Cultural anthropologist William Irwin Thompson posits that as new, and often better, ways of doing things arise, outmoded technologies are endowed with ritualized significance, driven partially by a reverence for the past. The candle, replaced by incandescent bulbs and florescent strips, is now used for special suppers. This same idea may hold true for patterns of human life.  As the suburbs have developed into new exurban modes, there remains nostalgia for the old town-center grid. Lifestyle centers, one of the latest retail development trends, seem in part an expression of that sentiment, as they capitalize on many urban landscape attributes.
 
According to the International Council of Shopping Centers (ICSC), most of the current retail growth is being channeled through the lifestyle-center concept, though it comprises a fraction of the retail market.  According to that source, there is about one or two lifestyle centers (depending on the exact definition) to every 50 malls, and whereas malls cover about 968 million square feet, ICSC reports, lifestyle centers encompass about 3.3 million square feet.  Nevertheless, lifestyle center space is prime: In 2001, according to Piper Jaffray research quoted by National Real Estate Investor, the average ROI in the third year of lifestyle-center operation was 60%, compared to 49% for malls. 

Lifestyle centers, in fact, are a reversal of the mall concept, taking their lead more from the traditional strip center: Whereas the mall is a closed space, the lifestyle concept calls for open air, often with porch roofs that lend an Old West or Old London look (depending on coastal orientation).  Whereas malls are egalitarian, playing up and down the economic scale, lifestyle centers are selective, or specialized, playing to the upscale communities in which they are located.  And, whereas the mall is a pure product of the suburbs--a large retail footprint set in a sea of parking--lifestyle centers seek to create a cosmopolitan accessibility and timbre.  Indeed, curbside parking, sidewalks (sometimes in Colonial Williamsburg brick), lamp posts and the strategic use of fountains and public gathering space telegraph urbanity with its associated claims to discernment, old-world values and classicism. 

However, lifestyle centers are evolving, too.  One direction takes the lifestyle center toward larger enterprises, often adding an anchor that might typically be associated with an upscale mall, among other larger, grounding retailers; while the second path takes the center toward greater complexity, as more mixed-used, community aspects are folded into the retail cluster, similar to Continuum Partner's Belmar redevelopment in Lakewood, Colorado ("Putting the ''All'' Back into Malls"). Indeed, some malls, also, are now expanding to incorporate the lifestyle-center concept, extending spurs of outdoor, upscale shops.

To get insight into the current evolution of lifestyle centers, Reis spoke to Terry McEwen, president of Memphis-based Poag & McEwen Lifestyle Centers, the firm that coined and service-marked the term "lifestyle center" and pioneered its development.  Mr. McEwen, a 27-year retail-center veteran, oversees day-to-day operations, supervises lease negotiations, manages tenant relationships, and leads site selection efforts. Prior to partnering with Dan Poag, McEwen served as a senior leasing agent with The Taubman Company and the Director of Operations for Kansas City-based mall developer Dreiseszun & Morgan. 

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Sam Truitt: Since the late `80s launch of the Shops at Saddle Creek--the first lifestyle center--how has this concept evolved at Poag & McEwen--if it has evolved at all... namely, maybe you got it right, right off the line of scrimmage?
 Terry McEwen: There's been some evolving, partially because of what we, and the industry, have learned and because things change over time. The original phase of Saddle Creek was 87,000 square feet: Now with all three phases, it's 142,000 square feet. The second project we did after Saddle Creek was One Pacific Place, and it was only 90,000 square feet. Today, most lifestyle centers are much larger than that. We have done and are doing several in the 700,000-square-foot range, and our minimum size now is probably about 225,000 square feet.

Truitt: Was part of the initial concern sustainability?  That you might not be able to maintain the lifestyle integrity and its amenities tipping over 100,000 square feet?
McEwen: A number of things happened.  Back in the late `80s, stores were smaller than they are today: For example, then, stores like Ann Taylor and William Sonoma would have been about 3,000 square feet; today, they're in the 5,000-6,000-square-foot range.  At that time, there were not that many retailers receptive to experimenting with the lifestyle concept, whereas today, many retailers want to be in these centers. There's tremendous demand. Through the years, we also we found that critical mass was important to maintain a competitive position.

Truitt: How do current demographics favor lifestyle center developments?
McEwen: Some of it has to do with how busy people are today; for instance, there are more families in which both the husband and wife work.  Consequently, people value their leisure time more.  One of the advantages of lifestyle centers it that they can offer a quicker, more convenient shopping experience than a mall.  Another change driving the development of these centers has been the growing affluence in suburban and small-to-midsize markets, as well as the rapid overall residential growth of these communities.   Generationally, aging Baby Boomers are spending considerably on apparel, home furnishings and entertainment, while their children, who are in their teens and 20s, have grown up with a certain lifestyle expectation and seem to be continuing with those lifestyle habits to become big consumers in their own right.

