MAKING AN EXIT

THE BALTIMORE SUN

First White House Black Market closed its flagship clothing store in February. Shortly after, the Aveda beauty store and J. Crew declined to renew their leases and moved out. And then Origins also closed its store.

The Harborplace & The Gallery shopping complex at Baltimore's Inner Harbor has been losing some of its highest-profile tenants as the recession has driven retailers to downsize and close underperforming stores to deal with a drop in consumer spending.

The economic climate is hitting shopping centers all across the country, but downtown areas like Baltimore, where retailers tend to have smaller, less profitable stores, can be harder hit and more vulnerable than larger suburban malls during slow economic times like these, retail experts said.

Downtown Baltimore shopping is challenging even during good times because it is dependent on tourism and downtown office workers who go home on weekends and in the evenings, said William P. Ferrell, a principal with Trout Daniel & Associates commercial real estate brokerage in Baltimore. A store like a J. Crew might not make as much money in The Gallery as in a suburban mall, Ferrell said.

"Really, people from outside of downtown don't shop there except for the specialty stores," Ferrell said. "Joe Blow from Chicago has J. Crew down the street at home so there's not a reason for them to shop there. That mall is always going to have challenges."

General Growth Properties Inc., the Chicago-based mall owner that is operating under bankruptcy-law protection, is known for running its properties well, and its problems stem more from debt than from the quality of its malls, retail experts said.

"I think everyone understands that the malls themselves, which generally are top-rated, are going to be there," said Howard Davidowitz, chairman of Davidowitz & Associates, a retail brokerage and consulting firm in New York. "The creditors are not going to be crazy enough to destroy the value of the malls."

The vacancy rate at The Gallery & Harborplace has grown to 6.8 percent in June, up significantly from 1.5 percent the second quarter of last year, according to research firm Costar Group. Arundel Mills in Hanover has a 1.2 percent vacancy rate, while Towson Town Center has a 7 percent vacancy rate. Towson just opened a new luxury wing that may be skewing the numbers.

White House Black Market - which sells only clothes that are black, white or off white - closed its store at Harborplace in February even though it was the original location that had been there since 1985. The store was half the size of most of its other locations and didn't do as much business as the company would have liked. Executives were also unhappy that General Growth wasn't spending to upgrade the facilities, said Robert Atkinson, a spokesman for the White House chain, which is now owned by Florida-based Chico's.

"That was a pretty tough decision for us because that was kind of a legacy store for us," Atkinson said of the chain. "As you know, there are financial issues that General Growth is facing. They weren't refurbishing the complex. From a financial standpoint it wasn't a profitable store for us."

The stores are closing as retailers face their toughest economic climate in years, with many consumers cutting out discretionary spending. Retailers might have hung onto stores that didn't quite meet their expectations in the past, but are now downsizing them instead. Stores such as Ann Taylor have announced plans to close some of their locations. Abercrombie & Fitch said last month it was closing its money-losing Ruehl chain.

General Growth has been desperately trying to sell off properties, including Harborplace & The Gallery and Cross Keys in Northeast Baltimore, to raise cash to pay off huge amounts of debt. The Cross Keys location recently lost Ann Taylor and J. Jill stores.

The general manager at Harborplace & The Gallery said the bankruptcy hasn't had an impact on leasing.

"As far as anything new on the bankruptcy and its impact on leasing our properties, we have seen none," Christopher S. Schardt, senior general manager at Harborplace & The Gallery, said in an e-mailed response. "We continue signing new retailers to many of our properties across the portfolio. We're in talks with retailers on a daily basis. This is true for Harborplace & The Gallery. So, in short, our bankruptcy has not impacted our relationships with our retailers."

He blamed the empty storefronts on retailers downsizing because of the economic climate.

"Just about every industry is feeling the impact of our country's recession," Schardt said.

The shopping center is made up of three buildings, including two Harborplace pavilions. The Gallery mall has a 5.7 percent vacancy rate, according to CoStar Group. The Harborplace building at 301 Light St, which is primarily restaurants, has an 8.3 percent vacancy rate, while the building at 201 E. Pratt Street has a 7.4 percent vacancy rate.

The shopping complex is losing high-profile national tenants, which is making room for stores with less cachet such as the "A Dollar" store in The Gallery. At Harborplace, there is a store with the generic name of Newsstand. But the only publications are a rack of newspapers in the corner. The store is more like a large convenience store selling snacks and travel-size toiletries.

J. Crew had a prime spot at the front of The Gallery with windows that fronted Calvert and Pratt streets. It was being used to market merchandise from other stores in the mall, but now just sits vacant. Upscale beauty products stores Aveda and Origins are also notable retailers that chose to leave the shopping center. The Gallery also recently lost Waldenbooks and an independent card shop. Its food court has four vacancies.

A Manchu Wok sits by itself, surrounded by three of those empty storefronts. Jewelry store Amaryllis recently moved a few blocks away to Harbor East. California Pizza Kitchen left a prominent spot at Harborplace two years ago and still hasn't been replaced.

In many of the cases, the leases had run out and the stores didn't think it made economic sense to stay.

The mall has had some leasing successes, including the opening of the highly sought after Urban Outfitters in Harborplace. A Swarovski crystal store also recently opened in The Gallery.

The lease for Aveda expired in January, and a spokeswoman said it wasn't renewed because the company decided to open a store in Annapolis instead.

"We look forward to announcing a new location later this year," said the spokeswoman, Ellen Maguire.

A spokeswoman for Origins would say only that the store was closing for "business strategy considerations."

Heather Lynch McAuliffe, a spokeswoman for J. Crew, said that the company decided not to renew its lease and was not looking for another location in Baltimore. She saw the harbor store as a small store for the company.

"It's just a matter of opportunity," she said.

Cindy Soukup, the owner and president of Via Chic in Harborplace, said she has noticed more vacancies in recent months. The mall management recently moved her store to make room for a tobacco shop, she said.

"You come now and there are a lot of vacancies and the caliber of stores that come aren't as good as they once were," said Soukup, who has had her store for two years.

Schardt said the mall looks at the vacancies as a way to find new opportunities.

"With challenges come new opportunities to attract new retailers and even new concepts," Schardt said. "We've seen a few retailers close shop here ... but we see that more as an opportunity. Retail chains around the country are changing their merchandising strategy by consolidating locations, changing their product lines, giving their stores a face lift, etc. Harborplace & The Gallery is doing the same thing."

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