By Garrick Brown, Vice President of Retail Research, Americas
So this is coming out the day after Valentine’s Day and the first thing I have to say is do you know how hard it is to find intelligent quotes regarding this holiday? It’s pretty bad unless you love unexpurgated mush. The Hemingway quote was the only thing I could come up with that didn’t turn my stomach. In fact, it gets worse. It led me to write my own bad poem about the holiday…
Roses are red Violets are blue
This holiday means nothing
But a spending spree or two
I’m not that romantic
I’m way too pedantic
But a Hallmark holiday I’ll take
And if it creates jobs selling love to poor slobs
A cuddly Cupid I’ll fake
Buy her some chocolates to show your devotion
Go to a restaurant that overlooks the ocean
Spend a little time penning a rhyme
To not spend anything would be a real crime
But don’t just click on Amazon Prime For bricks-and-mortar sake
A trip to the mall you must make
As bad as it must be for your significant other
Dealing with your snoring and never giving a holler
Enduring your faults and your massive ego
It couldn’t be harder
Than competing with Jeff Bezos
It’s too late for Limited, for Wet Seal and American
Their Apparel hip and their ads risqué
They sky isn’t falling like the newspapers say
But the challenges are real, a climate of steel
Lift them up like a homeward dove
This year, go out and show the retailers some love.
My immediate apologies to every poet that ever lived as well to Mr. Bezos if he happens to take offense… which he shouldn’t. The fact is that if you aren’t sure how hard it has been for bricks-and-mortar retailers when it comes to dealing with Amazon… well, last year the Behemoth from Bellevue booked a remarkable $136 billion in sales. I got about $47 in my pocket right now so putting that in the proper frame of reference is a little difficult. So let’s give it a little try…
In 2015, the entire nation of Guatemala—16.2 million residents strong—posted a total economic output (GDP) of roughly $126 billion. 2016 numbers are not available yet for Guatemala… but I think it is safe to say Amazon smoked ‘em.
Of course, you would have heard that if you were able to tune in to the webinar that I gave this morning with my compatriot, Ben Conwell, who runs our eCommerce fulfillment group. They’re daunting numbers and the challenge of getting omnichannel retail has never been more important for retailers. That said, the “sky is falling” narrative that we see once again is simply not true for the overwhelming majority of the marketplace. But it’s true enough for those on the edge in the retail world or for the weakest properties out there that we find ourselves in the midst of yet another ugly retail media cycle.
If you would like a copy of the presentation that Ben and I gave this morning please drop me a line and I will send your way… but, better yet, join us on our next live webinar where we will be tackling the topics of omnichannel and urban retail as well as the wave of eGrocery that is to come.
But back to Valentine’s Day… the National Retail Federation forecast that Americans would spend $18.2 billion this year… that is actually a decline of 7.6% from the $19.7 billion spent last year. I am a little less bearish on this one and think that the numbers will likely be down slightly due to things like the continued decline in things like greeting card sales—though I can tell you that if you are sending free e-cards to your loved one instead of an actual physical card you run the high risk of being single by St. Patrick’s day (then again, I’m a half glass full kind of guy and that might help boost alcohol sales on that holiday). Regardless, I suspect final numbers will probably reflect something along the lines of a 3.0% to 4.0% drop simply because all of the basic consumer indicators (unemployment, wage growth, etc.) have continued to show improvement over the past year—but what do I know?
And one last thing about Valentine’s Day—at its new flagship Cantina concept in Las Vegas, Taco Bell has launched a wedding package. For $600 you get a Taco Bell garter and bow tie, a sauce packet bouquet, a couple of “Just Married” t-shirts, Taco Bell champagne flutes and a Cinnabon Delights wedding cake. Oh yeah… and a taco 12-pack.
This week’s Newsline is a double issue because I have been on the road quite a bit lately. Last week I had the honor of being a keynote at the Third Annual Entertainment Experience Evolution event in Santa Monica. It was a pretty stellar event hosted by the good folks over at France Publications (Shopping Center Business, Western Real Estate Business, Heartland Real Estate Business, Northeast Real Estate Business, etc.). The place was packed with developers, landlords, entertainment concepts, food and beverage tenants and others. My presentation there covered the topics of Cool Streets and Food Halls.
As for the topic of food halls… since the publication of our Food Halls of America in December I have heard from at least 40 new projects in development. Enough so that I am now ready to revise my forecast in that report—the number of Food Halls in the US will not increase by 50% by 2019. That will now likely happen by sometime in the middle of next year—the pace of development has ramped up that much and my estimates may still be too conservative. This is, by far, the hottest trend in retail going…
What’s interesting is that while many groups are circling the marketplace looking for financing opportunities, the lenders have yet to catch up with the proposed projects in the pipeline. Private equity, pension funds, high net worth individuals… many of which continue to look for traditional retail investments simply have not yet fully caught up to this trend and there are great opportunities emerging here. In fact, I was approached by a number of groups there representing projects of merit that are looking for financing partners. If you are looking to become active in this arena on the finance side and want to invest in the hottest trend going in retail, drop me a line and I will happily connect you with some of these operators.
This week I am in Orlando where I just wrapped up attending the RILA conference. This annual event is all about retail supply chain and eCommerce has been the focal point of this conference for the last few years. Among the many interesting speakers this year were representatives from Walmart, Home Depot and The Finish Line. Pretty much all of the major retailers were in attendance though I must say I find myself somewhat concerned over some of the mid-size and smaller chains I did not see. And that is because omnichannel IS NOT the wave of the future. It’s where retailers needed to be four years ago. And yes, I am shamelessly plugging our webinar again… but the fact is that the little guys need to catch up in terms of their eCommerce strategy… which, for a great many, remains simply selling their items on Amazon Marketplace. That said, I overheard one retailer at the event refer to the Amazon Marketplace relationship as “Enemies with Benefits.” Great line that I wish I could say was mine.
