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The Faith Consolo Team

Faith Hope Consolo
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In the News

Will The Epicenter Collection Become Retail's NEXT BIG THING?

New Concept Fills Vacant Mall Anchor Space with Internet and Catalogue Retailers

There's a new concept in retailing being introduced at a mall in Delaware that, if successful, its founders (and mall owners) hope may catch on as Retail's next big thing.

Called The Epicenter Collection, the concept utilizes department-store-size space as a showroom for Internet and catalogue retailers to sell their products. The first full-fledged implementation of the new concept is scheduled to come to life mid-2008 in a former, 181,000-square-foot Lord & Taylor box in General Growth Properties' 1.1-million-square-foot Christiana Mall in Newark, DE.

What is The Epicenter Collection? Antony Lee, CEO of Convergent Retail, Epicenter's parent company, explained the concept to CoStar.

Convergent is leasing empty anchor space at Christiana Mall from Federated. In turn, Epicenter than "licenses" (a process which Lee explained is simpler to execute than a lease) floor space to 60 to 70 different retailers, each taking from 200 to 7,000 square feet.

However, it is the type of retailers Epicenter licenses the space to that is the key to the concept. Epicenter's retailers are exclusively catalogue and internet retailers, which Lee insists the consumer hasn't traditionally seen in malls before. He said Convergent is very carefully selecting the retailers featured in Epicenter; creating a complimentary mix of tenants that will be arranged strategically in the store.

Asked if any of Epicenter's tenants would interfere with mall tenants' exclusivity rights, Lee insisted that Epicenter will not house tenants that infringe on exclusivity contracts. In addition, he emphasized that Epicenter will exclude traditional store retailers that have later added catalogue and e-commerce to their existing business platforms, which most retailers have done in this day and age.

Lee said that, although Convergent is in negotiations with approximately 100 retailers and expects the first Epicenter to be fully-licensed by early fall, the company isn't ready to announce a partial retailer lineup, but added that he expects to be able to make an announcement soon.

Epicenter provides and maintains a retail-ready box for the tenants and licenses the space at a slightly lower rate than the mall its housed in. For that reason, Lee says that its significantly less expensive for a retailer to license space in an Epicenter than lease typical mall space. Epicenter not only provides the store's signage, fixtures and furniture, it also provides the handheld technology device used by Epicenter shoppers that is pinnacle to the concept.

Called a "SpreeGo," Epicenter customers explore the store with this handheld device, pointing and clicking to any product on display. The device displays product, pricing and ordering information on the item, and the customer can choose to add the item to his or her digital shopping basket (much like an online order). The SpreeGo operates across all Epicenter retailers, and purchased items can be shipped to their home or picked up in the store for free.

Epicenter will also provide touch-screen kiosks throughout the store that accomplish the same thing. And for those who prefer traditional shopping, Epicenter will have checkout counters and employees to help customers.

Retailers will have a wide degree of latitude in how they choose to display merchandise. Some will simply showcase their product line and customers will have to order items and receive later. Others will stock merchandise that customers can purchase and take home then and there. Lee explained that not having to stock inventory reduces cost for the retailers. But the chief objective of the format is to increase options for shoppers.

"Today's consumer is buying about $300 billion of stuff on the web," Lee stated. For those types of shoppers, Epicenter brings the Web to them. "For those customers who traditionally avoid Web-shopping due to the inability to try out products and the high cost of shipping and handling, we resolve those issues," which gives that consumer access to Web and catalogue products in the purchasing situation they prefer. He also explained that today's consumers are researchers, "Approximately 60% of people who buy off-line first research products on the Web," the SpreeGo device and kiosks help expedite that service.

Lee confirmed with CoStar that the Christiana Mall store is indeed a test store with its opening scheduled for mid-2008. Additional Epicenter stores are expected to follow in 2009. Lee said that Convergent's long-range growth plan for Epicenter is to grow to a 100-store chain "in the next five to ten years." Growth plans like that for a department-store-size retailer is particularly exciting for consumers, but even more exciting for mall landlords who see Epicenter as a plausible tenant to fill a vacated box and gain an interesting anchor.

The Epicenter Collection concept was founded by Sheldon Gordon of Gordon Group Holdings, developer of such high-profile entertainment retail venues such as The Forum Shops at Caesar's Palace in Las Vegas, the Shops at Mohegan Sun Casino, Bridgemarket in New York City, San Francisco Center, and The Beverly Center in Los Angeles.

Aside from Gordon, Convergent's executives include Lee, who has a lengthy career in direct-to-consumer catalogue retailing; Ann Gambardella, who has a lengthy career in retail e-commerce technology with the likes of Columbia House and Barnes & Noble; and Ted Pamperin and Will VonKlemper of American Catalog Partnerships, catalogue industry veterans with names like J. Crew and Tweeds under their belts, who are recruiting retailers to open up in Epicenter.

