"Strolling the Agora..." the blog posts of Murray Shor, Shopping Center Digest

Monday, October 25, 2010

To Reach New Customers, Discount, Outlet And Off-Price Retailers May Soon Be Expanding Their Criteria To Make Deals

This column, Strolling the Agora, will continue to be written as the mood hits, even though Shopping Center Digest has ceased publication

By Murray Shor

Just two months ago we highlighted the trend of more luxury retailers seeking cost-conscious shoppers by looking for stores in areas and locations they once avoided, the outlet shopping centers, and secondary and tertiary markets.

And we stressed that this relatively minor niche of less than 220 projects, by some estimates, is dwarfed by the number of over 100,000 mainstream malls and centers that encompass the shopping center/retail chain world of the US and Canada. To make an impact in this market, retailers must deal with the two main landlords responsible for the bulk of these centers: Simon Property Group with its Chelsea division and Tanger Factory Outlets.

Yet a new approach being taken by one of the poshiest of merchandisers, Neiman Marcus, has the potential to bring this type of retailer into almost every local market available. It could expand opportunities even to every deal-hungry broker in the field.

First, what Neiman Marcus is doing. It is starting a new spinoff of outlet stores to be called Last Call Studio with lower-priced merchandise that never was being sold in its Last Call outlet stores. This outlet merchandise may still be too expensive for many customers. So, the Studio stores will carry clearance goods from its mainstream stores, namebrand apparel, and lower-end merchandise ordered from vendors specifically for these units.

The first protoype store—about half the size of a more traditional unit-- opened recently in Dallas, with others in Rockville, MD, and Paramus, NJ.

Possible Locations

Targeted as possible locations for this division will be suburban areas and strip centers, storefronts, possibly even vacant downtown locations that could never attract luxury retailers because the numbers never added up. However, with high-end shoppers heading for the outlets and discounters—which may still carry too high a ticket for many moderate households—and the reduced clearance merchandise and inventory available from many liquidators and vendors who have cut back on manufacturing, there is pressure to find customers willing to spend limited income for quality merchandise with a high-end label.

As one highly-regarded consultant stressed: “From a modest out-of-sight, out-of-mind liquidation tool, it has now really morphed into a strategic and financial necessity for these companies.”

Another maven pointed to the recession and the insistence by shoppers for even more value-oriented merchandise.

Other luxury retailers, such as Nordstrom, Saks 5th Ave, Lord & Taylor, Bloomingdale’s, and the like, have been operating outlet stores for years, or have recently entered this market.

Great Potential

“Looking at the decision by Neiman Marcus to follow the consumer to where she lives—rather than wait for her to drive an hour or so and make a day of outlet shopping,” one leading broker pointed out, “opens up a great potential for dealmaking. Many brokers have specialized in finding tenants for Moms and Pops, for local operators within a limited market to fill vacancies in very local strip centers. They may never have made a call on a luxury retailer.

“Now, suddenly,” he continued, “it’s a whole new ballgame. If other leading retailers decide to give it a try, the potential number of tenants that can be approached increases exponentially.”

No question, the number of vacancies have been increasing across the board due to the closings of many stores by stressed retailers, and the cutback on expansion by many others as a reaction to the high unemployment and pessimism of consumers. Though it may not be a deluge by healthy apparel chains seeking locations, there is the potential.

“And isn’t this,” said one senior real estate officer, “what drives many dealmakers? The potential.”

Other Interesting Activity

Joe’s Jeans, based in Commerce, CA, says it wants to expand its outlets division, now with 14 stores, in addition to its full-price stores. Contact CEO Marc Crossman.
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General Growth Properties has appointed hedge fund manager William Ackman to become its chairman when it emerges from bankruptcy next month. It is being split into two units; GGP will retain about 185 malls, the Howard Hughes Corp will consist of the master-planned communities and other non-income-producing properties.
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Walmart says it plans to grow its total square footage by between 3 and 4% during the fiscal year, adding up to about 35 million sq. ft. of new stores. It expects its sales growth in 2012 to grow 4-6%.

Thursday, October 14, 2010

Higher Vacancies May Be Hurting The Landlords, But It Is Also A Great Dealmaking Opportunity For Discounters And Off-Pricers

This column, Strolling the Agora, will continue to be written as the mood hits, even though Shopping Center Digest has ceased publication.

By Murray Shor


Considering the stubborn, low level of consumer confidence caused by the continuing high unemployment rate, it is no surprise that vacancies have been increasing all around the country, and that some retailers are focusing on Canada where there is a more positive emergence from the recession.

However, selective dealmaking is picking up here in the US in disparate locations as a result of the depressing numbers. Especially for brokers in prime metro areas, the opportunities are there.

