Vacancies On Rise In Small Commercial Spaces

When the mortgage company in the storefront next to Michel Moran's framing shop in Cromwell went out of business, she thought there would be a new tenant in a month or two.It's now going on six months, there's still no new neighbor and Moran is starting to feel some ill effects.

Customers are no longer going in for mortgage business, noticing her shop and maybe coming back when they have a picture or mirror they need framed."That counts for something," Moran said.Over the past 20 months, there has been a rise in vacancies at small retail spaces in Greater Hartford, especially those of 10,000 square feet or less. That points to how the slowing economy is affecting "mom and pop" stores. Smaller locations like that account for nearly half of the region's retail space.

The trend has emerged even as the overall retail real estate market in the region remains relatively healthy when compared with other areas of the country.

According to a new report from KeyPoint Partners, a commercial real estate services firm, the biggest increase in vacancies over the past 20 months occurred in spaces of 5,000 to 10,000 square feet, which rose nearly two percentage points, to 9.7 percent. The report also found that vacancies among the smallest spaces — 2,500 square feet or less — rose nearly a full percentage point, to 10.7 percent.. . . more

Kohl's opens 1,000th store(s): Sizing up the shopper

Kohl's Corp. has opened its 1,000th store this week in Burlington. And in Manitowoc, and at 44 other locations around the country. You can take your pick. Like a good parent, Kohl's is refusing to play favorites by designating any one of the 46 stores to open as the official 1,000th in the Menomonee Falls-based chain.

Though the stores opened without fanfare Sunday, grand opening ceremonies are scheduled for Wednesday at all 46 stores. The new locations will put the company at 1,003 stores in 48 states. Another store will open in November.

"One thousand stores is generally kind of a marker for us," said chief executive officer Kevin Mansell. "What it says is that we have a concept that works."

. . . more

Franchisers Sweeten Pot to Woo Buyers

Franchise companies, facing what many say is the toughest economic environment they've seen, are offering two-for-one deals, reduced fees and financing help to woo new buyers. They are also paying existing franchisees to help spread the word.

The economy has made many would-be franchisees wary of taking big financial risks, while others simply can't get the necessary loans. Meanwhile, competition among franchisers is growing, giving investors a lot more choices. There are now about 3,000 different franchise concepts, according to the International Franchise Association.

Emerald City Smoothie gives franchise buyers a kiosk in addition to a store.

In a survey released last week of some 150 franchise companies, respondents said their franchise sales were about 72% below their 2008 goals, with inquiries from prospective franchisees down about 48%, according to Franchise Update Media Group, San Jose, Calif.

But even as "closing deals is becoming more of a challenge," says Harold Kestenbaum, a franchise attorney in Uniondale, N.Y., franchise companies have to be careful not to alienate existing franchisees when they offer discounts and other incentives to new buyers. "How does it look for the guys who pay the higher price when they see the price is getting lowered?" he asks. Making the situation more sensitive, existing franchisees, especially in the retail and home-service sectors, are being hit by cutbacks in consumer spending. . . . more

During an uncertain time, thrift stores doing brisk business

With the economy running on fumes, there is at least one industry reporting that business is thriving: thrift stores. Shoppers looking for bargains are shunning retail stores and heading to shops run by the Salvation Army and Goodwill Industries, store managers said.

“We’ve got a lot of customers coming in," said John Everett, manager of the Salvation Army store in Cambridge. "They can’t go to the stores and get the stuff they really wanted, and they come here and it’s cheaper.”

At the Salvation Army store in Hudson, manager Elaine Schwartz has seen a 20 percent increase in sales in the last few months.
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Toys'R'Us Announces 2008 Hot Toy List for the Holiday Season

The Toy Authority Reveals 36 New Toys Guaranteed to Top Christmas Wish Lists and Selects the "Fabulous 15" Representing the Best of the Season

WAYNE, N.J., Sept. 25 /PRNewswire/ -- With the official start of the holiday shopping season only weeks away, today Toys"R"Us announced its 2008 Hot Toy list, representing the definitive selection of toys that will top kids' wish lists this holiday season. The company's predicted list of the biggest holiday "must-haves" features 36 new toys that are sure to delight and excite kids across the country when they open their Christmas presents. Carefully selected after a comprehensive review process, items on the list are organized by age from "Baby's First Christmas" to "Big Kids" and serve as a starting point to help parents, friends and family find the perfect gift for any child. From the overall list, the "Fabulous 15" were selected to represent the very best toys of the season. All items featured on the list are available at Toys"R"Us stores nationwide and at www.Toysrus.com/HotToys

"After a thorough evaluation of all new toy introductions throughout the year, and consultations with our global merchandising team in 34 countries, Toys"R"Us has the unique ability to provide our guests with THE ultimate list of items certain to bring big smiles to kids' faces - the Toys"R"Us Hot Toy list," said Karen Dodge, Senior Vice President, Chief Merchandising Officer, Toys"R"Us, U.S. "With new toy shipments arriving in our stores daily, customers will have a better chance of finding the hottest toys, in stock, at Toys"R"Us than anywhere else." . . . more

Memo To Retail Execs: Load Up On Tums

Times are tough for CFOs everywhere, but those in the retail industry are really suffering. A new survey from BDO Seidman reports that they are worried about how everything will affect holiday sales this year.

Some 57% of the executives at leading retailers included in the survey say that while high fuel costs have done the most to hurt consumer confidence so far this year, going forward they see the main threats to consumer spending in the critical months ahead as being gas prices (47%), the housing market (28%), the pending Presidential election (13%) and inflation (11%).

The poll, which included executives at chains with sales greater than $100 million, found balance sheets are in bad shape: Only 36% say sales increased when comparing the first halves of 2008 to 2007, which is down from the 56% who cited an increase last year. And 44% say comparable-store sales in that period declined.

"Overall, the CFOs estimate that the average comparable-store sales growth for 2008 will be virtually flat, averaging 0.72% growth," it says in its analysis of the poll results. "Retailers may remain wary for the rest of the year." . . . more

Soaring prices force women to tighten budgets

If royalty was based on frugality, Helen Braun would be Jackson's reigning queen. The 78-year-old "blond bomber," as friends call her, can sniff out a sale quicker than a bloodhound and separate treasure from trash at garage sales with uncanny ease.

These days, Braun is more than a model of frugality. She and others like her may hold the key to surviving the economic downturn. Between the sagging economy and soaring food and gas prices, Americans are increasingly feeling financially squeezed.

"I'm Dutch, so saving money comes naturally to me," says Braun with a twinkle in her blue eyes. "But with gas around $4 a gallon and rising, I have extra incentive to get the most mileage possible out of every dollar." So she switched to generic medical prescriptions, targets movie matinees at discount prices, and occasionally checks out garage sales. Most importantly, she remains faithful to her No. 1 rule: "Never buy anything unless it's on sale!"

Braun's example reflects an interesting national trend. Moody's Economy.com, an independent provider of economic analysis, reports that although consumer spending has not risen as much as hoped, it has risen a little every month this year, thanks in part to the $50 billion in economic stimulus checks from the federal government. Even though our economy is in a downturn, shoppers — 80 percent of whom are women — have not stopped spending money: They're just spending it differently. . . . more

Wall Street Pain Expected to Spread to Luxury Retailers

With New York City at the epicenter of America’s woes, troubles on Wall Street may spread uptown to Fifth and Madison Avenues as the important holiday season nears.

Saks Inc. (SKS) and Tiffany & Co. (TIF) may be among the luxury retailers hit worst given that their flagship stores on Fifth Ave. account for 20% and 10% of total sales, respectively. But others linked to high-end spending such as Coach Inc. (COH), Nordstrom Inc. (JWN) and Polo
Ralph Lauren Corp. (RL) could also be shrunk in the dryer.

Even Saks chairman and CEO, Steve Sadove, has pointed out that equity markets are the most important leading indicator of spending at his stores, according to Goldman Sachs analyst Adrianne Shapira.
. . . more

Lifetime Brands Latest Retail Casualty; Plans to Close All Stores, Distribution Center

Lifetime Brands Inc., a nationally branded kitchenware, tabletop and home decor products company, is the latest casualty among retailers to announce the closing of stores. The company plans to close all of its remaining 53 outlet retail stores as well as its York, Pa., distribution center in 2009.

The stores being closed by Lifetime include 39 Pfaltzgraff factory stores, eight Farberware outlet retail stores and six clearance stores. The company will continue to operate its Internet and mail order catalog businesses. Clearance sales at the stores will start Tuesday and should be completed by Dec. 31.

The company has entered into an agreement with a joint venture between Gordon Brothers Retail Partners and Hilco Merchant Resources L.L.C. to manage and operate the inventory clearance sales at the stores. . . . more

Retailers Assess U.S. Banking Crisis

Although inventories and expenses have already been slashed in response to the slowing economy, the current Wall Street crisis is apparently causing many retailers to re-examine their pricing, promotions and inventory plans for the holiday season. Even marketing messages may need to be softened as consumers grapple not only with shrinking 401Ks and home values but a loss of faith in the financial system.

"This is like watching a car crash, but the two vehicles haven't hit yet," Marian Salzman, chief marketing officer for public relations agency Porter Novelli, told the Associated Press last week before the U.S. government's bailout plan was announced. "Is this the worst week, or are we waiting for the other shoe to drop?

The bailout of financial institutions announced on Friday is designed to free up credit for consumers as well as companies albeit with tighter restrictions. But, as the Washington Post noted, "the economy remains fragile with consumer confidence flagging, spending down and unemployment at its highest level in five years. The turmoil on Wall Street could further slow spending, the economy's key engine." . . . more

Stores Plan for Weak Holiday Sales

Retailers Respond to Shaky Economy With Earlier Ads, Fewer Seasonal Workers

As economists predict the worst holiday sales season since the recession of 1991, retailers are fighting back with an arsenal of new selling strategies, staff cutbacks and more emphasis than ever on low prices.

Retailers are planning bigger, bolder and earlier ad campaigns to lure shoppers as early as possible, racing to make the most of the shorter holiday season this year-five fewer days between Thanksgiving and Christmas than in 2007. Some chains, including Macy's Inc. and Costco Wholesale Inc. already have put out holiday merchandise.

Stores are expected to hire fewer part-time staffers during the holidays, to control labor costs. Gift cards will be fancier, and companies, such as Target Corp. say they'll be emphasizing affordability with a range of gifts under $25. . . . more

Retail is a rewarding business

Customer Service; Loyalty programs give stores more bang, more bucks

National Post Retailers and consumers have been loyal to customer loyalty programs for more than half a century.

In Canada, Canadian Tire was the first chain to introduce the concept of rewarding customer loyalty. Muriel Billes, the wife of Canadian Tire's co-founder and first president, A. J. Billes, was the inspiration for Canadian Tire money, introduced as "cash bonus coupons" at the company's first gas bar in Toronto in 1958.

Originally given for gas purchases only, after 1961 the coupons were presented with purchases at Canadian Tire stores as well.

Today, Canadian Tire Money can be used to buy in-store products and automotive service, but not gas.

In the United States, Niemen-Marcus was the first department store to institute a loyalty program. The company's InCircle program, inspired by Stanley Marcus, has been in operation since 1984 and is considered the father of retail loyalty programs in the United States.

Across the continent, retailers operate on the principle that rewarding return customers pays dividends to them as well as to the clients.

From coffee bars that offer a free cup after a set number of purchases to major department and specialty stores that offer merchandise, cash discounts and special events through elaborate rewards programs, customers are given tangible reasons for loyalty. . . . more

The final yard for Fabric Place

Economy, lifestyles tear at family business


Annie Isaacson and her twin sister were children of the Great Depression. As early as age 11, they picked blueberries in the woods around Framingham and sold them door to door, carefully guarding every penny earned. Their childhoods were spent moving from one foster home to another, and working, always working: babysitting, housecleaning, and, eventually, sewing.
The lessons they learned helped them create Fabric Place, which became a beloved institution in downtown Framingham before spreading across the region. At its peak, the family-owned company had seven New England stores earning $33 million in annual revenue, with 550 employees. But that was a few years ago, before the economy started to slide.

Now, much to the dismay of its loyal customers, the original store, which opened in Framingham in 1946, will be the last to close, sometime in the next month or two.

"I can't believe it," said Isaacson, now 90, in an interview last week in her Framingham home. "It makes me very sad.". . . more

Airport Retailing Takes Off

After the internet, the fastest growing channel at retail is the often-maligned airport terminal. The growth is being driven by a number of new airport terminals opening in major foreign markets as well as aggressive efforts by luxury brands to reach the jet set.

According to Generation DataBank, global travel retail revenues jumped 17.2 percent to $34 billion in 2007 from $29 billion in 2006, and are nearly double the levels reached in 2002. (In local currencies, airport retail revenues were ahead 11.8 percent last year.)

Sales are set to continue to grow strongly over the next five years, particularly in emerging markets, driven by the rapid increase in air travel and major investment in new airports and retail facilities. New terminals opening in London, Beijing and Paris have recently boosted airport retail's appeal, but India, the Middle East and Russia are also building terminals and expected to become much bigger markets in the future. . . . more

Retailers trek north in search of sales

Drawn by a strong currency and fashion-hungry consumers, U.S. and European retailers are altering Canada's apparel landscape and turning a once skimpy retail scene into a shoppers' paradise.

The biggest headline so far in Canada's clothing retail evolution occurred in July, when Hudson's Bay Co. was sold to the U.S.-based NRDC Equity Partners, the owner of Lord & Taylor and the Fortunoff jewelry and housewares chain. Hudson's Bay, known as Hbc, is North America's oldest continually operating company - its first director was a cousin of King Charles I and it dominated the region's fur trading for centuries.

Hbc's 605-store chain, which includes The Bay department stores, has struggled in recent years as consumer preferences have shifted to specialty stores. Those shops, many from the United States and Europe, now account for 67 percent of the Canadian retail clothing market, and NRDC says it intends to compete.

"The Canadian consumer is more interested in better quality, better brands and better service than what's been served up to them in the past," said Richard Baker, NRDC's chief executive and now the 38th Hbc governor. "That is why you're seeing a lot of international brands in Canada. . . . more

Which Patients Are Going to Retail Clinics?

There’s been plenty of debate over the walk-in clinics cropping up in drug stores and big-box retailers. But research has been lacking on just who is using those clinics and what they’re being treated for.

In a new study that helps fill that gap, researchers pooled data from 1.35 million visits to more than 300 clinics operated by eight different companies. The clinics were in a variety of stores, including Wal-Mart, CVS and Walgreen.

Among their findings:

Roughly 90% of the patients came for one of 10 relatively simple treatments. The list included ear infections, upper respiratory infections, immunizations and blood pressure checks. “Most of the conditions cared for in retail clinics likely do not require the level of training of a physician,” the authors wrote. That’s important because most retail clinics are staffed by nurse practitioners.

Insurance paid for 67% of visits. That’s striking, given the fact that the clinics are often viewed as places where uninsured patients pay cash out of pocket.

Most of the patients said they didn’t have a primary care provider. One concern about the clinics is that they would lead to further fragmentation of care, by disrupting the patient-doctor relationship. “We found that three-fifths of patients did not report having a PCP, so for these patients there is no relationship to disrupt,” the authors write.

It’s possible that the clinics prevent some patients from going to the doctor and forming those relationships in the first place. On the other hand, some of the patients who show up at retail clinics might otherwise have gone to the emergency room.

The study, published in Health Affairs, was conducted by RAND researchers and funded by the California HealthCare Foundation.

Source: Wall Street Journal

Luxury Shoppers' Behavior Bending But Not Breaking

NEW YORK -- The economic downturn that has hurt sales at luxury retailers such as Saks Inc. and Nordstrom Inc. may have forced shoppers such as Damasa Doyle to watch budgets and scale back shopping trips, but it hasn't caused Doyle to renounce designer labels.

"Now I go to stores and ask, 'When do you have a sample sale or a sale?' and ask to be put on mailing lists [to be notified of such promotions]," said the model from Chicago, adding that she's cut back on her forays into New York's Soho district. "Now I won't buy full price. Clients are paying less. I look at my stock portfolio and see its performance. I'm looking more at the bottom line."