Gordon created Convergent Retail to hold Epicenter, and Federated Department Stores is a minority equity partner in the company. Convergent struck a deal to obtain the two-year vacant Christiana Mall space with Federated in exchange for Convergent stock and a seat on its board. However, Lee told CoStar that Federated's involvement in no way requires Epicenter to open only in empty Federated boxes. He said that Convergent is "looking at every location on its individual merits," and that Epicenter requires "high-traffic, high-volume, super-productive locations."

Lee said that Convergent is in talks with landlords on future locations, but has not secured additional spots. Lee emphasized that Epicenter is not limiting itself to vacant mall boxes, it is also considering new developments, including regional malls and lifestyle centers.

In announcing Epicenter's first location, Convergent explained why the Christiana Mall fits its criteria. "Its one of the nation’s most productive malls, and being located on I-95 in tax-free Delaware, it draws from nearby Pennsylvania, New Jersey and Maryland. The center’s current anchors, Macy’s and JCPenney, will be joined by a two-level Nordstrom (Spring 2011) and The Epicenter Collection. The center’s merchandising mix is further enhanced by premier retailers including Apple, Coach, Lucky Brand Jeans and Williams Sonoma. Christiana Mall is preparing to undergo an extensive renovation and expansion that will include nearly 200,000 square feet of new first-to-market specialty retail and premier restaurants."

Both GGP and Convergent have said that they expect Epicenter to produce equal or better sales-per-square-foot results as the mall, which for Christiana means approximately $750-per-square-foot; about $300-per-square-foot more than the average U.S. mall.

John Bucksbaum, CEO of General Growth Properties, owner of the Christiana Mall explained why he was willing to take a chance on Epicenter, “The Epicenter Collection is a major step toward bridging brick-and-mortar retailing and online sales. I believe that Epicenter will show the successes that can accrue when you combine both quality shopping center experiences with online retailing.” Perhaps Bucksbaum is looking forward to the possibility of Epicenter opening in its other malls, according to CoStar Property Professional, GGP has existing anchor tenant space available at Southlake Mall in Atlanta, Willowbrook Mall in Houston , Highland Mall in Austin, Cottonwood Mall in Salt Lake City, and Landmark Mall in Alexandria, VA.

Epicenter certainly has plenty of regional mall and lifestyle center locations across the country to choose from. According to a query of CoStar Property Professional, there is at least 10.73-million square feet of department-store-size space (100,000-square-feet or larger) currently available in the country's existing malls and lifestyle centers. Additionally, there is at least another 12.36-million square feet of anchor space available in malls and lifestyle centers currently under construction.

Faith Hope Consolo, chairman of the retail leasing and sales division for New York City's Prudential Douglas Elliman, and one of the city's leading retail real estate brokers, told CoStar that she has faith in the Convergent Retail team.

"This is a very representative group that knows what they're doing, the concept is obviously well-thought-out, its been a long-time coming, and if they implement it well, which I expect they will, I think it can work." About the concept, Consolo said, "I think this may be the next concept that really catches on -- just like off-price/outlet retaling did years ago. Bringing catalogue and Internet retailers together in a space and on a retailing platform with others like them that couldn't find their place before, should reinforce those retailers' core business and bring them full circle."

Consolo also said Epicenter will draw customers because of the experience it will offer. She explained that the customers ability to interact with new retailers, as well as the SpreeGo device and interactive kiosks, will make the shopping experience fun and interesting, and she says "that's what people are looking for. Shopping is the number-one form of entertainment in this country, we are shopaholics and this is what we do in our leisure time, a concept that gives shopping a new angle excites the consumer."

Consolo said that Epicenter's format has not been done before, and that the closest comparison in today's market are "pop-up" stores that retailers temporarily put up in busy city locales. She said that retailers' primary purpose for such pop-ups is usually to promote a new product line; or to test-market a new store location. Retailers like Target, JC Penney, and Home Depot, as well as upscale designers, will put a lot of money into creating fanfare and excitement at these temporary pop-ups. She said they see it in New York City more and more because the cost of real estate is so high; and if retailers are going to pay that kind of money, they want to make sure they've got their market and location right.

Consolo explained why she thinks Epicenter will make sense as a department store in a mall, "Its important that there is no clearly defined price point. Today's consumers are cost shoppers, they want to be able to go in to a store and get every price level and don't want to be pigeon-holed." She said this shopper-mentality matches yesterday's department store shopper, which makes the vacant mall box space a great fit. "Epicenter is at the right place at the right time, offering all price levels and an un-alienating experience to shoppers with a lot of disposable income across all generations."

She further commented on the effect Epicenter could have on mall real estate for landlords, "It certainly could solve Federated's issue with all their extra real estate from the mergers, acquisitions, and sales. Epicenter has the potential to absorb locations for them in areas they wouldn't normally open in and could help them divest of that challenging extra footage." For the retail centers Epicenter locates in she said, "I think it will enhance shopper traffic and get the customer back in for something new, even bringing old customers back who haven't shopped at that center for a while." She addressed the concern of increased competition to existing retailers Epicenter might bring, "I actually think it could increase their sales due to fall off; however smart retailers know they have to constantly revisit and redesign their product and presentation to keep the consumer interested. The ones that don't die off."

 

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