Concept Restaurants Like Kona Grill are Benefitting from the Modern Mall

Henry Truc  |

By now, most investors are aware that traditional brick and mortar retailers are suffering in a big way. The massive consumer shift to online shopping has created an existential crisis for the physical retail industry and the companies that have long relied on foot traffic for their business. One dying institution resulting from this is the American shopping mall. Once a staple of American culture, shopping malls across the country are quickly going the way of the buffalo. There are roughly 1,000 shopping malls in the US–that’s not including smaller shopping centers and plazas–and experts expect as much as half to close over the next decade. For those that will survive, a major transformation will be needed to better reflect the preferences of the modern consumer.

At the recent 28th annual ROTH Conference, Kona Grill (KONA) CEO Berke Bakay, gave investors an idea of what the modern mall will look like. Instead of apparel storefronts, these “lifestyle centers” are putting a premium on experiential retail. Differentiated restaurant concepts like KONA Grill, which offers a sleek sushi and American grill fusion concept, fit the bill.

“Online shopping is taking a tremendous amount of sales out of a lot of centers around the United States,” Bakay said. “Having said that, the big five–the Macerichs (MAC), Taubmans (TCO), Westfield (WFGPY), Simons (SPG), GGPs (GGP)—they’re multi-billion dollar REITs, and they have some of the best centers in the United States. They have moved significant resources and efforts trying to differentiate their centers with entertainment. Restaurants certainly fall under the umbrella of entertainment because we are some of the unique providers that [enable] people within their centers to be able to actually experience what it is that we do. Obviously, it is impossible to replicate a dining experience and social setting from something like Amazon (AMZN). Not just Kona Grill but all of the restaurants that are differentiated have a very [attractive] positioning right now when dealing with the top five.”

Millennials, the prized demographic of the consumer market, are widely understood to prefer allocating their spending dollars toward experiences over purchasing goods. So as retail stores move out, malls and shopping centers will be looking to fill those vacancies with businesses that can cater to these trends. This creates a tailwind for aggressively expanding businesses like Kona Grill. The company currently has 37 locations nationwide, broken down as follows: 15 lifestyle/entertainment centers, 11 upscale retail center/shopping malls, 8 mixed use commercial/retail centers, and 3 free standing.

More importantly, it sees a white space opportunity to strategically add new locations. Similar concept chains like The Cheesecake Factory, PF Changs and Bonefish Grill each have about 200 locations. Kona Grill currently has executed lease agreements to open 10 new locations in 2016-2017, including two in southern California, two in Texas, and one in Hawaii.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


Discover: Trending Events

United Nations
Blockchain for Europe
Humanity 2.0
World Economic Forum

Watchlist

Symbol Last Price Change % Change
AAPL

     
AMZN

     
HD

     
JPM

     
IBM

     
BA

     
WMT

     
DIS

     
GOOG

     
XOM

     
BRK.A

     
FB

     
JNJ

     
WFC

     
T

     
NFLX

     
TSLA

     
V

     
UNH

     
PG