It’s a testament to the radical changes happening in shopping malls that one of downtown Toronto’s chicest cocktail lounges opened in mid-September inside a Nordstrom department store.

Habitant, the visually striking four-sided bar that sits in the heart of the men’s department on Nordstrom’s second floor, serves up Negronis and snacks to those who want to escape the Eaton Centre’s din on a busy day or need some liquid inspiration to open up their wallets.

The bar is only one of a dizzying array of services Nordstrom has incorporated into its format to inject some zing into the 115-year-old department store chain.

In addition to another café and a full-service restaurant to round out its food offerings, the company’s fourth Canadian store features a 24-hour concierge service for late-night fashion emergencies; a “men’s clubhouse” lounge and changing area with flatscreen TVs tuned to sports; an extra-spacious “girlfriend” fitting room to accommodate groups of women who shop together; and a children’s shoe department that hosts monthly shoe tying classes.

The service-heavy philosophy, coupled with a dose of theatre, is a fitting example of how stores and the malls they inhabit across North America are adapting during an unprecedented period of change for the industry.

Gone are the days when you could build ubiquitous, commodity-based retail spaces with ugly front doors

Christopher Katsarov/ National PostThe new Nordstrom store at Eaton Centre in Toronto.

“Gone are the days when you could build ubiquitous, commodity-based retail spaces with ugly front doors,” Finley McEwen, senior vice-president of development at Canadian mall developer Cadillac Fairview Corp. Ltd., told an industry audience last week at the International Council of Shopping Centres convention in Toronto. “The customer has way better things to do than fight through traffic to get to spaces like that.”

The future of shopping malls, a prevailing theme at this year’s conference, hinges on service-heavy “experiential” retail stores, restaurants, and services, experts say.

Christopher Katsarov for National PostFood and drinks at Nordstrom's Bar Verde.

Mall developers and retailers are all keenly aware how much the Internet is influencing and potentially eroding the classic bricks-and-mortar business model. Both have to contend with a growing cohort of consumers who might still like stores, but visit them less frequently in favour of shopping from the comforts of the couch.

Canadian retail sales will grow 1.7 per cent this year to $522.6 billion, a rate vastly outpaced by an expected 15-per-cent increase in e-commerce sales, according to estimates by market research firm eMarketer. Online sales account for only 6.5 per cent of retail sales in Canada, though Forrester Research projects that will rise to 10 per cent by 2019.

In the meantime, retail leasing in Canada is expected to become “increasingly polarized” as retailers focus on trying to secure urban locations and space in higher-end malls, “while lingering vacancy can be expected in second and third-tier malls,” according to the 2016 Canadian Market Outlook from commercial real estate firm CBRE.

These trends are happening elsewhere as well. In the U.S., Kohl’s Corp., J.C. Penney Co., Sears Holding Corp. and Kmart have collectively closed hundreds of stores in recent years, and this year Macy’s Inc., Wal-Mart Stores Inc. and Office Depot Inc. have announced hundreds more closures to come.

Retailers and mall developers in Canada, still smarting from the void Target Corp. left behind, have been anxious about bankruptcies, traffic declines and store closures among veteran retail chains such as Reitmans Ltd. and Le Chateau Inc.

Still, CBRE reported sales at Canadian shopping centres in June were $29.4 billion, a 3.9-per-cent increase from the $28.3 billion reported for June 2015.

A key reason for the increase, experts say, is the increasing number of food options at neighbourhood shopping centres, from luxe food halls such as Pusateri inside Saks Fifth Avenue stores to sit-down restaurants like Beaumont Kitchen in west Toronto’s Sherway Gardens mall. Eataly, an Italian fresh food phenomenon with emporiums in the U.S., Dubai and Japan, among others, announced it will open its first Canadian location in Toronto’s Manulife Centre in 2019.

