This Strolling the Agora column is from the March 22, 2010 Issue of Shopping Center Digest
Those retailers who have weathered the economic recession and are now “flush with bucks” are looking at ways to take advantage of changing demographics and conditions within the industry to find new ways to grow. And one pathway could be to spin off or creation of new concepts that exploit what they see as an under-served niche.
It has worked extremely well for some operators in the past; a prime example, of course, is Target, which was originally a spinoff by a leading mainstream department store, Dayton-Hudson.
Conditions now are ripe for testing. Due to high vacancy rates in shopping centers of all sizes and focus, landlords are more amenable to granting inexpensive, short-term leases to test these concepts--- and the ease of data capture and analyzingf results can be relatively inexpensive; result, many more “pop up” stores becoming a common fixture in these projects, and even in CBDs of major metropolitan markets, especially those involving home repair and furnishings. And you have established operations widening their focus, perhaps a pizza chain acquiring restaurants specializing in Mexican or Indian foods.
Whether there are a record number of new concepts being tested is hard to measure; I don’t know if this type of information was ever gathered before. However, anecdotal evidence shows that it is a more visible and common trend today than previously reported. The greater number of these concepts being developed are in associated areas related to the main focus of the parent company; you’re unlikely, for example, find a shoe chain “popping up” with a store selling hardware, for example.
Selecting Niches
So you have chains specializing in women’s wear trying on units to cater to men; you have teen-oriented retailers establishing brands focusing on pre-teens or—since they have an aging, loyal customer—testing completely separate concepts to serve the needs of those in their 20s and 30s. We are not speaking of a discount operator, for example, opening an in-store department providing optical service, or a grocery chain inserting a coffee shop within its supermarket, or wines and liquors.
This shopping center-retail chain industry has always been innovative—as we’ve cited numerous times in the past, some successful new directions, and some not-so-successful directions. Would you believe, at one time, anchors, such as a department store, thought it would better merchandising to not have another department store in the same center because “Who needed the extra competition in your own backyard?”
The boom in information and technology has made it a relatively simple matter to gather data of all sorts, massage these numbers, and pinpoint areas that are just waiting for someone to exploit. “Whereas,” said one senior dealmaker, “we’ve had the surge to big-box stores and category-killers, now we’re getting into a more refined area where we can zero-in on specific segments: seniors, hikers and campers and sportsmen, those who want to build their own one-of-a-kind toys. You can call this trend one of segmenting; select this niche and then direct it at a market where there are an overbundance of these people.”
The Impact On Dealmaking
So, what does this increasing number of specialized brands mean for the leasing, expansion and development of shopping centers? What, overall, will be the impact from these new concepts.
There is a wide range of opinion from seasoned dealmakers. They go from those who are far from excited:
“My opinion [is that the] net effect will be zero. I wonder if it isn’t being driven as much by three things: Landlords will to do ‘any’ retail chain deal in their shopping centers; rock bottom pricing in some ‘A’ location and whether or not retailers are simply carving out ‘high profit margin items’ for a quick hit to their bottom line/quarterly earning announcements?”
On the other hand, there are those who look at it as the best thing since sliced bread.
“It gives me as a landlord another tenant to add to my merchandise mix, one that a competing mall may not have, and, if successful can be quickly added to almost every center in my portfolio. If it really takes off, it gives me a strong selling point to attract other retailers, such as when Victoria’s Secret became a magnet, or Nordstrom, for other retailers.”
Another owner-developer said he would be less likely to test a concept in a top mall at favorable terms if it were being proposed by a ‘Mom and Pop.’ “If it’s a great idea and extremely successful, they wouldn’t have the required investment capital to do much with it, except open another store or two.”
To the retailer, a new concept can ride on the coattails or loyalty of established customers and transfer this loyalty to another brand, providing another income stream to the parent.
To the landlord, in an industry that has been contracting due to closings and bankruptcies, a new concept may mean another tenant available to fill continuing vacancies.
More information on Shopping Center Digest and our other products, such as Expanding Retailers, the weekly Eflash, the Directory of Major Malls, etc., may be obtained from our website, www.shoppingcenters.com .
Tuesday, March 23, 2010
Monday, March 8, 2010
We Focus On Battling Behemoths, But Greater Impact Could Come From The Trends To Smaller Stores, Expansion Of Food, Blurring Of Retail Categories
This is the topic of the Strolling the Agora column in the March 8, 2010 issue of SHOPPING CENTER DIGEST
It is no big secret that a good portion of the shopping center/retail industry has been focusing on the Battle of Behemoths, the almost daily updates, twists and turns involving efforts by Simon Property Group to acquire General Growth Properties—and the new players taking or rumored to be taking a role in the process.
