Thinking Outside the Big Box
Supermarkets rewrite the real estate playbook by opening stores in revived downtowns and regional malls.
That is how long the Hahne & Co. department store stood boarded up along Broad Street in Newark—a blighted eyesore across from Military Park in the heart of downtown, and a painful, everyday reminder of how far New Jersey’s largest city had fallen since its glory days.
In its heyday, Hahne’s attracted middle-income and well-to-do residents from Newark and throughout North Jersey who shopped its four floors of the latest designer fashions, furniture, domestics, kitchen appliances, sterling silver candelabras, fine jewelry and other accessories; whisked from floor to floor in elevators staffed by white-gloved, uniform-wearing operators.
Earlier this year, the Hahne’s building was reborn. Rechristened Hahne and Co., the landmarked building—redeveloped by L+M Development Partners, Prudential Financial, The Goldman Sachs Group and Citi Community Capital—now contains 160 apartments on the third and fourth floors, plus a new nine-story adjacent residential tower, along with an arts and cultural center operated by Rutgers University-Newark.
The first floor has been restored to retail and is catering to a new class of carriage trade, with Whole Foods opening a 29,000 square-foot showplace on the Broad and New Street corner of the building on March 1. Barnes & Noble College will open a 10,000 square-foot Rutgers University-Newark bookstore there too, and acclaimed chef and restaurateur Marcus Samuelsson is opening a 2,500 square-foot restaurant in the rear Halsey Street side.
“The opening of a Whole Foods Market in our historic Hahne & Co. building is a significant event for our city, as it addresses so many of the goals that we are working to achieve,” says Newark Mayor Ras Baraka. “The store will provide nearly 150 jobs, enhance the luster of our downtown for tourism and business, help bring a great building back to life, empower local organizations like AeroFarms and GlassRoots, and most importantly, bring new and healthier eating choices to residents, workers and visitors alike, improving the overall public health in Newark.
“This is more than the opening of a supermarket,” Baraka continues. “This defines to the world the excellence of Newark in many ways, and demonstrates our resurgence and transformation.”
Citing corporate policy, officials at Whole Foods declined to comment about their Newark store, but during a late afternoon, early-May visit it was doing brisk business. More than half the items in the self-service bakery cases were sold out and the freezer cases were also spotty on inventory.
Lines were forming at the service Bakery, and the Coffee and Juice counter. A mix of clientele, including business executives and office workers from Prudential Insurance Co.’s sparkling new headquarters directly across the street, college students from Rutgers-Newark and New Jersey Institute of Technology (NJIT) and local residents plied the aisles. Many were grabbing a few essentials for dinner, but some had an entire carriage full of groceries. A couple dozen shoppers sat eating store-made sandwiches and pastries at the inside picnic tables fronting the Broad Street windows or at conventional tables outside the Whole Foods’ side entrance in the skylighted atrium in the center of what had been Hahne’s main entrance.
“Our business has really started to pick up from when we first opened,” says one sales associate. “We’re much busier at this time of day (4:00 p.m.) than we had been.”
Down south, a similar tale has unfolded in Birmingham, Ala., where the former Pizitz Department Store, abandoned for 28 years, has been transformed by Bayer Properties into The Pizitz—containing 143 apartments, office space, the new offices of The Sidewalk Film Festival and its two 100-seat theaters. Its centerpiece is The Pizitz Food Hall, housing 14 food stalls, two full-service restaurants and The Louis bar, named after store founder Louis Pizitz.
“Food halls have become a major trend over the last several years around the world,” says Jeffrey Bayer, president and CEO of Birmingham, Ala.-based Bayer Properties. “Bayer Properties wanted to create a local gathering space that would not only contribute to the resurgence of downtown, but also help with the diversification of the city. The original plan for the Food Hall included mostly typical Southern foods, yet after a cross-country discovery tour, Bayer realized that we needed to bring in various flavors that would appeal to an audience looking to explore new concepts.”
Bayer Properties worked with local food bloggers What To Eat in Birmingham, to find out who and what kind of foods should be included in The Pizitz Food Hall. Scott and Jessie Doty, the masterminds behind the blog, helped establish the connections to curate the tenants who are peddling Mexican, poke, Vietnamese, Ethiopian and traditional American fare.
One booth is dedicated to REVeal Kitchen, serving as an incubator to host up-and-coming culinary talents for four to six months, giving them a chance to gain real life experience before setting out on their own.
Even though Publix just opened a store a few blocks away, Bayer says The Pizitz Food Hall, opened in February, is a tremendous success, servicing 3,000 businesses employing 80,000 within a one-mile radius in the downtown core, including the medical staff at UAB. “The Pizitz is set to become a major tourist attraction in the heat of downtown attracting visitors from across the country to the foodie haven,” Bayer says.
While urban core supermarkets and food halls are a relatively new phenomena in the U.S., in Europe it has been going on for decades.
“One of the issues we have in Europe is space, or the benefit of not having so much space,” says Alfredo Fraile, managing director for North and Latin America at Saffron, an international branding consultancy firm based in Madrid and maintaining U.S. headquarters in San Francisco. “Supermarkets there have to be much more creative. One way is to have small shops with smaller offerings of product and more fresh foods, fruit and dairy. It is more of a day-to-day kind of shopping,” he says, adding that supermarkets in the cities also offer online direct-ship shopping for bulkier items.
“Times have changed and supermarkets have to adapt,” Fraile says. “The behavior of people in the U.S. is changing and retailers should look into these types of formats.”
