Rosedale: A Contrarian Bet
What goes around comes around.
That’s one way to sum up the long-awaited arrival of the Twin Cities area’s second Von Maur, the Iowa-based fashion retailer often dubbed “the Prairie Nordstrom” of department stores.
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In 1998, Von Maur lost out to Herberger’s in the bidding for an anchor vacancy at Rosedale. It would have been Von Maur’s first store here; instead, seven months later, the company announced it would go to Eden Prairie Center. Now, Von Maur has found its second home at the Rosedale Center, as the star attraction of a mall-wide renovation and expansion.
It has turned out to be an against-the-grain move. While it comes in the wake of expansions at Mall of America and Ridgedale, overall retail investment here has tailed off. Rosedale’s $76 million, two-and-a-half-year project, scheduled to be completed in October 2018, stands out as the largest retail development underway in the Twin Cities. The renovation piece is set to wrap up as this year’s holiday shopping season begins. Von Maur will open in fall 2018.
Nothing comes easy for shopping malls these days. They are faced with steadily growing online sales, a flood of retail bankruptcies and store closings, strong competition from off-price retailers and increasing skepticism from investors.
The Minnesota Shopping Center Association’s spring 2017 “state of retail” analysis reported that 21 department stores and specialty retailers expect to close 3,600 stores across the U.S. this year; a number of the closings are in the Twin Cities region. Meanwhile, new competition is coming from 130 stores and restaurants that have opened since 2014 at two large open-air outlet malls in Eagan.
Location, location, location
All that said, the investment at Rosedale has the look of a confident, well-informed bet that will strengthen the center’s ranking near the top of the region’s malls. The 48-year-old Roseville mall benefits immensely from its north-central location, perched near the I-35 intersection with Highways 280 and 36 and close to much of Minneapolis and St. Paul. Nearly 2 million people live within a 15-mile radius. As the only major mall in the north suburbs, it sits just beyond the gravitational pull of the Mall of America, which many Rosedale shoppers view as too far away to be convenient.
Rosedale is not only relevant regionally, it is dominant, despite lacking a unique store mix or particularly affluent immediate trade area. While Southdale, Ridgedale and Eden Prairie Center are surrounded by upscale condos, pricey restaurants and fancy food stores, Rosedale’s environs feel more middle-class, with modest upscale housing, mid-priced hotels, office parks and a diverse retail base.
Yet last year, Rosedale again ranked second as shoppers’ most likely holiday shopping destination, trailing only Mall of America. The latest survey, done annually for the last 15 years by the University of St. Thomas, drew 304 respondents from throughout the 13-county Twin Cities area. In it, 31 shoppers said they planned to shop at Rosedale, compared with 79 at Mall of America. Mall of America, Rosedale and Southdale have held one-two-three rankings for the past seven years. Mall of America has topped the list for all of the survey’s 15 years except for 2004-2006, when Rosedale dominated.
The only other regional mall of consequence in either the north or east suburbs is Maplewood Mall, which lacks the scope and scale of Rosedale. And while Rosedale pulls from a lot of middle-class suburbs like Roseville, New Brighton and much of Anoka County, it also draws from a number of widely scattered affluent suburbs including North Oaks, White Bear Lake, Dellwood, Mahtomedi, Woodbury and Stillwater. Rosedale, with its nearby strip malls and big boxes, has replaced downtown St. Paul as the city’s principal shopping area.
David Brennan, retail consultant and marketing professor emeritus at the University of St. Thomas, counts Rosedale (barely, he qualifies) among the four local enclosed malls that appear sustainable for the long term; the other three are Mall of America, Ridgedale and the upscale Galleria, but not enclosed-mall pioneer Southdale (see “Southdale Eclipsed?” page 36). All are well-located, benefit from large trade areas, have a strong customer base in terms of households and income, and offer an attractive tenant mix.
The renovations include a new Von Maur department store and an enlarged Herberger’s.
“Regional malls are entering the declining phase of the retailing life cycle,” Brennan says. The survivors will be those that reinvent themselves through investment and a flexible tenant mix that keeps up with customers’ changing preferences. Brennan points to Rosedale’s consistently high performance in the St. Thomas survey.
