Megamall flourishing in a weak economy

  • Article by: THOMAS LEE , Star Tribune
  • Updated: October 3, 2011 - 12:32 AM

Nickelodeon Universe and other Mall of America draws help boost sales and traffic.

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Lisa Bergerson and her nephew Aidan Johnson, 4, rode the Back at the Barnyard Hayride at Nickelodeon Universe at the Mall of America in Bloomington, Minn., Thursday, September 22, 2011.

Photo: Kyndell Harkness, Star Tribune

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America may be struggling, but the Mall of America is doing just fine.

Actually, better than just fine. Despite a weak economy, high unemployment and waning consumer confidence, the mall is thriving, thanks to its Nickelodeon theme park and the purchasing power of upper-income shoppers flocking to stores like Nordstrom and Michael Kors.

Sales at Mall of America retailers through August are up 9.4 percent compared to the same point in 2010. Traffic is up 5 percent. By contrast, comparable retail properties posted an average 3.3 percent sales gain in the same period, according to data from the International Council of Shopping Centers (ICSC).

"It's a premiere property," said Mark Schoening, senior vice president of national retail for Ryan Companies in Minneapolis. "And malls with good locations and good anchor [stores] are still doing well."

Even in 2008 and 2009, in the teeth of the recession, the Bloomington mall eked out sales increases of 2 percent and 1.5 percent respectively. Last year, sales at mall retailers surpassed $1 billion for the time, thanks to a strong 7.5 percent sales gain.

"If you can trudge through the recession without stepping back, don't stick your head in the sand, you will come out on the other side ahead of where you went in," said Maureen Bausch, the mall's executive vice president for business development. "If you see these results, you clearly see we came out of the recession far better than when we went in."

The Mall of America's resiliency is even more striking given the headwinds facing malls and large shopping centers across the country. More consumers are purchasing items online, through their PCs, smartphones and tablets. Throw in high gas prices, and shoppers are making fewer trips to the mall.

"You can make a lot of your [shopping] decisions without having to go to the mall," said Devon Wolfe, managing director of strategy and analytics services for Pitney Bowes Business Insight. Retailers are being asked to "pay for expensive real estate just so consumers can try on things that they later buy on the Internet."

ICSC forecasts chain store sales to grow 3.5 percent during the holiday shopping season but predicts shopping center sales will increase only 2.2 percent. ShopperTrak said sales in November and December will rise 3 percent but foot traffic will actually fall 2.2 percent.

So far this year, shoppers visited an average of 3.1 stores per trip, down from 3.19 in 2010 and far less than four to five stores in 2008, before the recession, according to ShopperTrak.

"The persistently high unemployment and fuel rates along with consumers' conservative purchasing attitudes will affect spending this holiday season more than in recent years," said ShopperTrak co-founder Bill Martin. "Every shopper in a store will be more valuable than last year, and retail stores should be ready to convert their holiday shoppers into sales."

Higher-income shoppers

Much of Mall of America's sales growth has been driven by higher-income shoppers, specifically women ages 25-54 and men ages 18-24 and 45 and above who make more than $100,000 a year.

"Luxury is coming back really well," said Cynthia Groves, senior managing director of consulting for Newmark Knight Frank, a real estate services firm.

The mall has especially benefitted from its anchor tenants, including Nordstrom and Macy's, two upper-scale retailers performing well right now.

So far this year, Nordstrom said total sales at stores open for at least a year have jumped 6.9 percent, including 7.9 percent for the regular Nordstrom stores (the company also owns Nordstrom Rack). Macy's, which operates a regular Macy's and Bloomingdale's at the mall, has posted same-stores gains of more than 5 percent.

The Mall of America also has made extensive renovations to South Avenue, where most of the mall's higher-end shops are clustered. In addition, the mall has added such luxury retailers as Michael Kors and Superdry to a group that already includes Hugo Boss and Armani Exchange.

"The better the store, the better sales increase," Bausch said. "We're finding people are investing a little bit more in items of higher quality. They aren't frivolous items. If they are gong to buy a handbag, they are going to buy a handbag that will last them four years."

Another big asset for the Mall of America: Nickelodeon Universe. Since opening in 2007, the country's largest indoor theme park has averaged about 8.5 million rides a year. Camp Snoopy, Nickelodeon's predecessor, averaged about 7.9 million rides over its lifespan.

While mall officials declined to release specific sales figures, they said annual revenues from the Nickelodeon park are running about 18 percent higher than Camp Snoopy's final three years -- mostly because of higher ticket prices.

Eager to exploit the park's popularity, the mall has run a promotion that offers shoppers two unlimited ride tickets (about $60) if they spend at least $250 anywhere else in the mall. The promotion has helped drive sales for retailers throughout the mall, officials say.

Experts say attractions like Nickelodeon help destination malls like Mall of America stay relevant with consumers. The mall also has expanded its number of movie screens and plans to build a skating rink and 4,000-seat theater.

"Having an experience at the mall is much more interesting if I'm [low on cash] than just buying something on the Internet," Wolfe of Pitney Bowes said.

Nevertheless, the Mall of America's strong numbers prove people "want to consume if they can. We're still a material-oriented culture," he said.

Bausch, however, said the economy continues to worry her.

"We have got to get people back to work," Bausch said. "It takes a lot of people to move this economy. I'm a little nervous."

Come November and December, which accounts for 20 percent of annual retail sales, "we're going to be promoting like heck," she said.

Thomas Lee • 612-673-4113

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