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Wolves in Shops' Clothing
Fast-spreading "lifestyle centers" are making big-box retailers look and feel like small-town shops. Frustrated entrepreneurs ask, How can we compete?
By Arlyn Tobias Gajilan/Cleveland

(FORTUNE Small Business) – Shopping was not on Mary Margaret Godier's mind when she first visited Mayfaire Town Center, an outdoor mall that opened last May in Wilmington, N.C. As she walked the cute cobblestone streets, she noted the brick storefronts shaded by old-fashioned awnings and the jazz trio bebopping on a verdant patch of grass. Godier's anxiety grew with every successive detail that made Mayfaire's so-called Main Street nearly indistinguishable from the streets that front her own small shops. Behind the mall's cleverly constructed small-town façade were not independent businesses but outposts of national chains such as Linens 'n Things and Pier 1. "The architecture tricks you into feeling like you're shopping in a quaint old neighborhood," says Godier, who owns A Proper Garden, a pair of gift boutiques in the historic, picture-postcard neighborhoods of Wilmington and nearby Raleigh. "I felt like they were stealing my stores' edge ... their charm."

Small-business owners from the Carolinas to California, already battered by national chains on price and parking convenience, are finding themselves challenged on the fresh battlefront of shopping experience. A new generation of outdoor malls that are dubbed lifestyle centers—planned to mimic trendy downtown shopping districts but without the traffic, the grit, or the petty crime—are being built at an increasingly rapid pace. "They're designed to give mall-weary shoppers the comforting experience of being on an idealized Main Street," says marketing expert James Gilmore, co-author of The Experience Economy.

So far there are 120 lifestyle centers in the U.S., compared with 1,130 traditional malls. But last year 20 centers were built, while only nine malls broke ground. "There are definitely more of them coming, and they are headed north," says Patrice Duker of the International Council of Shopping Centers. This year another 20 to 25 lifestyle centers are scheduled to rise, some in the wealthy bedroom communities around Boston, Chicago, and New York City. While traditional malls collect an average of $345 a square foot in annual sales, some lifestyle centers are generating $500.

Such design innovation may set off a new round of retail Darwinism among the small businesses residing on authentic Main Streets. "I can feel the dollars being siphoned away," says David Stein, who owns Plantation Home, a 4,000-square-foot furniture store in the 115-year-old Cleveland suburb of Lakewood. The siphon: Crocker Park, a new lifestyle center ten minutes from Stein's business. Built at a cost of about $480 million, Crocker Park comprises more than half a million square feet of retail space, 4,700 free parking spaces, condo units, a restaurant row, a village green, an outdoor skating rink, a community fire pit, and a heated garden area with marble chess tables. There are even free plastic pooper-scooper bags for "canine guests."

What is missing are independent small businesses. Now, in its first phase of construction, all but two of Crocker Park's 55 stores are national chains. "These centers cost hundreds of millions of dollars," says H.J. Brody, whose company, Brody Zimmer, built Wilmington's Mayfaire Town Center. "Without national tenants it's not easy to secure credit and financing." Independent retailers and restaurants do make it in, says Brody. But by the time they do, it's usually in the second and third phases of construction. For Mayfaire Town Center, those phases are at least two years away.

Some entrepreneurs who hope for an invitation might not last that long. Which is one of the reasons small-business owner Lynn Farris organized her neighbors and fellow merchants to block a controversial lifestyle center in Lakewood. To make way for the $150 million development, city officials invoked eminent-domain law and were set to level Farris's three-story commercial building, along with more than a dozen other businesses, 55 homes, and four apartment complexes. "All that for a few more Gaps and Ann Taylors?" asks Farris. "As a businessperson and a resident, I'd much rather see unique and independent shops in our city." Farris and other residents managed to put the issue to a vote in November 2003. The result: no lifestyle center, by a slim margin of 47 votes (out of 16,455 cast).

But most entrepreneurs would be better off focusing on their own businesses rather than on efforts to derail a trend that is sure to run its course. "Lifestyle centers are spreading because they are clearly doing something right, and some small businesses won't survive this round," says Gilmore. "Those that do must constantly innovate by enhancing their customers' experience." That point is not lost on Godier, who observed that the small-town feel at her local lifestyle center is, for now, limited to the façade. Inside the stores it's the same big-box experience. So to emphasize her differences and boost her sales, Godier is raising the bar for what it means to be small, local, and personal. She has developed birthday and wish-list registries and enhanced her inventory to feature unique items from local artisans and other small suppliers in the region. "All my employees are experts on the craftspeople whose work we sell," adds Godier, 29. "I also introduce myself as the owner to each customer I come across, look them in the eye, and thank them for shopping with us." That kind of personal charm, hopes Godier, may be impossible for developers and national chains to replicate.