Part 1 -New Beginning for Aging Malls
Part 2 -Royal Hawaiian Makeover
Part 3 -High Drama over Destiny USA
Part 4 -Battered Mall Gets New Life

Waikiki may conjure dreams of sultry, seaside vacations and tempting boutiques, but turning a 29-year-old matronly Hawaiian mall into a world-class beauty isn't easy. Picture trying to lure upscale retailers from New York to Honolulu, a 6,000-mile plane ride, or having to import materials for the mall's facelift by freighter, a costly and time-consuming proposition.

Rosalind Schurgin, CEO of Los Angeles-based The Festival Cos., which is redeveloping and managing the Royal Hawaiian Center for its owner, Kamehameha Schools, has encountered many challenges.

“I would say the major difficulty encountered in a redevelopment in Hawaii is the logistics of leasing to retailers on the mainland, and the longer lead time it takes to actually open stores in Hawaii, given the fact that it is 3,000 miles from the continental U.S.”

The center has undergone a $115 million transformation, and its grand opening is June 20. About 80% of the center was open as of mid-April, including two of the three buildings. The renovation is the most significant since the center first opened in 1979, the company says.

“In its heyday, Royal Hawaiian Shopping Center was populated with high-end luxury retail, but by the time we came onboard as the developer, the center was only 50% leased,” says Schurgin.

Festival infused all four levels of the property with new merchandise and shops, and filled vacancies to assure that customers would continue browsing and traffic would flow throughout the complex. The developer added restaurants and entertainment and signed up 110 new stores, half of them international. The center is 98% leased. About 30% of the retail mix is high end, including luxury shops Fendi, Cartier and Hermes.

Dotted across the 310,000 sq. ft. site are affordable boutiques offering sunglasses, T-shirts, crafts and books. The restaurants, occupying about 50,000 sq. ft., vary from Senor Frog's to PF Chang's and Panda Express.

About 90% of those who patronize the mall are tourists, Schurgin says. “The Japanese customer is still our largest international group. However, we're seeing trends of shoppers from China and Korea in increasing numbers, as well as from Australia and Canada.”

The U.S. economic slump isn't troubling tourists, Schurgin says. “It hasn't yet really shown the severity of the slowdown we've seen on the mainland in terms of housing and subprime issues.” Hawaii's residential mortgage delinquency and default rates are the lowest in the U.S.

Still, a sharp drop in tourism would hurt retailers, including luxury boutiques. According to the Bank of Hawaii, in the first 11 months of 2007, cruise ship arrivals were up 18.3% over the same period a year earlier. However, the number of visitors planning to stay in a hotel decreased by 3.7%.

Alicia Harvard, 23, who rings up sales at the Hat Shack, says traffic fluctuates at the boutique, which opened a year ago. “One day it could be pretty quiet, the next day it could be pretty busy.” After PF Chang's opened, business picked up.

Part of the developer's strategy was to set aside 40,000 sq. ft. of open space to create a park, the Royal Grove, where free concerts are held. It's part of a new trend of opening the mall to the outdoors, and creating attractions for customers.

“You can come and sit on a grass mound and watch hula or beautiful Hawaiian singing,” says Schurgin. “It's more than just shopping. We really wanted to create a place for visitors to enjoy — it's not just about the dollars and cents of our business.”