Retail Entertainment

New Developments Are Making Shopping Fun Again.

Given that they're going to have to pay $48 for a sweater-no matter where they buy it-where do you think shoppers would rather go: a noisy, dimly lit, sterile-looking suburban mall, where they're packed in cheek-to-jowl with surly teenagers with nothing to do? Or a clean, nicely landscaped, well-lit version of a European plaza where they can not only snap up that sweater but also sit down for a nice dinner, watch a movie, and maybe meet their chums for a post-cinema beer at a brewpub?

You guessed it.

As a result, more retail districts-whether they're malls, downtown areas, or smaller suburban town centers-are emphasizing entertainment to supplement the merchandise in the windows. The idea appeals to retailers who face a lot of challenges these days. Big boxes, megastores, television shopping networks, catalogs, and even the Internet beckon to stressed-out, time-pressed consumers. Fun isn't a bad edge to have on the competition. But those putting a stake into retail entertainment have to keep in mind the basics that developers have always had: a clearly executed idea with the market demographics to back it up.

An Old Idea
However bright and spangly it is in its newest incarnation, retail entertainment isn't a new concept. "When you take a look at the history of the mall, you find quite clearly that the early philosophy was that the mall was going to take the place of the farmers' market, which was always an entertainment center," says Richard A. Feinberg, director of Purdue University's Retail Institute and head of the university's department of consumer sciences and retailing. "But somewhere along the way, the malls became about merchandise and not fun anymore."

He says that malls are "beginning to rediscover their roots. We see what I would call 'back to the future,'" he adds, "where the people who develop and run malls are realizing they've lost their way and they have to become more of what they originally were-places where people go for community, for entertainment, for a place to spend time in a climate-controlled environment. And by the way, they can shop, too."

It's a broad order that points to one of the core challenges in this burgeoning field: What is entertainment? The concept of retail entertainment may bring to mind rooms full of virtual-reality skiing courses and 40-plex theaters, but developers are interpreting the concept in a range of ways. People's ideas of fun, after all, can be very diverse. While a couple of spins on the roller coaster at Mall of America's Camp Snoopy may be just the ticket for some, others can be perfectly happy previewing a compact disc on a private set of headphones in a well-stocked music store.

"Every entertainment experience is different," says Michael P. McCarty, senior vice president and director of market research for the Simon DeBartolo Group in Indianapolis. "It's not simple enough to package for just any mall."

McCarty's company is a forerunner in the field; it developed and manages both Mall of America in Bloomington, Minnesota, and the Forum Shops at Caesar's Palace in Las Vegas. While those projects have garnered national attention, McCarty doesn't look at them as models for every mall.

Mall of America, opened in 1992, attracts about 40 million visitors a year. The mall's gross leasable area is 2.5 million square feet, and it boasts 420 stores as well as restaurants, theaters, nightclubs, a 1.2-million-gallon walk-through aquarium, and Knott's Camp Snoopy, an indoor amusement park.

The Forum Shops, adjacent to Caesar's Palace on the Las Vegas Strip, is considerably smaller than Mall of America-its leasable area is only 240,000 square feet-but it's gained its reputation through opulence and spectacle. The Forum's 70 stores are upscale retailers-Bulgari, Christian Dior, Louis Vuitton, Ann Taylor-and restaurants, such as Spago and Planet Hollywood. But the center's other attraction is its setting-an ancient Roman marketplace, where day turns into night and the statues in the fountains talk to one another.

The Cautious Approach
But, McCarty says, the approach of Mall of America and the Forum Shops isn't one that necessarily translates to more traditional retail locations. That's why, he adds, the company isn't likely to take Mall of America's entertainment dimensions and apply them generally to other shopping centers. "Instead," he says, "We take bits and pieces of our experience that we think work in the market into which we're going to introduce them."

McCarty urges a cautious approach to the phenomenon. "Entertainment has become a buzzword in the retail real estate business," he says, "and has become a panacea to cure what ails the mall." And that, he adds, is its greatest danger. "It's unproven that entertainment can make a bad mall good. I think it's more likely that entertainment can make a good mall great."

For instance, despite the attention given to the Mall of America's amusement park and aquarium, McCarty says he doesn't consider it to be an entertainment center. Even with the seven-acre Camp Snoopy set in the middle, less than 10 percent of the mall's space is devoted to entertainment, including one whole level devoted to nightclubs and restaurants. "It's come to be recognized by the tail of the dog," he says. "There's an example where entertainment took a good shopping center and made it a great one."