The Fresh Grocer, a Drexel Hill, Pa.-based member of the Wakefern Food Corp. co-op that operates seven The Fresh Grocer and two ShopRite banner stores, is one that is doing just that. “Millennials love the vibrancy and regentrification of these cities and that is why we like going into them,” says Patrick Burns, president and CEO.
In December, Burns opened a store in the Grays Ferry section of Philadelphia on the site of a defunct Pathmark. “It is amazing. It is such a changing area,” Burns says. “There are brand new houses being built, older houses being gutted and rebuilt, and others that still need work on them. The whole area is regentrifying.”
While Grays Ferry is easily serviced, Burns says some of his other Philly stores carry logistical issues. “You have to have the right size trailers and the loading areas can be rather interesting,” he says. “They are not in your traditional open shopping center, so there are challenges, but at the same time, the challenges come with rewards. You have a lot of people in the city. They now don’t have to go outside the city to grocery shop.”
Urban locations come with unique challenges not typically found in the suburbs, says Richard J. DeMarco, principal at New York-based Montory Andersen DeMarco Group, an architecture and interior design firm. “In Manhattan, south of 96th Street, there is no required parking, so that is not a consequence, but you still need to provide for other aspects of transportation,” he says. “In the building, there have to be parking spaces for bicycles. A large store might need to have a 300 square-foot bike room. For an operator like Whole Foods, they might like to tout that aspect of sustainable transportation because it fits their customer base.”
As supermarkets seek to locate in former factories and warehouses other logistical problems arise.
“Some of these industrial buildings have very thick concrete floors, which can pose a problem for installing the piping and water lines needed for refrigeration and freezer cases,” DeMarco says. “An alternative to drilling and trenching these concrete slabs is to build a whole new floor on top of it by throwing down six or eight inches of rigid insulation, and not putting it down where you need to lay your piping.”
Moving into Red Bank
Retailers often get courted by developers to move into a project, and that is what happened to Bob Sickles, the owner of Sickles Market, a one-unit “lifestyle retailer” combination specialty grocery, bakery, butcher, produce market, greenhouse and garden center operating in tony Little Silver, N.J. In his case, it was by a principal with Metrovation to open an outpost in the old Anderson Brothers Moving & Storage building alongside the train tracks in nearby Red Bank, a town that has seen a resurgence in recent years with exclusive shops and restaurants locating downtown that rival those on Fifth Avenue.
“The developer who owns the building is a customer of ours and he approached me personally,” Sickles says. “The property is extremely well located and that whole area has been regentrifying. The train station is right there, so I see tremendous potential and think in five years this is going to be an amazing thriving area.”
Only a couple of miles as the crow flies from his current store, Sickles sees his new store, dubbed Sickles Market Provisions and scheduled to open in September 2018, as attracting a different customer. “We’ll be closer to sharing market share with Whole Foods and all the other big grocery stores,” including a Wegmans slated for neighboring Middletown, he says. “I appeal to a lot of people and I do think I can do very well there,” Sickles says. “We’ll be on the perimeter of downtown and attract all of those people on the west side of Red Bank.”
Although smaller in square footage than the Little Silver unit at about 9,000 square feet, the new store will offer more parking and longer hours, along with other amenities including beer and wine, fresh seafood and an outpost of Booskerdoo Coffee Co., an Asbury Park-based local coffee shop chain.
“Over there we can plan exactly what we want to have,” Sickles says. “We’ll have a really nice cheese and charcuterie presence, a smaller gourmet grocery presence, a slightly smaller produce presence, but a nice assortment of meats and fish.”
In addition to downtowns, old factories and warehouses, supermarkets are still looking to the suburbs, and the smart ones are putting their money in regional malls.
With Nordstrom, Neiman Marcus, Macy’s, Lord & Taylor and Sears as tenants, Natick Mall is one of the leading shopping centers in suburban Boston. It will further cement its cache next year with the opening of its sixth anchor—Wegmans. The Rochester, N.Y.-based chain is opening a 125,000 square-foot store covering the first and half of the second floor of what had been a three-story JCPenney, originally Jordan Marsh. According to news reports, Wegmans will lease the remainder of the 194,000 square-foot building to tenants that complement its business.
“The fact that this will be our first multi-level store within a major mall only adds to our enthusiasm for this project,” Ralph Uttaro, Wegmans’ senior vice president of real estate, said in a statement.
Wegmans is not the first retailer to have a store in an enclosed mall. Many early shopping malls listed supermarkets as key tenants. In the 1970s, Pathmark, for example, operated a store in the Menlo Park Mall in Edison, N.J., where it was a co-anchor with Bamberger’s, Alexander’s, JCPenney and Woolworth’s.
Sears Holdings, the Hoffman Estates, Ill.-based operator of Sears and Kmart stores has been maximizing its real estate by downsizing its stores and subletting the space to other retailers, including supermarkets.
“It provides synergistic traffic,” says Alan Shaw, vice president of real estate leasing and development at Sears Holdings. “We sell very different things, so we don’t compete. And yet the demographics of our customers are very similar. Additionally, Sears has some of the best real estate in the country— often the center of the community or the very front of the mall. Grocers look for those types of locations, so it is natural for us to want to work together in locations where we are looking to reduce our footprint.”
Shaw says Sears has worked with numerous grocers across the country, including Whole Foods, which moved into a Sears store in Clearwater, Fla., and Northgate Market, an Hispanic-oriented chain that leased space in a San Diego Kmart. “They were seeking a great location and we continue to see a halo effect from the great customers that shop there every day,” Shaw says, adding that in Clearwater more than 2,000 customers waited in line the day Whole Foods opened.