This column of Strolling the Agora appears in the August 16, 2010 Issue of SHOPPING CENTER DIGEST
It has been some time since we last took a good luck at the outlet market, a small but extremely part of the mainstream shopping center/retail chain industry, especially since some of the leading high-end retailers— Neiman Marcus, Nordstrom, Lord & Taylor— now are moving into this niche which has been an important focus of many of their competitors for years.
And, also, since the mighty Simon Property Group, whose Chelsea Property Group is the largest outlet landlord, has been awaiting approval from the Federal Trade Commission to become even larger with a $700 million acquisition of Prime Outlets from The Lightstone Group. After an antitrust review, SPG recently agreed to cut three projects out of Prime’s portfolio, still leaving it with a total of 63 outlet centers after the acquisition; the next largest landlord, Tanger Factory Outlet Centers, has half the number of outlets.
And then when you get into the next tier of owner-developer, you get one just barely into double-digit projects and then many others in single digits.
At a quick glance, some may see why the FTC was concerned about a possible monopoly or overwhelming dominance in specific markets by a single landlord. With the revision of its pending acquisition, SPG is hoping for a quick conclusion.
Excluded from the deal, now, are Prime Outlets’s Livermore Valley project in Livermore, CA; within about 65 miles of this project, SPG’s Chelsea already has three competing centers in Vacaville and Gilroy. Then cut out of the deal also are Prime’s St. Augustine, FL, property, where Chelsea has one also; and then, in the Dallas-Ft. Worth market, there would be two other competing centers, Prime’s Grand Prairie, TX, and Chelsea’s in Allen, TX. Outlet centers draw from a much wider trade area than the 5-15 miles for a regional mall.
No Great Impact
When we start taking a close look at this segment of our industry—if we’re talking only of an actual number of projects without talking of GLA--it doesn’t make a great impact on the estimated 100,000 shopping centers that make up our industry. According to the International Council of Shopping Centers, as of June 2009, there were 216 outlet centers ranging from a small 16,000 sq. ft. up to 844,000 sq. ft.
According to another source, Outletbound.com, there are 275 outlet centers; it had published a directory but that was discontinued after its 13th edition.
As a side issue, we’re not even getting into any of the value-oriented or hybrid projects such as the Mills centers, many of which were in the range of 1.5 million sq. ft., and acquired by SPG after The Mills’s bankruptcy—we’re just sticking with this niche, the outlet industry.
But yet, it is growing in importance in today’s environment and continuing, stubborn recession, as many luxury retailers--unable to attract free-spending customers--must find other venues in which to sell their merchandise without diminishing the brand through heavy discounting. To such as Saks Inc, its Off 5th outlet enables it to reach shoppers who may rarely, if ever, venture into one of its pricier mainstream stores.
More On The Way
When Lord & Taylor opened its first outlet store in February in Elizabeth, NJ, sales were so strong that company executives quickly agreed to open two more units by year’s end.
Bloomingdale’s is opening its first outlet store Aug 20 in Woodbridge, VA, and has three more in the pipeline before the end of the year.
Michael Gould, CEO of Macy’s, parent of Bloomingdale’s, said: “The outlet is a different channel and, for the most part, a different customer.”
Lord & Taylor’s CEO Brendan Hoffman was quoted as saying these types of stores are “a way to further expand your relationship with your existing customer…and to reach out to a new customer, who isn’t as affluent and who may be younger.”
So when we’re describing the tenants who are flocking to this niche, the type of retailer we’re speaking of is specializing in apparel, mainly women’s wear, men’s wear, shoes, with a smaller segment going into accessories, housewares and kitchen products, gifts, jewelry.
Lower Prices
Historically—and still—outlet prices are 30%-70% lower than that of merchandise sold at its full-price stores; according to those in the industry, these prices are 30%-50% lower for merchandise made especially for outlet stores that are comparable in quality to that of full-price stores, but not available there.