Essential Ingredients
Even without the carousel and the denizens of the deep, the mall would have been a successful retail destination, McCarty maintains. It's the largest retail center in the Minneapolis-St. Paul area and boasts the only Nordstrom, Macy's, and Bloomingdale's in the area. (The center's fourth anchor is Sears.) In addition, he notes, it offers two essential ingredients for mall success. One is a good location, at the intersection of an interstate highway and two major north/south roads. Generally, he says, "you can't put entertainment in a poorly located mall and expect people to come to it just because it's entertainment."

The other is a good tenant mix. "Entertainment cannot overcome a poor tenant mix in the balance of a mall," he says. Even though entertainment may be the most exciting element in a mall, he points out, it's still usually a relatively small percentage of the total space. Mall planners still have to contend with filling their merchandise space with stores appropriate to current market demands. That means examining not only what consumers want to buy, but how they want to buy it. For example, says McCarty, apparel retailing now takes place not only in specialty apparel stores, but also in places like sports stores-so adding an array of clothing stores may not necessarily mesh with market buying patterns.

In fact, says Lisa A. Weinberg, a Los Angeles attorney specializing in land use and entitlements, it's never too early for a developer to start planning a tenant mix. "It can come down to micromanagement types of issues," says Weinberg, a senior associate at Cox, Castle & Nicholson. If you're considering putting in theaters, for example, "you not only have to look at what type of retail is going in next to theaters, but whether the types of movies that they're going to be booking will play into that type of retail." If the chain tends to book mostly children's movies, it may not work well next to a sophisticated home furnishings store; likewise a family-oriented retailer won't play well next to a theater showing foreign or art films. "For a developer to have control over those things might be difficult," she says, "but it's something you want to start thinking about."

A Forum for Spending
It's also essential to take a critical look at the project's trade area. Nowhere is this more evident than in the extravagant atmosphere of the Las Vegas Forum Shops. After all, a shopping center with an entertainment element faces stiff competition in a town that's stuffed with entertainment options.

The project was originally planned to take advantage of any free time that visitors might squeeze in between the game tables and the shows. But, McCarty says, "we've found that the Forum Shops are becoming another reason to come to Las Vegas. Not the reason perhaps, but a contributing reason-and one that might make them stay an extra half day or so." And when they stay, they spend-as of December 1995, sales at the Forum Shops averaged $1,100 per square foot.

A unique tenant mix and architecture, McCarty believes, make the Forum Shops work in a market where a traditional retail design might have been less successful. The Mediterranean architecture, in fact, became yet another element in the entertainment package. The Roman marketplace features columns and piazzas, a ceiling that continually changes from dawn to dusk every 20 minutes; and fountains filled with animatronic statues that talk.

"Architecture can be entertainment," says McCarty, "and we have tried to incorporate that concept into all the malls we've built since."

The company's Lakeland Mall in Austin, Texas, for example, features a food court designed like a city street with an urban skyline that wraps around the ceiling in 3-D. Video monitors are incorporated into the buildings' "windows." "You find people walking around with their necks bent back like on Fifth Avenue," says McCarty. "They enjoy being in the physical space-but all that wouldn't matter much if they also weren't buying. People value that quality of space that they inhabit and that's why they come back."

Creating a Sense of Place
The developers of Marco Polo Village in Florida's Osceola County are emphasizing space and place as well, because they face a trade area as challenging as that of the Forum Shops: Orlando.

Robin L. Webb, CCIM, of Prudential Florida Realty in Winter Park, handled the property acquisition for Century America, Inc., developer of Marco Polo Village. The project, slated to be completed in two years, will be a retail/ residential development made to resemble an Italian village. The 160,000 square feet of retail space will house merchants selling clothing, leather goods, jewelry, handcrafts, and other Italian merchandise. (The developers of the project are from Milan; Webb reports that a majority of the vendors in the shops will be from northern Italy as well.)

The sense of place-in this case, Italy-will be reflected in the project's architecture and activities. The shops will be covered with rose stucco and have barrel-tile roofs; they'll surround a piazza-style courtyard. A Roman amphitheater fronting the development's lake will host live entertainment, a 20,000-square-foot Italian restaurant will be built into the project, and for a fun touch of Italy, gondolas will ferry residents of Marco Polo's condominiums and time-shares across the lake to the village shops.

