Chain Leader

The Olympics have ended, but I still had one sports related blog subject that I hadn’t used. If I had timed it better I wouldn’t be having to make this explanation. Everything moves in cycles if you are around long enough to watch. Restaurant companies used to make their decision on locating at or in a shopping center based upon which retail stores were the anchors. Now restaurants have become the anchors in many new centers.

The retailing scene has changed over time. Malls used to be the big dogs of retailing. They made many a strip center obsolete when they opened within the trade area. Malls were enclosed and air conditioned, making shopping simultaneously comfortable and inconvenient. The large sizes made it difficult to park close, and resulted in a lot of walking in order to shop the mall. Malls usually had two to four anchors depending on the size of the mall. An upscale mall would be anchored by department stores like Nordstrom’s or Neiman-Marcus. Restaurants would locate either within the mall, or on pad sites on the perimeter of the mall.

Then power centers were all the rage. A power center is an unenclosed shopping center with three or more big box retailers, and a variety of smaller retailers, sharing a common parking lot. A big box retailer became the new anchor of retailing. Brands like Target, Wal-Mart, Circuit City, Barnes and Noble, Linens and Things, and others became the focus of these centers. There was a 10 year period where every third phrase that came out of a real estate broker’s mouth was “power center”. Again, restaurants located on the pad sites of the perimeters of these centers, and poached off of the traffic that these retailers generated.

Now we are in the era of lifestyle centers. And they are hot. Lifestyle centers are open-air shopping venues that typically offer small parks, fountains, and other leisure amenities amidst the name brand retailers selling upscale apparel, housewares, and other discretionary products. They are given names like Town Center or Village. Lifestyle centers, at this stage of their development, tend to be more upscale than their mall or power center counterparts. They occupy much less square footage than malls and tend to generate higher sales per square foot. The village-like design of these centers has made walking and browsing more fun. And they love restaurants as tenants.

The square footage percentage that is devoted to restaurants within lifestyle centers has grown over the years. A mall used to devote 10% of its leased space to restaurant tenants about 20 years ago. Early lifestyle centers were devoting up to 15% of their space to restaurants. Some of the newer centers on the drawing boards are devoting up to 50% of their space to restaurants, and are actually using the restaurants in the role of anchors.

A new lifestyle center has opened just north of Dallas in the city of Allen. It is “anchored” by four high volume restaurants (Cheesecake Factory, P.F. Chang’s, Brio Tuscan Grille, and Mi Cocina). The developer estimates that these four restaurants will generate more than the $30 million volume of a large department store, while occupying one seventh the space. The developer believes that by clustering restaurants in one development, with an amenity-rich environment of trees, creeks, benches and fountains, it makes it a destination. While customers are waiting for their chance to be seated in these high volume restaurants, they can walk the streets of the center and browse. This particular center will have 17 restaurants and cafes as tenants, occupying approximately 20% of the retail square footage, most of it high profile.

This phenomenon is going on all over the country. The development of costly, space intensive malls has practically halted, and the number of lifestyle centers is growing exponentially. The current environment has halted some projects on the books, but many are being built when other types of projects cannot receive financing.

The appeal of restaurants as anchors in these centers is their ability to drive traffic two times per day, and their high sales per square foot. As in any cycle, ultimately too many centers will be built too close to each other, causing all to suffer. In the meantime, every third phrase out of a real estate broker’s mouth will be “lifestyle center”. Get used to it and go with the flow. It may be a while before restaurants drop the baton anchoring this relay.