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The Gallery is finally reopening as Philly’s Fashion District. Can it also change Market Street?

“It remains to be seen whether this thing can be successful long term,” said a former city official.

A large rotating video screen/billboard hangs over the escalators near the main 9th & Market Streets entrance at Fashion District Philadelphia September 16, 2019 as work continued in preparation for its opening on Sept. 19.  The renovated mall is at the former site of The Gallery at Market East. PREIT (Pennsylvania Real Estate Investment Trust), which also operates malls in Cherry Hill, Springfield, Plymouth Meeting and other locations, hopes the Fashion District will eventually rival Rittenhouse Row as a shopping destination.
A large rotating video screen/billboard hangs over the escalators near the main 9th & Market Streets entrance at Fashion District Philadelphia September 16, 2019 as work continued in preparation for its opening on Sept. 19. The renovated mall is at the former site of The Gallery at Market East. PREIT (Pennsylvania Real Estate Investment Trust), which also operates malls in Cherry Hill, Springfield, Plymouth Meeting and other locations, hopes the Fashion District will eventually rival Rittenhouse Row as a shopping destination.Read moreTOM GRALISH / Staff Photographer

After three years of construction, the much-derided Gallery reopens Thursday as the Fashion District, a bright, spacious mall that fills three blocks of Market Street with discount and full-price shopping, a music hall, movies, bowling, and a candy museum with a foam marshmallow ball pit.

City officials and business leaders are counting on this entertainment-heavy mall to further propel the Market East renaissance. They hope it will draw new, lively shops and more paying customers to an eight-block stretch in Center City that for too long has been defined by construction, parking lots, and a methadone clinic.

That revival is under way, evident in such nearby developments as the multi-hundred million dollar East Market project with apartments, an extended-stay hotel, offices, Iron Hill Brewery, and T.J. Maxx.

But malls everywhere are being buffeted by changing consumer shopping habits, and the rise of online shopping has left many with empty storefronts and killed others outright.

Many experts are wondering whether this flashy project, like the retail site that preceded it, will see an initial surge only to wither away as competition intensifies. It’s a different time now, officials point out, when Philadelphia’s population has experienced 12 straight years of growth driven by millennials moving into the city and empty nesters moving back.

“This is bringing life back to Market Street. Real life. And it should. It is one of the main streets of Philadelphia retail,” said Alan Greenberger, who was director of commerce during the Michael Nutter administration when he worked on redeveloping the Gallery.

Still, he said, “it remains to be seen whether this thing can be successful long term.”

So far this year, U.S. retailers have announced the closure of more than 8,500 stores, according to data from Coresight Research. By comparison, about 5,800 stores were closed in all of last year.

For mall co-owner Pennsylvania Real Estate Investment Trust (PREIT), bankruptcies and chain liquidations led to more than 50 store closings in the company’s core malls this year.

PREIT insists it can overcome the fate of previous retailers on Market Street and the trends pummeling retail today.

Executives have been shedding the company’s underperforming malls and anticipating the closure of such big-box stores as Sears by replacing them with a mix of tenants, from shopping to fitness to groceries.

They are taking those lessons into the Fashion District, where they enlisted the help of Santa Monica, Calif., based Macerich, a mall operator in cities including Phoenix; Brooklyn, N.Y.; Kansas City, Mo.; and Chicago, as their partner.

The number of entrances was expanded from four to 21, opening up an inside-facing mall to Market Street between Eighth and 11th Streets, where thousands of pedestrians pass through to catch the trains underneath. In addition to shopping and eating at the Fashion District, there’s also City Winery, a coworking space for artists, and such local businesses as Philly-themed clothing store South Fellini, opening in a space dubbed Uniquely Philly.

» READ MORE: The Fashion District reveals the truth about what kind of fashion city Philly really is | Elizabeth Wellington

“This is not your grandmother’s mall,” said Joe Coradino, the CEO of PREIT.

But in July, Coradino’s company missed its quarterly profit estimates, and its stock is trading at just a few dollars more than its recession-era low. The company is counting on the success of the Fashion District,

“It’s not that retail is dying. It’s really inappropriate physical retail that is dying,” said Barbara Kahn, a marketing professor at the Wharton School. “Philly is surprisingly retail lite compared to other cities that I’ve looked at. [The Fashion District] could be a fantastic thing if it’s done right and they know what people want.”

A hole in Center City

Before there was the Gallery, Market Street was home to the “Big Six” department stores: Wanamaker, Strawbridge & Clothier, Gimbel Bros., Lit Bros., N. Snellenburg & Co., and Frank & Seder. But these storied department stores fell victim to American families moving out of cities, into the suburbs, and taking retail demand with them.

Philadelphia’s response to suburban malls was to create one of its own, in the center of where retail historically thrived: East Market Street.