And this is so for many—retailers, landlords, brokers, and numerous others--who may never had made a deal, or may never make one, with any of the principal parties.
But an interesting point is that there isn’t more “buzz” going on concerning other subjects that may have much more long-term impact on “our thing” than whether a single landlord will dominate in one segment or market. These are the growing trends by many retailers to reduce the size of their individual stores, and others to trade on convenience and access by offering more food to consumers, and the blurring of lines separating specific retail categories or brands.
Let’s touch on the more prominent. Wal-Mart will be opening this year 35-40 supercentres across Canada, and each will be about 10% smaller than its normal footprint, roughly down to 175,000 sq. ft. It is also experimenting with smaller Marketside units in the Phoenix area stressing fresh produce and other foods.
Perhaps the most important retail category in every segment is the supermarket, since “we all have to eat.” Trader Joe’s has built its impressive reputation and profits on branded, high-profit groceries and merchandise in units of only about 10,000 sq. ft. Tesco is refining its similar “smaller is better” approach in the West with Fresh & Easy, more variety in a similar-sized footprint. And giant Safeway is now testing this concept in California. This experiment is not always successful, as Super Valu discontinued its Chicago test.
Others like 7-11 and Walgreen’s are also adding more fresh foods and ready-to-eat meals in their stores. Family Dollar, one of the leading discounters, is adjusting its merchandise mix, adding about 200 food items and reducing the amount of space for appliances and home categories. Big Lots, another leading discounter, has recently opened a handful of smaller-sized units.
Non-Foods Creeping In
And non-foods is creeping into established supermarkets: RE/MAX opening small real estate offices in Stop & Shop supermarkets in New England; AAA opening AAA Express stores in Lucky supermarkets in California selling car insurance, road-trip planning, passport photos, with others due in Nevada and Utah.
Apple and its 500 store-within-stores deal with Best Buy; Best Buy and its Mobile stand-alone units or as a section within a larger store; Adidas and the National Basketball Association opening 69 shops within Champion Sports; the co-branding of many fast-food operators: Taco Bell and Pizza Hut, Cinnabon and Popeye’s Chicken, Dunkin’ Donuts and Baskin-Robbins, Church’s Chicken in Atlanta teaming up with gas stations, and on and on.
The concept of stores-within-stores and/or leased departments are not at all new. It has been a standby at many top department stores which have been offering designer-label shops across the country for years, whether Liz Claiborne or Prada and other luxury labels. In these anchors, there is no clause in a lease or reciprocal easement agreement (REA) that precludes the retailer from doing this. With numerous other merchants, some in a specific retail category—shoes, women’s or men’s apparel—it is traditional and they have also been doing this for years.
Where the use clause in a lease becomes questionable is the amount of space in a store set aside for another type of merchandise—and whether the landlord decides it’s important enough to try to enforce these guidelines. With high vacancies in many shopping centers, even if another tenant were to complain, it is unlikely that action would be taken; another example of looking the other way is enforcement of radius restrictions.
Some years back, many chains decided if they increased the size of their outlets they could become a destination store and provide one-stop shopping for the consumer, or in one type of merchandise a big box or a category killer. For a while, this was the way to go.
Why Small Is Better
Now, with the recession still casting a depressing pall over much of the industry, smaller stores are cheaper to operate—less rent, less staff, require less power, less CAM charges—and produce higher sales per sq. ft. If the retailer has more space than he really needs, he can turn it into a profit center by subdividing it or renting it out to another operator.
To the landlord, though it’s an advantage on one hand to lease 25% or 30% of available space to a single user; if it were 20%, he could add another small tenant or two, maybe a Mom and Pop, have less risk of substantial vacancies if the anchor goes dark, and get higher rents. To the broker, he may have to work harder to lease all the space to more users, but his commissions will also be greater. To other tenants in the project, greater variety may help the center fend off competition and avoid becoming obsolete.
It’s a win, win all around.
This industry has always prided itself on its flexibility, on its ability to react to changing conditions in the marketplace, to constantly adapt. It’s attitude when faced with a challenge: “Oh yeah, I can do that.”
Though I’m not discounting the impact of one landlord being so much larger than its competitors, or being able to export malls around the globe, these trends may resonate greater across the industry domestically.
More information on Shopping Center Digest, Expanding Retailers, the weekly Eflash, Directory of Major Malls and our other products may be obtained from our website, www.shoppingcenters.com .