Truitt: Baby Boomers start to retire in 2011: Are you making any changes to your concept in anticipation of that demographic shift?
McEwen: A lot of areas where people have second or retirement homes will boom--and are booming now--states like Florida, Arizona and California. However, it might be a different retail experience once Baby Boomers have actually crossed over into retirement. Today they are in their prime for consuming products. What they will be spending their money on may change. 

Truitt: Is it going to change the way in which you design your centers?  That is, might mobility become an issue - though perhaps lifestyle centers are already keyed to accessibility?
McEwen: Correct.  We are trying to maintain in our design a very convenient parking and shopping experience.

Truitt:  How do you decide whether a center needs an anchor or not?
McEwen: There are two things that we look at: The first thing has to do with the project's expected retail radius--do we need to increase the regional draw for this project.  The second issue has to do with competition.  A smaller community can support a lifestyle center, but if the center were expected to draw on a large regional base, then it would probably be better to have a department store.  In terms of protecting a center's market position, placing an anchor store in a center can prevent a new mall from coming into the area or help the center to compete more effectively with an existing mall.  An additional advantage to having a department store is that it advertises heavily and offers products that sometimes are not offered in lifestyle centers. However, an anchor can take up a lot of space and often pays very little rent, hurting the overall project's pro forma.
 

Truitt: Might there be circumstances in which location would preclude the possibility of an anchor?
McEwen: That's correct.  Years ago, when we first started doing this, the perception was that you needed department stores in order for retail centers to be successful--to have a draw for the other specialty retailers.  However, we found and have proven that that is not always the case. In fact, the synergy created by the specialty retailers and restaurants of a lifestyle center can create its own destination draw.  Consequently, these centers can be just as successful--if not more successful--without department stores.

Truitt: But doesn't the center collect a percentage of anchor stores sales?
McEwen: There's usually a percentage clause in the lease, but it's rare that an anchor will have enough sales volume to realize any percentage rent.

Truitt: What do you believe makes it possible for a lifestyle center to succeed without having an anchor? 
McEwen: The studies keep coming back with the same thing: The four appealing things about lifestyle centers (and pretty much in this order) are: One, the mix of specialty stores and restaurants; two, convenient parking and access; third, safety; and four, the ambience created in the center. There is a sense of community that people have by having a lifestyle center where they can see and be seen, where they can gather with neighbors and where there is entertainment. Primarily it's a convenient shopping experience, but secondarily it is becoming a community gathering point.

Truitt: And as part of the last aspect, is that also tied to people's aspiration to a certain lifestyle?
McEwen: There might be a little of that aspiration, but I think it is more than that. It's wanting to be in a comfortable, pleasant environment. It's not going and fighting the masses of teenagers at the mall, but rather it's going to an area that has fountains, landscaping, music and unique architectural features that appeals to people.

Truitt: According to ICSC's definition (Winter 2001-2002 Research Quarterly "Lifestyle Centers -- A Defining Moment," summarized in "What's a Lifestyle Center?"), these retail centers "usually serve as a multi-purpose leisure-time destination." Their lifestyle center survey, however, found that 74% of its patrons come to the center to visit a specific store or for a specific item, and only 30% came to browse. How important a part has destination played in your developments?
McEwen: A common perception is that people come to lifestyle centers, park in front of the store in which they want to shop, visit and leave. However, our studies are showing that the amount of time that shoppers spend at a lifestyle center and the amount of stores that they cross-shop in are almost identical to the mall. And, because a lifestyle center customer's average income is typically double of that of the usual mall customer's, their expenditures are about 50% higher than those being made at the mall.  Part of that is due to the affluence of those served by a lifestyle center.  The other contributing factor, however, is that in malls, there are a lot of small-ticket, impulse items that people buy, whereas in a lifestyle center, money is being spent on bigger ticket items.  In addition, people tend to go to a lifestyle center more frequently because they are much more convenient than malls and offer a sense of community.

Truitt: To what survey are you referring?
McEwen: One of the national retail chains hired a company to do a mall and lifestyle customer-profile study from around the country. A lot of our information is derived from that study. But we do a similar study at each of our centers every year, and the information that we gather is in line with that retailer's study.

Truitt: Do you see over-development in the lifestyle center category?
McEwen: Eventually there could be some over-development, but not in the near future.  There are only about 100 lifestyle centers in the entire country, while there are about 2,000 malls--that's a big difference. We see a lot more opportunity to do centers than we could do ourselves, and there are a lot of other people getting into the business.  I believe that, for a while, there is still a lot of opportunity out there.  However, in some of the more popular markets, there could be some overbuilding down the road.