It was an internal mall, like those in the suburbs, turning its back on Market Street. With people inside or underground, the sidewalk life around the Gallery faded. But it meant those using public transportation could escape the harsh winters or summer heat by walking through the mall to their next location.

Its prime location on top of rail lines made it accessible to residents across the region. Elijah Anderson, a sociology professor at Yale University who wrote the book The Cosmopolitan Canopy: Race and Civility in Everyday Life, said this convenience was one factor in the Gallery becoming “kind of a haven for black working-class people.”

Anderson, who previously taught at the University of Pennsylvania, said he hopes the redeveloped Fashion District can see the same mix of residents from all races and classes as the Reading Terminal Market, calling that spot an “island of racial civility located in a sea of segregation.”

The reimagined mall is now opening at a time where there’s a development boom in Center City, a competitive housing market, and vibrant shopping and dining options in such pockets as Fishtown, East Passyunk, and Northern Liberties.

Today, Wanamakers is Macy’s, Strawbridge & Clothier is home to Century 21 and offices, including The Philadelphia Inquirer’s, and the Lits building houses the Five Below headquarters.

Duane Bumb, the senior deputy commerce director in the office of business development, said the Gallery’s closing created a “doughnut” type hole in Center City.

“You see Center City doing so well,” he said, “yet this area [was] underperforming.”

He thinks the Fashion District can change that.

A ‘marquee project’

City Winery founder and CEO Michael Dorf never thought he would be opening his restaurant and music venue in a mall.

He thought a traditional mall could exert a “negative vibe” on the atmosphere he creates in his now seven locations blending food, wine on tap, and live shows.

“You don’t come to a mall to see music,” he said.

» READ MORE: Behind the scenes at the Fashion District | Photo Gallery

But then PREIT and Macerich told him more about the project, estimated to cost $400 million to $420 million with 900,000 square feet of space. As Dorf recalled, they explained how this was a different type of mall and why they thought he would be a perfect fit.

Now, across from the H&M store, there is a window display of exposed wine barrels next to a small tasting bar for mall-goers who are interested in checking out City Winery wine. On the other side of the barrels, there’s a music room, where residents and visitors can enjoy a show and never technically go into a “mall.” The only entrance to the full City Winery is from Filbert Street.

The project began in 2014, when PREIT joined with Macerich to redevelop the Gallery, and has been under construction since 2016. There’s been almost $90 million of public money invested in this project, through tax increment financing and grants from city and state programs.

PREIT has updated other properties to better serve the experiences that people are seeking today. There’s Legoland at the Plymouth Meeting Mall, a movie theater opening soon at the Willow Grove Mall, and an incubator space at the Cherry Hill Mall. The Fashion District, which Coradino called the company’s “marquee project,” is part of changing “the face of our company.”

The Fashion District, which has three floors and four on its west end entertainment level, will debut with slightly more than 60% of its stores open. By the holiday season, the movie theater, bowling alleys, and art exhibit Wonderspaces are expected to open, taking that number to more than 70% leased. Within a year, Coradino said, the project will be at 90% occupancy.

Still, Wall Street analysts called out company executives in July for a poor quarterly performance.

“It does seem like for the past couple maybe few years, you are even missing guidance,” Ki Bin Kim of SunTrust told executives on the call, asking whether the “underlying business and tenant demand [are] changing at a more rapid pace that you’ve initially thought.”

Coradino replied that given the portfolio’s reduced size, smaller revenue changes have an outsized impact, and that the company has been “a bit more aggressive in terms of taking space back” from failed stores.

The company has experienced a “sizable” blip, “but one that we believe [we] will recover from and fill up the bankruptcy-vacated space,” he said.

Executives expect the Fashion District to deliver significant new income to the company and predict it will generate more than $700 in sales per square foot, about $200 more than the average sales per square foot at the company’s core malls last year.

Opening day

On Thursday, there will be confetti cannons firing as such city leaders as Mayor Jim Kenney officially mark the reopening. The Philadelphia Freedom Band will play, and business leaders will likely predict a promising future.

» READ MORE: Philly Fashion Week starts soon in the new Fashion District. Here’s what you need to know. | Elizabeth Wellington

When the doors open, those familiar with the Gallery will notice they no longer have to walk down steps to enter the mall. The skylight, which Coradino said has always been there, is more noticeable.

Swings, flower walls, a seesaw, and games will be out for anyone to play with. A “one-word poet” will be creating personalized poems for those who ask. Live music will play until 8 p.m., when the Philadelphia String Quartet and a DJ are set to wrap up their sets.

Commuters can venture up from Eighth and Market or Jefferson stations to take a peek before or after work. There will be more events drawing shoppers to the mall this weekend, and this month, City Winery will start having shows that are already beginning to sell out.

Councilman Mark Squilla, whose district includes this project, said this start is a hopeful one.

“It lets people know that Philadelphia is adapting to change,” Squilla said. While at the same time, “keeping hold of their history of keeping Market Street as a market for people to shop and visit.”