Shopping Centers and the Chains

The growth of shopping centers in the past decade has been fittingly described as a revolution in retailing-a revolution which has not yet run its course.

For more than a century, our retail set-up had been based solidly on the Main Streets of the country and the downtown areas of the big cities. Then, hardly more than sixty years ago, we began to be faced with an entirely new set of conditions. With millions of city dwellers having migrated to the suburbs since World War II, and the parking problem in traditional shopping sections having reached serious proportions, farsighted real estate developers had seen the need for a new kind of retail facility-the suburban shopping center.

That their vision was sound has been unmistakably demonstrated. The movement has spread from one end of the country to the other. Wherever the population of suburban areas had grown or was growing to the point where retail facilities of the area were inadequate, a new shopping center was indicated. Very soon a new vocation arose in the real estate field -- that of shopping-center developer. To assemble suitable acreage for such a project, to evaluate its potential from the standpoint of its prospective tenants, to lay it out in a way that would provide attractive stores, easy access and ample parking space, to sign up enough of the right kind of tenants to satisfy the institutions from whom the developer would seek the necessary financial backing, required special abilities. It offered substantial rewards to those whose imagination and skill enabled them to convert their surveys and plans into thriving retail centers.

To what extent shopping center sales have been developed at the expense of retailers operating in traditional locations would be difficult, if not impossible, to calculate. Without any question, Main Street and downtown stores have felt the impact of this new competitive factor. Indeed, during the period in question, many important downtown department stores have closed their doors at such locations because of the changed conditions which led to the development of shopping centers.

How many of the casualties among smaller merchants may be attributed to the same factor is more difficult to say because of the many other mortal ills to which small retailers have always been particularly vulnerable. Nevertheless, any merchant within a shopping center's sphere must have felt the impact of its competition to a greater or lesser degree. In the case of small-scale merchants, any such loss of volume would be apt to have serious consequences.

On the other hand, to conclude that the tremendous volume done by shopping centers reflects an equivalent volume of sales lost to other retailers would be erroneous for several reasons. In the first place, much of it undoubtedly represents additional sales-sales which would have been made by no retailer but for the persuasive merchandising and superior facilities offered by center stores. In the second place, much of it reflects the substantial growth of population in the new areas served by shopping centers which, in any event, would hardly have gone to the merchants who remained at their old locations.

What is more to the point, perhaps, is that the retailers remaining in traditional locations did not take the new competition lying down. On the contrary, in many sections of the country, urban renewal and downtown rehabilitation projects, aggressive merchandising campaigns and other constructive measures were undertaken to meet the new competition. Such measures have been successful enough to develop new business to offset, in part at least, the sales lost to shopping centers. The future may see a state of more or less peaceful coexistence of urban and suburban retailing.

The benefits the chains have enjoyed, on net balance, as a result of the shopping center revolution can hardly be overestimated. Although the chains did not originate the movement and, indeed, were less than enthusiastic about it in its early days, their participation was vital to its success. With all their stores located on the Main Streets of the country or in downtown sections of big cities, the chains were as much concerned as the independents about the future of such traditional shopping areas. If, as expected, the new shopping centers siphoned off sales from such stores, the chains would suffer along with their smaller competitors.

The one big difference, however, was that the chains were in a position to offset such losses by opening their own units in shopping centers. While to some extent that would mean competing with their own stores outside of the centers, that would obviously be less costly than letting someone else get the benefit of the center's potential volume. The small-scale merchant, on the other hand, usually lacked the resources to expand his operation by moving into a shopping center even if given the opportunity to do so.

But the chains came to play a major role in the development of shopping centers in another way. Whereas they might conceivably have worked out their own salvation without committing themselves to shopping center locations, the shopping centers would never have got to first base if the chains had refused to play ball with them. Certainly that is true of the larger centers, which depend for their success upon having the kind of stores that would draw customers from five or more miles away. This meant that such stores would have to be operated by established department stores and other retailers, whose names, like those of the chains, were already household words to everyone in the trading area. Thus, the well-known chains in each field became the prime prospects for shopping center developers.

Furthermore, if the units were to be big enough and impressive enough to command the necessary following, a larger capital investment and operating budget would be required than any but an already successful merchant could command.

Finally, the developers had an even more pressing reason for turning to the chains and other well-established retailers as prospective tenants for such projects. To finance the building of the centers, developers had to depend upon life insurance companies and other financial institutions to provide the wherewithal.

Applications for such financing had little chance of acceptance unless they were backed up by lease commitments by AAA-1 companies. Until quite recently, the rule-of-thumb formula applied by such financial institutions required at least 70% of the available space to be leased to such high-rating companies. Today the tendency is to relax that requirement somewhat, with a somewhat greater share of the space going to local merchants. Experience has shown that a greater diversity of shopping facilities in a center pays off.

In any event, the preference the chains have enjoyed in this new retail area had not gone unnoticed by the political champions of small business. Thus the Small Business Committees of the Senate and the House, respectively, have conducted hearings to ascertain what, if anything, could be done to make it easier for a small merchant to set up shop in a center.

"The chains and the department stores have no trouble locating in shopping centers because of their Triple-A rating," the small retailers have complained. "Why couldn't the Small Business Administration, or some other governmental agency, set up some sort of insurance plan that would make the small merchant as good a credit risk as a Triple-A concern?"

The trouble with that suggestion is that it would not quite meet the situation. For Triple-A companies are sought as prime tenants not merely because of their credit rating, but, just as importantly, because their established following and merchandising know-how will be most likely to produce a successful operation. The more business each shopping center unit can do, the better it is for all concerned -- for the tenant himself, for the landlord whose rental is based on a percentage of sales, and for the other tenants of the center who benefit by the combined traffic all units draw. A retailer who couldn't be depended upon to realize the maximum possibilities of the space he occupied would not make a satisfactory tenant no matter how strong his credit was. Nevertheless, small stores can make desirable tenants as well as big ones, and, as has been pointed out before, the present tendency is to make shopping-center space more readily available to small-scale merchants. The chains, as well as financing institutions, believe that the drawing-power of centers can be increased in that way.

Source: Chain Stores in America