As Ann Taylor and J. Crew leave, Lehigh Valley Mall rolls with the punches in tough retail climate
By Jon Harris Of The Morning Call, March 24, 2018
A little more than a week ago, signs from the shuttered J. Crew store sat on the sidewalk behind a 1-800-Got-Junk? truck, waiting to be loaded and hauled away from Lehigh Valley Mall’s outdoor lifestyle center in Whitehall Township.
Just days later, a barricade in front of the vacant store was already rising, with a construction crew and lifts working behind a waist-level orange fence to get the spot ready for its next tenant.
Out with the old, in with the new.
This is not an unfamiliar scene at the area’s premier mall. While Lehigh Valley Mall’s performance remains strong, it has steadily been hit — as most malls have — with store closures in a rapidly evolving landscape in which many retailers are shrinking their brick-and-mortar footprint or going out of business.
But unlike many other shopping centers, the mall — backed by a strong ownership group that includes the country’s largest mall operator — has been able to fill its vacancies quickly, boasting an occupancy rate that easily exceeds the national rate of 93.1 percent recorded by the International Council of Shopping Centers.
“We, like everybody else, are not immune to everything that’s going on, but I think what we’re able to do is we’re able to recover,” said John Ferreira, Lehigh Valley Mall manager. “You have people come and go. You always have people come and go here, but we’re able to find replacements and the replacements that we find are retailers, they’re restaurants, and now they’re more experiential types of activities or stores that will attract today’s customer.
“And we’ve been pretty successful at doing it,” he said.
Fighting the headwinds
The situation won’t get any easier moving forward, however, as e-commerce continues to gobble up sales, causing a dramatically overstored U.S. retail climate to correct itself. The correction could be significant: One report last year from Credit Suisse said roughly one-quarter of the nation’s malls could close by 2022.
The centers most at risk, according to Green Street Advisors, are the low-performing malls, of which the Lehigh Valley has several that are trying to adapt by adding more exterior entrances, freshening up their 1980s-like appearance and bringing in tenants such as local restaurants, gyms or even a trampoline park.
Those malls, such as South Mall in Salisbury Township, Palmer Park Mall in Palmer Township and Phillipsburg Mall in New Jersey, face a tough road. While South Malland Palmer Park are now under the control of their own respective hands-on ownership groups, both count the bankrupt Bon-Ton as an anchor and South Mall’s other anchor, Stein Mart, has assembled a team to “identify potential strategic alternatives.” Meanwhile, the Phillipsburg Mall is in the midst of losing its Bon-Ton, putting it another anchor down and forcing its owner to weigh alternatives for the property.
John Ferreira, manager of the Lehigh Valley Mall, talks about changes at the mall amid a tough retail climate. Despite losing some retailers, the mall has found replacements and the shopping center's occupancy rate is 98.8 percent.
The 1.18 million-square-foot Lehigh Valley Mall is far from a low-performing mall, though some of its numbers were slightly lower in 2017 than in years past. One retail expert believes those figures could decline further following the 2019 holiday shopping season as the retail disruption continues, but the mall is fighting those headwinds by looking at ways to diversify and weighing an expansion that would give it greater visibility from busy MacArthur Road and cement its position as the area’s top shopping hub.
As of Dec. 31, sales per square foot at the mall were $561, down from $570 a year earlier, according to a U.S. Securities and Exchange Commission filing from Pennsylvania Real Estate Investment Trust, which co-owns Lehigh Valley Mall with Simon Property Group. In addition, Lehigh Valley Associates — the formal name of the mall partnership between Simon and PREIT — reported revenue of $34.9 million last year, down from $36.9 million in 2016, according to PREIT’s annual report.
While the mall doesn’t discuss specific numbers, Ferreira said turnover in a mall can generally lead to downtime and push some figures lower. One number that isn’t declining at Lehigh Valley Mall, according to Simon’s annual report, is its occupancy rate. Its figure of 98.8 percent within the mall concourse is up from a year earlier, when it was 97.7 percent.
Of note, Lehigh Valley Associates in October 2017 closed on the early refinancing of Lehigh Valley Mall's mortgage loan. The new $200 million loan bears interest at 4.06 percent and matures in November 2027. (A $1.6 million mortgage prepayment penalty was incurred as a result.)
Getting to that point is a testament to the mall’s ability to backfill tenants quickly even as it has lost mainstays such as Delia’s, Wet Seal and Bebe.
To fill the gaps, the mall has brought in tenants such as women’s retailer Love Culture, family-owned business Windsor and Torrid, the last of which will open within weeks in the former Bebe space and offer apparel, accessories and swimwear to women sized 10 to 30.
