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Oh my, how tunes have changed.

In an attempt to rectify past marketing mistakes, Ala Moana Center launches an ad campaign to win back local shoppers.

Who could've imagined--the Champs Elysees, right in the heart of the Kapiolani corridor? It was 1987 when Ala Moana Center officials made their bold decision. After studying Hawaii's retail market for two years, they identified a missing seam: Although Ala Moana touted itself as the state's premier shopping venue, it had little to offer the ultra-rich. Center planners mulled the possibilities and opted for a shopping playground to house the fashion world's creme de la creme, starting with Chanel, Christian Dior and Emporio Armani. Not only would the luxury boutiques satisfy the wants of Hawaii's elite, the concept would also position Ala Moana to corner a mouth-watering chunk of the foreign tourist market, at which Waikiki merchants were already nibbling.

The brainchild was christened Palm Boulevard. The 115,000-square-foot area, to be anchored by Dallas-based fashion giant Neiman Marcus, would consist of 40 stores occupying two levels in the heart of the center. Conservative estimates said the addition--even without Neiman Marcus--would increase gross sales totaling $541 million in 1987 by an estimated 6 percent annually. After a multimillion-dollar, two-year buildout and a major reshuffling of tenants that spurred a mini-exodus of longtime merchants including Carol & Mary, Palm Boulevard was a reality. It was marketed to the hilt, the opulence of its designer collections flaunted in particular to the Rodeo Drive crowd, wealthy Europeans and yen-waving trendsetters from Tokyo.

But in promoting upscale chic, the center committed a serious marketing faux pas. Subsequent surveys commissioned by Ala Moana showed it had estranged its bread-and-butter clientele of local shoppers, who comprised 65 percent of Ala Moana's traffic. Acknowledges Helene "Sam" Shenkus, Ala Moana's marketing director, "There were some perceptions with the local residents that all of the changes and all the new stores weren't for them." To complicate matters, The Neiman Marcus Group was hammering out details of the $400-million sale of its department-store chain to General Cinema Corp., the nation's largest theater operator--a buyout that postponed the store's opening in Hawaii.

The situation was worsened by the Persian Gulf War and subsequent tourism downturn. During the first quarter of 1991, the number of westbound visitors to Oahu dropped 11.4 percent compared to the first three months of 1990; eastbound tourism, of which Japanese tourists constitute the majority, plunged 19.7 percent. Although the center experienced a relatively small 1.7 percent drop in sales for the first quarter of 1991 versus 1990, stores specializing in high-ticket items suffered more. Two closed their doors while other Palm Boulevard merchants began to confront their tenuous existence. "Right now there are very few (Palm Boulevard) stores that are making it," said one tenant in November. "It's tough, you know--we live and die by the Japanese tourist."

So what was a center to do? Three months ago, officials at General Growth Center Companies of Hawaii Inc., which took over management of the center from CMV Inc. last year, launched a plan to win back the hearts and pocketbooks of Hawaii residents. Buoyed by the official signing of Neiman Marcus as a fifth anchor tenant and another phase of expansion that will bring in some 35 new merchants, General Growth hired Starr Seigle McCombs to herald, "My, How Things Have Changed," a two-year ad campaign designed to convince local shoppers that change is good, at least in Ala Moana's case.

But can the mother of all malls regain the trust of disillusioned Hawaii shoppers--especially when its planned changes include the displacement of many local merchants? And of equal importance, with tourists constituting an estimated 65 percent of Palm Boulevard traffic, can Ala Moana continue to bank on a concept so dependent on the turns of an internationally linked economy?

CHANGING HANDS, CHANGING PLANS. The pattern was drafted back in 1959. Dillingham Corp. ventured into the retail arena with a 680,000-square-foot center on 50 acres called Ala Moana. Little did its officials know that it would one day become the largest open-air shopping center in the world.