"The difficulty in Orlando for any developer is to create a project that has a sense of presence in and of itself," Webb says. "There is so much focus on the major attractions-Disney World, Sea World, Universal Studios-that in order to develop a sense of lifestyle, there needs to be a presence of a theme and a sense of having arrived when you've gotten there."

Yaromir Steiner's retail entertainment developments also use architecture to create the essential sense of space in what he calls "town-center" projects. Last year, Steiner's company, Steiner + Associates, based in Coconut Grove, Florida, redeveloped the Streets of Mayfair, an enclave of stores in Coconut Grove. The group is now working on Easton Towne Center, which is a new development in Columbus, Ohio, and an urban entertainment complex in Ybor City in Tampa, Florida.

But Steiner looks at his projects less as entertainment centers and instead refers to them as "leisure-time destinations." The developments are built on a town-square model, with wide sidewalks, comfortable architecture, and a mix of shops, theaters, and restaurants. (The Mayfair development, for example, includes the Limited and Borders Bookstore, as well as a theater complex and a Planet Hollywood.)

"We try to create an environment where the primary purpose of the trip for the customers is to spend their leisure time," says Steiner. "The kind of place you go to after work or where you meet your friends for a drink."

Steiner says he tries to keep the entertainment element simple. "People are very satisfied just walking on tree-lined streets, having a nice lunch, buying a book, watching a fountain," he says. "People are looking for genuine experiences, I think."

Los Angeles architect Richard Huelsman concurs. Huelsman, of MCG Architects, is working on a number of projects in downtown areas, including a development on 16 blocks in downtown Cleveland. "Some of the things we're looking at-as cities realize the importance of reinventing themselves and bringing people back downtown again-is the fact that you have to create excitement as a part of this project," he says. "People are no longer happy just going to a functional building-they want to have an experience when they go there, and it's a much more comfortable environment for them to go to if there are other activities as part of the shopping experience."

Steiner says, though, that he doesn't see his firm's projects as "a county fair where there's one-after-another high-energy experience and where you do it once a year." Instead, he says, they aim for environments that will bring people back two or three times a month. "We like repetition," he says. "We like the kind of experiences that you will come back to."

Besides, he says, there needs to be a balance in the project itself. "To create an environment with pure entertainment-it won't work," he says. "It's like having only dessert; you need to eat bread also. You have to balance the experiences." And, Steiner continues, the entertainment components work well as traffic generators, but from a developer's financial standpoint, "we're finding out that retail is absolutely needed to make a project work."

Urban versus Suburban
Despite the urban feel to Steiner's developments, they're not always located in urban areas. In fact, they can work in suburban sprawl areas that lack an "urban focal point," and where, he says, "people instinctively dream of a town center."

But even when they're located in urban areas, Steiner is careful to keep the emphasis on the "leisure-time destination" model. He cautions against infusing doses of entertainment just to juice up a moribund downtown shopping district. "It's difficult to revitalize shopping districts with the competition from power centers and malls," he says. "Unfortunately most of the battles are fought on that field." What needs to happen instead, he says, is that planners of such areas need to concentrate on creating a leisure destination rather than trying to compete as another flat-out shopping district.

Even then, says McCarty, entertainment needs to be approached carefully in the urban setting. "Not every downtown can support a retail entertainment center, and not every entertainment center is appropriate for a given downtown," he says.

The blend of customers, he says, is what makes planning an urban center different from a regional shopping/ entertainment center. Urban centers contend with a three-tier market, he says. These centers attract not only the resident population from the surrounding area and daytime office workers but also convention and tourism visitors. That calls for three distinct marketing plans and requires a different kind of tenant mix; the center will likely have a much larger percentage allocated to restaurants and bars and will need longer hours in the entertainment areas.

Simon DeBartolo's Circle Centre in downtown Indianapolis covers two blocks and is linked by skywalks to hotels, the Indiana Convention Center, and the RCA Dome. It's anchored by the only Nordstrom store in Indiana and also devotes an entire level to entertainment, including a nine-screen theater complex, restaurants, and nightclubs. It's a successful center, says McCarty-it pulls in about $400 in sales per square foot-but it came about because of the specific site, and its elements may not necessarily transfer into another urban setting.

