Mills outlet malls adding full-price retailers

ATLANTA — Discover Mills isn't just for outlets anymore.

Owner Simon Property Group is looking to broaden the look and feel of Discover Mills and its 16 sister malls by bringing new full-price retailers into the lineup of discount stores and entertainment outlets that have dominated the Mills makeup since the brand was first formed in 1985.

Nearly a third of Discover Mills' stores are now what retailers call "full-line" locations. Such stores include Bath & Body Works, Limited Too, Champs Sports and Forever 21.

Only half of the tenants fit into the outlet category, such as the mall's Carter's and Kenneth Cole locations, according to Les Morris, a spokesman for Simon.

Sandwiched between two other Simon properties — traditional malls Gwinnett Place and Mall of Georgia — Discover Mills, which is near Lawrenceville, Ga., will likely never become like its sibling mall in Nashville, Tenn., Opry Mills. That mall now has more full-price stores than it does outlets, according to Simon.

But Discover Mills, along with the rest of the Mills properties, will continue to evolve into the hybrid option Simon executives saw in it when they formed a partnership with Farallon Capital Management to purchase the properties in 2007 for $1.64 billion, said J. Scott Mumphrey, president of Simon's Mills division.

"We want to make sure we are appealing to as broad a demographic as we possibly can," Mumphrey said.

"The customer today really wants variety and convenience, and that convenience comes in the form of being able to do more with less travel involved."

Despite falling occupancy, Simon's base rents have risen in recent quarters. But its revenues from rents based on a percentage of its tenants' gross are off, a reflection of lagging sales in a weak economy.

So it might be tempting to look at Simon's financial reports and conclude the company is simply seeking to boost its sales per square foot by pushing out lower-priced outlet retailers in favor of big national brands charging full freight for the latest handbag or consumer electronic.

After all, Mills malls see sales per square foot of about $380, compared to $519 at its smaller Premium Outlet Centers and $494 at its traditional regional malls.

But the Mills malls are performing well despite the economy, said David Fick, an analyst with Stifel, Nicolaus & Company and a former Mills executive.

"Given the huge relative mall size, $380 is pretty strong," Fick said.

The danger for Simon is in pushing the Mills portfolio too far toward full-priced retailers, Fick said.

"You're looking for value. You're looking for the idea that you'll get more for your money," he said. "If people show up at the mall, and they see the same stores they see at their community mall, that's a bad idea."

Simon is too smart a player to do that, said Fick, who left the Mills before Simon bought the company's malls in 2007.

"So far we haven't seen enough of a mix change that it would be a problem. Simon's not going to destroy the brand," he said.

That being said, mall retailers are closing down at extremely high rates, and closings could reach more than 5,700 this year — up 25 percent from 2007, according to the International Council of Shopping Centers. Add to that efforts by retailers to keep costs in line with revenues by scaling back store openings and sluffing off poorly performing product lines, and it's a tough environment for malls.

"There will be malls that don't make it," Fick said.

Simon is in a unique situation, particularly in Atlanta, because it controls so much of the mall real estate.

The company owns three malls in Gwinnett alone, as well as Lenox Square, Phipps Plaza and Northlake Mall in Atlanta, and Town Center at Cobb in Kennesaw. The company's Premium Outlet division has a location in Dawsonville.

"They're in a position of power because these retailers don't have anywhere else to go," Fick said.

Mumphrey said Simon's strategy to differentiate the Mills from its other malls is to play them up as places with whole-family appeal for a daylong outing.

Malls long ago tried to become more than shopping centers by offering dining and entertainment options, but the Mills properties may take the concept to another level.

In addition to shopping, Discover Mills offers entertainment venues such as a movie theater, the Medieval Times dinner theater, the arcade/restaurant combo Jillians, and even a bungee-cord jumping attraction for the kids.

While he declined to discuss specific plans for Discover Mills, Mumphrey said the Mills brand will continue to evolve to include more family-friendly destination activities. Simon is looking to add options such as Merlin Entertainment's Legoland mini-theme parks and locally themed aquariums.

And though it has become increasingly tough to make deals with retailers who are gun-shy about the economy, they'll keep working that angle too, Mumphrey said.

"Retailers know that by the end of next year, the first quarter of 2010, we're going to be coming out of this and there's going to be significant pent-up demand," Mumphrey said. "The reaction we're getting is very good because they're talking about being there when the economy comes back."

Michael Pearson writes for The Atlanta Journal-Constitution.