As more than 200 designers showcase their collections during New York Fashion Week, many luxury shoppers are reporting that they're keeping a tighter rein on the purse strings and looking for creative ways to get the designer styles they still desire. They resort to high-end consignment shops, seek out sample sales or factory outlets, and rely more heavily on high-low mixing and matching -- pairing designer labels with, for example, items from cut-rate fashion retailers such as H&M. . . more

'Tesco effect' causes U.S. grocery mega-stores to start shrinking

The UK's largest grocery chain Tesco has been cited as the reason American grocery chains are moving away from sprawling mega-stores to smaller stores that are faster to navigate.

The U-turn in what is seen as a fundamental American characteristic - that bigger, whether it be cars, portion sizes, or grocery stores, is better - has been called 'radical' by American media.

Grocery stores in the United States have been steadily growing for 20 years based on the idea that customers want as much choice as possible. Many are now larger than an American football field and stock up to 60,000 items. . . . more

Shoppers are changing their buying habits

If they need it, they will come – but they're spending less.

That's the shopper cadence major retail chains have seen this back-to-school season. After spending economic stimulus checks in early summer, shoppers delayed any further purchases, and sales finally picked up in the last week of August.

What does that mean for Christmas?

While the last quarter of 2007 gives stores some easy comparisons, weakening trends suggest the holiday shopping season could be another last-minute nail-biter for an industry that lives by the fourth quarter.

Three out of four consumers said the downturn in the U.S. economy has significantly or somewhat changed how they shop this year, according to TNS Retail Forward Inc.'s ShopperScape August survey.

"Signs suggest that retail spending will resume a weakening trend through the end of the year," said Frank Badillo, senior economist at TNS Retail Forward.

The International Council of Shopping Centers index of major chains rose 1.7 percent in August, below the 2 percent that had been forecast.

Excluding Wal-Mart Stores Inc.'s better-than-expected 3 percent increase, August's results are unchanged from a year ago.

Ways to save

In August, shoppers looking for ways to save boosted warehouse clubs' results and Wal-Mart's market share. Most teen specialty stores posted worse declines than expected.

Inflation lingers. Goldman Sachs analysts said in a report Thursday that they are skeptical of companies' ability to pass on increases given tepid consumer spending forecasts.

Most executives, appearing at the investment firm's annual retailing conference this week, said they can maintain margins by controlling inventories and expenses.
Retailers are, by nature, optimistic.

Zale Corp. has a new "Celebration" diamond collection for this holiday season complete with sleek new gift boxes, because chief executive Neal Goldberg says shoppers still mark special days with gifts of fine jewelry.

J.C. Penney Co. chairman and chief executive Myron "Mike" Ullman has typically used the term "appointment shopping" to describe shoppers' habits of returning to the mall en masse for key periods such as back-to-school and Mother's Day.

Lately, Mr. Ullman has expanded the definition to describe the current consumer sentiment. Business isn't bad when shoppers have a purpose.

Shorter holiday season

The days between Thanksgiving and Christmas are the industry's biggest "appointment" period, and this year it's shorter by five days, including one weekend.

In some ways that might make it better, Mr. Ullman said, because shoppers may feel the urgency to focus on their holiday shopping after the initial post-Thanksgiving rush.

Conservative spending trends are trickling up the income ranks. Neiman Marcus, Nordstrom and Saks Fifth Avenue posted weaker August sales results.

Dallas-based Neiman Marcus Inc. reported a 0.5 percent decline in August comparable sales.
Saks Inc.'s decline of 5.9 percent follows an 18.2 percent increase a year ago.

Upscale chains were holding up, but now they're reflecting higher-income shoppers pulling back, Mr. Badillo said.

"That will be part of the story the rest of this year."

SHOPPING HABITS

People are changing the way they shop, according to TNS Retail Forward's August survey:

How much has the downturn in the U.S. economy changed how you shop this year?

Significantly 33%
Somewhat 42%
Not very much 20%
Not at all 5%

How has your shopping behavior changed this year? (Asked of those who answered "significantly" or "somewhat")

Taking advantage of good sales/deals 67%
Buying only things I truly need 66%
Buying fewer things 56%
Shopping less often 54%
Doing more price comparisons before making a purchase 53%
Buying fewer luxury items 51%
Postponing purchases 47%
Using more coupons 47%
Buying less expensive versions of products 44%
Buying more store brands instead of national or high-end brands 43%
Buying only items needed in the near term 40%
Doing more shopping at discount and value retailers 37%
Using/keeping items longer before buying replacements 35%
Trading down to less-expensive brands 33%
Buying in bulk quantities 23%
Stocking up on items expected to rise in price 22%
Other/some other way 4%

Source: Dallas Morning News

Shoppers Shift Shopping Patterns, Discount and Value Retailers Benefit

COLUMBUS, Sept. 2, 2008—Shoppers have shifted their shopping patterns as gasoline and food continue to grab a larger share of wallet. In American ShopperScape™ 2008, TNS Retail Forward reports that shoppers are trading down to save money and seeking one-stop shopping venues and stores closer to home to save time and gasoline. Discount and value retailers are benefiting from an influx of cost-conscious shoppers at the expense of conventional and high-end retailers. And, store brands are benefiting at the expense of national brands.

American ShopperScape™ 2008 analyzes the shopping behaviors of the thousands of consumers TNS Retail Forward studies as part of the company’s ongoing tracking survey.

“Shoppers’ strategies of spending less and migrating to lower-priced retailers are capable of shaking the retail landscape and creating seismic shifts,” comments Mandy Putnam, Vice President with TNS Retail Forward and author of American ShopperScape™ 2008. “As a result of shopper migration, retailers’ customer profiles are shifting. Some are shifting not just because they are gaining customers who are trading down, but because they are losing customers who are turning to even more value-oriented channels,” she adds. “Whether new patrons permanently adopt these retailers depends on how well retailers address the needs of their new customers and how well new patrons acclimate to shopping in less-familiar territory.”

What Shoppers and Other Household Members Are Doing to Drive Fewer Miles*

Planning errands to minimize the distance traveled 75%
Going to stores where I can do one-stop shopping 58%
Going to stores that are closer to home or work 55%
Doing more activities around the house instead of driving places 47%
Doing more online shopping 26%
Visiting friends and family that don’t live close by less often 23%
Reducing miles driven during vacations 17%
Walking/bicycling to places instead of driving 15%
Doing more carpooling 10%
Using public transportation 8%
Telecommuting to work/working from home more often 6%
Other 4%
*Among shoppers driving fewer miles to offset high gasoline prices (68%)

Source: TNS Retail Forward ShopperScape™, June 2008

American ShopperScape™ 2008 reports:

• 26% of shoppers are turning to retailers other than where they usually shop to offset high gasoline prices. They are shopping more at discount and value formats and less at upscale and specialty retailers. In contrast, patrons of upscale and specialty formats report shopping them less often to get better deals elsewhere.
  
• Power centers are gaining ground at the expense of regional malls and small strip centers. Frequent patronage at power centers increased by four percentage points (from 56% to 60%) between June 2007 and June 2008 as shoppers seek one-stop shopping venues to save on gasoline. In contrast, monthly patronage of regional malls and small strip centers continues to decline.
  
• More shoppers use online shopping to save time than to save money. Shoppers are gradually shifting some shopping away from stores to Web sites, which may affect shopping patterns even more dramatically in the future given rising gasoline prices and time scarcity. Women, middle-aged and high-income shoppers are much more likely to shop online to save time than money.
  
• Home improvement spending declined substantially year to year and home furnishings spending also weakened—both victims of a weak housing market. Reported spending for other merchandise groups—casual apparel, dress apparel, consumer electronics, groceries, and health and beauty care—remained stable.
  

American ShopperScape™ 2008 also explores six Shopping Modes—the ways shoppers approach their “customer journeys” in retail venues. While the majority of shoppers (62%) participate in Low-Cost Replenishment shopping, as more shoppers seek deals to offset pain at the pump and in the grocery aisles, the Thrill of the Hunt shopping mode is now a more likely motivator of the shopper journey.

“Knowing the primary shopping modes associated with particular channels and retailers helps retailers plan relevant tactics to meet the needs of customers during their shopper journeys,” states Putnam. “Addressing shoppers’ secondary modes can create compelling points of differentiation from the competition,” she adds.

Source: TNS Retail Forward

Pop A Shop

"Pinkitude," a pop-up store, appeared in Los Angeles last month selling a new fashion brand inspired by the Pink Panther. But despite the neatly arranged racks of designer clothes ready to be purchased, the kitschy shop has one main mission: to teach teens and young women about the importance of breast health and early detection of breast cancer.

Pop-up shops are about driving sales - no doubt. But they are also taking on additional tasks, like the Pinkitude store did. They often play dual roles: In this case one was breast health, to entice people to visit. A second was to be a retail outlet. Their exclusivity and elusiveness are appealing. Here one day, gone the next.

MGM Consumer Products, the creator of Pinkitude, is using the shop to promote its yearlong cause marketing effort. Educational materials are distributed to visitors and dropped into shopping bags. MGM plans to donate at least 5% of the sales to Susan G. Komen for the Cure.

The 800-square-foot space is open through mid-September at Xin Boutique selling apparel, jewelry and accessories.

"It was the right size due to the number of licensees we had," says Warren Schorr, MGM Consumer Products' executive director of worldwide retail business development and international licensing. "Anything bigger than that, then we would have needed more partners."

FINDING A NEW CUSTOMER

For Mattel, a pop-up shop was a way to expand its customer base in Japan. Despite being one of the largest toy markets in the world, Japan has a very small doll market. And even though Japanese girls did not necessarily grow up playing with Barbie dolls, as they grew they recognized the doll for her fashion heritage and leadership, says John Cullen, vice president, international, for Mattel Brands Consumer Products.

To tap into that fashion sense, Mattel created a Barbie apparel and accessory collection by designer Patricia Field for25-year-old women. It opened the store for three months this spring in Tokyo's fashion-foward Shibuya district.

"We wanted to bring fresh excitement to the brand to go after a broader customer base," Cullen explains.

The company chose a two-story, 1,000-square-foot shop, complete with full-size windows.

TESTING ... TESTING

Procter & Gamble popped a shop near Ohio State University last fall for six months to test a new line of fabric refresher products called Swash. It featured a selling area and demonstration stations for each of the "between-wash" products, which are marketed under the Tide brand. The store also offered a lounge area, video games and computers to entertain students.

"A new store for a new product just kind of made sense," says Fritz Westenberger, president of ad agency Hazelwood, which operated the shop as Sugartown Creative.

Did it work? Swash had a 60% awareness by yearend, and an 85% likeability factor, Westenberger says. P&G polled students to gauge those results. Even better, one in three people bought something in the store.

P&G promoted the store with on-campus advertising, posters and fliers. Reps distributed about 25,000 premiums during campus events, including branded laundry bags, T-shirts and hand fans, as well as product samples.

P&G is planning a test launch of Swash at retail stores in Lexington, KY, this month, says Kash Shaikh, P&G's influence marketing manager for fabric care.

ALL GROWN UP

Another firm used a store to reach a new age group.

Ragdoll, the creator of the popular kids' TV show "Teletubbies," ran a store in New York's West Village in 2007 to re-introduce the preschool brand to teens and tweens. The show is in reruns.

"It was about generating brand awareness among an older demographic who had not experienced us sincrs," says Lynn Godfrey, Ragdoll's former senior director of marketing.

The store, which Grand Central Marketing handled, featured a more "grown up" approach: a lounge and a live disc jockey, who offered scratching and spinning lessons. The shop was filled with apparel, accessories and art designed for that age group, and drew more than 10,000 people during its 10-day opening.

"It was a delicate mix," Godfrey says. "We didn't want to alienate anyone or come across as being babyish."

And cost is a factor. Ragdoll's overall budget was about $500,000, Godfrey says. In general, rent can cost upwards of $75,000 to $100,000 a month, depending on the market.

While Ragdoll may not have converted every teen into a Teletubbies fan, the store achieved one top objective.

"It really drew you in," Godfrey says.

Source: Plain Vanilla Shell

Teen apparel stores see secondary brands struggle

NEW YORK - At the Arden B clothing store on Fifth Avenue, dance music is pumping and sale signs are everywhere, but Sara Chidester walks out empty-handed.

"Nothing caught my eye," said the 28-year-old resident physician, a New Yorker. Chidester said she usually shops at J. Crew and Banana Republic.

Arden B, which targets women in their 20s, is a sister chain to teen-apparel retailer Wet Seal, and is suffering from a sales slump. While Wet Seal Inc. is trying to improve results with new management and a better merchandise assortment, other retailers are facing similar problems.

Many teen retailers who rely on the back-to-school season for a huge part of their sales are running into tough times not only at their main stores, but also at the secondary brands - often aimed at a different demographic - that they hoped would cushion them from such swings.

Adding a second or even third store brand can be a way for retailers to reinvest money during boom times, but it may turn into a bigger challenge than many retailers realize - and a money drain if the economy turns south, said Stifel Nicholas analyst Richard Jaffe.

"If you're good at dressing 7- to 14-year-old girls, it doesn't necessarily make you good at dressing a teenage girl or a 25-year-old," he said.

Two casualties so far have been Limited Too stores, which are all being converted to owner Tween Brands Inc.'s lower-priced and better-performing Justice brand, and Demo, the urban apparel side of the otherwise beachy Pacific Sunwear of California Inc.

Following one of the weakest back-to-school seasons in years, might other teen retailers' secondary store brands be gone by the time classes are out? Analysts say it is probable.
"It's tough to wait it out if you're not outperforming in this environment," Jaffe said.

Abercrombie & Fitch, known for its clothing aimed at teens, is struggling to revive its Ruehl chain, which is aimed at older shoppers. The company said that second-quarter sales at established stores fell 4 percent overall as a 3 percent rise at its namesake stores did not offset a 22 percent drop at Ruehl stores. Same-store sales at its surf-inspired third store brand, Hollister Co., fell 9 percent.

"There's no question Abercrombie has figured out the teen segment pretty darn well," Jaffe said. "But they've clearly missed on young adult segment with Ruehl."

Abercrombie executives have said the company is taking a wait-and-see approach with the brand, saying that even though same-store sales have declined, the loss generated from Ruehl has stabilized.

"It's fair to say that we'll be watching the sales trend in Ruehl very closely as we get to the end of the year and beginning of next year," Mike Nuzzo, Abercrombie & Fitch's vice president of finance, said in August when the company released its quarterly earnings.

As far as Wet Seal and its Arden B stores, the company reported last week that second-quarter same-store sales fell 1.8 percent at its namesake stores and sank 13.8 percent at Arden B.

Wet Seal is hoping the return of Sharon Hughes, an executive involved in the creation of Arden B, can resuscitate it. Hughes left the company in 2002 but returned in February as chief merchandising officer for the brand.

"We're just starting to see product," said Roth Capital Partners analyst Elizabeth Pierce. "So far I'm greatly encouraged, but I recognize headwinds remain challenging."

The one standout in the sector is Urban Outfitters Inc., which has found success with all three of its brands, including Urban Outfitters, Anthropologie and Free People.

Its same-stores sales rose 13 percent in the second quarter on growth across all its brands, including 7 percent at its Anthropologie women's clothing and home accessories chain, 10 percent in its Free People bohemian-chic brand and 19 percent growth at its namesake clothing and home decor stores.

"You have to give their management team a ton of credit for their discipline and focus," Pierce said.

Retailers' whose secondary concepts are doing well are still being cautious. American Eagle Outfitters Inc. said during a conference call with investors that its Martin + Osa store results were improving, and expected to break even by 2010. But it has stopped planning any new Martin + Osa stores, which target 28- to-40-year-old men and women, until it sees results for the second half of the year.

Even as others retrench, some teen retailers are still developing new brand concepts. Aeropostale Inc. is developing a children's concept. American Eagle is starting a new line, 77kids, for children ages 2 to 10. The line is expected to be sold online during this fiscal year, with brick-and-mortar stores planned for 2010.

But Pierce said it will be difficult to launch a successful brand in the current economic conditions.
"It's tough to be in an early stage of growth in this environment, it's very touch and go," she said.

"I wouldn't be a bit surprised if we see more fall out."

Retailers slash prices, but at what cost?

