Digital brands are booming. Can they save malls?

Sarah Halzack - Inforum Around Town

Via Inforum

By Sarah Halzack

This is a moment in retail when virtually everything needs a makeover: Supply chains must be sped up, stores need to be more experiential, and marketing has to become more personalized, all to suit an increasingly digital world.

So it only makes sense that the old rules of mall leasing need updating, too. One place where that’s happening is at Tysons Corner Center, a mall in the Washington suburbs that is among the most productive in Macerich Co.’s portfolio.

The company has set up an area it calls BrandBox that’s meant to give upstart online retailers a place to experiment in brick-and-mortar selling. It’s a space designed specifically for speedy, plug-and-play-type build-outs, with modular walls that can configure into separate stores ranging from 500 to 2,500 square feet. (Think of it sort of like Tetris for physical retail.) Other features, too, such as wall shelving that can easily snap in and out of place, allow for a here-today, gone-tomorrow approach.

BrandBox leases range from several months to a year. And, importantly, Macerich is providing the tenants with services, including technology that allows them to analyze foot traffic as well as security tags and cameras.

Pop-up retail is far from new, of course. But this is an evolution of that idea, in that the short-term leases aren’t simply being used as a stopgap to fill empty space. Instead, they’re being treated as a more foundational part of the mall ecosystem, a key ingredient. There have been other efforts in this vein, such as Simon Property Group Inc.’s The Edit@Roosevelt Field, which offers microspaces of 20 to 200 square feet to emerging brands. Kimco Realty Corp., too, is trying to make it easier for tenants to find short-term space in their malls.

At the same time, a BrandBox type of approach mitigates risk for mall operators engaging with emerging brands, says Melina Cordero, CBRE’s global head of retail research. If , for instance, they are working with a tenant that doesn’t have spotless credit, or if they aren’t sure a certain tenant will drive traffic, they can feel more comfortable taking a chance.

Do I think the BrandBox model is a panacea for Macerich and other mall operators? Not even close. The retailers that are closing stores right now often have huge footprints – Sears department stores, for example, tend to be around 159,000 square feet. BrandBox’s tiny stores for upstarts are hardly going to plug these holes.

But Macerich is right to realize it needs to change to court young retailers that are on the rise. Consultancy JLL estimates that e-commerce retailers will collectively open 850 stores in the next five years. Mall operators should aggressively chase this business, which includes newcomers such as men’s apparel store Untuckit, mattress maker Casper and sneaker phenom Allbirds. Even if these players aren’t putting up huge rent, they can go a long way toward making a mall feel like it’s not a time machine to 1995.

Other changes that mall operators are making right now might prove more consequential to their survival, including shifting their tenant mix to include more gyms and restaurants and embracing more contemporary formats such as mixed-use developments.

But BrandBox represents a shift in mindset that is going to be essential to mall operators’ survival. Lindsay Dutch, an analyst who covers REITs for Bloomberg Intelligence, notes that landlords these days can’t just fill up their properties; they have to get more involved in making them a success. Providing services via BrandBox is very much in that spirit.

This article was written by Sarah Halzack, a reporter for Bloomberg.