Beverly Mall Works To Stay Relevant As Shopping Destination

Wall Street Journal
By Christina Binkley

Even as malls go, the Beverly Center is no beauty: It's old, dark and a hulking nine stories high. Its competition includes Rodeo Drive and the Grove, a trendy outdoor mall with trolleys, lawns and a pond. By almost every mall-development theory, the Beverly Center ought to be ready for the wrecking ball.

Instead, Louis Vuitton is increasing the size of its store there by 25%, and Prada just opened a boutique near Gucci, Fendi, and Tiffany. Jimmy Choo and Yves St. Laurent are opening there this fall. Fast-fashion retailer Forever 21 opened a 50,000-square foot megastore at the 29-year-old mall last weekend, and watch maker Omega moved in—from Rodeo Drive—in December.

"We just didn't get the foot traffic," says Omega chief executive Stephan Urquhart. He expects better from the mall.

Often derided as obsolete, enclosed malls refuse to die. Even as small shopping centers struggle with high vacancy rates and shoppers heading online, big malls—particularly those that can attract wealthy shoppers like the Beverly Center—are going strong. Market researcher Reis Inc. reports an average vacancy rate of 10.9% at small strip malls and shopping centers, while rates at larger, publicly traded malls are just 9.1%.

"People have been predicting the death of the mall ever since it was born, practically," says Bill Taubman, chief operating officer of Taubman Centers Inc., a real estate investment trust that operates the Beverly Center, the Mall at Short Hills in Short Hills, N.J., and other long-lived malls. The first enclosed mall in the U.S., Southdale Center in Edina, Minn., is still rolling along. It opened in 1956.

In recent years, new malls have been built as open-air entertainment centers, with parks and community activities to draw people in. Rick Caruso, developer of the Grove, says people spend about 180 minutes on average at his property—about twice the typical visit to an enclosed mall.

But old-style malls often have good locations—the Beverly Center is located just east of Beverly Hills—and desirable stores. "People know there's some key tenant they want to go to," says Jeung Hyun, a portfolio manager who follows malls at Adelante Capital Management in Oakland, Calif.

In general, Taubman Centers' plan of attack involves going upscale and pressing for stores with high sales per square foot. The mall's movie theater was recently replaced with the Forever 21 store. In the U.S., theaters get only $95 in sales per square foot, according to the International Council of Shopping Centers. Food courts, at $792 per square foot annually, have higher revenue than restaurants, at $459. Jewelry stores get $887 per square foot, on average, and Mr. Taubman wants more of them at the Beverly Center. He notes that Prada and Tiffany signed leases there in the depths of the recession.

To shuttle luxury shoppers directly to the stores of their choice, the mall built a valet parking stand on the ground-floor garage. Shoppers are greeted by uniformed valets who offer a car wash for $20. A carpeted walkway leads to elevators that whisk shoppers directly to the seventh-floor luxury area.

A Prada spokesman says the brand chose the Beverly Center over other locations in part because the mall is drawing luxury customers who are likely to buy the full range of Prada's products, from shoes and bags to ready-to-wear clothing. The Fendi store there draws "aspirational" shoppers who buy the brand's footwear, logo accessories, and men's goods, says a Fendi spokeswoman.

Mr. Taubman concedes that the 3.2 million-square-foot mall is something of an eyesore. Its first five stories are a parking garage. Escalators on the outside move about 14 million people a year from floor to floor. It is surrounded by heavily trafficked streets and the sprawling Cedars Sinai Hospital. "We're not defined by the beautiful outdoor environment," he says. "We're defined by the stores that we have."

Taubman Centers has tried to beautify the mall. Beverly Center got a facelift several years ago that replaced the Habitrail-like tunnels around the escalators with sheets of glass. Inside, the renovations never end as stores move in and out. Taubman keeps lease lengths to about seven years, shorter than the industry average 10 years, in order to keep the inventory of stores fresh.

The company doesn't release financial statistics for individual properties, but Mr. Taubman says that the Taubman Centers' average sales per square foot were up 14.5% in the first quarter and the Beverly Center is exceeding that. Industrywide, sales per square foot rose 5.6% last year, according to the International Council of Shopping Centers.

Mr. Taubman tries to shoo out retailers that aren't performing or don't draw customers who will shop at other mall tenants. "This was a mistake. It looks tacky," he said recently as he stared at Shiekh Shoes, a sneaker retailer that occupies an enviable position on the eight floor by the new Forever 21 store. "They sell lots of shoes and pay lots of rent, but it's not doing anything for the tenants around it."

Shiekh store manager Shavonne Cann says that the store's look appeals to an urban customer who buys Nikes, Converse and Air Jordans: "Our store is the right style for our customer."

One area of the mall that is coming up for a revamp is its food court, which features Sbarro, Haagen-Dazs and Steak & Potato Co. around a sprawling field of tables. Food courts feed shoppers quickly and get them back out spending, but the Beverly Center's version is dingy and dated. "This just isn't that nice," Mr. Taubman says. "We have to figure out what to do here."

However, he also says that it's important that the Beverly Center not try to do something it can't do well: "I love getting a cappuccino and sitting at the Grove as much as anyone," he says.

But "we are like a machine that's constructed to create an efficient, comfortable shopping experience."