Who’ll fill it?: Nordstrom a possibility for Ayres space

Nordstrom, Neiman Marcus and Dillard’s may be candidates to fill pending department store vacancies at Castleton and Greenwood Park malls if smaller retailers don’t end up filling the void.

The merger of the Federated and May department store companies that’s creating the vacancies is the latest move in a decades-long trend of consolidation in the industry. Some observers speculate a nondepartment-store retailer could end up occupying the space after the L.S. Ayres at Castleton Square and Macy’s in Greenwood close in 2006.

But they aren’t discounting the possibility of another department store’s occupying one or both spaces in the area’s two largest shopping centers.

Across the country, Neiman Marcus Group Inc., Dillard’s Inc. and Nordstrom Inc. are snapping up vacated mall space. Restaurants and retailers with smaller stores, such as Borders and Kona Grill, are also moving in to former department stores.

Locally, that could mean new locations for specialty retailers Crate and Barrel, Hennes & Mauritz SA or Organized Living.

Officials of Indianapolis-based Simon Property Group Inc., which owns both local malls affected by closures, won’t say which retailers are being courted to fill the spaces. But Nordstrom, Neiman Marcus and Dillard’s are all adding stores in Simon malls nationwide, despite sluggish expansion by department stores overall.

Of those three, Seattle-based Nordstrom may be the most likely to add a store here. The chain already has a downtown presence at Circle Centre mall, but might seek to add a north-side location, some experts said.

“It’s certainly a candidate that should be considered,” said Mark Perlstein, a principal at Carmel-based Linder Co.

Dallas-based Neiman Marcus is planning to open seven stores by the end of 2007. Although most are in new cities for the retailer, none are in the Midwest.

Likewise for Little Rock, Ark.-based Dillard’s, which will open nine stores this year-some of them replacements for older stores. In its April annual report, the company said sales in the Midwest fell 2.1 percent last year, following a 4.6-percent decline the previous year. In the company’s Southeast and Southwest regions, sales gained last year after declining the previous year.

Even though some department stores are adding locations, most experts expect much of Federated’s abandoned space will be filled with a mixture of discount retailers, such as Target or specialty retailers that typically need less space than the mammoth department stores will leave behind. That may be the case, particularly in Greenwood, viewed by experts as less likely than Castleton to draw a high-end department store.

Mall owners faced with anchor vacancies sometimes demolish the space and build a new wing for midsize and small shops. That’s often cheaper than trying to retrofit a 150,000- to 200,000-square-foot big box, said Herman Renfro, principal of Columbus, Ind.-based Renfro Development Co. and a former Simon executive who led the development of Circle Centre.

In Indianapolis, that might draw new retailers to the two high-traffic malls or provide second locations for those just entering the market, Renfro and others said.

Northbrook, Ill.-based Crate and Barrel, set to open its first Indianapolis store at Simon’s Fashion Mall at Keystone at the Crossing this fall, has taken space in Simon malls elsewhere that have lost anchors. The company frequently opens more than one store in a market, raising the possibility of a Greenwood location, but company officials have said they never make a decision on multiple stores until after the first one in a market has opened.

Sweden-based Hennes & Mauritz SA, which earlier this year announced plans to open a 20,000-square-foot store in Circle Centre this fall, also frequently opens more than one store in a market. Sometimes within a market, some stores carry the full range of H&M’s fashion lines, as the Circle Centre store will, while others focus on only one line, such as men’s or junior fashions.

A growing trend of discount retailers’ locating in enclosed malls also can’t be overlooked, Renfro said.

“The thinking on what is compatible [with enclosed malls] has changed,” he said. “The fact is, [discount retailers] bring people into the parking lot, and that probably helps the malls.”

In situations where discounters like Minnesota-based Target or Arkansas-based Wal-Mart already have stores near a mall, they may consider moving inside if their existing store doesn’t fit their latest prototype, Renfro said.

In a July 28 earnings conference call with analysts that coincidentally came hours after Federated’s announcement, Simon President and Chief Operating Officer Richard S. Sokolov pointed to the company’s track record of replacing empty anchor spaces. Nine Lord & Taylor anchor spots in Simon malls were vacated when owner May closed 32 Lord & Taylor stores nationwide in 2003.

As with those closings, Sokolov said, Simon will remain flexible with its alternatives. Simon has replaced the stores in some cases directly with Neiman-Marcus or Nordstrom. At a mall in Florida, Simon is demolishing the store to make way for a new Nordstrom and 150,000 square feet of space for smaller specialty stores.

In The Galleria in Houston, Simon is adding Borders, Del Frisco steakhouse, Kona Grill, Oceanaire and some small shops in a former Lord & Taylor space.

Sokolov even raised the possibility that uses other than retail might replace some of the closed Federated stores.

“We’re going to go through every asset and say what’s the best use to maximize the value of that asset and, in some instances, candidly, it may be a residential tower or a hotel,” Sokolov said.

Simon recently launched a national initiative to add more mixed-use components to some of its projects. The first property on the list is a mall in Charlotte, N.C., where Simon-owned land around the mall will be sold to a developer to add apartments or condos. The effect is to create a 24-hour community around the shopping center, Simon officials have said.

Regardless of what comes to Castleton Square and Greenwood, Simon officials don’t seem overly concerned about the impending vacancies.

Including stores in 16 Simon malls, Cincinnati-based Federated plans to close 68 stores in 66 malls where both it and St. Louis-based May Department Stores operate. As part of its purchase of May, Federated will convert 330 of May’s stores nationwide from Ayres and other regional brands to the Macy’s brand.

Federated is expected to close the 68 stores sometime in the second quarter of 2006.

The L.S. Ayres stores at Glendale Mall, Washington Square Mall and Lafayette Square Mall were spared in the closure, although they will be converted to Macy’s. Federated has in the last six years closed a Lazarus at all three of those malls.

Glendale’s owner wasn’t notified before the July 28 announcement that the threelevel store would stay open, said David Lee, vice president of property operations for Indianapolis-based Kite Realty Group Trust.

“We know, quite literally, what we’ve heard and read” since the announcement, Lee said. “We do expect to hear from [Federated] soon.”