Shoppers on New York's 34th Street pass a 40% off sales sign in front of a Banana Republic store, Friday afternoon Aug. 29, 2008. In a bid to pull in frugal shoppers into their stores, the nation's retailers are slashing their prices on everything from jeans to home appliances. But those 50 percent discounts on jeans and the 60 percent reductions on dinnerware will likely come at a big price for retailers.

In a bid to pull hesitant shoppers into their stores, retailers are slashing prices on everything from jeans to dinnerware. But those fat discounts will likely come at a big cost for the companies.

At teen retailer American Eagle Outfitters Inc., shoppers who buy jeans get a second pair at half off. Jewelry chain Zale Corp. is offering an extra 20 percent off on a slew of items like gold earrings that were already slashed up to 70 percent. And Pottery Barn has discounts of up to 75 percent.

"There's a fine line between aggressive promotions and panic, and we are seeing a little bit of both right now," said Dan Hess, founder and CEO of research firm Merchant Forecast.

While retailers entered the fall season with inventories well below last year, analysts say many were still a little too hopeful: August sales are turning out to be even weaker than expected, which analysts fear could lead to more piles of marked-down merchandise on the floor. That could in turn hurt third-quarter profits as the industry prepares for the critical holiday season. Major retailers, including Wal-Mart Stores Inc., J.C. Penney Co. and Gap Inc., which also operates Banana Republic and Old Navy stores, are slated to announce final August sales results on Thursday.

Hess estimated that discounts are 10 percent deeper at mall-based apparel stores than a year ago, despite a drop of anywhere from 10 percent to 15 percent in inventories.

"Even though retailers are entering the season conservatively, they still have been too optimistic about the consumer," he added.

Stifel Nicholas analyst Richard Jaffe noted that the weak sales trend suggests a downturn that more closely resembles the one of the mid-1970s than more recent difficult periods.

"It's a more prolonged consumer spending downturn," he said. "It's going to be tough. There's no quick way out of it."

Offering such deep discounts can cost high-end retailers such as Nordstrom Inc. and Saks Inc. in more ways than lower margins or falling profits. By doing so, analysts say, they risk hurting the cache of their brands. That's what happened to Saks, which operates luxury chain Saks Fifth Avenue, after the Sept. 11 attacks, when deep cuts on designer goods hurt the retailer's tony image.

Another major worry is that retailers could lose the power to raise prices once the economy improves. The longer stores are forced to offer generous discounts, the more used to them consumers will get, and resist buying regular-price items later on.

"I have always been price conscious," said Mike Hogan, 30, a publicist for technology companies. The Columbus, Ohio, resident admitted that he has cut back even more in recent months because of the higher daily costs of food and gas, which leave less money for extras. He expects to spend about $350 on clothes this fall, about half of what he spent a year ago, and he doesn't think he'll resume splurging even if the economy recovers - unless he received a big bump in pay.

"If it doesn't change for me, I can't understand why I would spend more," he added.

Hogan and other shoppers may have to wait a while: Many economists predict that the economy is unlikely to improve until at least well into next year. The latest batch of economic reports show consumers are still struggling to keep up with soaring living expenses. The Commerce Department reported Friday that personal incomes plunged in July, while consumer spending slowed significantly as the impact of billions of dollars in government rebate checks began to fade.

And despite a slight improvement in consumer confidence in August according to The Conference Board - helped in part by lower gas prices - the level is still near historic lows as shoppers worry about the job market and the housing slump.

The malaise is hurting all income levels, including more recently the affluent shoppers.

Saks told investors last month when it reported second-quarter earnings that it expects sales at established store to be anywhere from unchanged to down by low-single digit percentages for the second half of the year. Officials also noted that its high-end customers are now pulling back; previously, it was just aspirational customers retrenching.

But Saks is trying not to duplicate the mistake of slashing prices too much. Steve Sadove, chairman and CEO of the company, told investors last month, "I don't want us to repeat what happened five years ago or six years ago after 9/11 in terms of panicking and running. We feel very good about the assortments ... and we want to stay the course strategically."

That may be tough. Deborah Weinswig, an analyst at Citi Investment Research, noted in a recent note that she's worried that Saks' inventory levels at the end of the second quarter are high relative to recent sales trends and could hurt gross profit margins in the second half of the year.

Retailers overall are expected to report a 2 percent increase in same-stores sales for August on Thursday, with discounters like Wal-Mart and warehouse club operators such as Costco Wholesale Corp. expected to keep faring much better than the slumping apparel-based stores, according to the International Council of Shopping Centers-UBS index. Same-store sales are those at stores open at least a year, and are a key indicator of a retailer's health.

With no major fashion trend inspiring them to buy, shoppers are focusing on price and sticking to discounters even as mall-based clothing stores have been aggressively discounting. That's a big hurdle for the mall-based stores, Hess says. He noted that American Eagle's prices, with the deep discounts, are at least as good as those at Aeropostale Inc., a teen retailer that has benefited from the slow economy as it typically offers goods below American Eagle and other rivals. American Eagle's jeans, for example,are typically priced about 30 percent higher than those at Aeropostale.

Stores such as American Eagle, Hess said, are "struggling to get that value message."

Source: Charlotte Observer

Mid-Tier Retailers Try New Brands On for Size

Chains Look to Stand Out In Crowded Marketplace

This back-to-school season will go down as the Battle of the Brands.

Kohl's launched six new lines of clothing this summer with a star-studded advertising campaign featuring celebrities from Lenny Kravitz to Hayden Panettiere. JCPenney introduced another half-dozen labels, the department store's biggest crop of new brands, with looks including urban rock and all-American. And Dillard's is chasing soccer moms with a line designed by Sheryl Crow that hit stores this month.

It's all part of the no-holds-barred fight among middle-market retailers for consumers' hearts and wallets this back-to-school season, the second-biggest shopping bonanza of the year. Lacking the cachet of luxury stores and the discounters' trump card of price, mid-tier retailers have been struggling to stand out in an increasingly crowded field. Now, the economic downturn has raised the stakes, and the battle is likely to last well into the holiday season.

"In this environment, when consumers are more discriminating with their purchases, we've recognized the importance of ensuring that our merchandise is compelling," Ken C. Hicks, president and chief merchandising officer of JCPenney, said in a recent conference call.

According to research from NPD Group released this month, department stores ranked third as back-to-school shopping destinations. Discounters topped the list, with 81 percent of consumers planning to shop there. More than half of consumers listed value and necessity as driving their purchases.

Wal-Mart has been the big winner this season, with July sales at U.S. stores open at least a year up 3 percent and second-quarter earnings up 17 percent. The store also debuted its own lines this summer and purchased exclusive rights to the tween brand l.e.i., which was formerly found in department stores.

Meanwhile Kohl's same-store sales dropped 10 percent in July, while profit fell 12 percent during the second quarter. JCPenney was down 7 percent in July and earnings plummeted 36 percent. Dillard's posted a 2 percent increase in sales in July but yesterday reported a loss of $38 million during the second quarter, compared with a $25.2 million loss the previous year.

"They're in a tougher position because they don't compete on price," said Stacy Janiak, U.S. retail leader at Deloitte, a consulting firm. "But they also have other tools at their disposal to try and lure the consumer."

For Kohl's, that has come to mean branded, exclusive merchandise. The Wisconsin-based retailer once was a Wall Street darling posting double-digit sales increases with its no-frills stores and "racetrack" layouts that helped customers easily find what they were looking for -- proof that there was money to be made in the middle of the market. But in recent years, Kohl's has made some merchandising missteps and become hamstrung by mediocre inventory gathering dust on the clearance rack.

Now the economy is taking its toll even as Kohl's attempts to refresh its assortment of apparel. Nearly 43 percent of sales during the second quarter were of private-label products. Chief executive Kevin Mansell, during a conference call with analysts this month, called its Elle collection of clothes and accessories that debuted last year "an overwhelming success" and said he was pleased with initial sales of the new Abbey Dawn line for juniors inspired by pop-rock singer Avril Lavigne.

Mid-tier retailers are counting on such proprietary labels not only to create buzz, but also profits. Margins are higher for merchandise that they've developed, giving them more room to slash prices as needed -- a strategy Kohl's plans to use through the fall and holiday seasons.

The retailer has also decreased merchandise in each store by about 15 percent, which cuts down on both clutter and markdowns. Although Kohl's has identified more than 1,400 locations for new stores, the company said the credit crisis and weak consumer spending makes the future uncertainns Look to Stand Out In Crowded MarketplaceJCPenney has suffered this retail roller coaster for years, with a strong comeback last back-to-school season making this year's comparisons particularly tough. It is hoping to boost sales through a mix of fresh merchandise and aggressive promotions torn from discounters' playbooks.

This summer, it debuted a sporty line named Le Tigre from designer Kenneth Cole and diva urban-apparel Fabulosity by Kimora Lee Simmons. JCPenney developed private-label brands Decree, which focuses on denim, and two lines for young men: American Living, with trendy jackets and jeans, and White Tag, a rocker line of denim and arty T-shirts. Finally, it launched a collection of home decor for young adults called Dorm Life. Hicks said sales of these new brands were strong despite challenging sales overall.

To boost volume, the retailer has turned to discounts. Last weekend, the final days before Washington region students headed back to school, JCPenney rolled out a promotion for 88 cents on the second purchase of key items such as baby-doll tees, hoodies and cropped pants. "Lowest prices for back to school," boasted the advertising circular -- that is, until this week, when JCPenney returned with another clearance sale offering 75 percent off.

"While customers are choosing to spend carefully, when they are shopping, we're taking our share," chief executive Myron E. Ullman III said during the conference call.

Janiak said that retailers across the spectrum have likely benefited from shoppers seeking more bang for their buck, middle market stores included. At off-price retailer T.J. Maxx, which sells designer names from department store and manufacturer overstock, new shoppers have been walking through the doors as housing prices fall and gas prices rise, company spokeswoman Laura McDowell said.

"We believe that we're attracting a new customer in this tougher consumer environment," she said.

T.J. Maxx, whose parent company TJX also owns Marshalls, has the sales figures to prove it. Sales at Marshalls and T.J. Maxx stores open at least a year were up 3 percent during the second quarter and grew more than 6 percent for parent company. TJX also raised its forecast for annual sales. McDowell said she is confident the retailer can keep those customers even after the economy improves. T.J. Maxx is careful to emphasize quality and trends first in its messaging, she said.

"They know we're going to have low-price merchandise," she said. "But it's what the low price is actually on."

Despite the pressures on the middle, those retailers still claim a significant chunk of market share and their own loyal shoppers. They just have to work harder to find a winning formula, Janiak said.

"It might be tougher right now, but I don't think it's ever a bad time to be in that spot," Janiak said. "Otherwise, they wouldn't still be with us."

Source: Washington Post

Retailers Give It the Old College Try

Some Schools Open Campuses to Brands' 'Pop-Up' Stores, But Others Decry Commercialization

Despite pushback from some schools, fashion brands plan to sell directly on campuses this fall to reach the lucrative college crowd.

Starting in September, flip-flop maker Havaianas, a brand owned by Sao Paulo Alpargatas SA, plans to set up a temporary "pop-up" store on five campuses in the U.S. To generate buzz, the Brazil-based brand will run competitions involving its footwear, awarding trips to Brazil as prizes.

Victoria's Secret's Pink, a young women's clothing brand of Limited Brands Inc., this fall is opening its own pop-up store at about 12 schools, up from 10 last spring. The store opens for a day, selling merchandise, handing out promotional items and collecting used clothing for charity. Sustainable-clothing brand RVL7 is installing a bamboo-clad temporary ministore at six to eight campuses this fall, including the University of Colorado at Boulder and Arizona State University.

The race to introduce brands via these short-duration marketing and selling events is likely to accelerate. American Collegiate Intramural Sports, which sells sponsorships for college intramural programs and fitness centers, is seeking a fashion brand to sponsor fitness centers and host pop-up stores at 100 campuses in the next year.

Companies generally make a donation to the school, campus bookstore or student organization that sponsors their visits, which means hosting the stores can help raise funds for student groups.

Brands' growing presence has more colleges balking at these campus marketing events and stores. The University of Florida recently rejected a request from Pink to visit this fall. The university doesn't allow companies to do business on its campus. "There would be no end to it -- you would have the whole campus covered with them in no time," says school spokesman Steve Orlando. "We don't want our faculty and students overrun with commercialization."

The University of Minnesota and the University of North Carolina at Chapel Hill, meanwhile, have decided to quit allowing their names to be used on Pink's new line of college-themed merchandise. Pink sells fleece pants and hoodies, among other items, bearing the names of 31 participating schools and says it will add at least five more by year end.

College students have long been a target for marketers looking to build brand loyalty. But only in the past few years have companies set up these temporary stores on campus, recruited students for paid positions to aggressively promote their products and hosted their own campus events. In the past, they would buy ads in college newspapers, hand out fliers or freebies, or co-sponsor larger campus events. Stores generally were located off campus, in college towns or spring-break hangouts.

The focus on college campuses comes as both the number and spending power of students have grown sharply. Roughly 18.3 million students will enroll in U.S. postsecondary institutions this fall, up 26% from 14.5 million a decade ago, according to the National Center for Education Statistics. The discretionary spending of 18- to 30-year-old students is estimated to reach $53 billion this year, 10% more than last year and 29% more than in 2005, according to the latest College Explorer study by Harris Interactive for Alloy Media and Marketing.

While pop-up stores are primarily a brand-building tool, they also generate revenue. A Pink pop-up store at Penn State University rang up sales of about $20,000 in a single day during this past school year, a spokeswoman says. Kiehl's Since 1851, a skin and hair-care company owned by L'Oréal SA, says its college pop-up stores performed "on par with what our normal store would do" in daily sales per square foot, according to a spokeswoman.

Schools sometimes reject the pop-up stores for scheduling reasons or because they don't want the brands to compete with their own stores. San Diego State University recently said "no" to Havaianas because it didn't want to lose sandal sales at its own store. Pink, which visited the University of Alabama in February, was told it couldn't come back during the football season partly because its fleece clothing and sweats would compete with clothing sold by the school's store, though it could return in the spring.

Some schools allow marketers to set up temporary shops only when sponsored by a student group. Pink, for instance, got the nod for a pop-up store this past January at the University of Tennessee because it was sponsored by a sorority. "A lot of things get approved," says JJ Brown, associate dean of students. Many of the campaigns also have an educational or academic element, such as lessons about sustainability from RVL7 or interviews for internships at Pink, says H. Tony Berger, president of New York event-and-marketing firm Relevent, which helps organize campus campaigns. The result, he says, is that schools and students view the visits as having "added value."

Source: WSJ

Logan's high-flying food courts

Upgrades help airport improve the bottom line as airline travel wanes

Think fancy food court is an oxymoron? Not at Logan International Airport.

After a $5.5 million upgrade of Terminal C's food court, its Dunkin' Donuts now is the largest one at airports nationwide - and the only one with a trendy lounge. Burger King displays its menu on wide-screen LCD monitors. And Au Bon Pain has arches that create sunflower-petal shadows on the terrazzo floor.

Designers persuaded seven restaurants - also including Currito Burritos Without Borders, Ryo Asian Fusion, Famous Famiglia, and Jerry Remy's Sports Bar & Grill - to splurge on expensive countertops and eye-catching architecture. The intent, the designers say, is to pique passengers' curiosity so they'll check out the concessions - and then stand in the checkout lines.

"Everyone's rushing through an airport. You want to grab their eye," said Steve Dumas, senior vice president of retail design for Westfield Corp., whose subsidiary manages Terminal C's concession program. The food court, with its airy architecture and open kitchens, has gradually unveiled its eateries since the spring and will be complete next week with the opening of Remy's, co-owned by the namesake sportscaster.

The additions helped Terminal C's concession sales rise 12 percent in June, to $3.9 million, from $3.5 million in June 2007. Airportwide, concession sales for the fiscal year ended June 30 increased 7.5 percent to $145 million, up from $135 million the year before. That's good news for the Massachusetts Port Authority, which runs the airport and pockets about 11 percent of concession revenues, or $15.9 million in the last fiscal year. Jack Hemphill, Massport's aviation business general manager, bets total concession sales will keep improving as food court renovations continue. Terminal B's upgrade was finished earlier this year, and a yearlong modernization of Terminal E's dining area will begin in October. Logan was the North American airport with the fourth-highest food and beverage sales per arriving or departing passenger in calendar 2007, according to the annual list that Airport Revenue News plans to release next week. Last year, each Boston flier spent $5.77 on food and beverages, on average, up from $5.50 in 2006.

