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Bricks or Clicks? The American Dream Megamall Versus Online Shopping

American Dream's developers argue that they’re not just building a mall, they’re creating a global destination

This is the second installment of Mall Madness, a five-part series on the American Dream retail and entertainment complex under construction in the Meadowlands. The series was produced through a reporting collaboration between WNYC, NJ Spotlight, and Bloomberg Businessweek. The first story and the third story, fourth story, and fifth are also available online.

As the retail industry undergoes a massive transformation thanks to new technology and online shopping, is there any mall out there that can be considered “Internet-proof?” Maybe not, but that’s exactly what Triple Five, the developer of the American Dream megamall in the Meadowlands, is betting on.

American Dream, the garish, multicolored complex that sits alongside the New Jersey Turnpike in East Rutherford, is designed to be not just a mall, but a giant entertainment destination, featuring an amusement park, full-size ice-skating rink, indoor ski slope, waterpark, towering observation wheel, and, oh yes, some stores, too.

american dream wall
Credit: Adrian Gault/Bloomberg Business Week

Whether that vision will turn into a reality is very much in question right now, but the success of the project hinges on it. And as retail experts say physical stores are becoming less and less popular with shoppers, it begs the question of whether New Jersey could be doing something else to spur economic development with 90 acres of state-owned property in the Meadowlands, especially as the state’s warehouse industry has taken off.

But back in 2003, when the mall was first launched and construction started under the name “Xanadu,” the primary focus was in-person shopping, with some entertainment features also sprinkled in. Now, consider how much has changed: Black Friday, which has traditionally kicked off the holiday shopping season, just passed with more sales completed online through the long weekend than in person at stores and malls, according to national retail figures.

Those sales figures bode well for New Jersey’s budding e-commerce industry, thanks to warehouses used by Internet retailers like Amazon and Peapod, the online division of grocery giant Stop & Shop, that have popped up across the state. But not necessarily for retailers that have built or leased giant facilities in New Jersey.

Still, Triple Five, which also owns Minnesota’s Mall of America and Canada’s West Edmonton Mall, maintains it is ready and able to face the retail industry’s increasing shift away from in-person purchases. The company has spent the past few years trying to expand its construction plans to emphasize the nonretail attractions of American Dream that they hope will make it a destination, not just for the New York/New Jersey region. The firm points to the success it has had with Mall of America, where international shoppers fly directly to Minneapolis just to visit its world-famous mall.

In fact, during an interview last week Triple Five President Don Ghermezian called his company’s business model “Internet proof.”

But when Gov. Chris Christie, a Republican, first ran for office in 2009, he was critical of the project formerly known as Xanadu, and a report prepared by the then-Gov.-elect’s transition team also called the earlier version of the planned megamall “a failed business model.”

By 2011, Christie, ambitious and looking for ways to jumpstart a state economy struggling to recover from the Great Recession, had changed his tune and decided to get behind the project and offer more direct support than any of his Democratic predecessors. His administration put up tax incentives for the project, and the government incentives have now grown to over $1 billion. Christie’s own explanation for that reversal centered on the dilemma of deciding what to do about an already vacant, $2 billion complex, one that he called “the ugliest damn building in New Jersey” thanks to its notorious multi-colored exterior.

“To me, it’s not an option to let it fail at this moment, because that’s not without costs either,” Christie said during a 2011 interview with WNYC Public Radio. “That would cost at least $100 million to take the place down.”

But after five years, Triple Five is still trying to generate the money needed to finish construction at the American Dream site. In all, the company wants to raise $2.65 billion from investors, but a planned $1.15 billion bond sale that’s a major part of Triple Five’s finance plan is now more than a month late. So it’s still uncertain whether investors will ever be interested in buying enough stakes in the planned three-million-square-foot entertainment and retail center to get it to the planned opening date of fall 2018.

christie american dream 2011
Credit: Governor's Office/Tim Larsen
May 2011: Triple Five Chairman Nader Ghermezian (red cap) and Gov. Chris Christie announce plans to operate retail and entertainment complex called American Dream in the Meadowlands’

Last week, Ghermezian said the company would close on its financing deal before Christmas, but yesterday a statement issued by Triple Five said the target for the bond sale is now January.

Analysts across the country have been pointing to a decline in retail, and a recent New Jersey Business & Industry Association survey predicted the industry would be one of only a few expected to go backward in New Jersey in 2017.

According to Suzanne Mulvee, the director of U.S. retail research for CoStar Portfolio Strategy, up to one billion square feet of retail across the country could eventually just “go away.”

