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Mall Owners Woo Hispanic Shoppers

Miriam Jordan
13/08/2013

The Wall Street Journal

Link to article: http://online.wsj.com/article/SB10001424127887323446404579010914180363136.html

PANORAMA CITY, Calif.— On a recent Sunday, Spanish-speaking families swarmed the Panorama Mall here in the outskirts of Los Angeles for an afternoon of Latino entertainment.

"We come for the mariachi, then we eat something and go shopping," said Gloria Mesina, visiting the mall with her daughter, Viviana, and her granddaughter, Brisa.

That is music to the ears of José Legaspi, a real-estate broker who joined forces with the mall's owner, Macerich Co., to revitalize the shopping center by targeting Hispanics.

The partners are among an emerging crop of commercial-property investors responding to the same demographic reality that has rocked the political landscape: the rise of Hispanics.

Hispanics accounted for more than half the population growth between 2000 and 2011; Latinas have more children than non-Hispanics; Hispanic households that earn $50,000 or more are rising at a faster clip than total U.S. households. Their households outspend other groups on beauty products, food and apparel, according to Nielsen Co.

Now, Mr. Legaspi and Macerich, owner of about 70 retail properties, believe that Hispanics shoppers may help solve a problem that has been vexing the retail real-estate business: dead malls. While this has been a problem for decades, it has been worsened by the economic downturn combined with competition from online shopping.

The team believes many ailing malls could be revived by luring Latinos with a combination of live entertainment, children's rides and adjustments to the mix of retail and food options. Such amenities can help draw an important and growing demographic amid escalating competition from online shopping.

"The market has been grappling with what to do with obsolete, underperforming malls," says Ryan Severino, an economist at Reis Inc., a market-research firm that specializes in commercial real estate. "It's right to go after a group whose population and purchasing power are growing and offer a mall experience that can't be replicated on the Web."

About 10% of the 1,081 malls tracked by Green Street Advisors Inc. will close or experience a significant change in use over the next decade, the firm predicts. About 190 malls currently have sales of $250 a square foot, well below the U.S. average of $450 a square foot.

"Most future dead malls will come from this group, but many will also come from malls currently more productive," says Cedrik Lachance, a Green Street analyst.

Mr. Legaspi, who began in the 1980s by helping Hispanic grocers establish outlets in Los Angeles, has used his Hispanic strategy on nine malls. He co-owns four of them in Texas, Atlanta and Oklahoma City and manages five for Macerich in California and Arizona.

A 61-year-old native of Mexico, Mr. Legaspi settled in the U.S. as a teenager and made his first foray into a Hispanic-focused mall in 2004, backed by a Texas investor named Andrew Segal. The 1.2 million-square-foot Fort Worth center was only 10% occupied, and "literally dead," recalls Mr. Legaspi, whose company is Legaspi Co.

For $22 million, the partners acquired and transformed the mall. They gave it a Spanish colonial exterior and interior reminiscent of an old Mexican downtown and rebranded it "La Gran Plaza" in 2006. Today, the center is more than 90% occupied.

In 2010, Santa Monica, Calif.-based Macerich tapped Mr. Legaspi to reinvent a Phoenix shopping center called Desert Sky Mall that was trending downward. "We looked at the demographics and realized we hadn't drawn from the large Hispanic population group," says Eric Salo, Macerich's executive vice president.

A vacant Mervyns was turned into a mercado, housing several Hispanic-owned retail stalls. Latino-themed events were introduced, such as a Dia de los Muertos celebration featuring traditional Mexican altars. Free musical performances became a weekend staple.

Almost immediately, recalled Mr. Salo, "we saw foot traffic go up, sales go up and tenant occupancy go up." Some tenants who had given notice they would vacate decided to stay. The property's bottom line got a 30% boost, according to the Macerich executive.

Buoyed by Desert Sky Mall's success, Macerich and Mr. Legaspi in 2011 created Vanguardia, an operating program for repositioning existing malls for Hispanics.

Average sales per square foot of the five Vanguardia properties are about $250 to $300, compared with more than $600 at high-performing malls, according to independent estimates.

Most of the Vanguardia malls have seen an improvement in sales, but there has been one notable exception. The Fiesta Mall in Mesa, Ariz., which sits in a deserted retail area in greater Phoenix, was "crushed" by the recession, according to a report by Green Street.

"Whether the strategy is going to work long term is still an open question," Mr. Lachance says. "But you have to give a thumbs-up to Macerich for responding to the changing demographic."

Before it was upgraded, Panorama Mall in the San Fernando Valley "felt like a swap meet," said college student Joana Delgado, 26 years old, who shopped at the Wal-Mart store on a recent Wednesday.

In 2011, Macerich began upgrading the one-story mall. It added rounded arches to the ceilings and enhanced the lighting to create a brighter, airy ambience. A stage went up in the center and children's rides were placed at either end of the mall.

On a recent day, thick crowds formed lines outside the restaurants, fingered through racks at Forever 21 and packed Children's Place, an addition since the renovation.

The Children's Place says sales have exceeded expectations. "Our experience in Panorama Mall gives us confidence that our strategic pursuit of the very important Hispanic customer is on track," says Jane Elfers, chief executive of the national chain.

With retail demand surpassing supply at Panorama Mall, Macerich and Mr. Legaspi have drafted plans for an extension to include an open-air courtyard and fountain. Called Promenade Panorama, it is slated to open in fall 2014.

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