In the early 1990s, an out-of-town developer was eyeing a site off Interstate 95 outside Washington for a new shopping mall, anchored by Nordstrom, known then as the queen bee of department stores for the number of shoppers and other stores that loyally followed it.
The news might have been welcomed by well-heeled suburban shoppers, but it was dire for Anthony W. Deering, chairman and chief executive officer of the Rouse Co.
Rouse, the Columbia-based real estate investment trust, owns The Mall in Columbia, just up the road from the possible site near Washington.
Deering knew that his mall, which opened in 1971, would lose monied customers from the south and west as well as new potential tenants, and might become a second-tier shopping center.
Company officials made a sweeping, and expensive, decision.
"We forestalled that," said Deering, understating the company's effort to lure Nordstrom to the Columbia mall and its $70 million investment in upgrades during the past five years. "We were at a point where a competitor had a site, and it could have become the dominant regional shopping center in a very high-income area."
Rouse's response was not only to expand more than 460,000 square feet to 1.35 million square feet, but also to add the newest and most upscale: Lord & Taylor in 1998 and Nordstrom a year later. Trendy small shops and restaurants will complete the project this year.
Only two empty parcels, totaling 63,000 square feet, are left to be developed. Financial trouble in the movie theater industry stalled Rouse's plans for a complex on one of the sites, but company officials said other prospects include a day spa and other restaurants.
The Mall in Columbia is not the only center in Rouse's portfolio to undergo improvements. The move to go upscale reflects a strategy the company has been implementing during the past six years that has led to a review of all its malls.
Investments have been made in the malls that face competition, such as Cleveland's Beachwood Place and Atlanta's Perimeter Mall. Rouse also has shed 32 malls it could not remake into profitable area leaders because there were not enough high-income shoppers to support them.
Rouse is in the process of expanding and improving two of its malls, in Salt Lake City and Las Vegas. And it is developing five new malls in high-income areas where it thinks it can thrive, such as Coral Gables, Fla., and San Antonio.
Nordstrom has agreed to build department stores at four of the locations. Three more are on hold as the company retools.
Retail analyst Neil Stern of McMillan & Doolittle in Chicago said Nordstrom is not the draw it was. But popular small shops such as J. Crew and the Gap have helped propel Rouse's sales per square foot, a gauge of mall performance, to second in the industry behind the Taubman Co., based in Bloomfield Hills, Mich.
The success of Rouse malls will attract more of the most popular retailers, Stern said.
Those new retailers also will pay higher rents, and shoppers will travel farther to the company's malls, the analyst said.
David Fick, who covers Rouse for Legg Mason Wood Walker Inc., called the shift a good long-term strategy for the company that should benefit shoppers and stockholders. Shares have traded between $17 and $33 during the past 10 years.
But, Fick said, in some cases the return on the investment from the upgrades would not be great, given the immense cost of construction. The Columbia mall might fall into that category.
"But they've defended those malls against any competition," he said. "In some markets, they won't do it. In some markets, it doesn't make sense to, because there's no competition."
Rouse also owns Towson Town Center, White Marsh Mall, Mondawmin Mall, Owings Mills Town Center, the Gallery and Harborplace - some of which have undergone upgrades.
Deering said that today's competition comes not only from other malls but also from the Internet and big-box stores such as Target and Best Buy. Rouse will continue to monitor its malls' positions in their markets, he said.
"Over the last several years, we've cued into a strategy," Deering said. "We'll keep looking for opportunities to create and maintain dominant retail experiences in the market. That's what's left to do."