Many of the mall’s retailers, Ferreira said, are now more experiential. For example, Pocono Oil and Spice Co., which took over the space vacated by Teavana, allows customers to sample dozens of selections, from garlic cilantro and spicy mango dark balsamic vinegars to blood orange and Parmesan, garlic and rosemary olive oils.
The mall is even experimenting with the virtual world.
Virtual reality gaming facility VR Cafe opened at the mall last year, filling the space left by Wet Seal, Ferreira said. VR Cafe, which opened its first location at Palmer Park Mall in September 2016, also has a cafe bar alongside its booths where customers immerse themselves in 360-degree virtual worlds.
The mall also this year filled one of its largest vacancies in recent memory, when Bob’s Discount Furniture opened in a more than 30,000-square-foot space in the mall-owned outparcel along Grape Street that previously housed HHGregg.
“To have a space of 35,000 square feet, and we backfill it within six months with a really good tenant, I think that really means a lot,” Ferreira said.
But more challenges could be on the horizon — in fact, just a stone’s throw from Bob’s.
Babies R Us, in the same building as Bob’s and Guitar Center, could be the next space to fill. Going-out-of-business signs were posted in the store’s entrance on Friday, eight days after the retailer’s parent company, Toys R Us Inc., announced it would liquidate its remaining U.S. stores.
Meanwhile, Claire’s, known for its tween jewelry and ear piercing, filed for bankruptcy Monday. It has stores at Lehigh Valley Mall, South Mall, Palmer Park Mall and the Promenade Shops at Saucon Valley.
Some of Lehigh Valley Mall’s turnover is simply a result of its size and depth of merchandise, scale that leads Ferreira to call the shopping center “this area’s King of Prussia,” referring to Simon’s massive mall about 50 miles south in Montgomery County. With more than 150 stores, it’s not that unusual for Lehigh Valley Mall to house a national retailer that decides to downsize or close shop for good.
Despite the turnover, retail expert Jeff Green, owner of Jeff Green Partners in Phoenix, said the mall’s $561 in sales per square foot is still strong, placing it as an A mall by that figure. Green estimated a further decline could occur after Christmas 2019 or early 2020, by which time Lehigh Valley Mall — and many other malls — could be transitioning from an A mall to a B mall, the latter of which has sales per square foot of $375-$550.
One area of potential concern, Green noted, is the mall’s reliance on department stores, a retail segment in decline that many analysts believe is in need of a reinvention. In addition, department stores are large footprint anchors in malls — spaces that aren’t easy to replace if and when they close.
For example, at Lehigh Valley Mall, Boscov’s space, leased through 2022, is nearly 165,000 square feet, while the Macy’s location, also leased through 2022, is 212,000 square feet, according to a PREIT public filing. Meanwhile, J.C. Penney owns its 207,292-square-foot store.
From Ferreira’s point of view, however, each of the three department stores offers a different type of merchandise and each caters to a specific kind of customer. In addition, he noted, it bodes well that neither Macy’s nor J.C. Penney has shuttered even as both chains have announced closures in recent years.
Green said Lehigh Valley Mall will still be the area’s dominant shopping center in the future even as retail headwinds continue to intensify. From a national perspective, Lehigh Valley Mall is considered a premier mall in a secondary market, a scenario Green said is preferable to being a secondary mall in a major market.
“Whether it be A or B+, it’ll still be the best mall in the [Lehigh Valley] market,” Green said.
In the future, Ferreira expects the mall will still be one retailers want to invest in. Starbucks and Express just finished remodeling their stores at the mall, while Swarovski is in the midst of construction.
Simon, as an operator, also has not hesitated to invest in good malls. For example, Simon opened a 155,000-square-foot expansion at King of Prussia Mall in August 2016 and, a little more than 10 years ago, opened a $40 million, 110,000-square-foot lifestyle center at Lehigh Valley Mall.
Even with the loss of J. Crew and the closure of Ann Taylor on Saturday, Ferreira said the lifestyle center is a strong performer, as those trying to park there can probably believe as they participate in a nonstop version of vehicular musical chairs.
The lifestyle center likely won’t be the last investment in Lehigh Valley Mall.
Since at least March 2016, the mall has been mulling an expansion on the 4.5-acre parcel at 1457 MacArthur Road, which hosts an office building, a Friendly’s and a former Wendy’s, the last of which recently moved to a newly constructed building at 2545 Mickley Ave.
Rumors have been rampant over the years, with past and current tenants saying the parcel had been discussed as a potential spot to construct the second phase of the lifestyle center. Some believe a Cheesecake Factory is on its way.
For his part, Ferreira isn’t tipping his hand. When it is redeveloped, however, he believes it will be a “really nice entry point” to Lehigh Valley Mall that shoppers will appreciate.
The questions at this point seem to revolve around when and what — not if the project will happen.
Said Ferreira: “It’s coming — sooner than later.”