This article appeared in the 1995 Summer edition of The Strategic Solution, the newsletter of The Strategic Edge.

 

POWER CENTERS - A POWERFUL SHIFT IN TENANT MIX

 

The 1990’s have seen more changes in power center development than the previous 15 to 20 years. One of the most dramatic shifts has been in the distribution of space allocated to anchors and sub-anchors, versus that in truly small ancillary tenants. In the formative years of power centers, the anchor to small tenant ratios were virtually identical to that found in regional shopping centers being built in that era. However, there has been a shift of power center tenant mix over the decades, as illustrated by a survey of Detroit area power centers:

A major impetus in power center allocation changes has been the negative experience of early centers with most of their small tenant space having gone dark, or in many cases, never having been leased. The original pro formas for many of these power centers were based upon overly optimistic occupancy and rental rates. These problems were exacerbated by overbuilding in many markets, decline in population growth, and the financial crunch. The result was a virtual halt to power center development. Major markets went for periods as long as three years without a "true" power center being opened. Simultaneously, owners of existing, older centers were attempting to salvage their properties through conversions to off-price, outlet, or power centers. Rather than being true "centers," power developments are now becoming an agglomeration of retailers or big-box users, with no small tenant or ancillary space.

 

Many factors contribute to this shift in power center tenant mix, including:

 

1. Superstore or power formats are emerging from what have historically been small tenant categories. Office supply, computers, sporting goods, books, crafts, linens are the most frequently found formats today, nonexistent as superstores a few years ago. Retailers of a variety of merchandise lines such as pet supplies, jewelry, greeting cards, and party supplies continue to develop superstore formats as sub-anchors.

 

2. Who could get financing? In the late 1980’s and early 1990’s, power retailers, rather than power center developers, had the best access to financing sources, even turning to self-development.

 

3. Lessened importance of cross-shopping. Power center developers have found that cross-shopping of small stores is not an important factor to consumers when shopping a destination store or development. Consumers are more concerned with selection, price, and convenience rather than having a broad ranges of stores to choose from.

 

4. Lack of strong available small tenants. The pool of strong national small tenants has diminished. The challenge for developers is to also discover strong niche regional (or national) small tenants which can survive in a shopping environment where consumers tend to overlook the small store.

 

We foresee the following shifts in power center tenant mix continuing in the future:

 

• Obviously, the small tenant ratio in newly constructed centers cannot go much lower. There will be a return of some ancillary tenants to power centers.
• Mature power centers will attempt to convert much of their underperforming small tenant space to bigger box users.
• The development of these newer power formats or big box users could revive declining strip centers.
• Fallout among the big box retailers will occur due to saturation. Recently, we have seen the consolidation and limited growth of warehouse or wholesale clubs, deep-discount drugstores, and party supply stores.
• Big box retailers will further segment their own merchandise lines and experiment with new "superstore" concepts, e.g. OfficeMax developing FurnitureMax and CopyMax concepts. Unique merchandise category combinations will continue to evolve, e.g. Incredible Universe and Media Play.
• There will be continued demalling of enclosed centers. A power center may work in a location where an enclosed mall is no longer appropriate.
• Some big box retailers and discount department stores will opt for other location types, such as traditional enclosed malls. Mall developers, in an effort to have a well-rounded tenant mix which generates traffic from a broad market, will be increasingly amenable to non-traditional anchors.
• Consumers change and may grow disenchanted with the proliferation of superstores and opt for a more personal touch in a smaller environment.

 

The preceding has been adapted and significantly updated from an article the authors prepared for the November 1993 CARLSONREPORT.

 

 

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