In 1982, Dillingham sold the center to D/E Hawaii Joint Venture, a general partnership of Daiei Hawaii Investments Inc. and the Equitable Life Assurance Society of the United States, for $282 million. Soon after the new owners took over, CMV Inc.--a subsidiary of the Center Companies of Minnesota, which manages shopping centers with more than $2.5 billion in total gross sales--replaced Ala Moana City Corp. as the center's property manager. Under Dillingham's ownership, the center saw only two renovations in 23 years; under D/E and CMV rapid change would prevail, evinced by three major renovations spanning 12 years.

The most recent was in 1987, when Ala Moana underwent a multimillion-dollar facelift and a restructuring involving major lessees Foodland and Woolworths. Not only did the project make way for the 20-tenant Makai Market food court, it invigorated the staid shopping center as well--partly by erasing many longtime merchants from the tenant roster and bringing in 30 new enterprises. The redesign helped Ala Moana reverse what until 1987 had been a 12-year dip in market share.

It was around this time that center planners considered adding a third level of shops, one that would target Hawaii's upper crust and the growing numbers of Japanese tourists flocking to the islands and purchasing millions of dollars in designer garb to lug back home. "The idea was to complement the existing mix of stores, to make it better by updating the center," says Greg Karlen, a former vice president of merchandising and leasing for the Center Companies who is now a Minneapolis-based real estate and retail consultant. "Palm Boulevard was a dimension of the center that was missing, the high-end component."

But midway through the leasing process, questions arose about the proportion of upscale shops popping up. "It's true we needed to offer something to that segment of the market," says Burt Tsuchiya, the center's general manager from 1984 until last May and now the vice president of resort operations at Kauai-based Princeville Corp. "I just don't think we should have done it to the extent that we did. But once we built that space out and dedicated it to that type of merchandise, the pressure was on to fill it with that type of merchant."

It wasn't only the number of high-end stores that would come back to haunt the mall's management. Ala Moana marketers, excited about their new tenants, accented their exclusivity with glitzy television ads warmly featuring the extravagant storefronts. But many local shoppers who ventured into Palm Boulevard were met with cold marble and cold shoulders from sales clerks. "It was billed as this hotsy-totsy, exclusive type of thing. Local people didn't want to go there and that would have been OK from Ala Moana's point of view, except the droves of Japanese tourists that were expected didn't go either," says Ann Oliver, a former Palm Boulevard tenant and the owner of Alion who is suing the center for allegedly blocking the sale of the eight years remaining on her 10-year lease. Adds a local retail analyst, "I would guess Palm Boulevard worked in Ala Moana's favor as far as the bottom line goes. But the execution of it backfired in terms of their image in the community."

If center managers had to contend with a backlash from local customers, its tenants--who had just parted with $500,000 to $1 million each for leasehold improvements--had to grapple with ongoing construction and an unanticipated drop in both eastbound and westbound visitors because of the Gulf War. While the well-known monikers and deep-pocketed parents of international outfits like Chanel and Christian Dior kept those retail establishments afloat, other merchants sank. Alion and shoe store Jeffrey's were two that closed their doors last year. "The failure of Palm Boulevard didn't hurt Ala Moana nearly as much as it hurt its tenants," says Alion's Oliver. "We were locked into paying this huge minimum rent and we didn't have the sales to support it."

One of the culprits was the structure of the center itself. Unable to expand horizontally, the only way to go was up--except there were no physical incentives such as signage or blockades to entice shoppers off the beaten track of the well-traveled mall level. Says one third-floor merchant, "People would walk the mall corridor from Liberty House to Sears, but the side traffic was less than desirable. You need to have features for people to make them want to explore." Shenkus concedes that, even today, this pattern remains a concern. "You don't have the foot traffic going mauka-makai that you do through the mall. So if you're a store located on the far ocean side of the third floor, you're not in the line of traffic."