“There has to be something innovative that is happening in the shopping centre industry to attract the customers away from their screens and into the malls,” Debbie Kalisky, associate in retail development at Montreal-based retail design firm GH&H, said at the ICSC conference. “It’s about offering them something unique and innovative, a place where they can socialize and have experiences with people in the same community, which is something that you can’t do when you are shopping online.”

Food and beverage is a “core component” of the reinvention of the mall, she said. “The shopping centre is now a place to wine and dine, and it’s a place where we never had full-service restaurants before and where we now have full-service restaurants.”

Food and entertainment now account for 22.1 per cent of the space leased in U.S. malls, compared with 19.2 per cent in 2012, according to recent data from CoStar Group Inc. and cited in the Wall Street Journal.

“It’s really a paradigm shift from what was a commodity-based retail world to a more experiential one,” Kalisky said.

Christopher Katsarov for National PostThe Toronto Location of the Nordstrom Retail chain.

Retailers whose categories are vulnerable to commodification by the Internet — such as footwear and books — have also made big efforts in recent years to engage their customers.

For example, Indigo Books & Music Inc. has been opening up American Girl doll boutiques in its stores across Canada that host doll dress-up events and storytelling parties.

“What we find with millennials is they are not as connected to things as we are — they are connected to experiences,” said Fab Stanghieri, senior vice-president of real estate and construction at Cineplex Digital Media. “Even when we design spaces for people to interact in groups, there has to be seating for six, eight, 10 people to share the experience.”

Developers look to innovative theatre chains for cues as to what might work well in retail, because theatres continue to perform well in North America and remain key mall tenants despite decades of encroachment on their traditional turf by at-home viewing technologies.

Cineplex has made the movie-going experience increasingly entertaining over the past five years by incorporating interactive trivia games, seats that shake in tandem with the on-screen action, 3-D and licensed VIP theatres where patrons can order restaurant food and alcohol to their plush, reclining seats.

“It’s all about competing with your couch,” Stanghieri said. “We compete with being able to watch Netflix at home. Our biggest year attendance-wise, ever, was last year, so movies aren’t dead.”

Cineplex’s latest venture is Rec Room, an entertainment complex that debuted its first location in mid-September at the South Edmonton Common mall.

Half of the 60,000-square-foot venue consists of dining and live entertainment; the other half is filled with attractions and games, including axe throwing, a racecar simulator, luxury bowling, ping pong, pool tables and air hockey. There are also performance spaces for live music and programmed entertainment, and app-based gamification allows guests to play interactive digital games with others at the complex.

There has to be something innovative that is happening in the shopping centre industry to attract the customers away from their screens

Christopher Katsarov for National PostThe women's fitting room at the newly opened Nodrstrom in Toronto has a large lounge where shoppers can relax.

Cineplex aims to open 10 to 15 Rec Room locations across Canada over the next few years.

“As developers and as property managers, we need to look at our business as a whole and think about how we make it more compelling for people to come in,” said Sheila Jennings, general manager at Cadillac Fairview’s Toronto Eaton Centre. “If we can’t speak passionately to (our customers), then we don’t deserve to win. And we are in this to win.”

There are signs, despite disruption and turmoil in the world of traditional retail, that all the initiatives aimed at attracting people to the mall could be working, even among the youngest crop of consumers who embrace online shopping with gusto.

A recent survey by Chicago-based wealth management firm William Blair & Co. LLC found that more teens said they were visiting malls in 2016 than they did in 2015, the first rise in teen mall visits since 2013. The survey said 41 per cent of respondents had visited malls more often in 2016, while only 37 percent report visiting malls less frequently.

All the changes at the mall are positive for consumers, said Cadillac Fairview’s McEwen.

“[Three decades ago], the majority of the time was spent developing shopping centres that were not very nice places,” he said. Now, “the customer is far better off buying that shirt online and getting it delivered to their door than going through that type of experience. So we have to deliver a pleasant, inspirational experience and make sure they have got a reason to come to the shopping centre.”



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