The overall project, which broke ground last year and will conclude in 2018, will expand Rosedale’s selling space by 10 percent, to 1.27 million square feet. It will bring the center’s store/restaurant count to 125, about a dozen more than today. Currently, the mall’s tenants and anchors attract 14 million visitors a year and generate more than $300 million in annual sales, according the center’s website. This is expected to grow not only because of the mall’s expansion, but because of individual retailer moves, such as Von Maur, according to the center.
Separately, Herberger’s—one of the mall’s three existing anchors (the others are Macy’s and JCPenney)—completed a storewide renovation in August. Michael Toussaint, Herberger’s manager there, says the store is one of corporate parent Bon-Ton Inc.’s 12 flagship stores. All told, Bon-Ton has 261 stores; only three others are getting storewide makeovers this year. (Macy’s and JCPenney made modest updates recently.)
The upgrade is noteworthy because Bon-Ton has been upfront that it is struggling and cash poor, so much so that following completion of the Rosedale store renovation, Herberger’s parent sold the structure for $18.9 million, to the mall’s principal owners, Morgan Stanley.
Von Maur: The new Dayton’s
Scott Michaelis, Rosedale’s general manager, calls Von Maur a throwback to the peak of the Dayton’s era, when that retailer was famous for its high level of customer service. He is banking on Von Maur’s strong reputation to help attract specialty retailers and expand the mall’s marketing reach.
Unlike many department store operators, family-owned Von Maur is opening stores rather than closing them. The company operates 32 stores in 15 states, mostly in the Midwest and South, including its first in the Milwaukee market this spring. The Rosedale store, a $25 million investment (the information is based on a building permit filed with the city of Roseville), will be its 33rd; another one is scheduled to open in Michigan in 2019.
The retailer’s merchandising niche is similar to, if slightly more traditional than, Nordstrom, say experts. Its points of differentiation are liberal return policies, free gift-wrapping, a no-interest credit policy, and great service—the result of employee-friendly work hours that engender great esprit de corps.
In an interview, CEO Jim Von Maur said the Rosedale store will have a staff of about 200—roughly twice the average for similar-sized department stores.
The Von Maur family opened its first store in Davenport, Iowa, in the late 1800s. Among the stores’ special touches today: live piano music (Nordstrom recently dropped this feature), an animated tree that talks to children, a cage of canaries, a fireplace in the women’s shoe department, antique-filled sales floors, luxurious restrooms and coat checks. Rosedale will be the company’s first location to feature a special door for package pickups.
“The more people get familiar with us, the more they become hooked on what we do,” says Von Maur, noting that the company’s Eden Prairie location is one of its top stores. The company had been in discussions with Mall of America “for about 20 years, on and off,” but in the end, he would not explain what caused them to reject Mall of America’s interest. Von Maur also considered a location at Arbor Lakes in Maple Grove.
The Rosedale project marks the center’s first major expansion since 2006, when it added a 14-screen AMC multiplex and an outdoor “lifestyle hybrid” center, the Plaza, attached to the enclosed mall.
Apple, the nation’s leading specialty retailer by sales per square foot, opened a store in Rosedale in 2004 and moved to an expanded location there in 2013. Apple’s Rosedale store has the second-highest sales for its five Twin Cities locations, trailing only its Mall of America store, according to Michaelis. Some existing stores at Rosedale have been adding special amenities.
The expansion at Rosedale includes a two-level parking ramp that will hug adjacent sides of the Von Maur store. The first stage of the ramp is finished; work on the second stage and the interior of expanded portion of the mall will begin after the holidays. New space is being built for up to 11 specialty retailers along a new two-level corridor that will lead into the Von Maur store. (Ridgedale created an identical wing to connect its new Nordstrom.) Jones Lang La Salle (JLL), Rosedale’s manager and developer, is seeking occupants for those spaces, some of which could be filled by relocations of the mall’s existing tenants. As of press time, the mall had not identified any occupants for the new spaces being built near Von Maur.
Rosedale did announce in late summer that construction “edutainment” attraction Extreme Sandbox Mini will open a 5,700-square-foot indoor version of its outdoor construction and excavation playground in the Herberger’s wing.
Chicago-based JLL is a global, publicly held company with $6.8 billion in annual revenue. It works on behalf of the mall’s principal owner, Morgan Stanley. JLL describes itself as the nation’s third-largest third-party retail property manager, with more than 131 million square feet under management at 1,300 locations, including 32 million square feet at 57 malls, lifestyle centers and mixed-use developments.