Increasing per-passenger concession revenue is important for Massport as fewer flights and travelers use the airport due to high jet fuel costs and concerns about the economy. Logan's yearlong dip in passenger traffic continued in July, with 152,277 fewer fliers, a 5.7 percent drop from the previous July, said Massport spokesman Richard Walsh. And airlines have scheduled 7.9 percent fewer seats for Logan flights in both October and November, compared to the same months last year. Seat capacity will rebound a bit in December, but still be down 1.2 percent compared to a year earlier, Walsh said.

Massport started envisioning Terminal C's eating options more than two years ago. Hemphill's mouth watered at the idea of establishing venues for cable TV celebrity chefs, including Masaharu Morimoto, Bobby Flay, and Emeril Lagasse. "My dream would be to have a Food Network food court," Hemphill said. One of Logan's concession management companies proposed the idea to Food Network, but it didn't pan out, Hemphill said.

Still, the Terminal C food court attracted impressive-looking tenants. Au Bon Pain built its only open-air eatery and topped it with a sunflower trellis. It was costly to construct, so the wavy arches soar above only part of the eatery, said Ed Frechette, senior vice president of marketing.
Dunkin's cafe features a warm cocoa-colored wall and softly glowing sandy-orange drop-pendant light fixtures that create a calming lounge for weary travelers, said Jimmy FitzGerald, the Canton-based chain's vice president of concept innovation. Its sign has brushed stainless-steel letters instead of plastic ones. The Dunkin' Donuts beckoned 18-year-old Jeremy Eichenlaub and his parents to unwind at a table on Monday, sipping coffee and nibbling English muffin sandwiches. It was a comforting place for the Needham family to recover - and even shed a few tears - after bidding Eichenlaub's India-bound twin brother adieu.

Eichenlaub, a Dunkin' loyalist who every week has eaten at the chain's store across from his high school, likes this venue's revamped look better. "It's warmer, more relaxing."

But Kenneth Zou, a Boston financial analyst, said the lack of a ceiling and four walls creates awful acoustics. "This is a little loud," said Zou, 44. He also wanted the planters bordering the seating area to rise to eye level to increase privacy and screen off the commotion at the airline counters.
Suddenly, his cellphone rang. His business partner was looking for him. Zou waved, making eye contact without getting up. "Maybe it's good it's open," he said.

Source: Boston.com

More Stores to Close, But Vacancy Declines

Store closings are on the rise, according to a recently released survey from the International Council of Shopping Centers, but densely populated urban areas will continue to thrive, says real estate investment services firm Marcus & Millichap. The first half of 2008 saw announced closings of 2,831, compared with 1,522 announced closings in the first half of 2007. However, those numbers pale in comparison to 2001, when 7,041 store closings were announced. Not surprisingly, apparel stores represented 34.7% of the announced closings, followed by home entertainment stores at 28.8% of the total. ICSC projects that 144,000 establishments will be closed in 2008, a 7% increase from 2007. A recent spate of retail bankruptcies (including Boscov’s) should not be a major cause for alarm.

“Store bankruptcies are going to increase, but that doesn’t necessarily lead to store closings,” said Bernard J. Haddigan, managing director of Marcus & Millichap, Atlanta. And even those units that close stores continue to pay rent until the unit is re-leased. Still, expect more closings, Haddigan warned. “The food industry is softening, and small shop space is virtually dead,” Haddigan said. “Plus the industry is still developing new product.”

That has led to an increased vacancy rate across the country, according to Marcus & Millichap Research: at midyear, vacancy in the United States was 10.7%, up from 9.7% in 2007. The firm projects that at yearend 2008, vacancy will hit 11.1% nationally. More telling is where shops are staying open: Densely populated urban areas are doing well, as people seek to cut back on the cost and inconvenience of driving. “There’s a larger trend with the District [of Columbia] and Atlanta: people are tired of the long commutes and are moving to the urban core,” Haddigan said.

At mid-year, according to Marcus & Millichap, Washington, D.C. had a vacancy rate of 4.7%, well below the U.S. average, topped only by San Diego’s 3.6% vacancy. Philadelphia posted a 6.9% rate at midyear. Meanwhile, Sunbelt cities such as Orlando (9.5%) and Dallas/Ft. Worth (15.1%), and Chicago (9.5%) fared less well. Yet rents for the most part remained steady, increasing of the shuttered stores continue to pay rent, with major metro areas mostly reporting minor rent increases, the survey said. A comeback likely won’t occur until 2010 or 2011, Haddigan said. Until then, secondary markets and locations will struggle. “There’s been significant development,” Haddigan said. “If space is not pre-leased there will be issues.”

Source: GlobeSt.com

Consumer confidence bounces

NEW YORK (Reuters) - U.S. consumer confidence recovered more than expected in August as fears over inflation eased, while financial markets combed through housing data for reasons to hope the worst is over for the moribund sector.

Sales of newly built U.S. single-family homes in July were lower than economists expected but rose from a June pace that was the slowest in nearly 17 years, while the glut of homes on the market also eased, a government report showed on Tuesday.

Another report said U.S. home prices in metropolitan areas were down 15.9 percent from a year earlier, a record drop. Still, the monthly rate of decline slowed from May, which suggested the decimated housing sector may be stabilizing, according to the S&P/Case Shiller report.

The Conference Board said its index measuring consumers' mood jumped to 56.9 this month from July's 51.9 for the highest reading since May, while a decline in inflation expectations should please Federal Reserve officials worried about an unwelcome rise in price pressures this year.

The data by no means suggested the stagnant U.S. economy was vaulting to recovery, though some analysts said it showed embryonic signs of stabilization that could herald a slow turn for the better if maintained.

"Confidence is still quite depressed, but it's a glimmer of hope from the lows we saw in June," said Dana Saporta, economist at Dresdner Kleinwort Securities LLC in New York.

"I attribute the increase to the drop in gasoline prices, which offset a deteriorating labor market."

Stocks initially rose after the release of the consumer confidence data but lost momentum and were little changed from opening levels in late afternoon trading.

The dollar gained against other currencies while U.S. government bonds, which benefit from weak economic conditions, added to earlier losses.

The improvement in consumer sentiment came during a month when oil prices retreated further from July's record highs but consumers' evaluation of their present situation still fell to its lowest in five years in the survey.

Much of this may reflect job-market insecurity. The index of "jobs hard to get" rose to 32.0 from a revised 30.2 in July, pushing the gauge to its highest since October 2003.

"Consumer confidence readings suggest the economy remains stuck in neutral, but may be showing signs of improvement by early next year," Lynn Franco, director of the Conference Board Consumer Research Center, said in the report.

The Conference Board, an industry group, said its gauge of inflation expectations fell to 6.7 percent, its lowest since 6.1 percent in March, from July's revised 7.5 percent.

It hit a record high of 7.7 percent in May and June and was originally reported at 7.6 percent for July.

Source: Reuters

Pharmacy drives higher percentage of grocery store numbers

FORT WAYNE, Ind. (Aug. 25) Drug stores are the traditional sources for all things pharmaceutical, but grocery stores are moving in to challenge their dominance, according to The Journal Gazette of Fort Wayne, Ind.

As prescription sales grow in proportion to overall sales, supermarkets have begun positioning themselves as health shops, as well. Cincinnati-based Kroger, for example, hopes to edge itself into the market with a cholesterol-reducing milk sold under its Active Lifestyle private label while also selling anti-cholesterol medication.

According to the Food Marketing Institute, drug sales at supermarkets increased by 3.4 percent, to 9.4 percent, between 1997 and 2007. Also, between 1996 and 2006, the number of supermarket pharmacies increased from 6,155 to 10,163, according to the National Association of Chain Drug Stores.

Source: Drug Store News

The war on drugs

Pharmacies on front lines as supermarkets fight to draw customers

You’re already at Kroger to pick up a prescription to lower your cholesterol, so you pick up some cholesterol-reducing milk.

At least that’s how the supermarket giant hopes it goes. The milk, released last year, is sold under an expanding in-house brand, Active Lifestyle, and is part of a growing industry effort to reach health-conscious consumers.

As prescription sales grow in proportion to overall sales, supermarkets and superstores are increasingly positioning themselves as one-stop health shops.

Almost half of food retailers provide health seminars, disease management programs, health-focused store shelf tags and tours featuring healthy products in at least some stores, according to an industry survey released last month.

The portion of supermarket business that comes from drug sales increased from 6 percent in 1997 to 9.4 percent last year, according to annual surveys by Food Marketing Institute. The trade association surveyed 55 food retailers operating 4,978 pharmacies for its most recent report. Its surveys found sales per pharmacy have increased, boosting overall store sales.

But not everyone is getting medication at the same place they’re buying groceries. Standalone pharmacies, which outnumber supermarket pharmacies by a 4-1 ratio, tout their focus on medications as an asset to customers. Independent pharmacies, in particular, market their superior customer service.

As a group, stand-alone drugstores – chains and independents – have seen drug sales rise at a faster rate than supermarket pharmacies.

But supermarkets are working hard to sell themselves as an advocate for the health-conscious consumer, and their in-store pharmacies are central to that strategy.

“Pharmacies are strategically essential to food retailers,” Catherine Polley, the institute’s vice president of pharmacy services, said in a statement. “The health and fitness initiatives that many supermarkets emphasized are anchored in the pharmacy. Pharmacists bring expertise and credibility that help these initiatives succeed.”

The traffic pharmacies attract spills over into other departments.

Scott Lahren, pharmacy district manager at Wal-Mart, said he’s seen total prescriptions and store traffic increase since the superstore launched its $4 generic drug program, which expanded into Indiana in 2006. Lahren declined to provide specific figures on prescriptions filled or total pharmacy customers.

In May, the discount generics program expanded to offer 90-day supplies of prescriptions for $10 and several women’s health medications, including drugs to treat breast cancer and hormone deficiency. The store also lowered the price of more than 1,000 over-the-counter drugs.

The Bentonville, Ark.-based retail giant reported record earnings last quarter, a net income of $3.45 billion for the period ended July 31. That was up 17 percent from $2.95 billion a year ago.

Superstore and supermarket officials say being a one-stop destination for everything from medications to banking (offered through in-store tenants) is appealing to consumers who want to spend less on gas. By the way, gas is also sold by many of these stores.

Food, fuel, pharmacy and financial services are the four retail anchors, Kroger spokesman John Elliott said.

“Pharmacy is a critical piece of that,” he said.

Pharmacists dispense medications and advice on healthy food choices for customers, Elliott said. Customers visit grocery stores often, making it easier for them to develop relationships with staff, he said.

Elliott said the supermarket chain has a dietician on staff in Indianapolis. The dietician reports through the advertising department and contributes pieces for publication, healthy recipes and nutritional advice.

In May, Kroger announced it was expanding its generics program, following Wal-Mart’s move to do the same.

Cincinnati-based Kroger added 11 prescriptions – six medications, some offered in varying dosages – including the cholesterol-lowering drug Pravastatin. Those drugs cost $4 for a 30-day supply or $10 for a 90-day supply. It also increased the number of women’s health medications offered at a discounted price.

Just like Wal-Mart, it saw increased traffic and prescriptions as a result. Elliott declined to disclose figures but called it “a very strong trend.”

In Kroger’s most recent earnings report, David Dillon, the company’s chairman and chief executive, touted its expanded generic drug and discount gas programs.

The supermarket chain reported net earnings of $386 million for the first quarter ended May 24, up 15 percent from $336.6 million during the same period a year ago.

Overall, U.S. prescription sales by food stores were $22 billion in 2007, according to IMS Health, a health care information company based in Norwalk, Conn. That’s down slightly, about 1 percent, from $22.3 billion in 2006, but up from $21.4 billion in 2005.

The number of total supermarket pharmacies has actually dropped somewhat in recent years, according to the Food Marketing Institute’s latest report. There were 9,859 last year, down from a high of 10,867 stores in 2004, according to information IMS Health provided for the report.

But a longer view shows strong growth.

The number of supermarket pharmacies increased 65 percent in 10 years, from 6,155 in 1996 to 10,163 in 2006, according to estimates by the National Association of Chain Drug Stores.
The estimates were based on data from IMS Health and the National Council for Prescription Drug Programs.

Polley, of the Food Marketing Institute, speculates that might be why the median number of prescriptions dispensed daily by supermarket pharmacies decreased from 139 in 1997 to 126 in 2007. It takes time for new pharmacies to build their customer base, she said.

Still, many consumers choose to get their medications at standalone pharmacies or through the mail.

In 2007, chain drugstores recorded $98 billion in U.S. prescription sales, up from $79.1 billion in 2003.

Mail-order services, which are known for deeply discounted prices, saw an even larger proportionate increase in drug sales from $28.9 billion to $44.6 billion during that period. Even independents pharmacies, which have been plagued by closures in recent years, saw sales rise as a group from $31.8 billion in 2003 to $38.7 billion in 2007.

Independents face stiff competition from supermarket pharmacies and larger chains, but they compete with service, said W. Howard Bell, owner of the Pharmacy of Canterbury.

The pharmacy on St. Joe Road is the only one in Fort Wayne that delivers medicines to sick and shut-in patients, he said. Those who come to the store are assured one-on-one attention, time to bond with their pharmacist, he said.

Bell gets complex cases from doctors who trust his work.

“We do a lot of specialty medicines,” he said.

Consumer Reports drugstore surveys conducted since 1998 show consumers consistently rank independents above other types of stores. Pharmacists at those stores get high marks for being accessible, approachable and easy to talk to and knowledgeable.

Though they don’t generally rate as high as independents, supermarket pharmacists should – in theory – have time to build close relationships with patients, Consumer Reports says. That’s because “druggists in supermarkets fill fewer prescriptions per day on average than in other types of stores,” the consumer publication reported.

Whether supermarket pharmacies will get a bigger piece of the pie remains to be seen. But industry insiders say they have the capacity to bring in more business for other store departments. And having other departments can offset hits from drug reimbursement changes and other variables that affect pharmacy profits.

Supermarket pharmacies have continued to post strong results despite pressures related to increased competition, including mail-order drug sales, and Medicaid and Medicare reimbursement rates, Polley said.

Source: Fort Wayne Journal Gazette

Now, two is a crowd

This is no time to be number two in the retail world.

Fewer shoppers, each spending less money, are bracing facts of life in stores everywhere. A few companies catering to cost-conscious consumers, like BJ's Wholesale Club Inc. of Natick, are exceptions, but most retailers are under the gun. Retail companies that published business results this week reported mostly lower same-store sales that ranged from disappointing (Target Corp.) to disastrous (Saks Inc.).

Retailers that hold the second-largest market share in many big categories are facing an uphill struggle in this kind of market. Three that immediately come to mind: Borders Group Inc., Linens 'n Things Inc., and Circuit City Stores Inc.

All three ran into trouble before the current retail funk, and their sad stories are different in the details. But they are all struggling desperately to stay alive in this market, never mind catching up to the leaders in their fields - Barnes & Noble Inc., Bed Bath & Beyond Inc., and Best Buy Inc.

Borders is selling off pieces of its business around the world to keep paying the bills. Linens 'n Things is cutting stores, but probably not enough of them, to climb out of bankruptcy, and Circuit City stock is trading like the lights will go out before long. "To me, Circuit City is a dead man walking," says Britt Beemer, chairman of America's Research Group.

All three of those companies are extreme examples, but they illustrate the serious problem of number two retailers in many fields today. "If you're number two or number three, watch out," says Howard Davidowitz of Davidowitz & Associates Inc., a national retail consultant and investment banking firm in New York.

"You need a lot of critical mass to survive," he says. "It's going to be very tough, and those people who can deliver value will win."

The core problems: buying power and the ability to support big overhead when customer traffic slows down. It becomes harder to pay the rent and carry inventory. A big retail company can no longer support as many underperforming stores as it once did. The leader in any retail segment holds the advantage in conditions like these.

