on Jun 13th, 2018

We knew it was going to happen eventually.

Sears Holdings Company recently announced the latest wave of closures for its two flagship department stores—Sears and Kmart—and they did not spare metro Indy from the chopping block. This time around, the Sears is closing at Castleton Square Mall, the largest and, in most regards, the best-known mall in the region. Once Sears is gone, the chain will only have one location left in the entire metro of two million: down on the south side, at Greenwood Park Mall.

We could assert that Sears’ departure is a huge blow to Castleton, but the company has been ringing the death knell for about a decade. No increase in vacancy is ever a good sign, but Sears has been such a weak link for such a long time, I blogged about its underperformance at Castleton almost a decade ago.

Back then, I noticed that most of Castleton appeared to be thriving—except for the wing of the mall with a hallway that terminated at Sears. While most of the mall featured nationally recognized middle-market brands like Lane Bryant or New York and Company, the Sears hallway mostly contained local obscurities: KT Sports, Unplugged, Nirvana. One vacant space didn’t even get used for a retailer any more; it just hosted a bunch of candy machines.

The gap between Sears and the rest of the mall was so noticeable that I speculated that rents were lower on the Sears hallway, since it didn’t get as much foot traffic. The hallway also had the highest vacancy levels in the mall.

But this condition wasn’t unique to Castleton. A few months later, I noticed more or less the same situation at the Mall at Cortana in Baton Rouge. This mall, however, was in much worse shape than Castleton, with up to a third of its in-line tenant spaces empty. The Sears wing was the worst; customers essentially had to walk the equivalent of a city block among vacant storefronts to get to the Sears.

I haven’t been to Cortana since basically 2010, but most evidence I can gather suggests it’s even worse. About 65% vacant. It has only one real anchor tenant left, a Dillards Clearance Center, as well as a junior college in a former department store space. Sears left years ago, and, incidentally, the website still implies that J.C. Penney is around, even though it bailed last summer. Cortana is, for all intents and purposes, a dead mall.

The same can’t be said for Castleton Square, which remains one of the state’s largest retail hubs—perhaps the largest. Unfortunately, there doesn’t seem to be much chance of a replacement for Sears. After all the department stores consolidated in the early 2000s, what’s even left? The only likely options that come to mind are a Lord and Taylor, the upscale chain that’s floundering as well, so unlikely to take a risk at a middle-market mall like Castleton. And then there are Dillard and Belk, the two southern chains, and while they don’t get a lot of negative press, which suggests they’re surviving, they don’t show much interest in expanding. Dillard has a small presence outside the south, particularly in Ohio; Belk is exclusively southern.

That leaves Castleton in a real predicament. The mall itself is huge, at over 1.2 million square feet, but it’s also part of a retail campus that extends in all directions, offering a variety of big-box and out parcel tenants around the expansive perimeter. Here’s a Google aerial.

The parking lots are so vast that it’s hard to distinguish them from the rooftops, so the conventional map is a good solution.

If you really take a close look, you can discern a difference between the two, in the northeast corner of the campus, where the perimeter road curves gently. The aerial shows rooflines for an outlying shopping center, but in the map, those buildings are not there. What happened?

Here’s a Google Street View of that northeast corner back in the summer of 2014. A few months later, Target Corp. announced the closing of 11 underperforming stores, and the Castleton location was among them. By 2017, this is what that corner looks like. Pretty bleak. And while no portion of the greater Castleton campus is quite as bad as this, one can easily drive around the perimeter ring road of the mall and see that the supply of retail space vastly outstrips the demand—a condition throughout the United States, exacerbated in recent years after the implosion of retail. Even though Castleton remains one of the highest profile commercial hubs in the state, the entire complex—central mall and periphery—now suffers probably a half million square feet of unnecessary leasable area. The Target was at a terrible location within the greater mall area, since it was far removed from the major arterials, and most people would never know it was there from just driving nearby. However, in this day and age, with smart phone possession the norm and Google Maps in every pocket or purse, can analysts really fault a lack of visibility? The Target closed because the thinning retail presence all around it weakened the viability of an already mediocre configuration in an otherwise great area. And now, this continued weakening viability, caused less by Castleton’s location (still quite advantageous) and more from retailers persistently going out of businesses, has dragged the already failing Sears into the abyss.

Shortly after the closure, Simon Property Group announced a “transformational redevelopment” of the two-story Sears site at Castleton, to combine retail, fitness, dining and entertainment. It’ll probably parallel the repurposing of the Greenwood Park Mall from a decade ago, when Simon morphed the vacant L.S. Ayres wing into an outdoor-oriented lifestyle center with fountains, plazas, a few somewhat upscale shops and a Barnes and Noble as an anchor. It worked quite well for the Greenwood Park Mall, which, now that Castleton has suffered this setback, may be the single most successful major mall in the state.

I think the folks at Simon need to be a bit more ambitious with the vacating Sears at Castleton. In 2018, lifestyle centers aren’t much better off than enclosed malls, and if the mall can’t engage the oversized space with a mixture of different uses, it’s only likely to face similar problems. My speculation is that Simon should see the vast, contiguous stretch of vacancy between the old Target and the Sears as an opportunity. If the company doesn’t own the old Target outparcel, it should buy it (probably doesn’t cost much), and integrate it with the Sears redevelopment. Hotel space should be fairly lucrative, since it’s an industry that’s already doing well, and the location close to two interstates would already make it attractive. Apartments and office space may complete the mix, culminating in a centralized, pedestrian-oriented plaza that places a premium on good design. It has to attract people by offering a unique experience, and in this day and age, a conventional mall just isn’t going to cut it.

Any other sort of redevelopment at the Castleton Sears is likely just kicking the can down the road. I’m not yet suggesting Castleton will turn into the next Cortana. But based on the national state of retail (and malls, as a result), the odds are greater than ever that, without that radical transformation, the best of malls will face their demise, sooner than we ever care to admit.