NEIMAN MARCUS TO THE RESCUE? In October, Ala Moana officials announced that after 12 years of negotiations, the $1.5-billion-in-sales, 27-store Neiman Marcus chain would enter the Phase V expansion as its anchor. The high-end department store is slated to occupy 165,000 square feet on three levels. To be opened in late 1993, its Honolulu location is expected to boost center sales--which stood at a projected $806 million for 1991--by $50 million annually, according to Philip Nardone, vice president of public relations for Neiman Marcus.

Merchants and center executives are also wagering that the store, the estimated 35 other businesses in Phase V, and an additional 1,500 parking spaces will help divert foot traffic to less-traveled areas. "One of the things we're looking to do is create a critical mass on the third level," says Shenkus. "Hopefully it will give shoppers another reason to go up."

Of greater significance, however, is that Ala Moana officials say they have geared their advertising blitz and future wing toward the local market. According to center management, the new stores will be affordable "lifestyle" shops like current street-level tenants Gloria Jean's Coffee Bean and Artlines. Center officials are hoping the new ad campaign and direction will offset the earlier failed marketing blueprint and improve Ala Moana's standing with local consumers, some of whom have opted for shopping sprees at smaller centers such as Kahala Mall, Pearlridge Center and Windward Mall.

But the so-called new and improved Ala Moana has not been met without opposition. Shortly after center officials announced plans to bring Neiman Marcus to Honolulu, current co-anchor Liberty House issued a press release outlining its concerns in light of the center's woes with traffic congestion and leaking water mains. But it may be more than bursting pipes worrying the chain's executives. Industry sources say Liberty House has fought the arrival of Neiman Marcus for years via a special consent clause in its lease enabling it to trump the opening of another anchor unless it is built within the center's existing grid.

Several weeks after Liberty House went public with its concerns, a handful of Ala Moana merchants who will be displaced by the arrival of Neiman Marcus called a press conference to voice their own anxieties. In their minds, the center's planned changes will alienate--not embrace--the local shopper by replacing stores offering affordably priced merchandise with outlets owned by upscale mainland and international retail operations. A statement released by the proprietors of Villa Roma, Tahiti Imports and the Kukui Candle Shop urged the public to "come together as local people and tenants... There is strength in numbers and we must take a stand and voice our concerns: namely that it is unacceptable for many local businesses to be displaced due to the opening of one mainland store."

Understandably, opinions differ on how the addition will affect the center's image. But observers also question whether Neiman Marcus and the new third level of shops will boost Palm Boulevard's flagging sales. While merchants concede that in the short run such alterations will pay off in greater visitor traffic and presumably increased sales, some question the logic of the more-stores/more-shoppers theory. "You can't just expect to do great business from traffic. Most of the names you have at Palm Boulevard are not impulse buys," says Joyce Okano Reed, regional director of Chanel Boutiques in Hawaii. "Our average price for a suit is $2,500."

There is also the matter of the increased competition that Neiman Marcus will bring. "It's going to mean more traffic for the area, but let's face it, some of the goods that Neiman Marcus carries will be the same type of goods that Palm Boulevard merchants have," says Carolyn Ching, a senior manager at Ernst & Young. "They'll all have to compete for the same consumer dollar." The prosperity of the third floor, then, will ultimately depend on a few unknowns: the new assemblage of stores, Neiman Marcus's mix of merchandise, and ultimately, economic trends. Notes Tsuchiya, the center's former general manager, "The success of that development is going to depend on the health and vigor of both the national and international economy."

The bottom line: Ala Moana's fate rests on how effectively it can change with the times--or at least sell to the public the perception that it has changed. The test is something for which Shenkus says the center is braced. "It's a challenge that we're up to because we have such a diverse assortment of merchandise and we really want to offer our customer everything and anything," she says. "It's a great shopping center. We just have to make sure that this time, we send out the right message."
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Title Annotation:advertising for Palm Boulevard shopping center, Hawaii
Author:Ishikawa, Lisa
Publication:Hawaii Business
Date:Jan 1, 1992
Words:2252
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