Power Centers: The New Face of Retailing

By Solomon, Barbara | Management Review, April 1993 | Go to article overview

Power Centers: The New Face of Retailing


Solomon, Barbara, Management Review


What does a troubled industry do when a once-loyal customer base cools to its product?

If it's forward-thinking and market-driven, it redesigns the product to fit the customer's new inclinations.

These days, the shopping center industry is hoping to prove that it is just this kind of savvy marketer. Faced in the late 1980s with a consumer who was losing patience with fancy, upscale malls filled with overpriced items, the industry proposed a new kind of shopping center designed specifically to meet contemporary needs: the "power center."

An innovation that first broke ground in Southern California, power centers are gigantic shopping complexes (at 200,000 to 700,000 square feet or more, they are more than twice the size of the average strip center), composed of big, leading stores that are known for their dominant assortments and sharper-than-sharp pricing.

You wont find a Saks Fifth Avenue or Lord & Taylor at a power center, nor will you spot a fancy dress or linens boutique. What you will see are a daunting group of brash discounters, like Wal-Mart, Price Club, Toys 'R' Us, K Mart, The Home Depot, Marshalls, Burlington Coat Factory, Staples, The Wiz and Linens 'N Things--in a combination that covers the basic family needs of apparel, home goods, electronics and children's merchandise.

"The concept is clear marketing," asserts Merrit Sher, chairman of Terranomics Retail Services, a San Francisco developer that coined the "power center" term. "It brings to a trading area the best stores giving the biggest selections at the best prices, in a convenient, intelligible context."

"It has replaced the regional enclosed mall as the sexy vehicle of expansion," adds Ted Kraus, president of TKO, a shopping center management company in Belle Mead, N.J., and publisher of The Dealmakers, a retail newsletter.

Many observers agree that power centers are probably one of the best examples of astute marketing to surface during the recent recession. Like other good customer-driven strategies, the concept is pretty simple. Essentially, retail developers realized in the past few years that a fundamental shift of power was taking place among retailers: Traditional department store companies like Macy's and Federated were embroiled in bankruptcy proceedings, while discounters like Wal-Mart, warehouse clubs like Price Club and Costco, and value-driven specialists like The Home Depot and Marshalls were boasting huge sales gains.

In short, the financially strapped consumer was shunning status and fluff, .and opting for the basics of value, selection and price.

All that remained for developers to do was design big enough retail spaces so that each could house somewhere between six and 20 of these stores. For the retailer, a power center is an attractive location, since the sheer volume of strong, value-priced stores is sure to draw the consumer; and for the consumer who appreciates Price Club or Marshalls, a combination of the two along with K Mart, for example, and some other large discounters is even better.

A Bright Spot in Retailing

"What is the benefit of having a toy store in a power center? It makes for ease of shopping," comments Michael Miller, senior vice president of real estate for Toys 'R' Us Inc. "All those retailers in one location is a major advantage for the consumer."

"We're a mature industry, but with power centers, we are meeting a previously unserved demand," adds Malcolm Riley, a partner with Riley Pearlman Mitchell, a developer based in Los Angeles.

It's no wonder, then, that many in the industry view power centers as one of today's few bright spots in retailing. While retail development as a whole has taken a nosedive--the total number of new shopping centers built in the United States between 1988 and 1991 dropped by as much as 70 percent--the number of power centers has increased over that same time period by about 22 percent, according to the International Council of Shopping Centers (ICSC), a trade organization. …

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