It was a rainy morning last Monday, as Elia González strolled around Plaza Las Américas in San Juan with five friends after finishing her exercise routine: an aerobics class in front of Macy’s, and an indoor walking routine up and down the hallways of the largest mall in the Caribbean and the second in Latin America. Wearing a Santa hat and a big smile, she led the group to the Christmas tree for a picture.
“I’ve been coming here for 11 eleven years because I don’t have to worry about cars hitting me, slippery or uneven sidewalks. Plus, I socialize and then I can go shopping,” indicated the retiree with a wink before striking a pose for the picture.
Not too far away, a young woman stood in front of the “El Jefe” Daddy Yankee Museum glancing at the Grammys the Puerto Rican reggaeton singer won for “Despacito”, the most-watched video in YouTube’s history. On the third floor, artisans Evelyn Vázquez Fuentes and Gerardo Delgado carved wood at their spot in the Ricardo Alegría Cultural Walk.
While it isn’t a new trend, in recent times, malls on the island have been zealously ditching the old formula centered on apparel stores peppered with a few entertainment and food offerings, for a well-crafted mixed-use destination that includes a robust menu of entertainment, gastronomic, educational and cultural experiences that seeks to connect with shoppers and their surrounding communities.
Last year, for instance, Outlet 66 Mall in Canóvanas launched the first indoor electric go-kart track in Puerto Rico. It recently opened the first and only drag racing track on the island, while, last week, San Patricio Plaza in Guaynabo unveiled plans to turn the space formerly occupied by Kmart into an open green area, combining nature, retail, dining and entertainment with big flat screens. Also The Mall of San Juan opened a circus.
What is driving these changes? Are retail vacancies or the shopper’s palate forcing the evolution of the sector?
Behind the renewal are converging factors that include changing demographics, economic uncertainty, retail bankruptcies and technological advances, according to experts interviewed by THE WEEKLY JOURNAL.
“These changes have been going on for some time,” economist Heidie Calero stated.
The metamorphosis began at the end of the past century and the early aughts. A symptom of that vision was the relocation of the supermarkets to the outskirts of the mall because they “interfered” with the retail shopping experience.
Data from a 2012 census, the most recent information available, counted 293 shopping centers around the island. Four years earlier, a survey by the Puerto Rico Trade and Export Company listed 317. San Juan, Bayamón, Carolina, Caguas, Ponce and Mayagüez are the towns with the largest concentration of commercial space, while 14 malls exceed 500,000 square feet.
“The greatest risk for malls and for Puerto Rico are the demographic changes. We have less population due to migration and a low fertility rate. Deaths on the island exceed births,” Calero pointed out.
The population of Puerto Rico stood at 3.1 million in 2018, its lowest point in modern history, due -in part- to the massive exodus in the aftermath of Hurricane Maria that caused damages of over $100 billion. The population loss is expected to continue shrinking to less than 3 million by 2025.
At the same time, fertility rates fell gradually from 3.25 children per woman in 1969 to 1.22 children in 2018. Studies suggest a link between low fertility rates and economic stress. Aside from the bankruptcy-like process to manage its $70 billion-plus debt load, the island has been immersed in a decade long recession.
“The segment of 65 years and older is growing. This group, in general terms, lives on a pension, such as government retirees, that are now facing the threat of a pension cut as part of the Financial Oversight Board’s plan to renegotiate the debt. Some of these retirees live below the level of poverty,” said the president of H. Calero Consulting Group.
Then comes the second risk: online sales. In 2018, the island had 2.2 million internet users, according to the Digital and Mobile Behavioral Study. Online shopping grew from $158 million to $196 million, with 41 percent of the users buying online.
Despite the increase, physical sales still hold the crown, with its ups and downs. Chains and local businesses reported $2,810 billion in sales in August.
“November was slow. So far, Christmas sales and Black Friday haven’t made up for the loss of income of prior months,” Jorge Argüelles, president of the United Retailers Center told EL VOCERO last week.
Small and Medium Scale Businesses make up 92 percent of all retail businesses and account for 39 to 44 percent of sales in the retail sector
Physical sales were also slow in the United States. Black Friday brick-and-mortar retail sales sunk by 6.2 percent, while online purchasing reached $7.4 billion, the largest online Black Friday total in history, according to Adobe Analytics.
Stephanie Cegielski, a spokesperson for the International Council of Shopping Centers (ICSC) a global network of retail and real estate companies which includes 78 local members, recognized the Amazon effect and the preference for online shopping but didn’t view it as a worrisome trend.
“The convergence of channels has changed what shopping in-person looks and feels like, but there will always be a need and want for in-person shopping. In fact, the two channels benefit each other in many ways. Our recent Halo Effect research showed that online and physical work symbiotically, both driving significant traffic and sales to each other,” she indicated to THE WEEKLY JOURNAL.
The research cited found that following an online transaction, the average loyal brand consumer makes 2.1 transactions in-store with the same retailer within 15 days.