Truitt: What about over-exposure of some retailers?
McEwen: Retailers are pretty sophisticated and have market research to determine how much sales activity from their new store they could potentially cannibalize from their nearby existing stores. So, they are smart about spacing them properly and not over-saturating their markets.  We are seeing some stores starting to slow their expansion because they feel their markets are already well covered. In those markets, retailers are coming out with new brands through which to expand.  Additionally, they may also be relocating from current sites to new locations.

Truitt: There is a lot of talk about how rising interest rates, combined with possible over-extended consumer credit lines, could alter disposable incomes, thereby causing retail to suffer.  In some of your expansion market, how much insulation do lifestyle centers have against diminishing retail?
McEwen: In our history, we've had sales' increases in every year--even in bad years. One of the big pluses of lifestyle centers is that they are going to continue to be the shopping center of preference. The sales per square foot they earn are higher than those earned at malls and continue to go up. Malls are going to be dealing with that issue more than the lifestyle centers.

Truitt: What kind of cap rates are you seeking for different lifestyle center classes?
McEwen: While we're not in the market of selling our centers, we are seeing cap rates--dependent on location--running in the 7.0%-to-7.25% range, with a few falling below 7.0%.

Truitt: Do lifestyle centers target in-fill locations?
McEwen: Not really...lifestyle centers are typically a by-product of affluent suburban growth.

Truitt: Shops at Evergreen Walk in Windsor, Connecticut, is slated to open in the fall. Would that project be in line with an enhanced community sensibility?
McEwen: As far as the layout of the shopping center, it is sort of a "Main Street" concept, and it winds and weaves. Most of the new projects we are doing today are laid out like that. There is substantial parking in the Main Street area, but we are creating that sense of place.

Truitt: Why are you evolving in that Main Street direction? Is that what people want?
McEwen:  We believe the traditional format we have used in the past--which is more of a U-shaped concept--has been very successful and will remain so. We have proven that customers like them. We think that there may be some evolution in the direction of fostering a greater sense of place: Maybe more of a community sensibility. We are testing it. Also, as our projects are becoming larger, we're finding that this layout reduces the distance that people have to walk. If lifestyle centers become too large and the stores too far apart, it makes cross-shopping difficult. The Main Street concept brings stores closer together.

Truitt: How do you see lifestyle centers evolving in the next five years?
McEwen: There are a couple of things. One is that anchor stores may become a larger part of lifestyle centers than they have been in the past: Size may continue to increase. Another concept is a hybrid, with which we've been experimenting and that if successful may become more prominent. That's where there is a big-box power center connected to a true lifestyle center. That's happening. Finally, we are seeing a vertical approach, with residential and office space going above the retail.

Truitt: What goes into your decision about where to place a lifestyle center?
McEwen: Over the years, we have developed a model based on what we see as the demographics and psychographics of a successful center.  We run those models along with overlapping competitive analysis that shows where retailers that typically go in our centers are located. This way we can determine how much spacing there is and how much demand there would be for them. In essence, we are trying to establish how good their business will be in that site early on in the process...and retailers undertake a similar analysis.

Truitt: You just recently broke ground on Centerra near Fort Collins. What is new or striking about the concept of Centerra?
McEwen: That center has more acres than we usually have. In that, it's similar to our Kansas City development, Town Center Plaza. It has a Foley's, a Dick's Sporting Goods, a movie theater, a Barnes & Noble and a Best Buy. So, it has five anchors--or mini anchors. It's going to be about 700,000 square feet. That part of Northern Colorado is an unusual market because it has about five cities that are all within 10 miles of each other. We believe to be successful you need to be convenient to all five of those communities. Centerra is at the intersection of two major highways that connect them all, so that it's a regional site for the entire Colorado market.

Truitt: So, the distinguishing characteristics of Centerra are its location and its multiple anchors.
McEwen: I think so. It's truly a regional site with its freeway access, visibility and the size of the project and the anchors.

Truitt: I am wondering, with all those anchors and the size, if it is not sounding closer to a mall. What is keeping it from crossing the line?
McEwen: Well, it's only one department store, rather than four, and it's still an open-air shopping center with convenient parking with all the amenities of a lifestyle center--as far as the upscale architecture and environment. We have a lot of fountains there. In the winter we have an ice-skating rink that in the summer converts to an amphitheater. Additionally, we have a sculpture park and children's play area, which you don't find typically at malls.

Truitt: At Centerra, there is substantial residential and office stock going up around the center... Namely, it's part of a mixed-use development?
McEwen: We are part of a 3,000-acre, mixed-use development that includes a large regional hospital, Class-A office stock, residential development and several hotels. When it is fully developed, the whole project will have 50,000 employees and about 30,000 residents.

Truitt: And, because it's right in the middle of a cluster of urban sites, is the anticipation that those five cities will eventually merge, leaving Centerra--true to its name--right in the center?
McEwen: That is exactly what's happening. That's why we chose the site. All of the growth in those markets is converging right at this intersection.

Truitt: That sounds like the place to be.
McEwen: We think so.