When outlet centers first grabbed the attention of the industry some 30 years ago [we published an annual directory, Factory Outlet World, and then discontinued it after several editions], most of these stores where operated by the manufacturers at their factories, thereby, factory outlet stores. For many years, the commentary was that the newly built outlet centers had retailers who sold “seconds and irregulars” and “distressed out-of-season” merchandise, and that the stores were the dumping ground for marked-down leftovers that had been rejected by mainstream customers.
That is no longer the case, say many in the industry, especially within the last few years, with Polo, ALDO, Diane von Furstenberg, Perry Ellis, Armani, Yvs St. Laurent, and the like operating profitable multiple stores for many years.
Also, the first centers built were in secondary and tertiary markets, far away from urban centers; this was because tenants did not want to compete with their full-price stores, and the manufacturers were afraid of competing against their main customers, the department stores and mainstream specialty stores. Though this is no longer that important a requirement, new projects usually are still located outside of metro markets and in tourist destination centers.
Many of the most successful of these projects cater to day-shoppers who are bused in for a whirlwind spree at luxury stores, such as Chelsea’s Woodbury Commons in Central Valley, NY, which opened 25 years ago and where annual per sq. ft. sales are in the four digits.
More information on Shopping Center Digest, Expanding Retailers, the weekly SCD Eflash, and Directory of Major Malls may be obtained from our website, www.shoppingcenters.com
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Saturday, August 14, 2010
Monday, August 2, 2010
Figures Don't Lie, But Liars Figure When They Pick And Choose Figures Describing The Status Of Restaurants--Or Is It Ignorance?
This column of Strolling the Agora is from the August 2, 2010 issue of SHOPPING CENTER DIGEST
It’s an old, tired cliché, and yet true to a great extent--because that is what clichés are. The cliché? That figures don’t lie, but liars figure. Now take some of the latest numbers that have been circulating the last few days regarding the restaurant industry, one of the fastest-growing segments in the shopping center-retail chain industry today, at a time when few will classify this real estate niche as an aggressively expanding market.
So, some point to the number of US restaurants that closed within the past year, mostly independents. The tally of 5,204, according to the NPD Group, signals that “It’s been a difficult time for the restaurant industry, with customer traffic down over the last year” by about 3%.
I won’t dispute the numbers, but I question the analysis and conclusion. As one, no doubt biased and knowledgeable maven (Paul Fetscher of Great American Brokerage Co ) who specializes in this market keeps telling me, business is good because “people always gotta eat.” If you compare the number of closings with the totality—316,641 independents and 267,868 chain units—that’s not horrendous; in fact, it’s a very low percentage.
So compare the negative assessment with another, conflicting survey from People Report which states that employment expectations from restaurant operators are up, nearly at the same level before the economy tanked. It reported that 42% of operators that were surveyed expected to add hourly workers in the third quarter, while only 5% would cut staff, and that nearly half expected to hire more managers. This survey predicts modest growth in the restaurant industry increasing through the rest of the year.
No dispute that it’s easy to gorge on all those numbers and regurgitate only those that grab the most attention. None of us are immune from that disease. A question, however: Do they do it for the attention, or is it through lack of knowledge, ignorance?
I see that some of the largest most successful chains are reporting increases in same store sales, operators like Ruby Tuesday, The Cheesecake Factory, Panera Bread, Cracker Barrel. And that numerous others are taking advantage of the stubborn recession and lower rent demands by landlords to expand aggressively on the homefront, many through franchising. Especially ethnic restaurants focusing on the growing appetite for Mexican, Indian, Chinese, Philippine food, or the old, reliable standbys like Chick-fil-A, Pizza Hut, Domino’s, Papa John’s…hey, are these “Italian” restaurants no longer ethnic???, Subway, Quiznos, Taco Bell, KFC, Popeye’s.
Overseas Expansion
The behemoths, of course, McDonald’s, Burger King, Wendy’s, Starbucks, haven’t been doing so great domestically, and some of them are directing most of their expansion to foreign shores; we’ve discussed a number of these points in earlier columns and why they see greater growth opportunity across borders.