So what about Staples Inc. of Framingham and its two office superstore competitors, Office Depot Inc. and OfficeMax Inc.? Will one of those companies finally have to face the music?

That's hardly a new question. People have been suggesting for years there wasn't enough room for three companies in the office superstore category. It was an obvious conclusion that never happened. There's a good chance it will now.

Business at all three stores stinks. The office superstores measure the pulse of small business economics and it's weak.

Staples, the market leader, said this week that same-store sales in its latest quarter were down about 7 percent. The company, which endured seven quarters of negative comparable-store sales in the 2001 slump, is in the midst of its fifth quarter of declining comp sales now.

Office Depot, second in market share, reported a decline of 10 percent in same-store sales during its most recent quarter and appeared to be losing market share to Staples. OfficeMax is laying off thousands and last month wrote down good will and other intangibles on its balance sheet by $1 billion, a big number for a company with a stock market value of $888 million.

Those kinds of numbers suggest three may finally turn out to be a crowd in the office superstore business. "To me, there never should have been more than two," says Beemer. "One of them is going to be a casualty. With the exception of the office superstores, there is no category with three major players. The category is not growing to support three."

Stock market investors are trading the stocks like they agree. Staples shares are up 3.6 percent so far this year and closed yesterday at $23.91, which is about $3.50 per share from its all-time high reached in December 2006.

Office Depot shares have been cut in half this year, losing 71 percent of their value over the past 12 months. OfficeMax stock is down 43 percent so far in 2007 and has lost two thirds of its value over the past year.

Staples has long enjoyed a substantial advantage in stock market value, an important edge, and now that gap has become a chasm. Staples shares are worth $16.8 billion, more than eight times the value of Office Depot stock. OfficeMax shares are worth a total of $888 million.

What does that tell you? "I don't think we need three," says Davidowitz.

I doubt three will make it this time.

Source: Boston Globe

Recapturing and Controlling Space: A Primer for Retail Landlords on Tenant Bankruptcy

Q&A with Attorney Cheryl Van Steenwyk of Newmeyer & Dillion Addressing Retail Tenant Issues in Bankruptcy

During these first eight months of 2008, the retail real estate industry has seen bankruptcy filings continue to pile up. Filings over the last few months include retailers that together have the potential to pack quite a punch to the vacancy of many landlords' malls and shopping centers; such as Linens 'n Things, Steve & Barry's, Mervyns, and Boscovs.

The bankruptcy filing of discount fashion apparel retailer Steve & Barry's in particular appears to have triggered concerns over retail bankruptcies. The company filed Chapter 11 on Jul. 9 and at the time, operated 276 stores in 39 states. The retailer grew fast over the past few years, known for backfilling large, hard-to-lease spaces at B malls across the country. On August 4, Steve & Barry's accepted a "stalking horse" asset purchase agreement with BH S&B Holding LLC, a newly formed subsidiary of investment firm Bay Harbour Management. Under terms of the agreement, Bay Harbour would acquire Steve & Barry's store leases, merchandise, and intellectual property rights for $163 million.

Bay Harbour said it intends to keep Steve & Barry's store network and distribution facilities operating as normal, but put direct pressure on landlords, saying it would only continue to operate stores where "an appropriate package of renegotiated leases and other conditions" are accomplished.

Bay Harbour is an investment advisor known for purchasing distressed companies with the intention of a turnaround, but its well-known retail industry involvement is limited to Barney's New York.

Since Steve & Barry's filing and the identity of its potential buyer were announced, Landlords have banded together to raise certain objections with the bankruptcy court including whether or not the new buyer will be able to pay off rent debts, its ability to continue to operate the stores, keep stores open through the holidays, limiting liquidation signage at the stores, and other issues.

To help clarify the issue and discuss the typical outcomes landlords face in a retailer bankruptcy, CoStar conducted a Q&A with Cheryl Van Steenwyk, a partner specializing in business and real estate law at Newport Beach, CA-based Newmeyer & Dillion, LLP. For 20+ years, Van Steenwyk has been part of groups handling landlord / tenant issues, including past tenant bankruptcy issues for landlords including Westfield, Macerich, Developers Diversified Realty, and more.

CoStar Advisor: How does the start of a retailer bankruptcy usually look to landlords?

Generally, a retailer will become delinquent in rent. If they're getting notices to pay rent or quit, they'll usually try to make that landlord happy and stall other landlords. However, tenants often won't pay rent on stores they're likely not planning to keep, even if they are getting notices.

Depending on where they file - a lot of times a tenant will file on the second day rather than the first of the month, because some courts hold that the rent was due on the first and if a tenant files on the second it doesn’t have to pay the rent that month. Under bankruptcy code, the landlord is only entitled to get paid current rent during a retailer's bankruptcy proceedings, until the tenant makes a decision on whether it will assume or reject the lease.

Prior to the most recent bankruptcy law changes, a tenant only had 60 days to assume or reject leases, but could file endless 60-day motions to extend. Now they get 120 days to assume or reject and that can only get extended, with good cause, for an additional 90 days; the decision can only be extended beyond that if the landlord agrees in writing.

CoStar Advisor: What happens if the tenant assumes a lease?

If the Tenant decides a particular lease is valuable and assumes it, the tenant is obligated to cure all defects. That could mean they have to pay that pre-bankruptcy rent in a lump sum or they have to come to an agreement with the landlord to a timeline of paying that rent.

CoStar Advisor: What happens if the tenant rejects a lease?

If a tenant rejects a lease, that rent owed pre-bankruptcy becomes part of the landlord's unsecured claim. Generally a retailer, and especially the larger ones, has secured creditors that are going to receive payment prior to unsecured creditors. Landlords are unsecured creditors -- even the Simon's and General Growths, etc.

CoStar Advisor: If a lease is rejected, does the landlord’s back rent claim get paid?

Yes. Part of it depends on what the retailer is ultimately doing. If the retailer is going to reorganize and try to continue on, a landlord holding a rejected lease can file a claim for rejection damages, which is usually the greater of one year's rent in charges or 15% of the owed rent plus charges over the balance of the term, not to exceed three years.

With regards to payouts, a system is set up where everybody who is owed money -- landlords, unsecured vendors, etc - goes into a group of unsecured creditors and the debtor and/or its consultants will figure out the lump sum of the unsecured claims it has and will decide the total money that is potentially available to give to the unsecured creditors after they pay off all their secured creditors.

They'll do a mathematical formula that says each unsecured creditor gets 5% or 10% or of their claim, for example. And yes, getting 5% to 10% is not uncommon. Sometimes landlords will get pennies on the dollar or a little more than that. It’s a rare circumstance when they get their full damage claim.

CoStar Advisor: How long does it usually take before a landlord find out how much they'll get paid on their claim?

For most bankruptcies it’s probably 12 to 18 months before you receive payment. However, it can be longer or shorter.

There are some unusual circumstances where a retailer started as Chapter 11 and then reverts into Chapter 7 liquidation and sometimes trustees will go after people who lent money and maybe made false representation - then, money can come trickling in several years later.

In addition, there is a presumption that the bankruptcy debtor was insolvent for 90 days prior to its filing. Some lawyers representing retailers or trustees will go back against those who received significant sums of money in the 90 days preceding the bankruptcy filing and file preference actions to recover some money back into the estate. This can add to the time it takes for creditors to get paid off.

CoStar Advisor: How does the lease assumption / rejection process typically go?

The decision on whether or not to assume or reject a lease is more based on the particular retailer's criteria. They know what their stores have done year-to-date, what those stores did previously and whether it’s a good or bad location. Factors going into that are, with the larger anchor retailers...Do we own the land or lease it? Is this a market where there's been a lot of new development and we're in an older location or center? Is our building fresh or not fresh? What's our parking? Who are our competitors? Is this an area that's growing or declining? It's really a decision made on a location-by-location basis, based upon how that retailer sees their potential future.

Most retailers will go to their landlord and say they're going to have to reject their lease unless the landlord reduces their rent. There will be intensive negotiations going on. Whether or not a landlord will agree to rent concessions or any other type of concessions will generally depend on the landlord's view of what they want to do with their property. Using Mervyn's as a potential example, If the landlord wants to control 65,000 square feet in their shopping center, Mervyn's isn't likely to get concessions.

CoStar Advisor: Let's say the landlord turns the tenant down on their request for concessions and then the tenant rejects the lease. Does the landlord still have the same rights to their claim?

Yes. The only issue is that they now have a rejected lease and a fixed claim amount versus a potentially operating tenant and getting less income.

CoStar Advisor: In what situations does a landlord typically seek to take back control of a bankrupt tenant's space?

Larger anchor tenants generally either own their own stores and the land surrounding them, or they pay very low rent to occupy such space because they're perceived as being a draw to the shopping center. To the extent that a landlord can recapture space and control space, especially within a regional enclosed mall; they're going to attempt to do that because it gives them a lot more options.

If they don't control that property, the bankrupt tenant could potentially put it out to the highest bidder. However, anybody who buys the property has to comply with the covenants, conditions and restrictions that are part of the overall shopping center agreement. But the owner of an enclosed regional mall typically doesn't want an unknown entity coming in.

Note: In February 2008, before Mervyns filed bankruptcy, Macerich acquired a portfolio of 43 Mervyns stores for $430 million in a 20-year sale-leaseback transaction. The company said they specifically made the acquisition because they didn't want a traditional buyer to become the owner of Mervyns stores in its centers. For more on that, follow this link.

If a landlord has a retailer that is looking for somebody to buy them, an investment company for example, the landlord doesn't always know if they're going to buy their leases and operate as that same retailer...landlords may rather take control of the space, perhaps have it go dark for a period of time, rather than have an operator they don't want in there.

With some of these locations, landlords have tenants who prior to their filing were deemed to be desirable, top-notch tenants that have spaces in key locations of a shopping center. In the case of a mall where the space might be right near the center court, for example, the landlord may rather want to set that up as a potential concierge or gift wrap -- especially over the holiday season, than have a discounter retailer in there, for example.

The landlord's decision of whether to gain control of a store is a fine line to walk. It depends on the center and the landlord's plans for the center. There are probably a lot of developers who prior to this downturn had remodeling plans laid out for the next 3-5 years and those have been pushed out now, but ultimately, they still want to control that space.

CoStar Advisor: Let's use Sharper Image as an example -- they filed bankruptcy at the beginning of this year, said they would close 90 of their 184 stores and then on May 29 a joint venture between well-known liquidators, Hilco and Gordon Brothers, as well as Bluestar Alliance, Windsong Brands and Crystal Capital, purchased Sharper Image for $49 million. The group proceeded to close and liquidate the remaining stores. So now Hilco and DJM (Gordon's real estate subsidiary) are disposing of Sharper Image's leases. When another entity buys a bankrupt retailer, like in this case, what happens regarding the rights the landlords hold?

This is where it gets a little tricky. It goes back to the question of why a landlord might not grant the tenant's concession request. A landlord might not give concessions if they think potential purchaser is a liquidation firm, because really what those firms want to do is come in and find a tenant for that space.

Sharper Image, for example, had 'better' locations -- that increases the value to the liquidator.

When a liquidator takes control and looks to assign a lease - the use provisions of the leases, which are there to protect the landlord, can create an issue. Technically, to assign the lease it has to be shown that the use is going to remain the same. The problem arises on whether or not its realistic to obtain another tenant that can conform to the use provision the bankrupt tenant had.

If the liquidator comes in with a tenant that doesn't fit that use provision, then the landlord has to decide if they want the proposed tenant or if they want to fight it based on non-conformity to the use provision. Then the judge will make a determination as to whether or not anyone could realistically comply with the use provision and if not, then the landlord could get stuck with a potentially undesirable retailer for that location in their center.

CoStar Advisor: So if the landlord rejects the liquidator's proposal to bring a fitness center into a former Sharper Image space (theoretical example), the judge could decide that Sharper Image's use isn't realistic because the liquidator likely won't be able to find anyone who would fit the use, and the judge could rule that the landlord has to accept the fitness center?

That's right. The judge could say that there's nobody who could meet the use clause -- it depends how finely nailed the use clause is. If the use clause is women's apparel, you could find lots of tenants to fit that use; but if the clause is very specific, such as the 'sale of electronics and gadgets', for example, you might not be able to.

CoStar Advisor: When an entity buys out a bankrupt retailer, and let's say they want to continue operating the chain, like Steve & Barry's suitor, Bay Harbour Management, says it intends to, what happens regarding the rights landlords hold?

Landlords tend to become more concerned in the buyout scenario, depending on who the purchaser is, because the question becomes whether or not it is an entity who will continue to operate as the tenant or if it's an entity that is going to look to shop the leases and flip them to a tenant the landlord might not want.

In the situation where an entity is purchasing all of the assets and is indicating a desire to continue to operate, that new purchaser has to give adequate proof of future performance. Which is where landlords often raise objections. Here is a company saying they're going to buy, but the landlord doesn't know anything about them, so they request to be shown that this potential buyer has sufficient assets to cure, buy and perform under the terms of the leases. Landlords will often request financial statements and confirmation that the buying firm will continue to operate, etc.

CoStar Advisor: What about the fact that its getting close to the holiday shopping season? Is this an issue for landlords dealing with tenants in bankruptcy now?

In these months leading up to the holiday season, landlords will often request that the potential buyer provide for "holiday protection," meaning they're requesting that the tenant stay open and operating through January 31. Realistically, if a tenant isn't open by Sept. 1 - with the exception of seasonal tenants - they're not really going to be able to get into the space, do all of their tenant improvements and open in time to be a viable tenant over the holiday season. Especially with fairly large spaces, landlords can't have the tenant decide Nov. 1 they're closing, because they would have a large space that is dark over holidays.

CoStar Advisor: Another issue that's risen in the Steve & Barry's case is signage - some landlords are asking that the retailer not be allowed to post liquidation signage in the stores. How often does this issue arise and what usually happens?

The major Landlords will always seek to require that the debtor comply with the signage requirements in the respective leases, which generally prohibit oversized signs within a certain distance of the storefront, which are not professionally done and which mention bankruptcy, liquidation, store closing etc.

For the most part in the retail bankruptcies, lawyers have worked out general parameters, which each side can live with on signage. Each side gives a little with regard to size, wording, location, however, at the onset, until someone raises the objections, a debtor or the liquidator who is called in to handle the sales will usually push the envelope and try to get away with as much signage as it can.

CoStar Advisor: If the bankruptcy court approves a sale of the retailer to an entity, is the new owner still responsible to pay off the claims the bankrupt tenant owes?

The new buyer still has to make a decision on whether to assume or reject each lease. So the landlord has a new operator in there, but that new operator still has to make the decision to assume or reject.

A lot of times, as part of a purchase and sale, there will be almost simultaneous decisions where the tenant and buyer know they're going to reject leases. So maybe only certain leases will get transferred to the new buyer and the other leases will be rejected; meaning the new owner could buy only part of the chain.

Sometimes the bankrupt retailer will potentially pull leases from the sale package, because they would have cut a deal with a particular landlord. Then a third party doesn't get control of that landlord's real estate.

Then, the money from the new buyer would go into the bankrupt retailer's estate to pay off its secured and unsecured creditors. A lot of times it’s really the secured creditors who are probably going to get paid off and the unsecured creditors see very small amounts.

Source: CoStar

Groceries & gadgets: Stop & Shop's geeked-out stores help boost bottom line

I stopped by one of my favorite high-technology retailers the other day, to pick up some skim milk.

No, Best Buy and Circuit City haven't added dairy departments. I buy my groceries at Stop & Shop Supermarket Co., the big grocery chain that might offer the most geeked-out shopping experience in America.

Many of Stop & Shop's 376 stores feature a variety of digital devices that let customers weigh their own veggies, order deli meats by using a video touch screen, and pay their bills without human assistance. Many other retailers, like Stop & Shop's main Boston-area rival, Shaw's Supermarkets Inc., offer self-checkout. But Stop & Shop has gone further than any of its rivals to automate our trips to the grocery.

The company has quietly deployed the technology in dozens of locations since 2005. Now, it will plug the gadgets into many more stores over the next year, as part of a major face lift. "It is an opportunity for us as the market leader to stay in front of the pack," said Jim Dwyer, the chief business development officer for Ahold USA, Stop & Shop's Dutch parent company.