JLL has ramped up its overall leasing portfolio in the Twin Cities considerably since 2012. Three years ago, it took over management of Rosedale Square, one of four satellite strip malls near Rosedale. Michaelis says JLL’s ties with multiple retail-sector players around the country are expected to help the mall bring in new specialty retailers. Crave, one of the metro area’s most ubiquitous upscale casual restaurants, is reported to be opening at the Plaza.
A closer look at Rosedale’s project shows how it is emulating the strongest-performing regional malls’ tried-and-true strategies used to sustain their roles as temples of America’s commercial culture. Consider how a critical piece of the renovation has whittled down the bulky pillars that lined the mall’s corridors. Work crews transformed them from rounded diameters of almost three feet to sleek, squared-off columns roughly half as wide. “Our focus is decluttering,” explains Michaelis. “The sight lines were visually limiting. Storefronts were difficult to see.”
When completed in fall 2018, the mall will have been under construction for 2.5 years.
Such strategies harken back to the marketing savvy of Alfred Taubman, the famous mid-20th-century mall developer who stressed the link between sight lines and sales at enclosed malls. One of his big ideas was that in order to succeed, malls need to present shoppers walking on the first level of a two-level mall with unimpeded views of the stores in front of them on both levels. That overcomes what Taubman called “threshold resistance”—physical and psychological barriers that stand between shoppers and stores. “You buy something because it is available and attractive,” Taubman declared. “You can’t have any obstacles.”
The renovation ties Rosedale to Minnesota’s striking seasonal changes, positioning the mall as a “simply Minnesota” gateway to the state’s north woods. Four glassy atriums, each with fewer of those sales-impeding obstacles, are themed to the seasons: meadow (spring) near Von Maur; evergreen (summer) near JCPenney; harvest (fall) near Herberger’s; and frost (winter) near Macy’s. Lighting and flooring have been addressed throughout. Workers have carved out an enlarged public space on the first floor near Von Maur. Charging stations are omnipresent. “Signature restrooms” are being added. Two-sided, 65-inch interactive store directories, resembling huge iPads, are being installed at seven locations.
Rosedale’s Historic Gem
mid the ever-churning parade of specialty retailers that have resided at Rosedale Center over the years stands a shining salute to stability: family-owned Buchkosky Jewelers. Owners Paul and Ruth Buchkosky have occupied the same space at Rosedale since 1979. That gives them longer tenure at the mall than any other non-franchise specialty tenant.
Paul says his business doubled in his first two years at Rosedale, and he remains impressed at its trade area. “The reach for Rosedale is huge,” he says. “We’re always getting new traffic.” Buchkosky expects to sign a new long-term lease soon: “We’re not going anywhere. They’ve taken care of the mall, kept up the standards.” He expects the renovation and the arrival of Von Maur to strengthen his business. “It’s really important.”
The Buchkoskys represent the company’s second generation of family ownership. Both are hands-on at the store. Paul is the president; Ruth vice-president. They have plans in place to turn their stake over to the third generation, their daughter, Jennifer, and her husband, Sauli Hirsimaki.
Buchkosky Jewelers is parked at one of Rosedale’s key junctions, a few steps from Herberger’s and close to one of the mall’s outside entrances near several restaurants and the muitiplex. Walk-ins still account for roughly two-thirds of sales, repeat customers the other third. Each year, as the holiday season approaches, the Buchkoskys send a brochure to a mailing list of some 7,000 customers.
A Bizstats.com comparison of mall retailers in 26 categories shows jewelers topping the categories, with $880 in average sales per square foot (restaurants, food courts and kiosks are a distant second, at $648).
Buchkosky says his business is built on the quality of his employees and the trust of long-time customers who keep returning. The store’s goldmaster, who specializes in working with precious metals, has been there for 31 years; its appraiser for 26. Many customers, he says, “prefer to deal with a family directly, rather than through chains.”
