• Americas

Retail Newsline: Store Closure Season Hysterics As Usual

By Garrick Brown, Vice President of Retail Research, Americas

RollerCoaster-resized-600I’ve been on the road all this week attending industry events. It has been a very productive week in terms of information gathering, networking and all the rest.

Yesterday I had the privilege of attending the Entertainment Experience Evolution 2016 Conference in Downtown Los Angeles. This is the second year of the event and it is sponsored by Jerry France (France Media). He’s the publisher of Shopping Center Business, Retail & Restaurant Facility Business, California Centers and a slew of great, non-retail related commercial real estate trade journals as well (Western Real Estate Business, Northeast Real Estate Business, Southeast Real Estate Business, Heartland Real Estate Business, etc.). Jerry and his crew put together great content in their publications and they also put together great content in their events.

If you happen to be in Downtown Los Angeles today, the conference is continuing for a second day. It’s being held at the J.W. Marriott at L.A. Live. Pretty appropriate venue considering it is one of the pre-eminent examples of entertainment retail. Think the idea of theme park rides popping up at some of nation’s most forward looking shopping centers is out there? Well, you better talk to the folks at U.S. Thrill Rides then, because it is coming. They are among the many interesting people at this conference and their website has some pretty fascinating stuff. I believe today’s sessions include breakouts on Leisure & Sports, Out of the Box Omnichannel Retail & Entertainment Concepts, Food & Dining as Anchors, a Theater Industry Roundup and other sessions. If you get this in time and can swing by, it is well worth it.

So I had the pleasure of having dinner last night with a fellow analyst from a third-party data company that publishes analyses on the retail marketplace. When we started sharing with each other what we are seeing in the market, my friend and I almost simultaneously asked each other, “Did you see that BisNow article on luxury retail?!” Expert to CNBC: Luxury Retail Could Be Dead Soon. This is an article you need to check out, if only so I can refute some of the assumptions being implied by it.

Flatline EKGAnd I need to emphasize that word implied. Let’s start with that article title… “Luxury Retail Could Be Dead Soon.” I don’t know about you, but the word Dead is one I happen to take seriously. A bump in the road is not Dead. A slowdown is not Dead. Flatline growth is not Dead. Slightly negative growth is not Dead. Significantly negative growth is not Dead. Dead is Dead.

Now it may seem like I am getting a little nit-picky here, but the fact is when it comes to the financial markets, sticks and stones don’t break bones but words can kill, or at least have a devastating impact.

My buddy last night expressed it this way, “Half of the media calls I get are still serious calls from reporters who understand business and who aren’t sensationalists. But the other half I get, I don’t think I even want to take anymore. Especially from the more mainstream outlets, all they want to hear are extremes and right now, what they want to hear is “the sky is falling.” And, I added, once those reports hit our phones are ringing off the hook from landlords, investors and developers who are understandably worried.

I am sure long-time readers of my column are probably sick of this recurring theme. I always end up visiting it around this time of the year… during retail closure season. And it always comes up because some reporter goes to a vested player in the marketplace that deals with liquidations or closures or restructuring distressed assets and they run with something they said, usually to illogical extremes.

So let me breakdown my big beef with this article… the title is about clicks. That’s it. And I love the Bisnow people and read their stuff religiously. I still recommend you all subscribe—they are a fantastic source of local happenings in the CRE world. But even in the body of the article itself, the executive that they quote never says anything more extreme than the statement, “There’s going to be a lot more closures that are going to be occurring.” In terms of numbers cited in the report, it states that, “Since 2013, luxury goods sales have dropped from 7% to just 1% to 2% in 2015.” This is referring to annual growth. So we are talking about a slowing growth rate, but still positive growth. Not flatline growth. Not negative growth. Just so-so growth. So you get someone that says closures will be creeping up and numbers that support the fact that the luxury marketplace is becoming more competitive and sales growth, while remaining positive, is slowing… and suddenly that’s DEATH? Really? But that’s going to get people clicking on that link and reading your report, even if you aren’t saying the segment is “dead,” but are just asking the question. And I am not saying that you shouldn’t ask the question, but there is absolutely an element of sensationalism when you go there and that’s what irks me.

Now, the Bisnow report is basically a repackaging of a CNBC report, “Next Wave of Store Closings May Hit Luxury: Real Estate Pro” where there is some more in-depth reporting about emerging weaknesses in the luxury sector. But while there are plenty of negative signs that should be of concern, there are simultaneously a lot of positive signs that cannot be ignored as well.

The problem we have right now is that we have a market where the indicators are not entirely clear and a strong case can be built for either the glass is half empty or the glass is half full people.

Now here are some things to keep in mind. Consumer spending in the U.S. increased by 3.2% in 2015 the strongest pace in a decade. Sales at retail stores, when adjusted for inflation, increased by 4.9%, the fastest pace since 1999. Oil prices play into all of this, but they also play into some of the seemingly contradictory numbers.

It turns out that consumers have been spending the oil dividend but the fall in oil prices masked it. For example, retail sales as reported by the Commerce Department fell by an annual rate of -4.3% in Q1 2015. But adjusted for price changes (gasoline sales fell in that quarter by an annual rate of -45%!), actual real retail sales increased by a rate of 4.8%. Last year, real retail sales (inflation adjusted) were much stronger than the numbers initially released by the Commerce Department in three of four quarters. The Commerce Department adjusts retail sales for inflation, but only several weeks after the original release… so this tends to get completely overlooked by the media when analyzing consumer spending.

Now I could go on with a slew of bullet points on employment and income growth that our lead economists, Kevin Thorpe and Ken McCarthy have provided me with. All of which strongly support the case for much greater consumer spending in 2016. But I am going to save those for another week.

All of these positives aside, before some of you start accusing me of making and drinking the Kool-Aid, there are significant challenges and major changes underway in the retail world. We have spoken for the last couple of years about “the barbell of prosperity,” and how retailer growth was diverging into discounters and luxury at the far ends of the economic spectrum. But that mid-price retail aimed towards the middle class consumer was largely in flat, or negative growth, mode. Throughout the last couple of years of this trend, it has been the discount players and the dollar stores that put up the gaudy growth numbers. But the nation’s high street retail districts have been on fire as well. In terms of square footage, however, the growth of the entire luxury sector would still be dwarfed by just the expansion of Dollar General’s national footprint. The question for market watchers now, when it comes to luxury retail, should not be this idiotic question as to whether or not luxury retail is dead, dying, gravely ill or even just constipated. The question now is simply whether the market is finally reaching saturation point.

Ironically, the news last week that four major oil producing nations were going to slow production sent the stock market back up. Then news broke this week that the Saudis were backing out of the deal and the stock market is falling again. This would all make sense if we were just talking about the energy sector. Because outside of the energy sector and those local economies that are driven by energy (sorry Houston but you do have a problem), cheaper gas is a major, major, major net positive to the overall U.S. economy. Did I mention it’s a MAJOR net positive? Especially, folks, to retail… because all that money back in our pockets still gets spent.

But Wall Street often fails to make much sense. And this is retail closure season… so the same hyperbole and hysterics that often seem to drive Wall Street activity are alive and well when it comes to coverage of what is happening in the retail world. Even more so this year, because closures are up. The marketplace is in a period of disruption and change. There are some real challenges out there. But there are also some very real positives. And the sky is nowhere near falling. At least not today. So chill out.


Be sure to check out our latest research reports by clicking here. Please also feel free to check out my webinar forecast 16 Retail Trends to Watch in 2016.


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 garrick.brown@cushwake.com.

garrick-brownGarrick 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.

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