For the most part there seem to be many new stores opening, and a heightened interest in vacant space, so I don't prescribe to the theory that the media is entirely spinning an economic recovery. However, the fact is the stock markets are still down, and the store closures list for 2010 (so far), seemed interesting, as some big names still populate the list.
Landlords and retailers have been hearing these rumors for years. This time it sounds as though someone has at least thought about it seriously, even contemplating store size and format. The opportunity in this market segment definitely exists and demand is there, perhaps it is now up to the landlords to make it a reality.
Worth reading for some retail nostalgia and perhaps future case studies in MBA programs. I saw this on CNN today about 6 iconic American businesses, retailers among them, that have closed after 100 years of service. The interesting part to think about is that the article tries to spin the fact that they were casualties of the economic downturn, but shouldn't one also look at the evolutionary degradation of how these businesses were run?
Canadian Black Friday, the day the Queen opens her presents, the last chance to increase sales for the year.
Boxing Day in Canada, which has ultimately become boxing week, not to mention the boxing week sales that are extended until January 7th, has long been a way for Canadians to scour for remaining shopping deals and bargains, and the final chance for retailers to unload the remaining inventory from the passing year.
It is still too early to gauge percentages regarding sales from Boxing Day, however all indications are that it was quite successful, with retailers now quite optimistic for 2010.
One interesting thing I saw though that is definitely worth mentioning as it no doubt will shakeup marketing and product positioning for the future, is the continued exponential increase in Internet sales during Christmas, as compared to last year, reported to be somewhere over 15%. Naturally without an explanation of this statistic it is tough to determine exactly what store or stores are doing well, and what consumer apprehensions are dissipating among certain product types. It is though easy to pay attention, that more and more consumers are enjoying and taking advantage of Internet convenience where suited.
I can think of several challenges and opportunities this creates, not only for retailers, but for brick and mortar shopping center owners and developers such as TGS, in that the manner of getting a customer to your center may indeed be different in a few years, not to mention convincing a new retailer why a tangible site is necessary. Ultimately the shopping center experience and the Internet experience should complement each other not compete with each other, and several new concepts have been developed by TGS already.
The key that this blog has discussed over and over holds true especially now: Service.
Retailers and landlords should be asking themselves what have they done to improve service, and differentiate the service at their store/center to keep the customer coming back.
The 2009 market correction will be well served if we all sharpen our pencils and become more efficient in 2010.
After much anticipation to how this year's Black Friday shopping pinnacle would fare, I think for the most part retailers were pleasantly surprised. Several had the early morning lineups, sleeping bags, and overnight camping trips prior to a midnight opening after US Thanksgiving, which no one really expected. In speaking to several prominent retailers most seemed to think that although customer activity was up over last year, purchases remained flat. Personally I am not sure, walking through several centers, there was a definite excitement amongst retailers and customers alike, looking for that elusive deal, which this year seemed to be more important to find then ever. Stores had lines cued up outside, and nearly all those who waited exited with shopping bags. Many customers I spoke with, were short on time heading for the next store. A restaurant I personally tried to go had a 3 hour wait for dinner, and no the food was not on sale. At least for one day, and more so one weekend, things are finally back in the black, literally and not just through title.
Retail industry cynics will have you believe that the Walmart model is setup for economic downturns as a platform for reaching new customers, and continuously showing old ones the inherent value of shopping at Walmart. Simple economics dictates that when people have less money to spend they become more frugal, and luxury products and luxury retailers ultimately see sales dip, and those retailers that provide more for your dollar, ultimately get the business.
So what should we make of Walmart saying that profits are better than expected with earnings per share up 77 cents a share from a year ago and sales up 1.1% from a year ago? Namely that these statistics quantify our consumer spending expectations, and that Walmart is a direct benefactor of consumers looking to better stretch their dollars in their daily quest for value. The only problem is that Walmart also reported same store sales declined 0.4% in the quarter, and when net sales are nearly $100 billion, that indicator can be quite telling in measuring store performance in existing markets.
This tells us that consumers are still exercising caution in their spending, and are perhaps not spending at Walmart beyond necessity. One could look at this and spell doom for other retailers, but realistically we are not seeing those types of stories, or figures to back that up; so spending is not at a standstill.
Rather, retailers should look at this and be as optimistic as ever, that perhaps the consumer is looking for something else not merely the bottom line. Most industry professionals are of the mindset that this economic downturn has only accelerated failure in retailers that were headed down that path anyways. I can't tell you how many times I have met someone at an ICSC event over the past year who loves to cite the example of Circuit City, and drawing on their poor customer service when times were good, as the principal reason for their failure, and not a weak economy.
What this means, is now is the opportunity for retailers, including Walmart, to figure out how to create, redefine and re-establish their consumer connection, and it is not only price. Things like customer service, timely response, product selection, cleanliness, knowledgeable staff, pleasant shopping experiences, and availability to name a few are now more important than ever. It is absolutely easier to sell a product when there is an obvious market need, but things need to be done to maintain that brand recognition and brand loyalty when demand fades. Hopefully what we end up with are stronger retailers invested in consumer capital.