Paul’s father, Helmuth Buchkosky, was the son of Polish immigrants. After graduating from Dunwoody Institute in 1935 as a draftsman, he met a streetcar motorman who fixed watches at his kitchen table and began working with him on weeknights. Following the advice of the motorman, Helmuth enrolled in St. Paul Vocational’s watchmaking school. In 1939, a shoe store owner offered Helmuth space for a counter, a watch bench and a display window in his store on West Broadway in Minneapolis for $25 a month. Helmuth’s father loaned him $500 to go into business on his own. That was the beginning of Buchkosky Jewelers.
In 1972, Paul joined the business. Soon thereafter, he and his wife acquired a majority stake. At one time or another, Buchkosky Jewelers has operated stores in Edina, Richfield, Bloomington, Golden Valley, Brooklyn Center and Har Mar Center in Roseville. In 1979, the Buchkosky store at Har Mar moved to Rosedale, occupying space in a new wing. Today, Rosedale is their only site.
About once a year, a business broker approaches Buchkosky to see if he is interested in selling. Always, his thumbs are down. “I don’t want to fire myself.” —D.B.
Mall-wide renovations can be complex, and the Rosedale project is no exception. In addition to principal owner Morgan Stanley— Macy’s, JCPenney and Herberger’s function as a homeowners’ association would. Each of the three anchors had to sign off on the renovation project before work could begin. “It took us several years to get these deals into place,” notes Michaelis.
Once interior demolition got underway, crews could not work during shopping hours. Instead, they arrived a few minutes before the mall closed at 9 p.m., worked through the night and left before the stores reopened at 10 a.m. Typically, it took them an hour before they started working to roll down the plastic sheeting that protected the stores from dust and debris. Come dawn, it often took three hours to clean up.
But looks can be deceiving. Rosedale is projecting sales of $625 per square foot this year—before the overall project is completed. Brennan says that number is higher than all but Mall of America and the Galleria locally. Industry insiders say it is roughly 25 percent higher than similar malls nationally.
Escalators are new, as are charging stations and signature restrooms.
For the most part, Rosedale’s anchors have always done well, explains Dick Grones, co-founder of Cambridge Commercial Realty in Edina. Rosedale, pre-renovation, he says, “felt like it was the 1960s.” He expects it to morph into an “edgy, spirited” center more appealing to millennials and fashion-conscious shoppers.
Many of the problems besieging retailers today are of their own making, insists Twin Cities developer Kelly Doran. Many overexpanded, he says, and took on too much debt. “This is not some sort of fatal thing going on in retail,” Doran says. “It’s just another evolution. Retail is constantly reinventing itself. If you don’t do that, you die.”
Jim Von Maur agrees. “There’s been a lot of talk about retailers being in trouble,” he says, but often their travails have been self-inflicted. Too many stores have been chasing low prices and cutting services, he argues. “We’ve gone the other route. We’re not trying to eliminate service.”
Opinions differ on how easy it will be for Rosedale to fill the new spaces with the higher-end retailers they are seeking. “They have quite a bit of activity for those spots, so I’m confident that they will lease up,” says Grones. But Brennan thinks it’s no chip shot. “In many of these cases,” he says, “these retailers want only one or two stores in the market, and Rosedale is not among [the locations they want].”
In any event, Rosedale is doing what it had to do, says Scott Michaelis. “It was time.’’
The first enclosed mall in the nation still does well by various measures, but retail consultant David Brennan doesn’t have Southdale on his local list of long-term survivors. He says Simon-owned Southdale’s biggest problem is a loss of trade-area dominance: Mall of America vacuums up shoppers from the south and east metro, in what’s been a serious and enduring challenge; Southdale is cut off from the affluent southwest suburbs by Eden Prairie Center; and now, with an expanded, upgraded Ridgedale with its own Nordstrom, Southdale is facing a difficult battle for once-loyal Lake Minnetonka-region shoppers. A recent walk through Southdale indicated it still suffers from a large number of high-profile vacancies, including the recently shuttered Gordman’s. Southdale remains challenged by the nearby Galleria, though Southdale has recently secured Restoration Hardware, which is building a stand-alone complex on a Southdale out-lot, as is coveted burger restaurant Shake Shack. Southdale is clearly preparing for the next era, having converted empty retail space into a relocated Hennepin County Service Center and sold parking land for high-density residential development. In that same vein, Southdale’s JCPenney has closed and will be replaced with a Life Time Fitness.
Dave Beal, longtime business columnist and editor at the St. Paul Pioneer Press, writes frequently about business and the economy for TCB.