Ailing anchor store casts uncertainty over Circle Centre

January 26, 2009
The shopping mall business is fragile these days, with the recession sapping consumer spending as well as retailers' demand for space. So how is Circle Centre, the centerpiece of downtown Indianapolis' 1990s revival, holding up?

OK for now, it seems. But a nasty storm cloud hangs over the eastern end of the mall, where Carson Pirie Scott, one of its two anchor stores, operates.

Carson's parent, York, Pa.-based Bon-Ton Stores Inc., is at or near the top of many analysts' list of troubled retailers at risk of bankruptcy. Key signs of the strife: Its shares are selling for a mere $1.25 apiece, and its bonds are fetching less than 20 cents on the dollar.

Bon-Ton is teetering after loading up on more than $1 billion in debt in a 2005 acquisition spree. It was counting on a respectable Christmas but ended up experiencing a 7.4-percent decrease in December same-store sales.

CEO Bud Bergren this month dismissed bankruptcy chatter as alarmist. He told The Wall Street Journal, "When you look at the facts, we don't see ourselves as a company at risk," in part because it doesn't have debt immediately coming due.

The brass at Simon Property Group's downtown headquarters no doubt hope he's right. But if not, the company, which manages Circle Centre and owns a 15-percent stake, could find itself hunting for a replacement anchor amid a harsh economic slump.

Often, retailers that land in bankruptcy use the process to extricate themselves from deals for their least successful stores. The trimmed down companies then get a new lease on life by lining up financing.

In this horrid environment, however, landing that cash isn't a sure thing. Hence, the recent announcements that several prominent chains will close for good, including Circuit City and Linens 'n Things.

But even if Bon-Ton were to live on after bankruptcy, it's far from clear that the Circle Centre location—the company's only Indianapolis department store—would be on the list of stores to save.

"We'd hope it would be in the healthy group—whether it is or not, I don't know," said Herman Renfro, an independent developer who oversaw Circle Centre's construction as a Simon executive.

"I know Carson Pirie Scott has some stores that are a disaster. I would hope this one is up in the middle. It's probably not at the top."

Indeed, the 13-year-old mall, while successful and a boon for downtown's convention business, doesn't turn in the kind of performance that wows retailers. Sales per square foot for non-anchor stores was a middling $406 in 2007, the latest year disclosed in filings with the city. That's well below the $491 per square foot Simon reported overall in 2007 for its 168 regional malls.

The city has a lot riding on the continued success of Circle Centre. Indianapolis chipped in half of the 791,000-square-foot mall's $319 million construction cost and owns the land on which it sits. Simon and 19 other companies own the mall itself.

If Carson Pirie Scott were to go dark at Circle Centre, Simon, the nation's largest mall owner, would have to overcome substantial obstacles—not just the recession—to find a replacement.

"If anybody could fill it, they could do it, and I would think there are some candidates out there," said Renfro, who runs locally based Renfro Development. At the same time, Renfro noted that consolidation has swept through the department store industry, shrinking the pool of potential candidates.

Another complication: A downtown mall like Circle Centre doesn't fit neatly with the suburban expansion strategy followed by most retailers. A key question is whether a downtown store would cannibalize suburban-store sales or tap a new market.

The risk of downtown and suburban stores fighting for the same customer weighed so heavily on mall planners in the early 1990s that they extracted an unusual commitment from Circle Centre's other anchor, Nordstrom. The Seattle company agreed not to open another Indianapolis-area store for at least five years.

With that pact expired, Nordstrom opened a store at the Fashion Mall at Keystone last September. It isn't yet clear how the second Indianapolis area store will affect the first, but it can't be helping, especially at a time consumers are reining in their love affair with shopping.

The upshot: The continued prosperity of Circle Centre never has been more in doubt. The best scenario for Simon and the city would be for Bon-Ton to eke by until the economy rebounds. This is no time to try to sell a department store on taking an unconventional location in a mall with less-than-spectacular performance.
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