If change is good, then this has been a great year for specialty leasing. In fact, specialty leasing is one of the few areas of the shopping mall business that has continued to show strong earnings growth year after year.
As a result, developers are paying more attention and giving more support to specialty leasing programs than ever before. And as the industry matures, several trends will shape its future. Here are some to look out for as the millennium approaches.
Sponsorship If there is a buzzword in our industry for 1998, it is "sponsor- ship." Simon DeBartolo Group led the pack when it created Simon Brand Ventures last summer to pursue sponsorship arrangements in its malls. Since then, nearly every major developer has formed an internal department dedicated to earning extra income through sponsorship.
Sales rights, on-mall signage, access to mailing lists, common area space for product displays and sampling - all are offered to market-share-hungry companies focused on building brand awareness. Developers are quickly scurrying to land five- and six-figurewith such well-known companies as Visa, American Express, Pepsi, AT&T, Chrysler and America On-Line, to name a few.
Although the idea of sponsorship within the regional mall is still in its infancy, corporate sponsors will quickly embrace the opportunity to influence the buying habits of millions of shoppers each year. When they do, common area space will be in demand as never before.
Technology Technology used to communicate with shoppers and retailers is evolving at breakneck speed. This year, many companies developed specialty leasing websites tailored specifically to entrepreneurs interested in opening a temporary mall location. Both The Mills Corp. (www.millscorp.com), Arlington, Va., and General Growth Properties (www.specleas.com), , introduced cutting-edge sites this year.
Interactive shopper reward programs offer another technology-based strategy. Companies such as Goodrich, Mich.-based Smart AIM Corp. provides interactive kiosks that enable member shoppers to access coupons for preferred retailers, locate a store on the interactive mall directory, find out which stores carry a specific product, view commercials, learn about mall events and even check their horoscopes.
Other advances in technology are allowing companies to interact with the consumer in the common area of the mall. Shoppers can now buy event tickets, search for a home or car, apply for a job, makedecisions, and read their e-mail on one of the many interactive kiosks finding their way into the common area.
In addition, in-mall media kiosks play continuous loop commercials advertising a vast array of products. As revenue-producing interactive kiosks continue to flourish, traditional specialty retailers may find themselves left out in the cold.
Competitive job market During a recent press conference, Alan Greenspan said of the economy, "This is as good as it gets." This is greatfor retailers because it means consumers have more disposable income to spend on retail goods. Moreover, low interest rates make borrowing to start a new business very attractive.
The downside for retailers is that unemployment is at near historic lows, creating special challenges for those searching for quality employees.
As a result, leasing managers are being called upon to help temporary retailers find sales help. Many malls are now developing employee recruitment programs on-site to help retailers staff their stores. Also, larger developers are forming special alliances with national staffing services to assist retailers.
Advertising "People are bored with television and commercials. They're looking for something new and exciting," commented Julia Lang-kraehr, vice president of speci alty leasing for General Growth Properties, during a recent conversation.
To address that ennui, she said, brand marketers are looking for new vehicles in which to influence consumer buying habits. What better place than the regional mall to connect with literally millions of consumers who are in a buying frame of mind?
The race is on to reach this audience. Advertisers are popping up on vacant store barricades, banners that hang from ceilings, mall video networks, common area displays, digital screens that rotate up to 120 images an hour and, of course, retail merchandising units (RMUs).
As developers court national advertisers, specialty leasing representatives in General Growth's malls are also busy building local advertising programs for their RMUs and kiosks. By fabricating a special insert, the typical RMU can provide advertising space for dozens of service businesses in a specific arena, such as home improvement or real estate.
Competition for space Competition for temporary space is on the rise for several reasons. First, the strong economy is fueling the growth of national permanent retailers and spawning new retail concepts. This has enabled some developers to post significant reductions in vacancy, leaving fewer improved spaces for temporary tenants. Specialty leasing agents are thereby forced to be more creative in leasing common area space to achieve revenue goals.
Second, as the industry matures, many seasonal merchants have outgrown their common area operations and instead are seeking larger, in-line space.
Kevin Kern, real estate manager for Ann Arbor, Mich.-based Day By Day Calendar, a division of Waldenbooks, said, "We prefer in-line space because it allows us to offer our customer a more complete selection while providing us the opportunity to maximize income for both the mall and our company."
At the same time, increasing numbers of local entrepreneurs are diving into specialty retail and opening in-line stores for longer periods of time. Specialty leasing agents and developers typically favor the year-round merchant, leaving many seasonal merchants competing against each other and paying a premium for any remaining in-line space.
Third, high-paying corporate sponsors and national advertisers are vying for space that was once the domain of traditional specialty retailers. Because corporate sponsors and national advertisers have large budgets, small specialty retailers may find it difficult to compete for space.
The specialty leasing industry is feeling the effects of increased pressure from investors to grow funds from operations and improve bottom-line profits. While many developers expect double-digit gains each year from their specialty leasing programs, they are also creating new divisions to add revenue from the same common area space.
As malls evolve into the shopping and entertainment destinations of the future, there must be a balance between traditional specialty retail and the new trends competing for common area space.