“To put that in perspective, it’s a huge amount,” Mulvee said. “If you think about a retailer like Target for example … that would be about 10,000 of those Targets.”

The problem, Mulvee explained, is retail companies before the onset of e-commerce were trying to impress Wall Street by adding more and more locations. Retail itself was also booming as a cultural phenomenon, with movies like Mallrats and the popular Milton Bradley board game called “Mall Madness.”

Driven by big-box chains like Wal-Mart and Target, Mulvee said the overexpansion carried right through the boom years in the housing market.

“We built too much space and it became this game of market share,” she said.

In contrast, New Jersey right now seems to be in the midst of an e-commerce boom. Anne Strauss-Wieder, director of freight planning for the North Jersey Transportation Planning Authority, discussed companies like Amazon, which has opened facilities in recent years in place like Carteret in Middlesex County and Robbinsville in Mercer County, as an example of this trend.

“Nowadays we look at a screen,” Strauss-Wieder said. “We buy something and it shows up at our doorstep. We may not be going to stores, but that inventory has to be somewhere and has to be readily available to us, the consumers,” she said.

Exit 8A off the New Jersey Turnpike now has 70 million square feet of distribution property in its immediate surroundings. The location itself has become known as a key e-commerce hub throughout the world, even in places as far away as South Korea, Strauss-Wieder said.

One of the new warehouses that she pointed to is located under the Pulaski Skyway in Jersey City, just miles from the American Dream complex in the Meadowlands. The 475,000-square-foot facility is being used by Peapod.

peapod
Unidentified Peapod worker at the company's warehouse in Jersey City getting ready to put packed "totes" full of groceries into a waiting truck.

Peapod is aiming to become the go-to grocery-delivery service for all of New York City and the surrounding region. The facility already employs 500 people in the warehouse, and another 250 drivers.

Inside the warehouse, a shopping basket that Peapod calls a “tote” travels automatically on a conveyor belt before stopping in front of a stack of products that an online customer had already requested. In all, there are more than seven miles of conveyor belts in the facility. And in another section of the warehouse, lines of trucks were backed up against open bays waiting to be filled with each customers’ selections.

“It’s all about automation now, being able to get the product to the customer faster,” said Lynn Blasio, senior director of the Peapod warehouse.

Yet up the road in East Rutherford, Triple Five is still sticking with its vision of a retail-entertainment destination that is the hallmark of its other malls, which opened in 1992 and 1981.

The reason, according to Ghermezian, lies in the plan to create something more “experiential” than a traditional shopping mall — one that would allow a customer to buy ski equipment and then immediately try it out on American Dream’s planned indoor ski slope. The megamall would also feature a huge indoor garden, restaurants staffed by famous chefs, and movie theaters that will have private viewing suites, all to make it more of a destination than a mall.

The retail component will also feature flagship stores with brands that right now aren’t available in New Jersey. More than 70 percent of the retail space is already filled, Ghermezian said. Still, retail will only make up about 50 percent of the total American Dream project, a smaller percentage than Triple Five’s other successful locations, he said.

“For us, we’re not shopping-center developers,” Ghermezian said.

He also didn’t shy away at all from talk of a declining retail market. “We are Internet-proof because you can’t go to a theme park on the Internet. You can’t go to a hundred different restaurants or eating establishments, you can’t go to the largest indoor waterpark in North America or ski hill or ice rink on the Internet,” he said.

capt. bill sheehan
Credit: John Reitmeyer/NJ Spotlight
Capt. Bill Sheehan, the Hackensack Riverkeeper

Capt. Bill Sheehan, the Hackensack Riverkeeper, said he also believes that American Dream will be a success. The clean-water activist and lifetime resident of the Meadowlands region is predicting a boost for the local economy as well.

“It’s going to be a real uptick in the local economy once it gets moving, once it’s finished and all the entertainment and all the restaurants and everything are in there,” Sheehan said.

“I have faith in the people in New Jersey that they will at least come here once to see what it’s all about, and there are eight million of us,” he said.

John Reitmeyer is the budget and public finance writer for NJ Spotlight. Ilya Marritz is a reporter/producer for WNYC. Susan Berfield is a reporter for Bloomberg Businessweek.

The Mall Madness series continues tomorrow with a closer look at the Ghermezian family, the driving force behind Triple Five, the developer of the long-planned American Dream megamall. The series was produced through a reporting collaboration between WNYC, NJ Spotlight, and Bloomberg Businessweek.

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