Short-term thinking is how the market evolved into what it is today. Long-term planning will help all our shelf lives.
According to an article in yesterday's New York Times, we see another example of a retailer being innovative at a time when most are cautiously moving forward as per the media's advice.
Who is it this time? Only a retailer we have heard about many times as a perceived weak store. Not only has recent history shown us that this was perhaps never really true, it seems that the creativity and actions being put forward now show off quite the opposite character. Which retailer you ask? Toys R Us.
Yes all the discount retailers are seeing sales go up, and we know consumer luxury goods spending is down, so how do we combat this problem? Toys R Us has wisely been snapping up luxury toy and baby product retailers at a discount, and increasing their market coverage at the same time, picking up e-retailers, and most prominently FAO Schwarz of Manhattan fame. The success of FAO Schwarz, aside from their movie debut, has always been about the exclusive nature of their products, which now Toys R US will make exclusive in all their stores by putting a FAO Schwarz boutique in their stores. At a time when people are traveling less and looking for new and exciting things to do, why not bring FAO Schwarz to a Toys R US near you. Sure the products may lose some of their allure in terms of exclusivity, but it will keep the brand and the brands they sell popular for a long time. After all successful retailers find a way to create brand loyalty, and keep giving customers a new reason to come back.
It is refreshing when most companies are clearing their balance sheets of debt, that Toys R US, is putting its resources to good use, for with the Christmas shopping season practically here, it may be a quicker economic recovery for them compared to those retailers too conservative to give something else a try.
According to an article in the LA Times, there seems to be a "new" leasing fad in southern California. The truth is landlords have been doing this for a long time only without the fanfare, as no landlord is ashamed to say that they are trying to maximize the bottom dollar. What is happening, is that tenants are taking advantage of the economic downturn, coupled with lots of empty shopping mall space, topped off with a ripe consumer mindset that currently appreciates and encourages being frugal. Tenants are leasing space on a short term basis, but rather than tarnish their image by suggesting they are temporary, these spaces are being called Pop-Ups. Clearly the brainchild of some clever backroom marketing, as the rationale for landlords to enter into such agreements have not strayed regardless of the economic situation, that being still to increase cashflows, and to hopefully turn a temporary tenant into a long-term one. In some cases it goes the other way and keeps a national brand afloat in a shopping mall, preserving the name recognition for customers, and gives the landlord a chance to turn things around.
What makes things interesting now, is that prominent retailers, are using these Pop-Ups as launching sites for new product lines to create a buzz and then intentionally closing the store down after studying market reaction, or creating certain incentives to shop a temporary site either for unique sale opportunities or limited selection in attempts of creating a bit of positive PR and a mini following.
Sure consumer spending hit some lows recently, but maximizing profitability always holds true. Landlords want to increase revenues, tenants want to minimize loss exposure, and consumers want to save money. Eventually I think the same principles will apply, landlords want stability, tenants want to know there is stability around them, and customers like to shop in the same places, and really that has always been the case regardless of economic surroundings.
So are Pop-Ups really a fad or merely a generational shift in the way we define temporary space? When all is said in done, perhaps what we will have is not a revolutionary concept, but terminology that is much easier to sell.
TGS has participated in various ICSC events and conferences in the United States over the past few months and spoken with friends and colleagues representing various influential leaders in retail real estate either directly or through company affiliation. The concerns over the future of the industry, parallel those drenched in potential opportunity. Naturally, the perspective depends on which side of the equation you reside, and if pro-forma's financed by CMBS have come to fruition.
There is however, no disputing the basics and the influence retail real estate has on the overall economy. According to ICSC (International Council of Shopping Centers), the US shopping centre industry provided 13 million jobs in 2008 coupled with shopping mall owners investing $25 billion to build or renovate centers. How many did US car manufacturers provide? Not even 1 million jobs.
The key to the future will be deciding what to do with all the debt put on retail real estate as industry estimates there will be some $400 billion over the next five years in need of being refinanced, of which more than 40% is CMBS debt. Clearly solutions will need to be some sort of mix of government aid, restructuring, and loan extensions on performing loans to prevent widespread defaults.
These loans were largely based on future projections, and planned developments, goals which should be realistic not merely an exercise for obtaining cash. Retail real estate takes hard work, dedication, and solid backup plans. When the market provides natural instruments for solidifying and re-establishing the core of an industry the process may be frustrating, but the results are equally exciting. Interesting times ahead.....
We are always glad to see retailers (although Disney is much more than a mere retailer), take the current economic downturn as the opportunity it is. According to an article in the New York Times by Brooks Barnes, Disney has utilized the format and success of the Apple stores to alter the format of their retail stores, in what will be geared at changing the way consumers use their store. They want to provide interactive experiences, theatres, and technology assisted shopping purchases. I think there will be many who say it is a risky move, but personally I think it is a great idea, to give people a reason to go back to these stores, and create strong ties to the Disney brand, with parents who grew up on Disney and their children who are starting to. After all the key to all marketing is brand loyalty and placement. Looks like the mouse is back! This time at a mall near you.
