MacArthur Center was first conceived well before 1994 upon the announcement of its building plans. It was born out of a development strategy that transformed the city’s downtown from a sea of parking lots and old warehouses to a modern downtown. Key anchors like Nauticus, Town Point Park, and Waterside predate Mac Mall by a few years, yet those developments function quite like the ‘anchor stores’ of the mall in question. Stores like Dillards and Nordstrom get a great deal on their rent because their presence pulls in lots of traffic that justifies rental prices in the mall. Similarly, significant projects like Nauticus and the Mall intend to be those anchors for downtown, drawing in lots of traffic. That was the prominent development theory of the day, and while criticizing that in hindsight may be easy, we do owe it some credit for getting downtown to where it is today. Now 20+ years after the mall’s opening and nearly 30 years since its initial plans, things have changed quite a bit.
There’s a particular trend that we see playing out across a ton of business sectors right now. In the current state of media talk, it would be easy to point out that some huge players dominate the web and conclude that the commercial trends are towards massive monopolistic firms. If you were an economics student and saw lower barriers to entry, cheaper transaction costs, and widespread access to the information, you would expect to see markets getting more competitive and, by default, more firms. (i.e., the opposite of a monopoly). That shift towards more and smaller companies is the dominant trend at the moment.
That shift isn’t as readily apparent, though. Most folks see in the headlines their day-to-day lives by those massive internet giants (Facebook, Amazon, Google, etc.). And yeah, those companies are likely becoming more monopolistic and anti-competitive, although that’s a story for a different article. One of the main reasons why these firms are getting so large is because they are providing platforms. They’re becoming the marketplace where business happens. The small and micro businesses that we would expect to see from competitive-trending market dynamics are showing up on these platforms. The narrative tends to be about the behemoths in the room, and they deserve attention in their own right. But it’s all these small companies that get way less press that we should be paying attention to. For years now, there’s been a surge of millions of small businesses working on these platforms.
In these markets on Amazon, Facebook marketplace, or Etsy, you see millions of small businesses. And if you look closely, you’ll see that the ones that are flourishing are hyper-specialized. Businesses are leaning hard into specific niches and working hard to offer something very unique. If your business sells paper towels, flour, or any standardized commodity, the competition would be ruthless to overcome. With thousands of other companies in the market, a small business is a price-taker, not a price-maker. They don’t get to determine their price (and stay in business) because products are so similar, and many firms sell them. However, when you’re selling hand-painted coffee mugs or posters with your original graphic designs, no one can precisely offer the product you have. You’re now in a league of your own and can find space to make a profit.
The aforementioned is a well-established trend and not the point of this article, but it’s critical context for what’s happening locally. When we think of mom-and-pop shops and brick-and-mortar retail in places like downtown Norfolk, we don’t tend to consider them ‘internet companies.’ Yet, these companies are now competing on Yelp, Google reviews, Facebook, Instagram, Etsy, and other platforms. These ‘main street’ businesses are competing heavily on the internet and are subject to these same market trends on the web. Conversely, many internet-first small companies that have validated their product offerings are now looking for in-person retail opportunities. The line between “brick and mortar” retail and internet commerce is blurring in cities and towns across the country.
The takeaway is that our main street businesses are similarly looking to make themselves unique and specialized just like those micro ‘internet companies.’ The shift is playing out right before our eyes in downtown Norfolk. Mall shops like J Crew and Nordstrom aren’t doing anything out of the ordinary and bringing anything unique or special to the local market. Patrons can shop all of their merchandise both online and in every mall in America. When you’re a huge national brand facing that steep online competition and have to pay retail rent, the writing is on the wall. Those headwinds have driven ‘traditional’ retail out of malls across the country. But that’s not the only retail story playing out in Downtown Norfolk.
With massive competition for everyday goods on the internet, the businesses that can still flourish in brick-and-mortar retail have to be unique and find specific niches. We see this playing out online in the birth of hundreds of Shopify and Etsy shops. Locally, this is what drives Selden Market shops to succeed downtown. They bring super unique products to the market and, there’s a substantial emphasis on experience-building and narrative-telling. Shops have diverse stories to tell, showcase spectacular craftsmanship, and offer something hard to find anywhere else. That type of micro-retail is flourishing in cities all across America. Selden Market and the Granby Food Hall weren’t new concepts; they succeeded elsewhere. If that MacArthur Mall land will include retail in its future, that space needs to look to these models to be successful.