First the bad news: According to the market research company Reis Inc, which tracks these data, the vacancy rate at shopping centers in the last quarter rose to 10.9%, the highest level since ’91, and closing in on the record 11.1% set the year before. The rent asked by landlords dropped almost 20 cents per sq. ft. to $19.07, but the effective rents are even lower, $16.58.

For the larger malls, where average rents are hovering around $38, vacancies rose only .2% to 8.6%, down from 9% the previous quarter.

Now The Good News

O.K., now the good news. With the cutbacks from high-end and full-price retailers—who are the foundation of fashion-oriented malls and the CBDs of major cities—there is an accelerated push from the discounters and off-price retailers: TJMaxx, Target, Nordstrom Rack, Syms and its recently acquired Filene’s Basement (now called fbSY), H&M, Century 21. According to one dealmaker “They consider this a great opportunity for discount deals in prime locations they could never afford before, and to reach affluent consumers who shunned them in the past.”

A prime example, of course, is Wal-Mart Stores, which will be opening dozens of smaller units of 30-60,000 sq. ft. in cities around the country, eventually rolling out the concept of focusing on food and consumer basics to hundreds of these units. And then, who knows?

These promotional tenants have greater access than ever before to luxury- and designer-branded merchandise because vendors have excess inventory and limited outlets for distribution. One estimate is that the number of top designers now selling to TJX Companies has jumped 25%. The off-pricers and discounters, therefore, are buying this top-quality merchandise, and using it to draw in customers in new stores along New York’s Fifth Avenue—and even Harlem—Chicago’s Miracle Mile, Beverly Hills, and maybe even Rodeo Drive. Certainly in the plushier malls in Las Vegas, they’ve been operating for some time now.

Educating The Affluent

These merchandisers are educating their new, fashion- and trend-oriented customers that they can continue to buy quality and at a cheaper price, and strengthen customer loyalty for the future, when the economy—hopefully—returns to what we consider normal. In the meantime, they have locked-in prime real estate at discounted prices—though they may be paying some of the highest rents they have ever paid before--and helped tear down the old barriers blocked them from locating in the A and A+ plus malls, or fashionable locations in some of the most prime urban centers. Though they much prefer long-term deals, in some instances they are willing to settle for six months, with options and some built-in increases.

These stores could be considered “pop ups”, which are becoming a more common trend.

As we’ve pointed out several times in the past, these locations are becoming more common, and the type of deal that appeals to both landlord and tenant. For the landlord, it provides a rent-paying tenant in a vacant store, that can be converted to a long-term tenant, either this retailer or another, perhaps even a competing merchant, at the expiration of the short-term lease. For the tenant, an inexpensive way to test a new concept, polish and refine the presentation, and react to feedback from customers before rolling it out in a mass expansion. Or kill the concept before it does too much damage.

And, of course, they are ideal for retailers that can exploit special events or holidays: Halloween, Back To School, Presidents Day, etc.


Other Interesting Activity

Dollar Tree says it will buy Canadian retailer Dollar Giant for about C$52 million, adding 85 units to its 3,961 stores in 48 states. VP of leasing is Todd B. Littler, (757) 321-5283, tlittler@dollartree.com .
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GNC Acquisition Holdings is planning an IPO to raise some $350 million to add about 4,800 company-owned and franchised vitamin and herbal supplement shops; future plans are to expand to China. The Pittsburgh-based chain’s website is www.gnc.com , 1-800-766-7099.
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Loblaw Companies is launching The Mobile Shop in more than 500 of its supermarkets across Canada in a bid to become a major retailer of mobile phones. Contact Maria Forlini, VP-Telecom, (905) 459-2500, www.loblaw.ca .
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Gymboree Corp, which operates some 650 children’s apparel stores, has accepted a bid to be acquired by Bain Capital for $65.40 per share, or about $1.8 billion. Director of real estate is Kathleen Hinkley, (415) 278-7993, Email: Kathy Hinkley@gymboree.com .
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Investors are being drawn to a number of real estate investment trusts that are outperforming most stock market offerings, especially those involved in shopping malls, office building and apartment buildings. In our industry, the top performer is Taubman Centers Inc, which during the third quarter returned 18.5%.

Monday, October 4, 2010

Is There A Trend For Supermarkets To Become Regular Tenants In A Regional Mall? Don't You Believe It

This column, Strolling the Agora, will continue to be written as the mood hits even though Shopping Center Digest has ceased publication

By Murray Shor

Been hearing a little rumble here and there about supermarkets becoming important tenants in regional malls, taking advantage of the large number of big-box vacancies available and seeing that as an opportunity to expand their base. Don’t you believe it.