With today’s technology, with billions of bits of conflicting data swirling all around us, anyone can pick and choose which ones to pay attention to, and which ones to ignore. No question, the bigger the number—without clarification or explanation—the more likely it will draw attention.
Another example: Chain Store Guide has identified the 50 fastest-growing restaurant chains with more than 20 locations over the last five years; leading the pack is Which Wich Inc, which has grown 836.4% over the last five years. Impressive, huh? It has a total of 103 locations and total annual corporate revenue of $9 million; I’m not a great mathematician, but that’s only $88,000 that each unit conributess to the corporate coffers.
Some of the better operators in the restaurant industry would probably be closing individual units that did $88,000 in total sales for the year. Ruby Tuesday, for instance, is converting several of its underperforming restaurants to other brands in its family—Jim ‘N Nicks Bar-B-Q, Truffles Café, and Wok Hay—at a cost of $400,000 each. I’m willing to bet that each of the conversions are producing--as underperforming locations--more than $88,000 in annual sales to the corporate accounts.
Hey, it’s still a more impressive figure than that of No. 7 on the list, Froots Fresh Smoothies, whose 54 units produce a total of $1,900,000 in corporate revenue, or just over $35,000 each.
Discounting A Danger
The most common practice by retailers to drive customers into the stores is by deep discounting. Many are betting on increased sales for Back To School because of heavy discounting--which may not always lead to a profitable balance sheet. But it does increase traffic and protect market share, according to experienced retailers.
And then, there’s Cracker Barrel, with its 594 restaurants and its philosophy. It made $14.4 million the last quarter, up 20% from a year earlier. The reason for its success, according to CEO Michael Woodhouse, is because it didn’t slash prices as many of its competitors did.
“Once you devalue something, you’re digging a big hole and it’s (tough) to get out of that,” he said. Instead of getting “caught up in price warfare” the chain focused on providing value and “treating our guests right.”
The chain is ranked at the top of the list of 10 national full-service restaurants in customer satisfaction, according to Technomic Inc, based on its consumer survey of 4,000 respondents.
Understand What You’re Seeing
So now we get back to dealmaking and leasing and developing our shopping centers. All of the above must be taken with shovels full of salt.
I’ve heard some landlords still insist that they wouldn’t drop the rent because they have a great project—and have seen them with vacant stores until “they dropped the rent”—or lost the project.
And I’ve heard some restaurant chains become nervous about making a deal in a center, because the location they’re considering was vacated by another food operator. It may, however, have been a poor operator, or the wrong brand in a good location. The demographics for a corner may look the same for a Pizza Hut, KFC or a Dunkin’ Donuts, but for one it’s a home run and for the another a disaster: Is the heavy traffic in stopping for coffee, or a bucket of chicken for breakfast?
Look at the numbers. But above all, understand what you’re looking at.
More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
It’s an old, tired cliché, and yet true to a great extent--because that is what clichés are. The cliché? That figures don’t lie, but liars figure. Now take some of the latest numbers that have been circulating the last few days regarding the restaurant industry, one of the fastest-growing segments in the shopping center-retail chain industry today, at a time when few will classify this real estate niche as an aggressively expanding market.
So, some point to the number of US restaurants that closed within the past year, mostly independents. The tally of 5,204, according to the NPD Group, signals that “It’s been a difficult time for the restaurant industry, with customer traffic down over the last year” by about 3%.
I won’t dispute the numbers, but I question the analysis and conclusion. As one, no doubt biased and knowledgeable maven (Paul Fetscher of Great American Brokerage Co ) who specializes in this market keeps telling me, business is good because “people always gotta eat.” If you compare the number of closings with the totality—316,641 independents and 267,868 chain units—that’s not horrendous; in fact, it’s a very low percentage.
So compare the negative assessment with another, conflicting survey from People Report which states that employment expectations from restaurant operators are up, nearly at the same level before the economy tanked. It reported that 42% of operators that were surveyed expected to add hourly workers in the third quarter, while only 5% would cut staff, and that nearly half expected to hire more managers. This survey predicts modest growth in the restaurant industry increasing through the rest of the year.