Enough of my chatter and on to the big news of the last few days… Certainly if you just look through our Top Ten for the week the news looks pretty bleak. But scroll down to the grocery and restaurant sections… with few exceptions (9 closures of underperformers for Whole Foods but continued growth plans ahead and Noodles shutting down 55 restaurants), the news is all about growth. Yes, the closures keep coming, but it’s mostly a few categories and it certainly isn’t impacting the CRE marketplace evenly. David Simon said this in Simon’s most recent quarterly report and I think what he said has a good amount of merit…
Moving on from our results, now could be the time on the call where I could go into a lengthy philosophical discussion on the popular misconceptions about the mall business, created by the never-ending current public narrative. And I could counter that by pointing that we have 434 department stores in our portfolio, and only one is vacant, and how in the recently announced department store closing, we have only one closure in our portfolio, or how we have added more than 275 sit-down or quick-service restaurants, more than 20 entertainment concepts, and more than 80 big box tenants across our portfolio over the last four, five years, or how we’ve added mixed use components to our centers in the last several years, we have built 10 hotels and residents representing nearly 3,000 units, or how according to a recent survey a Generation Z members, a group that outsizes Millennials, 70% of those surveyed visit the mall at least once a month and visit more than four stores during the visit, or how the consumers still like to shop in stores, because they want to touch and feel the products before they make a final decision, or how online retail sales have grown to less than 10% of total retail sales, and that the retailers who occupy our centers represent approximately two-thirds of those total online sales, or how leading e-commerce retailers, like Warby Parker, Blue Nile, UNTUCKit, Shinola, among others, are opening physical stores, because the inherent advantage a physical location provides as well as being a natural extension to the digital world, or how basket sizes are higher, return rates are lower in stores compared to online purchases, and margins are much higher in the store than they are in the Internet, or how emerging brands like GUIDEBOAT, NIC+ZOE, Peloton, to name a few, continue to see the mall as the launch pad to build their brand awareness, as a result of the significant traffic they experience being at the mall, much like Apple or Microsoft did several years ago, or how we are making all these changes and enhancements to our center, even though Congress has tilted the scale towards e-commerce by not implementing the Marketplace Fairness Act, which not requiring the sales and use tax to be paid by consumers who buy products online, even though they are required to do so under existing laws
But I could do that, but I won’t, because we’ve talked about that all before, so I’d rather focus on what we do and how we do it, and that is we reinvest in our properties, making them the best centers in the respective markets. We grow our earnings, we generate excess cash flow, we pay higher dividends, and we achieve all of this while maintaining the industry’s strongest balance sheet. That’s our model and that’s what we do for the benefit of our shareholders, our communities, and our retailers. We continue to record solid key operating metrics and grow our cash flow.
OK—NOW ON TO THE BAD NEWS… The closures do keep coming. Payless is reportedly in talks with its lenders to restructure their massive debt load and that plan could include closing as many as 1,000 stores. This would be following last year’s closure of 500 units. The company has about 4,400 stores worldwide. If a deal can’t be struck, bankruptcy is likely.
Now on to the bad news. The closures do keep on coming. Payless is reportedly in talks with its lenders to restructure their massive debt load and that plan could include closing as many as 1,000 stores. That would be following last year’s closing of 500 units. The company has about 4,400 storefronts globally. If a deal can’t be struck, bankruptcy is likely. And, if that happens, the question will be whether they are able to re structure and re-emerge in today’s environment. Those are probably pretty long odds at this point.
Speaking of bankruptcy, Gander Mountain is reportedly preparing to file—perhaps as early as today. The chain has about 160 stores across the United States. If Gander does file, I find it highly unlikely in today’s atmosphere that a restructuring would happen. The most likely outcome would be total liquidation and more space coming back to the market—in this case primarily impacting power centers.
Meanwhile, just under two weeks ago news broke that Macy’s may be in discussions with Hudson’s Bay about a possible sale. Obviously there could be some benefit in terms of synergies, buying power and even eCommerce platforms. But financing the deal could be an issue. You certainly cannot rule this one out but I’m not all that convinced that this is going to happen. It’s definitely on my “wait and see” list. A number of analysts out there think a leveraged buyout is more likely but one crazy (but maybe not so crazy) bit of speculation that I have heard from a couple of pretty respectable analysts is the potential of an Amazon purchase…You probably can’t rule anything out on this one for now.
Alright… well this is already a Russian novel so time to let you actually read some articles…
By the way, here are some links you might find useful…
Here is a link to our Q4 2016 USA National Shopping Center Report.
You can watch our first webinar on the topic of Bricks vs. Clicks (Why Cyber Monday is taking over Black Friday) by clicking here. We will be releasing the recording of today’s second presentation in the series shortly. I promise I will share with you.
Our Main Streets across the World Report tracks high street retail around the world and breaks out the globe’s premier shopping districts by continent and average asking rent. It is an invaluable resource and you can access it by clicking here.
You can access the 2016 North American Retailer and Restaurant Expansion Guide by clicking here.
Additionally, you can check out the Cool Streets of North America Report and accompanying video series by clicking here.
This post is commentary from the latest weekly edition of our Cushman & Wakefield Retail Newsline, which you can subscribe to for free by e-mailing email@example.com.
Garrick serves as Vice President of Retail Research for the Americas. He speaks frequently at industry events and has been a keynote speaker at symposiums, conferences and market forecasting events for groups like the Appraisal Institute, Urban Land Institute, CREW, ICSC and PRSM. He is also a member of Lambda Alpha International, an invitation-only land use society for those who are involved in the ownership, management, regulation and conservation of land, but also those who are involved in its development, redevelopment and preservation.