It is no big secret that a good portion of the shopping center/retail industry has been focusing on the Battle of Behemoths, the almost daily updates, twists and turns involving efforts by Simon Property Group to acquire General Growth Properties—and the new players taking or rumored to be taking a role in the process.
And this is so for many—retailers, landlords, brokers, and numerous others--who may never had made a deal, or may never make one, with any of the principal parties.
But an interesting point is that there isn’t more “buzz” going on concerning other subjects that may have much more long-term impact on “our thing” than whether a single landlord will dominate in one segment or market. These are the growing trends by many retailers to reduce the size of their individual stores, and others to trade on convenience and access by offering more food to consumers, and the blurring of lines separating specific retail categories or brands.
Let’s touch on the more prominent. Wal-Mart will be opening this year 35-40 supercentres across Canada, and each will be about 10% smaller than its normal footprint, roughly down to 175,000 sq. ft. It is also experimenting with smaller Marketside units in the Phoenix area stressing fresh produce and other foods.
Perhaps the most important retail category in every segment is the supermarket, since “we all have to eat.” Trader Joe’s has built its impressive reputation and profits on branded, high-profit groceries and merchandise in units of only about 10,000 sq. ft. Tesco is refining its similar “smaller is better” approach in the West with Fresh & Easy, more variety in a similar-sized footprint. And giant Safeway is now testing this concept in California. This experiment is not always successful, as Super Valu discontinued its Chicago test.
Others like 7-11 and Walgreen’s are also adding more fresh foods and ready-to-eat meals in their stores. Family Dollar, one of the leading discounters, is adjusting its merchandise mix, adding about 200 food items and reducing the amount of space for appliances and home categories. Big Lots, another leading discounter, has recently opened a handful of smaller-sized units.
Non-Foods Creeping In
And non-foods is creeping into established supermarkets: RE/MAX opening small real estate offices in Stop & Shop supermarkets in New England; AAA opening AAA Express stores in Lucky supermarkets in California selling car insurance, road-trip planning, passport photos, with others due in Nevada and Utah.
Apple and its 500 store-within-stores deal with Best Buy; Best Buy and its Mobile stand-alone units or as a section within a larger store; Adidas and the National Basketball Association opening 69 shops within Champion Sports; the co-branding of many fast-food operators: Taco Bell and Pizza Hut, Cinnabon and Popeye’s Chicken, Dunkin’ Donuts and Baskin-Robbins, Church’s Chicken in Atlanta teaming up with gas stations, and on and on.
The concept of stores-within-stores and/or leased departments are not at all new. It has been a standby at many top department stores which have been offering designer-label shops across the country for years, whether Liz Claiborne or Prada and other luxury labels. In these anchors, there is no clause in a lease or reciprocal easement agreement (REA) that precludes the retailer from doing this. With numerous other merchants, some in a specific retail category—shoes, women’s or men’s apparel—it is traditional and they have also been doing this for years.
Where the use clause in a lease becomes questionable is the amount of space in a store set aside for another type of merchandise—and whether the landlord decides it’s important enough to try to enforce these guidelines. With high vacancies in many shopping centers, even if another tenant were to complain, it is unlikely that action would be taken; another example of looking the other way is enforcement of radius restrictions.
Some years back, many chains decided if they increased the size of their outlets they could become a destination store and provide one-stop shopping for the consumer, or in one type of merchandise a big box or a category killer. For a while, this was the way to go.
Why Small Is Better
Now, with the recession still casting a depressing pall over much of the industry, smaller stores are cheaper to operate—less rent, less staff, require less power, less CAM charges—and produce higher sales per sq. ft. If the retailer has more space than he really needs, he can turn it into a profit center by subdividing it or renting it out to another operator.
To the landlord, though it’s an advantage on one hand to lease 25% or 30% of available space to a single user; if it were 20%, he could add another small tenant or two, maybe a Mom and Pop, have less risk of substantial vacancies if the anchor goes dark, and get higher rents. To the broker, he may have to work harder to lease all the space to more users, but his commissions will also be greater. To other tenants in the project, greater variety may help the center fend off competition and avoid becoming obsolete.
It’s a win, win all around.
This industry has always prided itself on its flexibility, on its ability to react to changing conditions in the marketplace, to constantly adapt. It’s attitude when faced with a challenge: “Oh yeah, I can do that.”
Though I’m not discounting the impact of one landlord being so much larger than its competitors, or being able to export malls around the globe, these trends may resonate greater across the industry domestically.
More information on Shopping Center Digest, Expanding Retailers, the weekly Eflash, Directory of Major Malls and our other products may be obtained from our website, www.shoppingcenters.com .
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