Zale Corp., known as a mall jeweler, now believes in the power of off-mall locations. It will soon open 25 off-mall Zales stores in New York City, and it’s testing several Gordon’s Jewelers in power centers—open-air shopping centers of large-operation, category-specific retailers. And in the last six months, it’s opened a handful of Zales stores in lifestyle centers—upscale and more intimate versions of power centers.

“There’s not an established jewelry brand off mall,” says David Sternblitz, senior director, Investor and Public Relations, Irving, Texas. “There’s a large opportunity to gain market share outside of the mall and to reach customers that we’re not.”

There’s another reason for the off-mall strategy: America’s malls are losing their appeal. Many are outdated—some are 40 years old—and badly in need of costly renovations, leaving eyesores nationwide when money for makeovers can’t be found. New malls are expensive to build, resulting in a slowdown in their construction. Plus, many consumers think malls are dull; shoppers now want “to combine the convenience of a strip center with the panache of upscale retailers,” according to research from the International Council of Shopping Centers. “Malls deliver traffic, but is it the right kind of traffic for high-end retailers?” asks John Michaels, owner, Michaels Jewelers, Waterbury, Conn.

Adds Sternblitz: “All the traffic is moving towards power strip centers.”

FreeStanding Stores

David Bouffard, director of store promotions for the Signet Group, Akron, Ohio, knows that freestanding stores—ones that physically stand alone in a shopping center, such as his company’s Jared the Galleria of Jewelry brand—offer more space than mall locations. More space allows additional merchandise, wider selection, and special features such as diamond rooms. More space also means more sales: “Five times the size means five times the sales,” Bouffard says.

Other benefits also make freestanding stores attractive to large-scale jewelers. The jeweler owns the property in many cases, so lease and operating-hour restrictions may not apply. In addition, some utility expenses may decrease, and it might be easier to create a more personal atmosphere. The store might even be easier to reach. Another bonus: Shoppers who shun malls tend to be from households with higher incomes and have greater levels of education.

Michaels, who has a chain of 12 stores in Connecticut, prefers the freestanding format. He likes the hours, among other reasons, and one of his stores enjoyed particular success with the format after relocating from a mall. “I moved out of a mall and into a freestanding store a mile and a half away, and my business was up 40 percent for the year,” he says. “My foot traffic was up 10 percent for the year. Two-thirds of the bodies that came into the mall were browsing. In the new place, 98 percent buy something.”

Lifestyle Centers

Born in the late 1980s, lifestyle centers are just hitting the mainstream. These luxury-minded retail centers range between 150,000 and 500,000 sq. ft., have open-air layouts, dedicate at least 50,000 sq. ft. of space to a national chain specialty store (think Pottery Barn), and are located near ritzy neighborhoods. They’re also defined by what they lack: They have scant appeal for teenagers and no department-store anchors.

Lifestyle centers have enjoyed major growth in the past few years. They number 120 in the United States, and as many as 20 could be built in the next few years.

Their shoppers are different, too. They’re purpose-driven and spend less time in the center than in the mall (57 minutes vs. 78 minutes, according to ICSC research), but they spend as much money per trip—$76—as mall shoppers. Lifestyle-center shoppers also come from higher-income households: More than half of lifestyle-center shoppers surveyed by the ICSC had household incomes exceeding $75,000, and the median household income was $85,000. By contrast, the median U.S. household income is just under $45,000.

Power Strips

Zale is admittedly a fan of power strip centers, but not just because of traffic flow. The company is testing another of its properties—Zales Outlet stores—in power strips because these centers are frequently associated with value.

Warwick Jewelers in Exton, Pa., is also located in a power strip, but for different reasons. “We’re not in love with the other stores, but this is a growing area,” says buyer Mark Maglin, G.G. Exton is located in Chester County, Pa., once one of the fastest-growing areas in the United States.

Without the glitz of lifestyle centers or the high fees of malls, power centers offer more reasonable rents, which allow retailers to price merchandise accordingly. Plus, parking and visibility often compare favorably to that found at power centers’ upscale cousins—the lifestyle centers.

The disadvantages? The stigma of being in a “discount center,” says Maglin. That’s okay if price-oriented shoppers are your customers, points out Michaels, but be aware that those are the shoppers who are delivered to power centers. The life cycle of some strip centers also should be considered: “Some can get whiskers on them pretty quickly,” says Marvin Beasley, CEO, Helzberg Diamonds, North Kansas City, Mo.

The Future of Malls

Ben Bridge Jewelers, Seattle, Wash., is content with two freestanding stores and 70 mall-based stores. Co-CEO Jon Bridge says owners of stand-alone stores must consider factors such as security, advertising, and location. The store “must be a destination,” he notes. “There’s no free lunch. You have to figure out where to spend your money.”

Signet, on the other hand, aims to embrace both malls and freestanding stores. “There are a limited number of malls in the United States,” says Bouffard, with Signet’s mall-based Kay brand in mind. “Kay is already in 750 of them, and our criteria to enter a mall are very strict; Kay has to be in the center court [high-traffic area near the food court].”

Zale still has some decisions to make. “We’ll have to decide what brand makes the most sense for different properties as we make our off-mall strategy,” says Sternblitz. He suggests that retailers who miss mall traffic should place their stores “on the mall grounds.”

Michaels Jewelers covers all its retail bases, with stores in malls, downtown areas, shopping plazas, lifestyle centers, and freestanding locations. Sometimes serendipity plays a role: “You have to move to a location when the opportunity exists,” Michaels says.

Despite retail trends, many jewelers will likely call malls home for many years to come. The reason is simple: “The mall attracts customers,” says Bridge. Bouffard points to a recent acquisition—Marks and Morgan stores in 2000—as a sign of Signet’s loyalty to mall walkers. “In any year we’ll open 45 mall stores across all of our brands,” he adds.

Ditto for Zale: “We still believe in the mall,” says Sternblitz. To prove it, Zale aims to expand its mall-based Piercing Pagoda from 800 kiosks to 1,000. Helzberg, which has 260 mall-based stores and 35 freestanding ones, also plans to maintain its mall presence. “On a store-by-store basis, there’s very little difference in profit and sales between our mall stores and the freestanders,” says Beasley.

Each of the different retail venues has advantages and disadvantages, but they all attract their share of customers. As Bridge says, “In today’s world, customers are going into all different locations to shop.”

Choosing the best location for a particular store requires careful assessment, including, says Michaels, assessing prospective neighbors. “Figure out who’s naturally attracted to your neighbors and that’s who’ll come to your location.”