Retail renovation: saving money - Albuquerque Focus

New Mexico Business Journal, March, 1991 by Ssuan Gaines

Retail Renovation: saving money

Some regard the shopping mall as the first telltale sign of the decline of Western civilization.

While some abhor the mall as a glittering imitation of a town's true heart, where teenagers waste their vital hours and adults spend their hard-earned money, it seems malls are here to stay.

In fact, shopping center modernization and expansion projects accounted for a record-high 24 percent of the total value of mall construction contracts awarded nationwide last year, according to a recent survey conducted by F.W. Dodge Division of McGraw-Hill.

Indeed, retail renovation is the "wave of the present," says Bruce Wiggins, a managing director of Terranomics Retail Services. The reason? Competition.

Shopping centers continue to age, while consumers grow increasingly sophisticated, demanding greater value, convenience and attractiveness from their one-stop shopping worlds.

Thus, despite its cost, retail redevelopment is almost always chosen over new construction. And, redevelopment is a continual game of catch-up, says Paul Silverman, area partner with Trammell Crow Company.

From a retail planner's point of view, the challenge is finding innovative ways to entice the sophisticated consumer.

While retailers merchandise clothes or glassware, "our merchandise is store-fronts," says retail architect John Westerberg, president of Design Response. His Dallas-based firm designed the Winrock redevelopment.

Shopping centers not only have to renovate to boost sales, but the shopping centers themselves are a vital part of the economy in other ways as well.

According to the International Council of Shopping Centers (ICSC), headquartered in New York City, the economy needs shopping centers as much as the centers need consumers.

In 1989 shopping malls generated 55.2 percent of the total non-automotive retail sales and provided 9 percent of the total nonagricultural jobs.

In New Mexico, those figures are even higher: 60 percent of non-automotive sales were made in shopping malls, providing 11 percent of the state's total nonagricultural jobs.

While shopping malls contribute extensively to our economy, it takes money to keep retail sales up. It's a cycle.

Times change, says Wiggins. The only reason to redevelop is to improve a center's performance. The only way to do that is to increase rent. Redevelopment can improve sales by making the store more accessible and interesting to the consumer.

While it may sound like a simple formula, says Wiggins, getting this cycle to flow successfully is an art and, at times, takes a leap of faith.

"However, it's not a gamble if you have the right planning and design," says Westerberg. "Planning is the key."

"Renovation pays if you do it right," agrees Silverman, who headed up the recent Montgomery Plaza renovation.

Montgomery Plaza was done right. Since the renovation, the center's operating costs have been reduced by $200,000 through increased occupancy and decreased maintenance costs. Sales are up 25 to 30 percent across the board.

"You have to watch what you spend and take care of more than cosmetics," says Silverman. "One of your primary goals should be to cure functional obsolescence."

The recent $9 million Winrock Center renovation not only cured functional obsolescence, but also improved its pedestrian circulation.

"This is critical in retail redevelopment," says Westerberg. The configuration also converted nearly 8,000 square feet of existing storage space into functional retail space.

"Essentially, what was once Montgomery Ward's storage space can now be as many as 15 new stores," says Winrock spokesperson Karen Reichert. At the same time, Montgomery Ward streamlined its entire operation so that 30,000 square feet of Ward went to the new Marshall's.

However, $9 million isn't just a drop in the bucket.

"Everything you do in renovation costs more than in new construction," says Rick Tavelli, vice president of Bradbury & Stamm, general contractor for the Winrock renovation. "But, as long is there is commercial space available, it makes more sense to renovate."

National statistics agree with Tavelli. According to F.W. Dodge Division of McGraw-Hill, this year's commercial space expansions averaged $64 per square foot - 35 percent higher than the average cost per square foot of newly constructed space.

Why then are 468 shopping centers undergoing modernizations at an average cost of $853,000 per project nationwide?

According to F.W. Dodge, a renovation done well can generate increased retail sales that more than pay for the cost of renovation.

In the case of the Winrock renovation, the project made sense for everyone concerned. Despite it's relative cost, renovation is less risky than new construction in retail, says Westerberg of Design Response.

For Marshall's, moving into Winrock was an opportunity to buy into a well-established regional identity and clientele. For Winrock's part, Marshall's is a "destination tenant", meaning consumers will go out of their way to shop that particular store, thus bringing increased traffic and increased sales to Winrock.