Instead of saving labor, the new gadgets shift it, from store employees to shoppers. Users weigh, scan, and bag their own purchases, preferably in reusable cloth bags, priced at 99 cents each. Good for the environment, and for the bottom line. No wonder the bags are green.

When I asked Stop & Shop spokesman Robert Keane about how all this technology will reduce labor costs, he deftly sidestepped the question. "This is something to really offer the customer choices," he said. And of course, he's right. After years as a faithful Shaw's customer, I switched to the Stop & Shop in Quincy because its grocery tech gets me in and out of the store so much faster. Besides, it's cool.

Especially the device at the heart of the Stop & Shop system, the Scan It personal scanner. Shaped like a bar of soap with a pistol grip, the Scan It has been deployed in about 90 Stop & Shops, the first large-scale deployment of the system anywhere in the world.

Scan It is a lot sleeker and simpler than the first personal scanners introduced by Stop & Shop in 2005. The old device, called Shopping Buddy, was about as big and heavy as a laptop computer and overburdened with features shoppers didn't need, like a digital map of the store or games to keep children occupied while their parents shopped.

"It was too much for the shoppers," said Michele Deziel, spokeswoman for Modiv Media Inc., the Quincy company that designed the software for Shopping Buddy and Scan It.

The new version, introduced last year, keeps things simple. You activate it by scanning a Stop & Shop "loyalty card," the kind you may already use to get discounts on various items. Now just walk the aisles. When you pick an item, aim the Scan It at the barcode and press a button. The device tracks each selection and the total price of your purchases.

The do-it-yourself strategy also applies to items that aren't scanner-friendly, like deli meats and vegetables. You can use a touch-screen computer to place deli orders; when your corned beef is ready, Scan It flashes you a message. For produce, scales calculate the correct price when you punch in a four-digit code for each item. Out pops a barcoded sticker.

It works fine, if you know the code, or if a code sticker has been glued to your onions or broccoli. Often, though, there is no sticker, forcing you to search for it using the scale's touch screen. Usually this works, but sometimes it doesn't, leaving shoppers irritated and possibly vitamin-deficient.

One thing you can't purchase alone is booze. Scan a six-pack of Bass Ale, and a human will meet you at the checkout to confirm you're old enough to drink.

Scan It is also a subtle but persistent salesman. Scanning the loyalty card links the device to a history of your previous purchases. Stop & Shop's system uses this data to come up with special offers for products you might fancy. The offers are relayed to Scan It, which gently pings you about discounts. You'll be glad to know that personal data, like names or credit card numbers, don't travel over the wireless network - just a numerical code that identifies you as a sucker for pasta.

Still, this can all seem a little intrusive. Then again, it's nothing new. Retailers invented loyalty cards to track customers; Scan It just lets them ride herd on us every minute we're in the store. If you don't like it, get rid of your card - and forget about using Scan It.

Your last stop is the automated checkout line. These come in two varieties - a simple kiosk for small purchases and a long line with a conveyor belt for big shopping trips. The little kiosk, with its rack for bagging your purchases, can be a nuisance if you use a paper sack to line the plastic grocery bag. The rack has a scale to make sure you're not sneaking items past the scanner to avoid paying. Sometimes it reads an extra bag as an unscanned item and halts the checkout process. It's infuriating. I prefer the less-irksome conveyor belt.

Either way, it's time to pay. Scanning a barcode mounted atop the checkout device tells the Scan It you're done. Swipe your loyalty card at the checkout scanner, and it instantly reads your list of purchases and tells you how much to pay. Now and then, you'll be ordered to a checkout line where a human attendant will rescan your purchases. It's a random audit to deter theft. But usually, the machine just asks for the money. Shove in a few bills or swipe a credit card, and it's all over but the bagging.

And no 99-cent cotton eco-sacks either. I use disposable paper and plastic, paid for by Stop & Shop. All my scanning and weighing saved it a tidy sum in labor costs; it's the least they can do.

Source: Boston Globe

Overnight Success Can Take Years

Overnight successes usually don’t happen quite that fast — especially in retail. I was reminded of that in stories I read about two vastly different clothing retailers. You may have heard of Forever 21, a hip clothing store known for its low prices on up-to-the-minute fashions. You probably never heard of Show Hoppers, a dancewear shop in Concord, New Hampshire that doesn’t even have a website. Fortunately, the Concord Monitor followed the mother-and-daughter owners of Show Hoppers in their first year as they learned the intricate dance of retail survival.

After 24 years in business, Forever 21’s worldwide sales are in the billions of dollars, according to this article in the Los Angeles Times. Show Hoppers’ owners say they’re thrilled if sales hit $300 a day. Yet both are niche marketers. Aggressive Forever 21’s mantra is “Create a niche, and then blow it out.” Show Hoppers’ niche is dancewear for girls in their small town. They realized parents had to drive many miles to find appropriate clothes for their little dancers, so they started on a shoestring with a boutique catering to those parents.

Forever 21 attributes its success to spotting fashion trends and then finding manufacturers who can supply them with quality, low-cost clothing. Show Hoppers is still looking for its place in the Concord sun — or sleet, if you factor in the miserably snowy first winter they experienced in downtown Concord. But they hung in there, adjusted inventory and are optimistic about their second year in business.

I like the attitude of the daughter, who doesn’t let being legally blind slow her down: “Every decision you make that’s unknown is scary. But if you don’t take a chance, how are you going to know?”

I also like the attitude of Forever 21’s senior vice president: “Where there’s a flash of opportunity, we’re stepping in.”

It took Forever 21 nearly a quarter of a century to achieve its “overnight” success and become a media darling. I hope Show Hoppers is content to become the premier dancewear shop in its home state, and perhaps beyond. Before you become an overnight success, I hope you will read both stories and draw inspiration for your retail store.

Source: TrioDisplay.com

Consumers mood improves a bit early Aug: survey

NEW YORK (Reuters) - Consumer confidence improved slightly in early August thanks to a drop in gasoline prices, but worries about a recession still weighed heavily on consumers' minds, according to a survey released on Friday.

The Reuters/University of Michigan Surveys of Consumers said its index of consumer confidence edged up to 61.7 in early August from 61.2 in late July. It fell short of economists' median forecast of 62.0, according to a recent Reuters poll.

The gauge looked ominous for the U.S. economy, which is dependent on consumer spending and currently in a fragile state. Consumers have already been struggling for months from the fallout of a persistent housing slump and tight credit.

"There is little doubt among consumers about the likelihood of a recession," Richard Curtin, director of the surveys, said in a statement.

This grim outlook led to a drop in the report's current conditions index to 69.3 in early August from 73.1 in late July and a forecast 73.2. The August reading was the second lowest since 1980 with the lowest set in June.

The report's expectations index, however, rose to 56.8 from 53.5 in late July. Analysts had expected a figure of 53.9.

A silver lining in the latest survey was a drop in consumers' inflation expectations in the next 12 months.

The one-year inflation expectations gauge slipped to 4.8 from July's 5.1 percent, which was the biggest one-month drop since September 2006.

The index on five-year inflation expectations held steady at 3.2 percent.

Source: Reuters

Keeping Up with Retail Trends

I make it my job to keep up with the latest retail trends so that I can better understand our clients and prospects. The women in my family enjoy Ann Taylor, so I look to see how they are doing every once in a while. The other day I was looking through their annual report and found something very interesting.

This is what Ann Taylor, Inc. had to say about their growth plans, “We understand that the economy invariably goes through cycles. We firmly believe that the manner in which we approach growth and manage our business through these cycles will differentiate us and determine our success in the market over the long term. In this regard, we have planned fiscal 2008 cautiously and realistically, focusing on three key areas-the evolution of our brands and channels, the reduction of our overall cost structure, and the continued pursuit of growth. This approach is designed to enable us to effectively navigate the current environment, while position Ann Taylor as a stronger, leaner Company dedicated to growing the value of your investment year in and year out.”

As one of our senior vice presidents has been known to say and the CEO of Ann Taylor amplifies here… “A good economic downturn is a terrible thing to waste.” It is important for retailers to understand that there is no better time to grow than right now. The successful retailers will take care of that and the others will be out of business.

Source: Buxton.com

Challenging Months Ahead for Shopping Center Owners

As the number of retail store closings continues to rise, landlords in the retail sector should brace for falling rents and declining occupancy. Property & Portfolio Research expects the final tally of store closings for the year to climb to more than 6,000, compared with 4,600 closings in 2007. As of mid-August, Boston-based PPR reports 5,300 closings.

The breadth of the closings has caught the industry off-guard. “The industry believed that you were just going to see the Home Depots of the world, the furniture stores, the ‘Granite counter tops are us’-type retailers get hurt. They are surprised to see how quickly it spread to other types of retailers,” says Suzanne Mulvee, a senior real estate economist with PPR.

Of the store closings tracked by PPR, 46% are located in malls and about 43% in strip centers, with the remaining stores tied to big-box retailers. The current retail vacancy rate nationally is 11.8%, according to PPR. The firm forecasts the vacancy rate to rise to approximately 13% by the end of 2008 and 14% by late 2009.

Considering the softer occupancy, PPR expects rent increases in the retail sector to decline 1.7% this year, which means landlords will have to give back the 1.7% rent growth seen in 2007. PPR forecasts retail rents to drop 0.5% in 2009.

One beneficiary of the rising number of store closings is Lake Success, N.Y.-based Excess Space Retail Services, which helps retailers restructure leases and dispose of unwanted properties. Excess Space expects to work on 3,000 or more store lease restructurings this year, a 50% increase from the 2,000 restructurings the company worked on last year.

“Business is booming. It will be very robust for us this year and for sometime into the future,” says Michael Weiner, president and CEO of Excess Space.

Landlords are becoming creative in dealing with lease terminations and restructuring leases so that they can maintain occupancy levels, according to Weiner. They are increasingly receptive to rent concessions and subleases.

“Landlords are more open to the tenants we bring them instead of raising objections. Right now, many of them are just happy to see the spaces get filled as long as the tenant isn’t hurting any of the other tenants they have,” says Weiner.

Excess Space’s business is growing, especially in states that are at the heart of the housing downturn, such as Florida, California, Nevada, and Arizona. In these states, “The economic climate is bad, and we see a lot of additional sites being added to the portfolio,” says Weiner. “People don’t have discretionary income, and they are severely hurt by the impact the housing market (downturn) has had.”

Apparel stores accounted for about 35% of the 2,831 store closings tracked by the International Council of Shopping Centers (ICSC) in the first half of 2008. The retailers that added to this tally include Wilson’s Leather, Goody’s Family Clothing, Ann Taylor, and Geoffrey Beane-outlet stores.

Retailers focusing on home entertainment, home furniture and furnishings, and food and beverage have also been at the forefront of the store closings during the first half of 2008.

About 6.5% of the store closings through the first half of 2008 tracked by the retail industry trade group were in the home furniture and furnishings niche, one that moves in tandem with the housing market. However, this is an improvement considering that this niche accounted for more than 14% of store closings in the first half of 2007, and about 34% of the closings in the second half of 2007, according to ICSC.

“The stores that are more susceptible to slowdowns in the economy are the stores announcing closings,” notes Abigail Marks, an economist with CBRE Torto Wheaton Research in Boston. “Consumers have less discretionary income right now, so non-essential goods such as clothing are struggling with sales. Thus, some clothing retailers have to close stores.

”PPR’s Mulvee anticipates that, following a soft 2008 Christmas season, the first quarter of 2009 will likely be another big quarter for store closings with as many as 3,400 closings projected.

Source: National Real Estate Investor

Shoppers Make Fewer Supermarket Trips: Report

CHICAGO — Shoppers are making more trips to supercenters and dollar stores and cutting back on their supermarket visits, according to the latest Times & Trends report from Information Resources Inc. here. The report, “Channel Migration 2008,” showed that supercenters enjoyed a 5.5% gain in average purchase occasions per household for the 12-mointh period that ended June 15, followed closely by dollar stores, which saw a 4% increase in visits. Supermarkets visits declined 2%. The numbers were also reflected in CPG dollar share, which was up 1.4 points at supercenters, to 15.1% of CPG share, vs. a decline of 0.2 points, to 55.2% of share, at supermarkets. Supercenters saw gains among all consumer segments measured, while supermarkets saw gains only among Hispanics. For more on this report, go to supermarketnews.com/trends.

Source: Supermarket News

Retailers' 2Q results may not be as bad as thought

Amid the pile of downbeat sales reports for July from retailers, there was a sliver of hope: Second-quarter profits may not be as bad as expected when merchants such as Wal-Mart Stores Inc., Macy's Inc. and J.C. Penney Co. post their results starting this week.

Several companies, from Gap Inc. and Penney to teen retailer Hot Topic Inc., raised their outlooks last week — with help from strict inventory controls and slashing expenses — even as they reported sales declines in July at established stores.

Still, retailers overall are expected to report a fifth consecutive drop in quarterly earnings, according to Ken Perkins, president of research company RetailMetrics LLC. Worries abound about how merchants will stem the erosion of their profits as they confront what could be a deeper spending funk in the critical months ahead.

Among the hardest hit have been clothing stores, which have seen a sales slump worsen in recent months as shoppers buy only what they need. Analysts will be looking for any clues from the earnings reports on when the apparel sector will see a recovery.

The challenge becomes, "how do we drive traffic in a really slow environment?" says Perkins. He expects that his estimate for a 5.7 percent decline in second-quarter profits from a year ago may now be a bit too harsh amid the better outlook many merchants have given. Still, with the economic uncertainty and the cost pressures retailers are facing, he said it's hard to "nail down" a figure.

Nevertheless, the back-to-school season "doesn't look promising," said Michael Appel, a managing director of Quest Turnaround Advisors.

With the benefits of the federal stimulus checks dried up, retailers face even bigger challenges as they try to get shoppers to splurge on skinny jeans and fancy backpacks for their children. Consumers already struggling with high food and gas bills and increasing layoffs are less confident in the economy. And while oil prices have receded a bit, paychecks are not keeping up with overall inflationary pressures on basics.

The reports for July on same-store sales, or those at stores open a least a year, underscored Americans' growing financial strain as shoppers focused even more on buying necessities like detergent and avoided mall-based clothing stores.

Such frugality is creating a wider disparity between low-price operators like Wal-Mart and mall-based chains and department stores. Disappointments in the apparel sector cut across all types of chains from teen retailer Abercrombie & Fitch Co. to department stores such as Penney and Kohl's Corp.

Merchants can't even depend as much on international sales to offset weaker U.S. business as markets in Spain and other European countries are softening as they get dragged down by the slowing U.S. economy.

Analysts will be closely watching Wal-Mart, which has been a beneficiary of the slowing economy but did feel some pain in July. It announced that same-store sales for the month were below analysts' consensus estimates and also predicted slower growth in August. The discounter, considered a barometer of consumers' financial well-being, said that its customers are increasingly unable to stretch their paychecks to the next payday.

That cautious tone caused Mark Miller, an analyst at William Blair & Co., to downgrade shares of Wal-Mart to "market perform" from "outperform" based on expectations for slower sales and profit growth in the second half. In a note to investors, he said that Wal-Mart's July sales performance was a "material deceleration" from the previous two months. Still, he believes the company is on track to meet or exceed Wall Street's current expectations for second-quarter earnings of 84 cents per share when it reports results on Thursday.

Macy's, which no longer reports monthly same-store sales, is expected to post earnings of 19 cents per share when it reports second-quarter results Wednesday, according to Wall Street consensus estimates. Appel said he will be looking for updates on how the company's new efforts to better tailor its merchandise to local areas are faring and whether business has improved at the May Co. stores now converted to Macy's.

Meanwhile, TJX Cos., which sells name-brand labels at a discount, has benefited from shoppers looking for cheaper alternatives than the mall. The company, which is set to report results Tuesday, raised its earnings outlook last Thursday even after reporting that same-store sales fell a bit short of Wall Street estimates.

Source: International Herald Tribune

More Shoppers Spurning The Mall

It's August--the month when many states offer tax-free shopping periods, millions of parents hope to cross back-to-school shopping off their list, and hordes of teens want to try on just a few more pairs of jeans. Theoretically, malls should be packed--even given the current economic slowdown.