One advantage downtowns do have, though, says Huelsman, is their housing stock-a built-in audience for entertainment. "To some extent that makes it a little easier," he says. "With a housing component built into your project, you automatically have people there at your doorstep." A ready-made neighborhood makes it "easier to target a market and then create a niche center where people can spend their leisure time." It also, he adds, gives the development the chance to hold special promotional events on a regular basis as well as attract the after-work crowd.

The advantages of including a housing component in such projects aren't limited to urban areas, however. Webb points out that Marco Polo Village's 850 condominiums-which include 250 time-share units-build in an audience, as well. Since the Orlando area retail entertainment market is so competitive, the condominiums provide a localized audience. The time-shares provide a constant supply of new visitors.

Where to Park
Huelsman also points out a more practical-but omnipresent-concern for downtown developments: parking. Locating in an area served by public transportation is helpful, but developers still must plan to accommodate the cars that such a project will draw. Agreements with city facilities are sometimes possible; other times, new garages or lots have to be constructed.

But the parking dilemma isn't unique to urban developments. Entertainment destinations can pose parking difficulties in suburban malls as well. Parking for high-traffic entertainment uses such as movie theaters and restaurants can take up valuable spots for retail customers.

However, with the addition of entertainment in retail malls, retailers may look at the newcomers differently, Huelsman says. "A lot of the retailers have recognized the importance and value of having an entertainment component as part of the project, because it adds to the staying time of a consumer," he says, "and that translates into more dollars that they spend. And they recognize the ability to share parking. So they look much more favorably upon having those kinds of entertainment users as part of their projects." Attracting and keeping spenders longer can be particularly important, McCarty says, when you consider that centers with entertainment components such as theaters could report lower sales per square foot simply because of the use and dimensions of theaters.

Financing the Fun
The sudden boom in retail entertainment deals by no means ensures easy money. The financing process is still developing. "In order to satisfy the underwriters, you do still have to provide some traditional security-which means you still need good-credit tenants and up-and-comers that are somewhat proven successes," says Weinberg. "People aren't changing their underwriting criteria significantly just because this is supposed to work. They want to see evidence that it has."

In October, Weinberg's firm sponsored a seminar to bring together financing sources, traditional real estate developers, and entertainment companies looking to put their products into real estate. Speakers emphasized to all groups the need to develop strategic partnerships with one another, reports Weinberg, "because none of them can do it on their own."

"[Retail entertainment centers] can be difficult to finance, but things are changing," Steiner says. As president of Constructa Properties, he developed Coconut Grove's CocoWalk in 1989-90, "when no one used the words 'entertainment center,'" he says. Then, his financial partners were primarily from Europe. But now, he says, the financial community is taking a new look at these projects as more are developed.

Weinberg predicts more nontraditional financing for such projects. "Look to municipalities to get more involved," she says. "There's a lot of interest on the government level in doing that in these kinds of projects as catalysts, especially if they're being put into downtown areas that need revitalization." Weinberg says she expects to see tax-sharing and rebates, mezzanine financing, and high-yield bonds to come into play (see sidebar).

This trend also has given rise to companies that coordinate and manage all the elements in the process. One such group is the Site-Based Entertainment Group of Entertainment Financial Services in Beverly Hills, California. Theresa L. Stephens, its CEO and managing director, says she started the company because of the complexity of the deals involved in entertainment projects. She's assembled specialists both on staff and off to consult on and plan the details of the deals.

"Most of the projects are being developed very cautiously," says Huelsman, "and with the experiences that people had back in the late '80s and early '90s, they've learned a lot of valuable lessons on how to develop projects and what tenant mixes work and what kinds of retailers should go in. Lending institutions are much more cautious, and because of that, people are looking at almost every project that they develop much more cautiously and carefully than they had five years ago."

And as with any new trend, caution is being addressed-down to the components in an entertainment package. "The issue of temporariness of the amenities is important to people because there's a fear that if you're chasing an entertainment trend, by the time you get it in, it's over, and something new has come along," says Weinberg. She points out that software-driven entertainment can play a big part in staying flexible; by programming the content, you can easily change the software while keeping the structure.

And, as the Las Vegas Forum Shops have discovered, cutting-edge entertainment needs to stay sharp. When the center's animatronic statues debuted in 1992, they were attractions simply because they were so unusual. "Now it's 1996," says McCarty, "and people are saying, 'Been there, done that.'" The result? The Forum Shops is doubling its size and, by September 1997, plans to have 37 more shops, more restaurants-as well as a Roman forum.

Sarah Hoban

Sarah Hoban is a business writer based in Chicago.