect to the street, right between P.F. Chang’s and Ruth’s Chris.

While this may not seem remarkable, it’s a very promising indicator of the attractiveness of Circle Centre Mall at the street level.  As long as a first-floor tenant can link directly to the street, it’s a home run.  The few remaining first-floor spaces without street access will remain undesirable for the foreseeable future.

 

Meanwhile, the fourth floor of Circle Centre has long contended with weak foot traffic.

The original intention was for the United Artists Theatres to serve as a sort of anchor to the entertainment-themed fourth floor, with bars, restaurants, video games, and even a few nightclubs.  It flopped.  The movie theatre and an arcade have managed to survive, but I’d be surprised if the remaining restaurants lasted even five years.  To put it simply, people simply didn’t enjoy climbing up (or back down) three floors of darkened, closed shopping mall after kicking back a few, or they simply preferred to get their nightclub fix along the now undisputed entertainment strip along South Meridian Street.  Or both.  As recently as 2009, this floor was almost completely vacant.  Two years ago, however, Simon managed to sign Brown Mackie College, a for-profit institution with locations across the country .  Is this a boon for the mall?  It’s hard to say; it certainly boosted the fourth floor’s occupancy, but it’s hardly the sort of banner tenant a mall would crave.  The unambiguously struggling Cortana Mall in Baton Rouge was elated to secure a for-profit college tenant in one of its empty department stores, but people go these schools to attend classes—not to shop.  It’s uncertain whether Brown Mackie on the fourth floor of Circle Centre does much to improve the prospects of the mall beyond generating foot traffic during the day on weekdays…though that in itself may be worth something.

 

Assessing Mall Activity Using the Numbers

 

When viewed over the course of the mall’s 17-year life span, only some of the metrics used at calculating the mall’s health actually suggest that the mall is steeped in decline.  Unfortunately, the International Council of Shopping Centers no longer releases mall statistics without membership to the Council.  However, the occupancy rates at Circle Center present widely divergent forecasts, depending on how one crunches the numbers.

 

Assessing the mall in terms of leased storefronts yields a metric akin to the IBJ’s 88% for the entire mall, a decline from previous years’ occupancies at over 90%.  This is not auspicious, but 88% is still a B-plus by most grading standards, and the same holds true for malls.  The number does not suggest a mall that is suffering, but certainly one where, if the trends show a similar level of decline over the next two or three years, may justify sounding the alarm.  But, after all, we are standing in the midst of an era of prolonged retail retreat, partially due to persistently low consumer confidence and high unemployment, but also due to a burgeoning preference for shopping online.  Many malls, including the ones in Pennsylvania and New Jersey that I mentioned earlier, would love to claim an occupancy rate of 88%.  As the IBJ indicated, Circle Centre is performing far better than one might expect, considering it lacks its flagship anchor.

 

Conversely, if one measures the mall in terms of occupied gross leasable area (GLA), it suffers badly…thanks to that vacant Nordstrom, which comprises 26.7% of the total square footage.  That factor results in an occupancy rate for the mall of 73.3% of GLA at best, and we know there are at least a few vacant in-line tenants, which would put occupancy well below 70%–not good at all.  Still, few retail analyses use GLA occupancy as an assessment tool, since most people perceive one vacant store as a single discrete vacancy, regardless the quantity of leasable space within it.  The average consumer simply doesn’t assess a mall’s desirability in terms of leased square footage, so it’s not entirely fair to dwell on this quotient.

 

The IBJ provides a third metric: occupancy of storefronts by floor, separating the 4^th floor from the other three.  I wish that the IBJ had also sequestered the results for the bifurcated 1^st floor as well.  My suspicion is that, viewed over the course of the last decade, the second and third floors—the “main drag” of the mall—have indeed declined in occupancy over the years, but the first and fourth floors have actually improved…significantly.  For the first floor, the shift from struggling national clothing brands with internal entrances to thriving restaurant chains with visible street frontage has demonstrated a successful retooling of the original formula, taking an unforeseen weakness to the old layout and inverting it.  The first floor isn’t yet at 100% occupancy, but the tenants with street access may very well continue to thrive even if the entire Circle Centre Mall were to close.