American malls are also dealing with empty stores. Shopping mall vacancies reached 9.4 percent, an eight-year high, equating an average occupancy rate of 90.6 percent, according to a Reis survey of 77 metropolitan areas.
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Adding to this panorama, Cegielski indicated that in spite of the vacancies, and drop in foot traffic, more malls have opened than closed in the past decade. “The retail industry is very competitive, so there will always be properties that face severe challenges. It is the exception, not the norm, though,” Cegielski stated.
The Reinvention of the Mall
In 2004, some analysts anticipated the death of the mall, but the buzz returned in recent years due to the long list of well-known retailers closing or going bankrupt. Yet, shopping centers seem to stand strong, with some exceptions like Galería Paseos in San Juan that shut down and recently sold the entire structure.
“It’s possible that some malls won’t survive, maybe medium and small ones, if they don’t adjust their offer. I don’t see malls disappearing, but reinventing themselves to attract shoppers,” Calero said.
Helping the survival of the malls is the fact that Puerto Rico is an island with limited shopping options and a consumerist society.
For the economist, Plaza Las Américas offers an example of successful reinvention. “It has a business plan that is more than 30 years old and what is important is not the speed, is that it follows the plan.”
The mall, with over 300 stores, just turned 51 in September and since its opening, has adjusted its offerings to incorporate a tower for medical services and plans the development of a hotel. Not all initiatives are big scale. Nor is Plaza afraid of taking risks. Look at the hugely popular Walkers Club that uses the space before the mall opens for regular business.
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The administrators have also curated an interesting mix of tenants. Besides the urban music museum, other unexpected residents are El Nido, a t-shirt store with a hipster nationalist vibe; the EcoExploratorio, a science museum; and the El Churry food truck parked on the second floor next to a yogurt shop; and the farmer’s market on the third floor next to the hallway where certified artisans work and sell their pieces without paying rent.
Vázquez Fuentes, who joined Plaza Las Américas Artisan Program two decades ago, narrated that every Sunday a senior couple drives 17 miles from Corozal, in the center of the island, to hang out at the mall.
“They come. Stop by. Greet the guard who is like family to them and eat at the farmer’s market. This is their second home,” the artist stated.
But it’s not just old folks. Vázquez Fuentes teaches young people the art of carving wood. “I screen them to make sure they to fit in with the values of our community. We don’t want disruption. Once they are accepted, I give them lessons until they get tired and quit,” she said jokingly.
The Regional Experience
An hour away from San Juan, Céntrico in Guayama, on the southern part of the island, writes its own page in mall history. With the help of a generator, it reopened a month after Maria devastated the island. Due to the damages caused by the storm, the mall that houses 70 stores and occupies 403,000 square feet transformed its exterior and reinvigorated its cultural offer and community services. It even changed its name from Plaza Guayama to Céntrico, which more accurately embodies its vision.
When conceived 25 years ago, the mall was meant as a convenience shopping center that would cater to the needs of the region, not just Guayama. Today that proposition still holds true, stated César Vázquez Morales, one of Céntrico’s partners.
“Our business proposal always made sense. Since the first day, 85 percent of our tenants were and are local businesses so we avoided the upheavals caused by the closings and bankruptcies of the American chains and stores,” he asserted.
In the last two years, stores like Armani, BCBG Max Azria, Bebe, Guess, Chicos, Lululemon and Gap have closed, among other retailers.
Not only that. Hurricane Maria also awakened a new sense of pride in all things local which helps the business, highlighted the entrepreneur.
“Foot traffic may be dropping in the U.S. but that is not the experience here,” he said.
Vázquez explained that internet access is not as widespread in the region as it is the San Juan area, that Amazon limits the merchandise it ships to the island, and that online shopping is predicated on the assumption of access to plastic, and the mall serves middle and lower class communities.
More than just attending to the physical constraints, the mall fulfills other cultural and community needs.
“The experience in the metropolitan area is different. It is a market with access to money, employment opportunities and other experiences. In Guayama, we don’t have an Old San Juan or a Condado to shop in,” Vázquez said. “We are a convenience center that aims to satisfy our customer’s needs. We have more traffic because we still have a supermarket on the premises which brings a stream of traffic.”
Following the same principles, seven years ago, two new tenants moved in with unforeseen results. Since the Collections Office and Department of Motor Vehicles arrived, visits from Carolina residents surged 14 percent because they were driving an hour to renew their license at the mall in other to avoid the long lines in their hometown.
The decision to leave the Pueblo Supermarket in the mall also proved wise. It has kept a continuous flow of shoppers coming.
More projects are on the horizon. Two months ago, Céntrico opened a local coffee shop and a hub, where shoppers can charge cellphones and use free Wi-Fi. On calendar for next year, are the opening of a coworking space created in alliance with the Sacred Heart University and the Municipality of Guayama, to offer online courses and certifications and a theater that will occupy an open space where once stood a fountain.
“People didn’t want the fountain. They complained it was too noisy and created noise pollution. So we eliminated it,” said Vázquez of the shoppers he serves, who he explained don’t like twitter but are always connected to Facebook.