But not only is traffic flat, Americans are changing the kinds of shopping centers they visit. "The shares of monthly shoppers and monthly clothing shoppers continue to decline across most shopping center types," says TNS Retail Forward, a Columbus, Ohio-based consulting company that tracks shopping trends.

"The only locations to capture larger shares of monthly shoppers as well as monthly clothing shoppers in 2008 are power centers," which are strip shopping centers that contain at least one discount department store or category superstore, "or strip malls with supermarket anchors."

Online sites also captured a larger share of shoppers.

Retail Forward reports that the popularity of power centers, as well as the rising cost of gas, are making it easier for shoppers to skip more distant shopping destinations, so that all other types of shopping centers are losing customers.

For example, regional malls--which in 2006 had a 34% share of monthly shoppers and a 26% share of monthly clothing shoppers--now have a share of 30% and 23%, respectively. Lifestyle centers, the type of mostly unenclosed shopping areas that typically include specialty stores, department stores, restaurants and entertainment, had 24% of monthly shoppers and an 18% share of monthly clothing shoppers in 2006; this year, it has fallen to 20% and 16%. Downtown shopping areas also declined, from 10% of monthly shoppers and 9% of monthly clothing shoppers in 2006 to 8% and 8% in 2008. Outlet centers held even, with 13% of monthly shoppers and 11% of monthly clothing shoppers.

In recent weeks, the International Council of Shopping Centers reports that while sales tax holidays in 11 states and the District of Columbia helped spur traffic in those areas, "overall national traffic trends were softer which led to a flat weekly performance."

For the month of July, ICSC predicts, comparable-store sales are expected to increase between 2 and 3%. Most retailers will report those results later this week.

Source: MediaPost

Retailers Pull Back, at a Cost

Stingy consumers force retail chains to keep inventories low. That's boosting profit margins but it may be reducing sales growth, too

The Children's Place (PLCE) store at the Paramus Park Mall in northern New Jersey has a set of sales racks, each placed at four different sections of the store, with items for babies to older girls and boys. Sharad Shah, a young mother of two children, is shopping at the store and is disappointed with the lean sales racks, which carry just a few T-shirts and pants. "Maybe I'll come back for Labor Day sales," she says, leaving empty-handed.

During a normal year, this would be a healthy sign for a retailer. It would indicate the store sold its stock at full price and doesn't need to rely on clearance sales. However, in the current environment, when more and more shoppers are looking for deals, turning them away from the store without enticements might not be what retailers want. Nonetheless, many chains are keeping a tight lid on inventory to the point where it's putting a crimp on sales.

"There's a fine line between not having racks of clearance from leftover inventory, and cutting to the bone," says Erin Armendinger, managing director of the Jay H. Baker Retailing Initiative at the Wharton School of Business at the University of Pennsylvania.

Indeed, on Aug. 7 The Children's Place reported sales were flat in July at its stores open for at least a year or more. That fell far short of the 7% increase expected by Wall Street. "We are in a conservative inventory position for the fall," said Jane Singer, vice-president for investor relations, in a prerecorded call discussing monthly sales. Its stock was down 0.94, or 2.7%, to 33.98.

Sales Gains for Wholesale Clubs

Consumers have continued to tighten their purse strings for almost all discretionary purchases and seem to be spending only on basics. That has been good news for off-price discounters like TJ Maxx and Marshalls. TJX Companies (TJX), which runs those two chains, saw same-store sales rise 3% in July.

Stores that sell cheap gasoline and food also posted positive sales gains in the Aug. 7 industry reports. Wal-Mart's (WMT) same-store sales increased 3%. That was lower, however, than analyst expectations of a 3.4% gain and investors sold its shares, which were down 3.80, or 6.3%, to 56.96. Costco (COST) reported a 10% increase in sales, and BJ's Wholesale Club (BJ) reported a 16.7% increase in same-store sales as shoppers flocked in to load up on bulk purchases of food and gasoline, which is typically a few cents cheaper at wholesale clubs than at gas stations.

Inventory Questions

But for retail executives in areas other than food, it's a treacherous time to try to forecast how much merchandise to order for stores. More often than not, retailers are choosing to err on the side of caution. That has resulted in better profit margins—in the first quarter Wal-Mart reported its gross margins were up 11 basis points—but perhaps at the expense of losing some potential sales. "In an economic downturn everyone is in a cutback mode and they might be missing the few opportunities that present themselves," says Frank Badillo, senior economist at TNS Retail Forward, a research firm.

For instance, discount department store chain Kohl's (KSS) saw sales in July dip sharply, by 10.4%. The company didn't give details about its inventory levels. "July was a month driven by clearance sales of spring and summer merchandise," says Larry Montgomery, Kohl's CEO. But he notes: "Our inventory levels in these clearance and transitional categories were significantly lower than last year, affecting sales results, but leading to improved gross margins."

Source: BusinessWeek

Is intimate apparel recession-proof?

Intimate apparel is big business on a global scale, and conventional wisdom has it that the category generally outperforms the broader apparel category during economic downturns.

Whether this is myth or reality is a point of contention among industry watchers. However, everyone can agree that lingerie is a vibrant, high-margin category ranging from staples like bras and panties to fashion-oriented luxury items for women across every demographic group.

“Intimate apparel is probably as strong as anything right now and has traditionally fared well during a recession,” says Mike Sandler, chairman of the intimate apparel council of the American Apparel & Footwear Association, based in Arlington, Va. “When pocketbooks tighten up, people are less likely to make large purchases like dresses or new outfits. Intimate apparel gives them the ability to buy something less expensive that makes them feel good: It’s an affordable indulgence.”

Beyond that, the business is bolstered by the fact that items wear out more quickly — particularly bras and panties, which represent 65 percent of intimate apparel purchases. “There’s a lot of replacement value there,” Sandler says.

Still, statistics from the NPD Group indicate that intimate apparel could use a bit of lift. In the 12 months that ended in April, sales totaled $10.92 billion, 3.4 percent lower than the same period a year ago.NPD reported that bra sales ($5.79 billion) declined 3.3 percent and panty sales ($3.5 billion) were down slightly over that same period. Shapewear, a much smaller ($718 million) category, experienced the biggest squeeze — 9.2 percent.

Sleepwear, which is listed separately by NPD, outperformed the rest of the intimate apparel market, rising 1.5 percent on sales of $6.5 billion. Nightwear, which accounts for the bulk of sales, was up 2.9 percent, while robes and loungewear dipped 3.9 percent.

Virtually all retailers reported lower sales. Specialty stores and mass merchants — the biggest segments — were down 4.1 and 3.9 percent, respectively. Department store revenues declined 3.5 percent, and even factory outlets experienced a 12.4 percent decline. The only gain for the period (14 percent) was among off-price retailers, a relatively small segment.

Although the economy can work in the category’s favor, it is also its biggest challenge. “Retailers are all being very careful about purchasing,” Sandler says. “They are watching inventory very carefully and are less likely to experiment with new things,” which is likely to result in higher stock outs.

Meanwhile, while China remains a large producer of intimate apparel, it is no longer the least expensive one, so companies are going to Vietnam, Cambodia and back to the Philippines. Additionally, Sandler says, “freight has gone up dramatically and manufacturers are really being squeezed.”The escalating cost of gasoline could contribute to even higher online sales. However, the pace remains difficult to judge, according to Sandler. “Many in the industry feel that lingerie is a category that consumers look at online but go to the stores to buy.”

What is too sexy?

The question is, which stores do they visit? Victoria’s Secret has a firm grasp on about 30 percent of the market, but even this venerable purveyor of intimate apparel is not immune to market swings: After a relatively weak first quarter, company officials have been asking themselves whether they have veered off course by becoming “too sexy.”

Bemoaning an overabundance of sensuality seems oddly puritanical for a company whose marketing theme was “What is Sexy?” However, as CEO Sharen Jester Turney recently told analysts, “We use the word sexy a lot and really have forgotten the ultra-feminine. … We will return to an ultra-feminine lingerie brand to meet [customer] needs and expectations.” She emphasized the success of the chain’s Pink brand, a $900 million annual business that targets a younger demographic.

With the lingerie business becoming more fragmented, there is no shortage of competitors for the younger set. One of these is Gilly Hicks, intimate apparel stores with an Australian twist, launched by Abercrombie & Fitch. They specialize in moderately priced items that are described as more casual and fun and a less-provocative alternative to Victoria’s Secret for younger consumers, according to industry observers. The company now has five stores in operation and plans call for another seven or eight this year.

Source: Stores

Supermarket Chains Narrow Their Sights

ONE of the biggest brand names in food this summer doesn’t carry a trademark. It’s the word “local,” which has entered the language as a powerful symbol of high quality and goodness.

Supermarkets are beginning to catch on that stocking corn and tomatoes grown nearby is not enough for customers. Now they are competing with farm stands and farmers’ markets for a wider variety of fresh fruits and vegetables.

It’s been a boon for local farmers. Ten years ago local produce was devalued at the wholesale Hunts Point market, said Lyle Wells, whose family has been farming on Long Island since 1660. “Now you can’t get enough of the stuff.”

Last month Wal-Mart announced that it plans to spend $400 million this year on locally grown produce, making it the largest player in that market.

“When Wal-Mart makes a major effort to reach out to local food systems, it’s a major signal,” said Gus Schumacher Jr., a consultant to the nonprofit Kellogg Foundation and a former Massachusetts commissioner of food and agriculture, who has worked to introduce farmers to restaurateurs and retailers since the 1980s.

Some independently owned, small-to-medium-size chains have been selling extensive lines of local seasonal fruits and vegetables for years, lines they are now expanding.

For the largest supermarket chains, though, where for decades produce has meant truckloads transported primarily from the West Coast, it’s not always easy to switch to the farmer down the road.

But soaring transportation costs, not to mention the cachet customers attach to local food, have made it more attractive not just to supermarkets but to the agribusiness companies that supply them.

Growers like Dole and Nunes have contracted with farmers in the East to grow products like broccoli and leafy greens that they used to ship from the West Coast. Because of fuel costs, in some instances the cost of freight is more than the cost of the products.

“There is a huge shift,” said Brian Nicholson, an owner of Red Jacket Orchards in Geneva, N.Y., who has also become a distributor for local farmers. “Wholesalers and retailers no longer say, I can get it cheaper from out West.”

Some supermarket chains are allowing farmers’ markets to take over part of their parking lots on certain days; others have put a farmers’ market right inside the store.

But not all chains are there yet. “The whole commercial value of local is just now being appreciated by retail,” said Bill Bishop, chairman of Willard Bishop, retail marketing consultants in Barrington, Ill. “It’s a little bit behind the curve.”

Hannaford Brothers, with 165 stores in New York, Vermont, New Hampshire, Maine and Massachusetts, has always sold local produce, but in the last two years its customers have pushed it to offer more. “There’s been a 20 percent increase in sales” in the last year, said Michael Norton, a company spokesman. “Our research tells us consumers have about five or six reasons for wanting local: freshness and taste; keeping farmland in the community and having open spaces; a desire to be close to the food source and know where it comes from; support of local farmers and keeping money in the community. Embedded in all of this is concern about food safety. All this creates pretty powerful interest.”

Will Wedge, director of produce for the chain, said that in company surveys, “82 percent of all customers told us loud and clear, locally grown produce tastes better. We have over 200 farmers selling over 50 different commodities, primarily from June through September.”

Wegmans Food Markets, a 71-store chain based in New York with locations in Pennsylvania, New Jersey, Maryland and Virginia, has been buying from local farmers for the last 20 years. Today it has 800 farmers and has also experienced a 20 percent increase in sales of local produce over the past year. “There’s a real emotional connection with local,” said Dave Corsi, vice president for produce.

Mr. Corsi said that in order to buy from local farms, the chain had to stop acting like a chain. “We don’t control these relationships centrally — the produce manager in each store does this directly,” he said. “We only guide the stores.”

The King Kullen Grocery Company, with 45 stores, all but one on Long Island, has become famous for its local produce, but it took a while. Tom Cullen, a vice president of the family-owned chain, said the company started to buy from local farms 12 years ago but it didn’t work out because neither the quality nor the supply was consistent. “It’s taken years to build trust with farmers,” he said.

Some of the early attempts by retailers have shown that local does not always mean better.

In New York last week there was no discernible difference between blueberries from New Jersey and those from California at Food Emporium, both priced the same. Jersey tomatoes at Whole Foods were barely more flavorful than those from away. Packaged plums and apricots at both stores were hard as rocks, and the corn was not really fresh.

Mr. Bishop said he wasn’t surprised. “Part of being new means not completely perfected. To a significant number of shoppers it seems logical that local has the connotation of being fresher and better tasting, but it isn’t necessarily so.”

Several companies and nonprofits are working to put farmers and supermarket executives together to iron out the kinks. A major focus of Karp Resources of Southold, N.Y., is how to re-regionalize the food system.

“Regional agriculture systems in the Northeast, mid-Atlantic and Southeast are really quite broken,” said Karen Karp, the president of the company. “Small farmers can sell direct, but there is no infrastructure for middle-sized farmers to get stuff into supermarkets.” There are no warehouses, limited trucking facilities and few distributors.

These growers are used to picking the zucchini and bringing it to a stall at a farmers’ market. In order to sell to grocery stores, they have to learn pricing, invoicing and ordering systems as well as post-harvest handling techniques that include chilling, sorting and grading for size and color.
Big retailers have even more work to do. Used to making just a few phone calls to large produce distributors, often thousands of miles away, they do not have the setup or the personnel to deal with individual farmers who deliver to the back door.

Some of them are reluctant to do so and small farmers either have to join a co-op or find a distributor who can deliver to the supermarket’s warehouse.

The chains also have to change their purchasing practices to make room for seasonal local produce instead of being locked into a year-round contract with one source in order to insure the lowest prices.

“It takes innovation and reallocation of resources,” said Mr. Nicholson of Red Jacket Orchards. “It takes passion, and patience to get good collaboration. They have to be willing to spend more money because it’s costlier buying from small growers.”

Ms. Karp said: “If retailers want to deal with these farmers they can no longer push all the risk about food safety and quality assurance back on the individual farmers, who can’t bear those costs.”

Joe Casa, owner of Harbor View Foods, on Long Island, knows the difficulties firsthand. Mr. Casa’s company helps growers and markets communicate, telling stores what is ripe in the fields and telling farmers what produce managers will buy. After he convinced some East End farmers to grow extra produce for the Great Atlantic & Pacific Tea Company, which owns Food Emporium, Pathmark and Waldbaum’s, the process stalled. “It’s hard to make things happen at A.&P., to get approval from top management,” Mr. Casa said. “I told them I had stuck my neck out to get farmers to grow extra stuff for them, but I couldn’t get an answer from them.”

The impasse was resolved when the Long Island Farm Bureau called Senator Charles E. Schumer and told him that a number of farmers might be stuck with unsold produce. He agreed to intervene and soon enough the senator and the chain held a press conference to announce that Long Island produce would be available in some of its stores.

Despite the difficulties, many in the food industry believe the demand for local food is here to stay. “It’s going to be a way of life,” said Matt Seeley, vice president for marketing of the Nunes Company, which sells Foxy brand vegetables. “I don’t think there is any turning back.”

Source: New York Times

Top movie ticket puts you far beyond the cheap seats

Foxboro, MA - When Showcase Cinema de Lux opens its doors at Patriot Place on Friday, moviegoers will have a choice to make at the ticket counter: coach or first class.

Just like coach-class airfare, a standard ticket will reserve a seat inside the new Foxborough movie theater, which houses a restaurant, food court, several conference rooms, seating areas for children, and a reading room for adults.

But for an extra $10, patrons can upgrade: securing a spot in leather loveseats, where hosts serve cocktails, and gaining access into the Lux Level, a posh upstairs lounge overlooking the lobby's baby grand piano.

"You will never have to leave the theater," said manager Sheri McConaghy. "In fact, you will never have to leave your seat unless you have to use the restroom."

Facing growing competition from DVDs and the rise of home theaters, movie theaters increasingly are adding amenities such as bars and food to attract more moviegoers.

"People are watching more movies," said Perry Lowe, a marketing professor at Bentley College and a former theater owner. "But they are watching fewer movies at the movie theaters. The movie theater is becoming an endangered species."

