Break Out of the Big Box

In retailing, reaching the right customers still begins with the famous three rules of real estate success: location, location, location. But until recently, few stores have been located or formatted to have intrinsic appeal to the moneyed masses. Big-box stores and regional malls have traditionally located in affordable "edge" cities, like Framingham, Massachusetts, and Bridgewater, New Jersey, to ensure low-cost real estate and easy automotive access. Meanwhile, upscale specialty retailers have continued to opt for the rarefied—and not broadly accessible—environs of places like Manhattan's Fifth Avenue and Beverly Hills' Rodeo Drive.

Today, though, retailers and real estate developers are together pioneering innovative mall concepts and store formats designed with the everyday needs of the moneyed masses in mind. Using three lines of attack, their strategies are: to locate in "lifestyle centers"; to exploit small-box formats; and to launch separately branded, more upscale store chains.

Lifestyle centers of the just rich enough
While malls are nearly synonymous with egalitarian shopping, America's first planned shopping centers were in fact located in the wealthy planned communities being developed outside major cities, and were accessible only by the rare luxury, the automobile. The first shopping center, opened in 1931 in the tony development of Highland Park, outside Dallas, was a handful of stores built around an inner space intended to function as a town square. Ever since, however, developers have competed to make their malls bigger and more inclusive, to support the arrival of the mass exodus from the cities to the suburbs. (By the 1990s, Simon Properties had bested all competitors, with its 4.2-million-square-foot Mall of America. Located in Bloomington, Minnesota, the facility includes a seven-acre amusement park and draws over forty million visitors a year.)9

But while the mall concept blossomed, two entrepreneurs came to realize that affluent consumers prefer an entirely different shopping experience, in both format and location. Specifically, in the mid-1980s, Memphis-based developer G. Dan Poag realized that neither he nor his peers found shopping enjoyable. The mega-malls that were proliferating at the time, recounts Poag's business partner Terry McEwen, a seasoned leasing executive, "were too big, featured only a few appealing stores, and sometimes felt unsafe. People disliked fighting the crowds and dodging groups of teenagers just to get their shopping done."10 Exclusive retail strips, on the other hand, were useful for an occasional purchase, but lacked the breadth to satisfy everyday shopping needs.

And so Poag and McEwen teamed up to fashion the concept of the lifestyle center and in 1987 opened their first such endeavor, The Shops of Saddle Creek, in Germantown, Tennessee, an affluent suburb of Memphis. Germantown's demographics are typical for the communities that host the most successful lifestyle centers today. As McEwen explains, "Germantown features a large, rapidly growing number of households earning more than $100,000. These households are not just desirable from an income perspective; they fit a specific profile. They comprise busy professional families willing and able to spend more for quality goods."11

What is distinctive about the lifestyle center's approach to retailing? McEwen explains that while lifestyle centers can vary a bit, they share some common characteristics, including open-air shopping, a mix of upscale national chains and specialty stores, and features designed for the needs of a busy lifestyle, such as convenient access to each store directly from the parking lot.12 Aesthetically, lifestyle centers are a far cry from the walled retail fortresses often found in suburban hubs. They feature a Main Street-style look with distinctive architecture and extensive landscaping. To provide a more manageable scale, lifestyle centers are also less than half the size of regional malls—often between two hundred thousand and five hundred thousand square feet.13 This judicious choice of size helps them to fit right into the same affluent communities that often reject larger-scale developments.

McEwen points out that the format, from its very inception, was intended to reinvent the mall experience for the needs of "merely affluent" consumers. But as lifestyle centers have taken hold in Germantown and elsewhere, Poag and McEwen have gained additional insight into affluent shopping behaviors, which has translated into further tweaks on the location and design of the centers. McEwen explains, "We found from research that our customers value two aspects of the shopping experience above all: The first is convenience, and the second is safety."14

The desire for convenience was only to be expected, but safety? It is hardly a top-of-mind issue among marketers. Yet, according to McEwen, "safety is a critical success factor for affluent retail locations. Focus groups and customer intercept studies reveal that a full 71 percent of lifestyle center shoppers are women, and that they are more comfortable when they have a short, direct line of sight between their car and the store they are visiting. At malls, they perceive that there is a lot of crime, a fear which is not helped by the groups of people hanging around and a general discomfort with parking garages."15 Newer life-style centers reflect those insights.

The number of lifestyle centers is currently small, but growing rapidly. In fact, the International Council of Shopping Centers (ICSC) expects the number of lifestyle centers to double to about sixty developments by 2005.16

And while some marketers may worry that opening smaller locations in lifestyle centers could hurt revenues or margins, many retailers already operating in such malls report impressive financial returns. McEwen notes that "while consumers spend roughly the same amount of time at lifestyle centers as they do at regional malls—about an hour—and visit an average of three stores per visit in each place, the financial returns are very different. Lifestyle center shoppers spend 50 percent more per visit and return an average of five times per month, compared to just two times at regional malls."17 For retailers, this also means greater sales per square foot. According to the ICSC, average sales in lifestyle centers are about $397 per square foot and can range up to $500—almost double that of the average regional mall.18

For some upscale retailers, the lifestyle center immediately seemed to be a natural fit. Polo Ralph Lauren, Talbots, and Banana Republic are among the handful of chains to successfully exploit the format from its earliest days. Junior retailers (those focused on teens) have been more cautious because of the lifestyle center's adult orientation, but McEwen explains, "The early [junior] entrants are finding that their sales in the lifestyle center format are just as good as those in traditional malls. Even though teenagers do not hang out and roam the center, they do come to shop, often with their parents."19

But mass retailers, department stores, and certain specialty shops are tending to sit on the sidelines. This is a missed opportunity. While not a replacement for other real estate formats, lifestyle centers are a powerful complement to them, filling the gap in traditional retailing's geographic coverage. Department stores can and should, therefore, play a role. Although they are unlikely to win the privileged real estate they are accustomed to elsewhere (lifestyle centers do not have anchor stores), they cannot afford to miss out on locations where a key customer segment shops. For instance, Saks has expressed interest in creating a new version of its stores for lifestyle centers that can fill geographic gaps in its coverage.20 One can imagine Nordstrom following suit, with a scaled-down store (perhaps leaning heavily on its famous shoe department) aimed at the affluent in underserved markets such as New England.

What should marketers do to take make sure their companies take full advantage of the lifestyle center opportunity? First, they must forge stronger relationships with their own companies' executives whose areas of expertise are outside the typical purview of brand strategy—namely, their internal real estate and finance specialists. Today, these professionals are the drivers behind many lifestyle center locations. The goal of marketers should be to ensure that these executives' efforts are aligned with a broader strategy of positioning the brand properly for the site. The intended result is that when a retailer signs a lease on a lifestyle center location, marketing has already determined and is prepared to implement the changes in merchandising, marketing, and positioning required to make the lifestyle center store an immediate success. Participating retailers must anticipate the branding and financial implications of such moves outside their traditional business practices, and marketing needs to lead that charge.

What about the Mall of America, the Versailles of the palaces of consumption that are today's shopping centers? The developers that dreamed up the mall are now suing to gain control of the partnership that owns it. They intend to build an additional 5.7 million square feet of retail space on forty-two acres down the street, to be modeled on—what else?—the lifestyle center.21

Excerpted with permission of Harvard Business School Press, from Mass Affluence: Seven New Rules of Marketing to Today's Consumer. Copyright 2004 Accenture; All rights reserved. To order please call (800) 988-0886.

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Paul Nunes is an Executive Research Fellow at Accenture's Institute for High Performance Business.

Brian Johnson is a senior research analyst at Sanford C. Bernstein & Co.