 

The 4^th floor has proven a huge challenge: the concept of clubbing and kicking back brews in the outer reaches of a mall simply never appealed to consumers, even though these tenants sat within shouting distance of a movie theatre.  Back in 2009, when Nordstrom was still alive and kicking, the top floor of Circle Centre was depressing: only the United Artists and the arcade survived.  I’m amazed that IBJ reports the occupancy that year at 58.6%.  For a brief time, only the movie theatre survived.  However, the 2011 introduction of Brown Mackie College may seem anomalous for a mall, since it is unlikely that the school’s patrons do a great deal of shopping, but it significantly boosts the occupancy levels of that floor.  The real test of this floor will be determining if these tenants can endure another two or three years.  Given the track record and unsavory reputation of the average for-profit university, Brown Mackie may very well close up shop.  But it currently boasts close to 30 locations, including several others in Indiana, so it could be better managed than most.  At any rate, the result is that, while the 2^nd and 3^rd floor have suffered some loss in occupancy rates, the gains for the 1^st and 4^th floor over the years have surpassed those losses.

 

Lastly, the sales per square foot figures show promise; at $354, Circle Centre is actually higher than it’s been since at least 2008.  Most malls consider sales above $300 as respectable enough.  The fact that Simon Property Group’s average is $568 (according to IBJ) says more about how lucrative its portfolio is than any indication that Circle Centre is failing.  Many of Simon’s other properties are high-end or luxury, with per square foot figures at over $600; the fact that Circle Centre yields more “average” results is nothing to be ashamed of.  (Besides, Simon doesn’t own this mall.)  In addition, the sales per square foot metric suffers from a common misconception: that analysts derive the number from total mall sales divided by aggregate square footage.  Nope.  If this were the case, Circle Centre’s numbers would be devastating, because they would have to account for those hundreds of thousands of vacant square feet in the Nordstrom building.  In order to derive sales per square foot, each individual store reports its sales divided by leasable area; the researcher then takes all of these numbers together and calculates an average.  Some stores no doubt perform much better than Circle Centre’s $354; inevitably, others do not.  Circle Centre’s numbers are good, perhaps even very good—but not great.

 

Let the Nordstrom Brainstorm Begin

 

Despite all the promising indicators that IBJ has produced—not to mention the additional ones that I was able to drum up—the long-term forecase for Circle Centre Mall, if Nordstrom remains a hulking piece of vacant real estate, is inauspicious.  It may fend off perceptions of a decline for a few years, but another decade?  Clearly the space starves for better ideas.  Popular forums like Skyscraper City provide an engaging sounding board for the various proposals to reoccupy the Nordstrom space.  No doubt Simon Property Group has considered some if not all of them.  In order to prevent this article from sprawling out of control (too late), I’ll simply run by the biggest or most credible ones with my own general assessment.

 

A Conventional Department Store: In an ideal world, this would prove the understandable solution.  Simon reps have even contributed to the rumor mill that suggests this was their initial recruitment goal.  It is, after all, a mall, and no doubt Carson’s would like a complement to generate greater mall traffic. The most exciting prospect was to get a Lord and Taylor’s, which would be new to the Indianapolis market and a comparable store to Nordstrom in terms of attracting an affluent clientele.  Chances are we would have seen it by now.  The next possibility was a Dillard’s, a department store ubiquitous in the south that has been creeping northward considerably in recent years, attracting a middle to upper-middle demographic on par with a Macy’s.  This would be an interesting fit, since Dillard’s has a minimal Indiana presence and none in metro Indy.  But still no nibbles.  The last candidate is none other than Macy’s.  By most metrics, it’s a well-run department store, weathering the current retail climate fairly well.  The excitement generated by a Macy’s is low, though—Indy has plenty of them already.  In addition, Macy’s has been closing its downtown locations in the past year in cities from Houston to St. Paul, further eroding the chance of the company entering the downtown Indy market.  In each of these cases, most rumors indicate that the potential department store tenant finds the sheer size of the Nordstrom space daunting.  Most likely a tenant would occupy the 2^nd and 3^rd floors, allowing the 1^st floor to feature more space for prominent restaurants—a formula that works.  I’m particularly keen on the first floor restaurant conversion, especially considering that the Maryland and Georgia street frontage are struggling a bit as well; notice the beautiful 14 West restaurant space that closed a few months ago:

 

