Lakeforest mall closings reflect natural life cycle, executive says

Mall owner Mills Corp. has ‘big issues,’ analyst says

Friday, March 10, 2006

The darkened and gutted shops now shut behind locked doors or gates at Lakeforest mall are likely not a sign that its owner’s plans for the property are taking shape, according to the mall, store representatives and analysts.

Rather, they say, seven closed stores at the Gaithersburg mall, a beacon for a generation of shoppers, reflect a commonality in the life cycle of retail tenants, whose leases often end early in the year, a time when holiday revenues are up and inventories are down.

‘‘Every year — same time, same period — you have the typical closures,” said Marion Julier, general manager of the mall. ‘‘We actually look forward to those turnovers because it gives us an opportunity to bring new retailers in.”

The closings this year, however, come as the mall awaits potentially sweeping, but as yet unspecified, redevelopment plans by Mills Corp. of Arlington, Va., a company that industry experts and analysts say is itself facing an uncertain future.

Mills, a real estate investment trust that acquired the mall in November 2004, has said without elaborating that it plans to explore expansion opportunities and other means of revamping the mall to keep it in step with changing demographics and ensure it aligns with its corporate model.

A mall executive and retail industry observers say they have not heard anything new about what, exactly, Mills plans to do at Lakeforest, or when it plans to do it.

And with the company announcing last month that a new COO had been hired and that its board of directors had retained financial advisers to begin researching the possibility of selling all or part of the company, experts say the question marks are many.

‘‘The company is definitely having big issues,” said Matthew Ostower, an analyst at brokerage Morgan Stanley in New York. ‘‘Where this all goes remains speculative at this point. I’m not sure they even know the answer at this point.”

Mills officials recently confirmed that the company still plans to move its 300-employee headquarters from Arlington to the new Chevy Chase Center office and retail complex.

The closed stores at the mall, at 701 Russell Ave., include a Petite Sophisticate apparel shop, a Chesapeake Knife & Tool, a Bailey, Banks and Biddle jewelry store, a Carlton Cards shop and a Frederick’s of Hollywood lingerie outlet, which had been open only weeks before for Valentine’s Day.

Across the hall from the Carlton Cards, large signs in the windows of a Mastercraft Interiors furniture shop announce a clearance sale. An employee said the store would be gone by the end of the month.

But however ominous the closings might appear to shoppers, retail observers agree that it’s part of the natural life cycle for many stores.

‘‘A lot of retail fiscal years end in the end of January or February,” said Thomas S. Saquella, president of the Maryland Retailers Association, a statewide trade group. ‘‘That’s fairly common.”

Ostrower, the Morgan Stanley analyst, called this time of year ‘‘peak store-closing season.”

In becoming the Mills’ new chief operating officer, a post he officially assumed Monday, Mark S. Ordan left his job as CEO of Balducci’s, a specialty food market with shops in Bethesda, Washington, D.C., Alexandria, Va., New York and Connecticut.

Mills, with 42 properties in the United States, Canada and Europe — including Arundel Mills in Hanover — also announced last month that it would be eliminating 77 jobs, and that it would not meet the March 16 deadline to file a required annual report to the federal Securities and Exchange Commission.

That agency has launched an informal inquiry of the company.

The closed stores at Lakeforest are among 166 tenants there, or about 4 percent of the total; Ostrower said malls generally aren’t in trouble until they hit the 10 percent mark.

Representatives of several of the closed stores were unavailable to comment on why their Lakeforest outposts had been shut, but an employee of Chesapeake Knife and Tool said the store’s lease at Lakeforest had expired and that it had nothing to do with Mills.

Still, given the buzz over what Mills may do now more than a year after it bought the property, Ostrower doesn’t fault people for wondering what the closings could mean.

‘‘I think it’s an open question, I think it’s a legitimate question,” Ostrower said. ‘‘I’m not saying we have a legitimate answer at this point.”