Off-Price Retail Still Thriving in Mixed-Use Settings

CHICAGO, MILWAUKEE—The revolution in retail has been hard on many brick-and-mortar outlets, but new development continues, and developers need to adopt strategies that both satisfy consumers’ desire for affordable goods and meet the challenge presented by internet commerce. And the results may look nothing like the malls of yesteryear.

That’s what happened when officials from Chicago-based HSA Commercial Real Estate began moving forward with their post-recession plans to knock down a bunch of obsolete warehouse buildings along Hwy. 45 in Wauwatosa, WI, a Milwaukee suburb.

“Our original expectation is that we would build a luxury, enclosed mall that complemented the Mayfair Mall to the south,” Brenton Schrader, vice president, retail leasing and marketing for HSA, tells GlobeSt.com. The economic crash, however, meant few customers remained for such products, and few retailers could pay the rents needed to support new construction. “It became evident that the concept was no longer viable.”

But those old warehouses turned out to provide a big advantage. As the economy recovered, many off-price retailers wanted space near Mayfair Mall and felt stores in renovated warehouses would have a distinctive look. In addition, by repurposing these buildings, “we were able to deliver space at rents that were more competitive,” Schrader says. “It turns out the existing structures had value.”

The 270,000-square-foot first phase, dubbed The Mayfair Collection, opened in April 2014, and now hosts off-price retailers such as Nordstrom Rack, Dick’s Sporting Goods, J. Crew Mercantile, Saks Fifth Avenue OFF 5TH, and others. And bringing all of these top retailers together in one spot “encouraged customers to linger and shop for long periods of time.”

Even though the economy has, for the most part, completed a recovery, Schrader says retail outlets with affordable goods remain popular. “I still believe a lot of folks’ budgets have been strained by healthcare costs and other expenses, and clothing budgets tend to be one of the first things that get cut.” At Mayfair, “at the end of the day, shoppers are getting designer brands at a discount.”

According to the National Retail Federation, about 90% of the 3,000 consumers surveyed shop at various discount retailers, including TJ Maxx and Ross. When it comes to deals, 71% of shoppers look for apparel discounts, 71% look for discounted groceries and 62% prefer discounted home décor.

For the second phase, HSA renovated more warehouse space and brought in Whole Foods Market, a HomeGoods, and a Hilton Homewood Suites hotel. Having a grocery store is of tremendous importance for the site, Schrader adds. It fulfills the city’s vision of creating a high-density, multi-use development, and makes it appealing for potential residents. Without this strategy, “we would not have been as well-positioned for the future.”

The third phase of Mayfair will include two multistory residential buildings with a total of 269 units. The first building opens next month, and the second by the next spring. Each will have roughly 24,000 square feet of potential retail space, and HSA already has a co-working provider lined up for one of the buildings, a deal that will further diversify the site’s uses.        

In the future, Mayfair could have up to 1,000 units, along with up to 500,000 square feet of office space. Schrader believes office users in the metro region will “want to be part of the work-live-play environment we have created here,” as historically it’s difficult to find that outside downtown Milwaukee.

The most important lesson they learned in the past ten years or so is to realize “the vibrancy of many properties is going to be enhanced by the downfall of the old department stores. Traditional dinosaurs are going away, and they will be replaced by more viable concepts.”