No dispute that it’s easy to gorge on all those numbers and regurgitate only those that grab the most attention. None of us are immune from that disease. A question, however: Do they do it for the attention, or is it through lack of knowledge, ignorance?
I see that some of the largest most successful chains are reporting increases in same store sales, operators like Ruby Tuesday, The Cheesecake Factory, Panera Bread, Cracker Barrel. And that numerous others are taking advantage of the stubborn recession and lower rent demands by landlords to expand aggressively on the homefront, many through franchising. Especially ethnic restaurants focusing on the growing appetite for Mexican, Indian, Chinese, Philippine food, or the old, reliable standbys like Chick-fil-A, Pizza Hut, Domino’s, Papa John’s…hey, are these “Italian” restaurants no longer ethnic???, Subway, Quiznos, Taco Bell, KFC, Popeye’s.
Overseas Expansion
The behemoths, of course, McDonald’s, Burger King, Wendy’s, Starbucks, haven’t been doing so great domestically, and some of them are directing most of their expansion to foreign shores; we’ve discussed a number of these points in earlier columns and why they see greater growth opportunity across borders.
With today’s technology, with billions of bits of conflicting data swirling all around us, anyone can pick and choose which ones to pay attention to, and which ones to ignore. No question, the bigger the number—without clarification or explanation—the more likely it will draw attention.
Another example: Chain Store Guide has identified the 50 fastest-growing restaurant chains with more than 20 locations over the last five years; leading the pack is Which Wich Inc, which has grown 836.4% over the last five years. Impressive, huh? It has a total of 103 locations and total annual corporate revenue of $9 million; I’m not a great mathematician, but that’s only $88,000 that each unit conributess to the corporate coffers.
Some of the better operators in the restaurant industry would probably be closing individual units that did $88,000 in total sales for the year. Ruby Tuesday, for instance, is converting several of its underperforming restaurants to other brands in its family—Jim ‘N Nicks Bar-B-Q, Truffles Café, and Wok Hay—at a cost of $400,000 each. I’m willing to bet that each of the conversions are producing--as underperforming locations--more than $88,000 in annual sales to the corporate accounts.
Hey, it’s still a more impressive figure than that of No. 7 on the list, Froots Fresh Smoothies, whose 54 units produce a total of $1,900,000 in corporate revenue, or just over $35,000 each.
Discounting A Danger
The most common practice by retailers to drive customers into the stores is by deep discounting. Many are betting on increased sales for Back To School because of heavy discounting--which may not always lead to a profitable balance sheet. But it does increase traffic and protect market share, according to experienced retailers.
And then, there’s Cracker Barrel, with its 594 restaurants and its philosophy. It made $14.4 million the last quarter, up 20% from a year earlier. The reason for its success, according to CEO Michael Woodhouse, is because it didn’t slash prices as many of its competitors did.
“Once you devalue something, you’re digging a big hole and it’s (tough) to get out of that,” he said. Instead of getting “caught up in price warfare” the chain focused on providing value and “treating our guests right.”
The chain is ranked at the top of the list of 10 national full-service restaurants in customer satisfaction, according to Technomic Inc, based on its consumer survey of 4,000 respondents.
Understand What You’re Seeing
So now we get back to dealmaking and leasing and developing our shopping centers. All of the above must be taken with shovels full of salt.
I’ve heard some landlords still insist that they wouldn’t drop the rent because they have a great project—and have seen them with vacant stores until “they dropped the rent”—or lost the project.
And I’ve heard some restaurant chains become nervous about making a deal in a center, because the location they’re considering was vacated by another food operator. It may, however, have been a poor operator, or the wrong brand in a good location. The demographics for a corner may look the same for a Pizza Hut, KFC or a Dunkin’ Donuts, but for one it’s a home run and for the another a disaster: Is the heavy traffic in stopping for coffee, or a bucket of chicken for breakfast?
Look at the numbers. But above all, understand what you’re looking at.
More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
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