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Low Rents and Weird 'Stores' at the Mall

Shoppers have long been able to grab lunch, get a haircut, or catch a movie at the mall. But the recession's high commercial vacancy rates are bringing in unconventional tenants that offer more unusual fare.

While the outdated Crestwood Court mall in St. Louis awaits a renovation, it has filled empty stores with nonprofit arts groups that pay rents of just $50 to $100 a month. The Genesee Valley Center in Flint, Mich., now houses a branch of the for-profit University of Phoenix. And at the Altamonte Mall in Altamonte Springs, Fla., a tattoo parlor has replaced the former tenant—a skateboard apparel shop. "With national tenants scaling back stores, we have an opportunity for smaller mom-and-pop businesses," says Chris Molho, an assistant general manager at Altamonte. "We're trying to find new ways to bring customers to the mall."

They need to: According to commercial real estate research firm Reis (REIS), mall vacancy rates are at record highs. For the third quarter of 2009, they rose to 8.6% at enclosed malls, the highest since the firm began keeping records in 2000. Empty retail space at open-air strip malls rose to 10.3%, the highest rate since 1992.

Reis retail sector analyst Eric Mingione says the nontraditional tenants filling the vacancies include churches, schools, and small retailers that were "once priced out" of mall space. (Also more prevalent this holiday season: pop-up stores. Toys "R" Us is opening 80 of these temporary outlets in malls and shopping centers.)

Not all malls are making creative use of vacant shops, says Greg Maloney, CEO of the retail practice at commercial real estate firm Jones Lang LaSalle. Maloney says the rise in nonprofit and mom-and-pop tenants is mostly in "C" and "D" grade malls, those with the lowest sales per square foot. Such nontraditional tenants pay less, he says, but often agree to restrictive terms, such as giving management the right to terminate if a better-known retail tenant surfaces. If current economic trends continue, Maloney says, malls could return to what has worked for them in the past: ice hockey rinks, car dealerships, and grocery stores. "We used to have them in the '60s and '70s, but we pulled them all out," he says. "Now we're looking at them again."

A Stairway to Marketing Heaven

Behavioral economics meets viral marketing: For a few days in August, Volkswagen Sweden anonymously put a giant, working piano keyboard on a stairway in a Stockholm subway station. The idea was to make the healthier option of taking the stairs more fun than using the escalator. The experiment's success—stair traffic rose 66% as commuters glissando'd up and down—is captured in a video that has had more than 2 million hits on YouTube (GOOG). The video also appears on a new Web site,, which reveals Volkswagen's (VLKAY) role in the stunt. Devised by ad shop DDB Stockholm, the Fun Theory campaign will next feature Web ads that "link the projects to our environmentally friendly cars," says Marcus Thomasfolk, VW Sweden's head of communications. The message: Responsible behavior doesn't have to be dull. Lars Axelsson, who runs the VW account at DDB Stockholm, wouldn't reveal the cost of the viral campaign but said given the attention it has already received "it's more than worth every penny."

Bankruptcies: 2009 Is Already One for the Record Books

With the Dow up around 10,000, here's a dark indicator to add to the mix: A record number of companies have filed for bankruptcy so far this year. Through Oct. 15, 4,585 U.S. companies filed for protection under Chapter 11, says Richard Peterson, a director of Standard & Poor's (MHP) Market, Credit & Risk Strategies unit. That's up 12% from last year on that date. Of those, 249 are companies taken private (or invested in) by buyout firms. That's a record, too—a 68% increase from the previous high of 148 over the same period in 2008. "Bankruptcies will continue to rise," predicts Henry Miller, chairman of investment bank Miller Buckfire, which advises on restructurings. Private-equity-backed companies remain vulnerable, he says, because so many were bought at the top of the market and loaded up with debt in the belief they would grow at a healthy clip. Now "it's not clear the economy will recover sufficiently" to meet those expectations, he says, adding that "debt capital markets also may not be in a position to refinance obligations as they come due." The biggest bankruptcy this year: General Motors, with $91 billion in assets. The private equity-backed casualties include Charter Communications (CHTRQ) ($13.6 billion), owned by entities controlled by Microsoft (MSFT) co-founder Paul Allen since 1998, and Reader's Digest ($2.8 billion), bought by investors led by Ripplewood Holdings in 2007.

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