I don’t doubt that in some isolated instances it could happen, such as discounter Aldi now
taking several locations in the Chicago market. Nor do I dispute that some surveys report those in a trade area may put a supermarket high on their list of tenants they’d like to see in their neighborhood mall.

However, what people say is not what people generally do, especially when answering a survey. But, go on to reality.

First, people shopping for their weekly groceries are not going to push a shopping cart loaded with perishables such as meats, frozen foods, milk and butter through a mall while checking out the latest fashions at Victoria Secrets or Ann Taylor. Nor would any of these stores want a customer browsing through the racks with a cart of melting ice cream.

And maneuvering those carts up an escalator?

Little Cross-Shopping

Result: There would be very little cross-shopping—even if the mindset were there. Supermarket shopping is a chore; mall cruising and browsing, entertainment—except, maybe during the stressful holiday seasons. Just one minor reason mall landlords may not welcome these tenants with open arms.

Now get into the logistics, for a moment—and the high value placed mall management places on parking spaces, especially those nearest to store access and the main entrances to the main mall. Supermarkets require heavy traffic, and their customers require substantially more parking spaces than those normally shopping at a mall; the distance between the car and store has to be substantially shorter. Question: Know anyone willing to push a loaded cart 200 yards to a parked car?

Then comes the large number of 18-wheelers coming in to replenish a supermarket
on a daily basis; this traffic is much heavier than similar vehicles replenishing merchandise for other tenants because some stock turns at foodstores go into double-digits; some departments require daily replenishment. These vehicles have to be kept away from the large numbers of personal SUVs; the result is a completely different and more demanding traffic pattern.

Those adherents saying it’s a good idea for this type of tenant to head for the malls point to some of the big-box discounters, warehouse clubs, and other promotional merchants carrying groceries who are already common in malls—Target, CostCo, Walmart, BJ’s, and the like. Yes, they carry groceries among their merchandise, but not a full-line of products: meats, fresh fish, frozen foods, produce, etc., etc.

It’s true that some of these big-box users are attached to the mall, but many of them do not have direct access, and their parking spaces essentially just serves their stores. In this situation, a supermarket could be a likely candidate to take the space.

We’re talking here, however, of a supermarket being an integral part of the mall, rather than an add-on.

How It Can Work

Supermarket operators are not known for paying high rents. The average mall rent paid across the nation for non-anchor tenants is around $38 per sq. ft. And to this add one-third to cover the CAM charges and other ad-ons—another item supermarketers are not known to contribute to without complaint. If you know a supermarket chain willing to pay those dollars, lemme know and I have a number of great mall locations they should look at.

No way these experienced, tight-fisted operators would agree to these expenses, and whatever else may be included in the Reciprocal Easement Agreements made between the owner-developer and the department store anchors.

Landlords do understand supermarket customers hit their shopping centers on a weekly basis, much more frequently than they would if it were a regional mall. So they’d like to build on this loyalty to place and bring the customer to their properties more frequently. This is why many malls have a separate, service-oriented strip center next to their major malls, and containing a supermarket, maybe a liquor store, barber shop/beauty parlor/nail salon, stationery store, dry cleaner, and the like.

Separate access, but visible, lower rental and operating costs than locating in a mall, less hassle for shopper merchant and landlord, and a win-win for all concerned.
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Other Interesting Activity

American Theatre Corp and Cinema Grille are looking for big-box vacancies in shopping centers that are suitable for theatre use. Contact David Postle, depostle@msn.com .
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Doctors Express, a health-clinic franchise based in Towson, MD, recently made some 74 franchise agreements in 21 states and expects to have 35 operating by year-end. A visit to a hospital’s Emergency Room costs about $575; at DE’s urgent-care centers, the cost is about $125.

Sites are being sought mainly in community and neighborhood centers. Contact Jennifer Watson, Baum Realty Group, Jennifer@baumrealtygroup.com .

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JC Penney Co says its new-store expansion over the next five years will be targeting mall and off-mall locations, and expects to boost its sales by $1 billion over the next five years. It had opened about 150 of these units before the recession hit, and has an ongoing program to complete renovations of about 400 units by the year 2014.

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General Growth Properties will no longer have a member of the founding family, the Bucksbaums, since brothers Martin and Matthew built their first center in their home town of Cedar Rapids. Those running the bankrupt development company chose not to give Chief Executive John Bucksbaum a seat on either of the two new boards being created; the reason given is that he failed to inform them that the family trust failed to inform them of the $100 million of loans made by the family trust to two GGP executives to cover margin calls on their company stock.

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More information on Expanding Retailers, Directory of Major Malls, and products that can improve your dealmaking, marketing, and operations may be obtained from our website, www.shoppingcenters.com .