Asian expansion top of agenda for retailers, shopping center developers

NEW YORK—Though shopping malls are in no way dead in 2015, a decrease in foot traffic in the United States has caused developers and retailers to rethink how they are constructed and many to consider expanding into the growing Asian market.

William Taubman, COO, Taubman Centers, was the first speaker on a panel about why the shopping center industry is thriving around the world at yesterday's NRF BIG Show. The developer owns 18 high-end shopping centers around the country and employs some 100 people in Asia working on new projects to add to the existing three centers already built in China.

Although malls in America have seen troubles in the past few years with declining foot traffic, Taubman assured the audience that his higher-end malls were going strong, bringing in on average $807 per square foot, more than $200 more than other malls around the country. Trying to stay at the forefront of technology, last month Taubman introduced a new map featuring indoor navigation at its University Town Center in Sarasota, Florida.

Why the concern for in-store traffic? Taubman said part of the problem was an uneven women's ready-to-wear market. Sales are not consistent and drops in spending most definitely coincide with a trend for women to dress more casual.

David Zoba, senior VP, global real estate and store development, Gap (NYSE:GPS), jumped in to corroborate that some ready-to-wear women's fashions were suffering, but for other reasons. In the past few weeks, due to the time of year, several retailers have announced store closures and a lot of it goes back to the challenge of rent in the United States, which continues to rise. In fact, he said in the last 12 quarters there have been double digit increases in lease spreads.

"We are reaching a point where retailers' rent and occupancy levels will cause the wheels to come off," said Zoba. "For centers like Bill's [Taubman] those are places where people feel like they need to be. But a lot of shopping centers that are good, not great, have retailers that are unable to pay rents but still have a viable business."

So where will shopping center developments be going up in 2015? The panel noted China, Brazil and the United States. Taubman announced that his company will expand outside the United States and remain focused on Asia, where he's been for more than 10 years now.

Zoba agreed that for Gap brands, Asia would continue to be a strong growth market. Currently there are 100 Gap stores and outlets and seven Old Navy stores in China. "We've been there 20 years and they have some of the highest margins in the world," he said. He also said the company will grow its number of Old Navy stores in Japan this year, adding another 15 next year. And the brand recently announced it will open 40 new Gap stores in India this year, starting with locations in Mumbai and New Delhi.

The developers and retailers did agree that they would not be expanding in Europe because it is a difficult market to get into and make a profit.

What will it take for malls to succeed in 2015? Taubman said that old shopping centers just don't cut it, even if they are updated. They are not exciting the shoppers. Retailers need to take risks and enter into new developments.

"If centers don't get exciting and become social gathering places, they are going to wither up and die," said Zoba.

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