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Have Costco, Aldi Launched a Real Estate Trend?

Have Costco, Aldi Launched a Real Estate Trend?

Shoppers of Aldi and Costco would never mistake one store for the other. Each retail brand has unique approaches to merchandising, price points and decor. More importantly, you could fit about 10 Aldi's inside a Costco.

But these two chains are following similar playbooks in at least one new initiative: Both are experimenting with locating in regional malls.

Costco recently said it was planning three mall sites and considering others as a strategy to enter urban areas. Aldi opened its first mall outlet recently in a Chicago center.

These moves have raised eyebrows because food stores have tended to shun enclosed malls, which can be more costly and less convenient for operators and shoppers than other real estate locations. (Ever try to park in a major mall during the holiday rush?)

Are the moves into malls by Aldi and Costco the leading edge of a bigger wave?

Possibly. Shopping mall developer Westfield, which was responsible for Aldi's move, is bullish about this trend.

“Introducing the new grocery category to our shopping centers is first and foremost a valuable new option for customers, and a very positive move for our grocery partners,” said Chris Barnett, senior vice president. “We plan to expand this concept throughout our U.S. portfolio and are currently talking to a number of grocers.”

Moreover, Andrew Graiser, co-president, DJM Realty, told me he's “starting to see some supermarkets express interest in mall locations. It's selective, but we're starting to see it.”

So what has changed to lead these food retailers to consider regional malls? According to a recent article in Retail Traffic, a sister media property to SN at Penton Media, mall landlords are increasingly open to negotiating on deal terms in the wake of vacancies resulting from economic hard times. Food retailers are also attracted by opportunities to gain competitive footholds in crowded markets and draw traffic from wider areas.

But here's the rub. These malls aren't for every food retailer. The best candidates for locating in malls are stores that have unique elements, according to experts.

Aldi and Costco are unique grocers with price-oriented models. DJM's Graiser points out that in particular good quality, higher-end food retail chains are showing interest.

Observes David Bodamer, Retail Traffic's editor-in-chief: “Regional malls that have open-air lifestyle center components — with tenants like bookstores, cafes, upscale apparel retailers — might be a good fit for Whole Foods, Wegmans and other more upscale grocers.”

So the mall strategy is one worth exploring for retailers with a special draw, and there are more of those operating today than years ago. In contrast, run-of-the-mill grocers still have reasons to be intimidated by those mall walls.