Week of August 6, 2018
By Garrick Brown
Brookstone Goes BK
As I wrote last week, the “amenitization” of retail is underway. The number of standalone retail projects that will fail is likely a lot less than many fear, but the way out for these properties will increasingly be mixed-use. Struggling Class C malls may find new life as mixed-use multifamily, medical, campus, office or hospitality projects, and urban office, multifamily and hospitality projects alike are all deeply interested in landing the right kind of retail to drive the “halo effect,” which is all about boosting the overall value of a project. The concept is simple: it harnesses a retail mix for amenity-craving consumers (often with discounted rent for retailers on the ground floor) that drives greater rents upstairs.
And now, some bad news. Your humble author’s first job was a failed and brief stint at Carl’s Jr. My employment ended on the third after-school shift when I was asked to clean the grease vat and bailed to go drink beer with a friend who was a horrible influence. However, I quickly landed on my feet and my real first job was at this great little gadget store called Brookstone. It was 1985, and the store was located in a brand-new development in downtown San Diego called Horton Plaza. I wore a green apron and roamed the sales floor with my clipboard extolling the virtues of humidifiers and corkscrews that doubled as hunting knives while bad-mouthing Sharper Image as being way too expensive.
At the time, downtown San Diego was notable primarily for its faded glory. Its most prominent landmarks were the county jail, office buildings mostly populated by law firms, sailor bars, dirty bookstores, and the down-and- out. Horton Plaza, with its shining pastel Miami Vice-inspired colors and innovative architecture, kick-started the redevelopment and creation of downtown San Diego as we know it today.
Back then, employees referred to it as Fort Apache. The mall was designed to isolate shoppers from the challenges of the city surrounding it. This strategy certainly helped initially boost the center’s popularity, but has since become a liability as the surrounding streets have become vibrant and packed with workers, tourists and shoppers. Likewise, its once groundbreaking architecture now seems dated and the architecture that broke away from the conventional mall layout (multi level and straight shot) means that many shoppers get confused trying to find their favorite stores. On a trip there last year, one employee shared with me that they referred to it as Winchester House, the San Jose landmark noted for its hallways to nowhere.
Everything changes, and retail is changing at a faster pace than ever. This is an evolution on steroids, speed and Amazon juice. It was recently announced that Horton Plaza is going to be redeveloped and, alas, my beloved Brookstone has declared bankruptcy yet again.
The good news? Unlike other retailers facing this fate, Brookstone will survive. In recent years their foray into airport retail has been a bright spot; however, their mall stores haven’t fared so well in the face of encroaching online retail and dwindling store sales. As part of its Chapter 11 filing, Brookstone will close all remaining 111 mall stores, but will keep their 35 airport locations and e-commerce division open.
Considering their category, one could argue it’s a miracle Brookstone has survived this long. The unique nature of their merchandise meant that Brookstone was particularly vulnerable to online retail. While their online platform and airport stores – with their selection of travel-focused goods and an affluent consumer base with time to kill between flights – have performed well, the mall stores were more about browsing and finding goods that you didn’t know you needed. The challenge in the newCommerce age is that if you need a hard-to-find item, you probably start with an online search. If you ask the average consumer what goods Brookstone sold besides very expensive massage chairs, most consumers struggle with an answer beyond “gadgets.”
The good news is that nearly all of Brookstone’s 111 stores are situated in Class A malls. I don’t want to sugarcoat things, but keep in mind that the typical sales per square foot (psf) for Class A projects begins at $600 psf. The last time Brookstone openly reported sales per square foot that I know of was 2011 when it stood at about $511 psf, but sales have slid since then.
While no retail bankruptcy is good news, most Class A operators should be able to backfill Brookstone’s vacant spaces (which are typically in the 4,000 sf range) within six months to a year – and they will likely do so with concepts that generate higher sales. This also translates to an even greater amount of space on the market (about 4 million sf) and a further diminished tenant pool, one that will impact the fortunes of all malls. Concepts that are growing are still looking at quality first, so Class B projects and below will see even less spillover from tenants priced out of Class A space.
Garrick H. Brown
This post is commentary from the latest edition of our Cushman & Wakefield Retail Newsline, which you can subscribe to for free by e-mailing firstname.lastname@example.org.
Garrick Brown serves as Vice President, Retail Intelligence for Cushman & Wakefield throughout the Americas. He is one of the leading retail real estate analysts in the United States; speaking frequently at industry events and regularly quoted on retail matters by the Wall Street Journal, the CBS Evening News, NBC News, CNBC, National Public Radio, Women’s Wear Daily and dozens of Business Journals and other industry publications.