When it comes time to replace or reuse MacArthur mall, we should focus on making small, diverse, and plentiful retail shops. Your gut reaction is probably: “so, like a mall?” Well, there are some significant differences. First up, smaller footprints are key. Typically ‘in-line’ mall shops run 1500 – 5000 square feet in size. At Selden Market, the average storefront is 350-400 square feet. Not only can you fit more retailers in the space, but the rent for each storefront is considerably less – even if the rent price is the same or more on a square foot basis. Opening a storefront is now cheaper and less risky, allowing different people to try their hand at the retail game. Smaller spaces can also cater to smaller niche markets since they have to move less product to meet ends.
Another difference between the mall and a market comprised of micro-businesses is the types of businesses and the clientele they cater to. Malls have historically had a particular kind of client that they lease to, which are national brands with cookie-cutter storefronts. The incentives for the leasing agents are clear. National brands know what they can afford; they’re less likely to miss a payment with a national company to bankroll them, and low turnover. It seems like a safe choice to chase these national brands. When management is a national company, they typically have long-term relationships with those national retail brands. No shade to those folks; they’re doing their best at what they know to do. That business model is quickly going away, and these days, national brands don’t stand out like they used to. People want unique, locally-owned shops.
A mall has a single owner–it’s a monolithic thought. Breaking up that commercial space into dozens of individual properties is crucial. Diversity in tenants starts with variety in ownership. Breaking the development up into many individually owned properties allows for some businesses to hold their space and the rest to have local owners. A single mall or town-center-like property can cost hundreds of millions of dollars. The only folks who can own those are large national firms like Starwood, Simon Properties, or Cordish Co. When you break those up into smaller properties, prices can quickly become accessible to local business owners and investors. A handful of corporations won’t decide the outcome of those blocks. No single group determines what businesses should or can open in the area. No single group determines what color paint goes on the building. Every property owner has different perspectives on what that property should become. That opens the door to diversity, experimentation, and innovation.
Importantly, this builds resilience, as it constantly tests diverse management and business perspectives. As the business trade winds have shifted, MacArthur Mall got stuck. It’s been slow to change and adopt new strategies as its problems mount, leaving our downtown with a giant albatross. When you have dozens of small owners and a downturn is in its growth stages, some businesses will make it, and some will fail. When those businesses fail, it’s easier to sell properties to new owners with a new vision. Accessible rent prices through smaller square footage result in reduced lease turnover times and fewer empty storefronts. It’s not comforting to see a local business fail like that, but at least when it happens, a quarter of downtown isn’t stuck with empty windows and dead zones.
We should resist the urge to recreate a faux downtown and the likes of Peninsula Town Center or Virginia Beach Town Center. They use traditional retail size footprints and sizeable corporate ownership to develop a substantial parcel of land. They may seem like a step in the right direction, but those places are still whitewashed and uninteresting. They’re just the same old mall model posing as a downtown hub.
We’ve focused a ton on retail and commercial real estate here, but the same principles generally apply to the rest of the real estate involved. There should be a mix of residential, office, and retail. There should be apartment homes for rent and condos to buy. Traditional office spaces and coworking spaces. Diverse sizes, diverse ownership, and diverse people.
The guiding symbol that keeps coming to mind for me is a coral reef: A vibrant and colorful space filled with small flourishing life in every nook and cranny. It’s diverse and fast-paced. When something dies or goes on its way, something else is right there to fill the gap. The success of the reef isn’t dependent on anyone fish or anemone, but the collective thriving of the community. The grandeur of the reef isn’t its colossal size but the beauty of diversity within it.
Here’s the big kicker on all of this: This kind of approach should maximize the return on the city’s municipal investment. When you break up the monolith of a mall into a ton of smaller pieces, the sales prices and rates of any individual shop should be greater than the price earned from a single lease or single sale for the whole thing. Break it up into as many parts as possible if you want to maximize your return.
We don’t know how soon the MacArthur Center property will change, but we know it’s on the horizon. We know it’s coming. We owe it to ourselves and our neighbors to ensure the next iteration of this land is local-focused and community-centric.
P.S. Of course, this concept doesn’t stop with the ‘inside’ real estate. We can design to integrate purposeful space for buskers, food trucks, and kiosk vendors in the streetscape. A vibrant market street doesn’t start and stop at the storefront.
Paul Stetson Rice
Paul is the creator of NFKVA.com. He was born and raised in Norfolk, graduated from Virginia Tech, and narrowly avoided law school. Chat with him about economics, entrepreneurship, hip-hop, and hiking. When he's not working on five different projects, you'll catch him sharing a beer with friends at a local brewery.