A Casino: The usual reaction to this proposal is “yuck”.  I’ll admit that I suffer from a certain anti-casino bias, and Urbanophile has excoriated these efforts in a recent post featured in Christianity Today.  He argues that gaming centers typically demand big footprints in buildings that turn inward, disconnecting the usually windowless structures from the urban life that surrounds them.  He’s right.  Yet that also might be the strongest argument for converting the Nordstrom to a casino, because, well, look at it:

It practically already fits Urbanophile’s description.  He aptly compares casinos to sports arenas, in that both operate as mammoth structures that hermetically seal themselves off from their surroundings, which explains why casinos/stadia can flourish just as easily in a city center or in a reclaimed former cornfield.  But I’m not sure I’d be as quick to dismiss casinos as he has.  After all, one could pose the same argument that cinemas, live theatres or concert halls cut themselves off from the city by shoehorning their captive audience into the condition of spectators, yet no one is ever arguing against locating a symphony hall downtown.  At least casinos foster staggered ingress and egress over a period of time, rather than belching everyone out at once.  I will concede that most urban casinos that have appeared in recent years seem to be less about a strategically filling an entertainment void and more about reactivating vacant real estate (Cleveland’s Horseshoe Casino immediately comes to mind).  But that might be the exact case we have here with the vacant Nordstrom.  It already provides a shell that casinos would like.  The fact that it connects to shopping and plenty of parking means that it will meld with a mixed-use concept, which already makes it a more attractive urban stimulant than the more structurally isolated casinos.  While it is easy to argue that a casino should only be a last resort because of the undesirable social consequences it brings to a downtown, we may already have reached the point where it is necessary to consider last-resort measures to avoid a perpetually vacant department store.  Casinos would never serve as my top choice, but it would be foolish to dismiss such a proposal altogether.

 

Subdivided Retail: In some respects, the department store proposals would already achieve this, by using the first floor of the Nordstrom for restaurants and devoting the upper levels to Macy’s/Dillard’s/etc.  But what if we never get that Dillard’s?  The Meridian Street frontage of Nordstrom salvaged some beautiful façades:

Obviously the walls between these old buildings faced the wrecking ball years ago, upon constructing Circle Centre.  But what if Simon and the City were to partition the huge Nordstrom at the boundaries of these old facades, leasing the space as individual storefronts, with additional offices or even residential above?  Obviously this would require an investment from the City more than a private third party, but such a dramatic change would reinforce this block of Meridian Street as an entertainment or even a shopping destination.  This could prove the shrewdest solution for long-term profitability, but the permitting and construction could take so long that it may very well repel other tenants from Circle Centre as a whole.  Still, it would take an increasingly passé typology—the enclosed shopping mall—and make it even more extroverted by reorienting commerce onto the sidewalk.  Alas, I suspect it would do little to help the surviving inline tenants within the Mall, and it would leave Carson’s as the exclusive anchor.

 

Target: At this point, a widely popular budget department store like Target seems the most likely solution.  Apparently discussions with Target began months ago, but Target wasn’t buying back in 2011.  The surge in new residential construction downtown might have reawakened interest from this successful brand.  Other cities such as Target’s hometown of Minneapolis prove that this very suburban chain can adapt to urban settings, though it would probably again only claim the second and third floor of the Nordstrom building, leaving the first floor back to restaurants.  Targets do suffer from two major distinctions that place them at a disadvantage from conventional mall department stores.  First, people routinely buy in bulk at a Target, often to the point of needing shopping carts, which would require some spatial and logistical reconfiguration for integrating them into Circle Centre’s parking garage.  Secondly, shopping at Target is much more utilitarian than recreational, shifting the focus of Circle Centre, a mall that has historically depended heavily on tourists and conventioneers.  While such visitors could easily meander through a Nordstrom or Carson’s while passing through Indy, they are far less likely to need a Target. Thus, a Target would instill a “locals-only” character to a mall whose appeal has largely been cosmopolitan up to this point.  Despite these deficiencies, I still suspect a Target would make a strong fit for Circle Centre, certainly stimulating pedestrian traffic in the area and meeting growing demand for a run-of-the-mill shopping destination to serve the rapidly growing downtown population.

 

Let’s Just Get Crazy Here: Contemporary art museum?  Emergency operations center?  More apartments?  Server farm?  Call center? An aquarium?  Massive sports center with rock climbing wall or indoor ski slope?  Something else you’d already find in a mall in Dubai?

 

This is all I can think of at the moment, and it’s definitely time to put this insanely long article to bed.  Any other ideas?