A Bona Fide Retail Opportunity for Non-store Merchants, Or Just Another Entrepreneurial Misfire?

Every now and then, one of those wild cards comes along in this catalog/multichannel retail business we all cherish. Sometimes, it provides the more traditional players in the catalog business with a good kick in the pants; other times, it only provides opportunities for the bigger players who can afford the initial outlay.

More often than not, such off-the-beaten-path concepts as selling catalogs alongside magazines in bookstores or newsstands, selling space ads in catalogs, licensing catalog names on cars, and offering private alternative postal delivery, among others, have worked for so few mailers that they’ve failed to catch on industry-wide. Here’s a new one, whose long-term future could potentially provide a shot-in-the-arm for a number of catalogers. Or perhaps it could eventually be reduced to a going out of business sale. You be the judge.

Two years after an initial effort fell through, catalog services entrepreneur Tony Lee and commercial real estate mogul Sheldon Gordon (best known for building the Forum Shops at Caesar’s Palace in Las Vegas) have teamed up to lease a 181,000-sq.-ft. department store space at the Christiana Mall in Newark, Del.

Inside, “Epicenter Collection,” as they’re calling it, will house some 60 different boutiques, most of which will be occupied by catalogers or online merchants that don’t operate retail chains, as well as some brand marketers. The space was a former Lord & Taylor store. Federated Department Stores, which owns Lord & Taylor, Macy’s and Bloomingdale’s, among others, has signed on as a partner with Epicenter.

For Multi (2) Channel Marketers

For dual-channel (catalog, Web) marketers lacking the funds to make the big bucks in retail, this concept could help them get their feet wet in retailing. (Heck, even Dell plans to aggressively expand into retail distribution, per Sir Michael’s announcement on May 30.) In fact, Lee and Gordon are hoping to open other Epicenter Collections across the country.

“We’re looking at three groups that we’ll define as merchants,” Lee tells me. “Catalogers, Web retailers and brands. All three are somewhat growth-constrained in their current channel. None are in retail, which is where all the dollars are. Therefore, it’s a value proposition for these kinds of companies.”

The Epicenter Collection will provide more than just small retail locales for these kinds of merchants. It’ll also provide a proprietary handheld shopping device for shoppers, called a “SpreeGo,” that’ll enable customers a similar kind of click-shopping ease they’re used to with online shopping. With 60 merchants packed into 181,000 square feet, space will obviously be limited. So although Lee says that some items will be available for customers to take home with them, plenty others will only be showcased and the merchants will ship them at no cost to shoppers.

For cash-poor catalogers scrambling to find ways to mail catalogs profitably and make ends meet with the new punishing postal rates, the new concept could be worth a shot.

Shorter-term Leases

As Lee points out, a regular store can run anywhere from $300 to $600 per square foot to establish. And most mall operators require 7- to 10-year leases. Epicenter, however, is allowing merchants to sign leases as short as three years. What’s more, because Epicenter will provide most overhead, Lee claims that merchants’ overall cost is 20 percent what it would run them to set up a typical mall store. “You get store payback on your investment in less than a year,” he pitches. “A regular store takes three to five years for a payback.”

Epicenter’s flagship location is certainly attractive. Christiana Mall, located just off I-95 in the tax-free state of Delaware, draws traffic from shoppers in Pennsylvania, New Jersey and Maryland. It’s anchored by J.C. Penney and Macy’s. And Nordstom has leased a two-level space that it’ll occupy in spring 2011.

Although most retail shoppers come to malls intending to schlep big shopping bags home with them, Lee points out that many mall shops are often out of stock anyway. With Epicenter, “everybody walks home with what the merchant wants them to walk home with,” he says, meaning that if the participating merchants want to fill their spaces with enough merch for shoppers, they certainly can. Or they can attempt the direct fulfillment route, using their spaces as showrooms and banking on consumers taking a liking to using the SpreeGo and waiting for free shipping.

In a Perfect World…

Ideally, Epicenter would be dominated by catalogers and online merchants that their customers have longed to shop from at retail. That would certainly give it a certain uniqueness. What’s more, it could effectively lure bored shoppers who are tired of seeing the same old retail chain stores everywhere they go. But as with any entrepreneurial concept, I throw caution to the wind here. The big question is whether Epicenter can attract enough catalog/online tenants.

For instance, it’s conceivable that in an effort to fill the space, the company may need to sign more leases with deeper-pocketed brand manufacturers, such as, say, a Ralph Lauren or a Liz Claiborne or others, many of which already lease boutique space in major department stores. In fact, although Epicenter has been negotiating with the likes of such catalogers as The Territory Ahead and Frontgate, as well as such Web entities as Amazon, Bluefly and Google, the company is also wooing such brands as Tommy Hilfiger, Esprit and Under Armour.

Naturally, filling space is a necessary evil in the mall operating business. For instance, when The Westchester Mall in White Plains, N.Y., first broke ground back in the mid-90s, I distinctly recall its operators promising a truly upscale shopping experience, filled only with stores you wouldn’t find in any old run of the mill American mall. But by the time all the leases were signed, although there were (and still are) many distinctive upscale shops in place, plenty of the ole reliable shops were (and still are) there too. And today, although you’ll find such upscale shops as Coach, Gucci and Brooks Brothers, there are plenty of the same-ole same-ole mainstream retailers, like Claire’s, The Gap and Foot Locker.

But that’s the commercial real estate business for you. And nabbing the Christiana Mall lease was, no doubt, a tough thing to nail down. In fact, Epicenter first announced its founding two years ago when it all but had signed a lease for a department store space at the Polaris Fashion Palace, an upscale mall in Columbus, Ohio. But that lease never got signed as the deal fell through, and it took Lee and Gordon all this time to finally make their vision a reality.

Lee says that the Polaris operator opted for a department store at the 11th hour. He adds that the primary reason it took two years to finally find another space was because he and Gordon felt the key ingredient missing was a retail partner in the business, namely Federated.

As they attempt to lease out the Newark space, they’re eyeing other possible locations, such as a former Filene’s store space at the Danbury (Conn.) Mall that’s been vacant for more than a year. That’s because once Federated bought May Department Stores in August 2005, it began to close down all the formerly May-owned Filene’s stores or convert them to Macy’s. The Danbury Mall already houses a Macy’s. In fact, it’s hard to find a mall that doesn’t house a Macy’s anymore. (Although I understand that you can easily hear a pin drop at the Macy’s-ized former Marshall Field’s store on State Street in Chicago; “victimized” by an aggressive boycott by Chicago-area Field’s faithful — but that’s a whole other story.) Perhaps Epicenter will be able to show Federated — and consumers and catalogers alike — something new.