Hoping to stem dwindling attendance at its 15 theaters in Massachusetts, Dedham-based National Amusements created the upscale concept at Patriot Place. The theater is the second in the Boston area to feature such premium amenities, but it's the first in New England to implement the luxury feel throughout the theater. The pilot program, launched at Showcase Cinemas Randolph in December, has the Lux Level and food court but no piano and lounge space.

National Amusements said the theater is part of its plan to "transform the theater into a community entertainment destination."

"We want people to come to the theater even if they are not going to the movie," said company spokeswoman Wanda Whitson. "There is something for everybody - lounges, shopping mall within walking distance, and the stadium."

National Amusement, the fifth-largest movie theater chain, said it plans to open another luxury theater next year in Dedham.

But some moviegoers are not convinced the amenities will bring more bodies into the theaters.

Hanging out with two friends at Showcase Cinemas Randolph yesterday, Linda Tiller of Sharon chose to watch the film "Hancock" from the regular cloth seats instead of paying $10 more to sit in the cushioned loveseat. She said receiving the VIP treatment at theaters does not draw her to the movies.

"If it is a good movie, we will go," she said. Her friends agreed.

Source: Boston Globe

Stores Diversify into New Categories

Retailers faced with the knowledge that only so many consumers are going to walk through the door to buy the products in their stores are now adding new items with the hope of driving additional traffic. Best Buy is adding musical instruments, Menards is selling food and Walgreens has gotten into the clothing business.

The strategy of expanding the types of products sold in retail stores known for particular types of items, the Chicago Tribune points out, has had mixed results.

Barnes & Noble was successful adding coffee shops to its book operations. On the other hand, Jewel's venture into selling lumber; not so good.

"Best Buy and a number of other large retail chains realize they're running out of space to open new stores," said Mary Brett Whitfield, analyst at TNS Retail Forward. "If you look at the run rate of the major retailers for the past 10 to 15 years, it's just going to be physically impossible to keep that up in perpetuity. A lot of retailers are looking at 'How can I sell more things to the people already in my store.'"?

Abt Electronics is a retailer that has expanded its offerings from consumer electronics to include upscale timepieces. The company opened a 900-square-foot watch boutique called Time inside its 65,000-square-foot store in Glenview, Illinois last November.

"The limits of what these big boxes are lead retailers to continue to want to find a way to experiment," Neil Stern, senior partner at McMillan Doolittle LLP told the Trib. "The question from the consumer is, what do you accept from the brand and what feels foreign."

Best Buy is hoping that consumers will not see musical instruments in its stores as being a foreign experience. The retailer, which has been successful selling recorded music and movies to consumers, believes musical instruments are a logical next step.

"Consumers have looked to us as a resource for music for quite a while," said Justin Barber, a spokesperson for Best Buy.

Burt Flickinger, managing director of Strategic Resource Group, thinks Best Buy may be on the right track. "There is so little competition, beyond Guitar Center and local independent stores, it should be a real destination category for Best Buy," he told the Trib.

Source: RetailWire.com

The changing face of the department store

For the first two-thirds of the 20th century, the department store was the heart of retail. At Frederick and Nelson in Seattle, shoppers could see a fashion show before taking to the aisles. In Chicago, Marshall Fields kept shoppers in the store longer by enticing them into its Walnut Room restaurant.

Today most department stores don’t provide customer experiences like that and many of the stores no longer exist.

The growth of suburbia hurt these downtown stores, which had traditionally seen their customers arrive by public transportation, said Jan Whitaker, author of "Service and Style: How the American Department Store Fashioned the Middle Class."

"In the last quarter of the 20th century, many downtown stores closed, leaving city centers forlorn and many people feeling they had lost local institutions, which defined their city’s character," said Whitaker. "The feeling has only grown stronger with further consolidations and takeovers."

Merchandise Mix

Mass market discount retailers like Wal-Mart, Target and Costco have become the shopping destination of choice for most shoppers, said George Whalin, president and chief executive of Retail Management Consultants in Carlsbad, California. "For many years, Sears was the largest retailer in the country. The National Retail Federation now lists Sears Holdings, which includes K-Mart, as the 8th largest retailer, based on sales volume."

In 2007 Sears Holdings had sales of $50,703,000, compared to Wal-Mart’s $378,799,000.

The retail merchandise mix has changed dramatically over the past two decades according to Whalin. Most department stores have narrowed their mix substantially by eliminating consumer electronics, appliances and in some cases even furniture – to their detriment, he believes.

"If they are to serve the consumer better, department stores need to offer more products and services," said Whalin. "And go back to being a true department store."

Whalin defines a department store as a store with a broad variety of departments, including a florist, furniture, jewelry, apparel, etc. Even though Wal-Mart has multiple departments, it’s not considered to be a department store. Macy’s is a better example because they have apparel, jewelry, cosmetics and in some stores, furniture.

Kelly Tackett, a senior consultant for Retail Forward in Columbus, Ohio, argues that the changes in the merchandise mix of soft goods over the past twenty years has been for the better and now customers aren’t seeing the same brands in every store.

"Two decades ago, it was largely national brands and all the stores had a similar mix. Customers would see Ralph Lauren, Liz Claiborne, Tommy Hilfiger, etc., in all the stores," says Tackett.

"Now it’s shifted to a mix of private, exclusive and national brands because retailers are trying to differentiate themselves from one another. Department stores don’t want their merchandise to be interchangeable with their competitors."

According to Tackett, department stores are evolving, partially by partnering with other brands to lure the customer back into the stores. J.C. Penney has partnered with Sephora, for example, and Macy’s is bringing the Lush brand of skincare into its stores.

"Department stores are realizing that in order to drive traffic in their direction, they might not be able to do it alone. They may have to partner so they can offer the one-stop shop," says Tackett.

Bringing back the excitement: Five ways department stores can draw customers back

• Offer more services: utility payment desks, watch repair, alterations, gift wrap, etc.
  
• Hold infrequent, yet meaningful sales. Bon Marché used to only hold month-end clearance sales; Nordstrom has an anniversary sale and its half-yearly sales.
  
• Provide a special experience for men. In 1928 Filene’s had an indoor putting green; in 1947 Hudson’s held a three-day baseball coaching clinic with the Detroit Tigers; department stores often held sales events where men could holiday shop without their wives.
  
• Invite customers to in-store fashion shows.
  
• Stage events: musical concerts, lectures, celebrity appearances, painting exhibitions, contests and product demonstrations free of charge.

Source: Retail Customer Experience

Increase in DC Area Retail Vacancies Is Modest

Retailer Linens 'n Things is closing 177 stores. Sharper Image is liquidating 86 stores. Starbucks is putting the lid on 600 locations.

Across the country, a growing number of retailers have recently gone bankrupt or are in the midst of reorganization, leaving dark, empty blemishes on the nation's shopping centers. The impact on the Washington area has been muted so far, as the region's affluence and strong job market continue to shore up consumer demand.

Nationally, retail vacancies rose to nearly 12 percent in the second quarter, the highest rate in four years, according to research firm Cushman & Wakefield. Regionally, vacancies were just one quarter of that -- 3.3 percent, up half a percentage point from the end of 2007. Rents remain close to their peak prices, with Cushman & Wakefield predicting short-term increases in hot areas such as Penn Quarter, Chevy Chase and Clarendon.

"The impact that we're seeing is still very modest," said Sigrid Zialcita, director of research for Cushman & Wakefield. But she added, "Are we out of the woods yet? Probably not. . . . People are just going to be generally cautious in this kind of environment."

Pummeled by rising gas prices and falling home values, consumers have been wary of opening their wallets, sending retailers into a tailspin. In the Washington region, unemployment rose to 3.9 percent in June from 3.2 percent a year ago, but it was the lowest rate among cities with populations of over 1 million. Household income in several counties remains among the highest in the country despite housing prices that fell 15.4 percent in May, according to S&P/Case-Shiller Home Price Indices, a widely watched measure of the housing market's health.

"Everybody's feeling something. It's just a question of what they're feeling," said Peter Framson, a principal with Green Light Retail Real Estate Services. "This market is having less of the fallout because look at the legs that balance our table."

Many of the nation's troubled retailers do not have a large presence in the region or do not plan to close many, if any, local stores. Department store Mervyns and restaurant chain Steak & Ale, both of which entered bankruptcy proceedings this week, do not have locations in this area, for example.

Three Linens 'n Things stores in the Washington area are slated for closure. Sharper Image is shutting down its four stores in the area. Ten of the hundreds of Starbucks in the region are on the hit list.

"It's less about Washington and more about their national strategy," Framson said.

Local developers and economists say they expect the region's vacancy rate to rise during the second half of the year. But Greg Leisch, chief executive of research firm Delta Associates, said the rate would have to jump by at least 1 or 2 percentage points before consumers would likely detect a change in their shopping centers. In addition, many storefronts are quickly replaced when they go dark, he said.

"There are retailers in line to take their space," Leisch said. "That's not the case in most other metropolitan areas."

Three of the region's largest malls, which are owned by developer Westfield, have occupancy rates of at least 93 percent, spokeswoman Katy Dickey said. The company's shopping center in Annapolis completed a $160 million expansion late last year with 60 new stores and restaurants. Fair Oaks Mall recycled the space once used by defunct retailer Mastercraft into a new store, Forever 21.

At Tysons Corner Center, property manager Cory Scott said the mall is close to signing deals for spaces vacated by the beleaguered Wilsons Leather and Domain Furniture, which is in bankruptcy proceedings. Madewell, a new J. Crew store targeting young women, is slated to open this month in the location that once housed retailer Bombay Company, which entered bankruptcy proceedings and liquidated its U.S. stores. Scott hopes to use the new stores to create another fashion corridor within the mall.

"Being able to get back that Bombay space and bring in Madewell is a fantastic addition to the shopping center," he said.

Source: Washington Post

Foreign Retailers Flock to U.S.

NEW YORK — Sandwich, the latest retailer you’ve never heard of to land on these shores, arrived by way of the Netherlands last month when it unveiled its first U.S. store at the Fashion Show Mall in Las Vegas.

Sandwich is part of a larger trend of small- to medium-size foreign specialty retailers opening stores Stateside. While these chains may be popular in their home countries, they have little or no name recognition here. Nonetheless, mall operators have embraced the newcomers at a time when many American retailers are closing stores or scaling back expansion plans.

Bart Terhorst, managing director of Veldhoven Retail USA LLC, parent of Sandwich, said the 3,600-square-foot Las Vegas unit has been in the works for some time. “Two years ago [the idea] looked good,” he said. “Of course, the economy looked much better then than it does now. But you can’t abandon such a project. The economy will pick up.”

Terhorst said the store, which had a soft opening last month and will celebrate a grand opening on Sept. 7, has been trending well. “We are pretty much on track for what we were expecting for next year,” he said. “This should be a $3 million store for us. We are going in the right direction. The good reaction we’re getting from customers is what keeps us very optimistic.”

Sandwich is priced “in the Zara range,” Terhorst said, noting pants range in price from $65 to $85, and tops, $25 to $65. Veldhoven, which owns factories in China, manufactures two other brands, No-No apparel for babies and girls, and Still, a higher-priced women’s collection. Sandwich, which was primarily a wholesale brand, began opening stores six years ago and now operates units in 24 countries.

“I have experience in the European market,” Terhorst said. “The U.S. is different. Customers are a bit more demanding. Nevertheless, that’s good for us because we want to be a service company. We want to do it right. It’s good that shoppers are demanding. There are [so many] choices here — you can shop anywhere. It keeps us focused.”

Underestimating American consumers has been the downfall of some foreign retailers that retreated. After acquiring the Dutch brand Mexx in 2001, Liz Claiborne opened 11 stores in the U.S. The brand never resonated with consumers and all 11 Mexx units closed between early 2006 and July 2007. Sold in 66 countries, Mexx failed to replicate in America its success in Europe, particularly in France. “Mexx does not have the brand recognition here,” said Jill Granoff, group president for direct-to-consumer, last July. “

Some foreign retailers have taken their time expanding. Reiss, a U.K. chain, opened a 5,000-square-foot flagship on Manhattan’s West Broadway in 2005. The company has been relatively quiet since, studying the market. Now Reiss is getting ready to open 20 stores in the U.S., according to Laurie Marco, executive vice president of U.S. operations.

“One of the challenges of doing business in America was managing the U.S. business from the London corporate office,” she said. “Reiss then made the decision to set up corporate offices in New York in order to manage the day-to-day business and manage our expansion in the market.” When it comes to customers, Marco actually finds New York shoppers to be very similar to those in London. “All are fashion-forward,” she said.

Now a new crop of retailers from abroad is targeting the U.S. Kira Plastinina, Russian fashions designed by a wealthy teenager, has opened stores on South Beverly Drive, Robertson Boulevard and in Beverly Center in Los Angeles, on Santa Monica’s Third Street Promenade, Manhattan’s SoHo and Stamford, Conn. Who.A.U., a South Korean-based brand for teens and young adults, last fall opened a 4,100-square-foot store at Stamford Town Center. Diana Milligan, a director of leasing for the Taubman Co., said the mall owner would “definitely want to put Who.A.U. in our shopping centers if it’s successful.”

Karen Millen, which opened an American flagship in SoHo last year, is a well-known brand in the U.K. Recently, an employee at the downtown store said traffic is down and blamed the lack of name recognition for the brand.

But Jeffrey Paisner, a retail broker at Ripco Real Estate who now works with Zara, said name recognition or not, “all mall operators are looking for unique and innovative retailers to add to their tenant mix that will differentiate them from other centers. It requires much less of an investment for a tenant to go into a mall than to open a store on the street. Malls tempt tenants with lower installation and build-out costs and none of the hassles with permits. They are getting a significant tenant allowance from landlords.”

“I think you’ll continue to see more foreign chains,” said Robert Michaels, president and chief operating officer of General Growth Properties, which operates the Fashion Show Mall, where Sandwich opened. One reason is because chains such as Mango, Zara and others “are out of expansion possibilities in most of Europe.”

Michaels said GGP is talking to Who.A.U. about a number of potential leases.

“It’s a great example of a chain that could be big,” he said. “It takes time for people to understand what the [foreign] stores are and what they represent. They have to stand for something. The issue is identification and value. It’s understanding quality. Consumers are open to anything that’s new and will give it a chance. But if they falter on quality, consumers won’t give them a second chance.”

Source: Women's Wear Daily

Discounters, Specialty Stores Boost Jobs in July

WASHINGTON — Discounters and specialty stores added jobs in July in contrast with overall retail trends as the U.S. unemployment rate reached a four-year high, the Labor Department said.

The stores apparently benefited from the residual effects of government tax rebate checks, analysts said. However, textile and apparel manufacturers cut payrolls.

General merchandise stores, which include discounters like Wal-Mart Stores Inc., added 3,900 jobs last month to employ 2.9 million people. Department stores, which are also included among general merchandise merchants, trimmed 2,200 positions to 1.5 million. Clothing and accessories stores added 700 jobs, bringing the number of employees for the sector to 1.5 million.

The total retail sector trimmed 16,500 jobs to employ 15.3 million people, with the job losses propelled by auto and home improvement sectors.

The manufacturing sector continued its decades-long contraction. Domestic apparel manufacturers trimmed 1,100 jobs. Textile manufacturers shed 3,800 jobs to employ 149,400 people, including a loss of 2,600 positions at textile mills that produce apparel fabric. Textile product mills, which manufacture mostly home furnishing fabrics, cut 1,200 jobs to employ 148,000 people.

In the overall economy, the downward trend continued, as employers cut 51,000 jobs, the seventh consecutive month of national employment declines. The jobless rate rose to 5.7 percent from 5.5 percent in June. The Labor Department said Friday that it adjusted June job losses to 51,000 from 62,000.

“Retail stands out as one of the sectors being hit hardest by this latest contraction of payrolls,” said John Lonski, chief economist, Moody’s Investor Services, adding that overall retail employment was down for the eighth consecutive month.

“Consumers have diminished job prospects, dwindling paychecks and higher travel costs to shopping centers, which doesn’t bode well for the retail sector,” said Richard Yamarone, director of economic research, Argus Research Corp.Stores are paring inventory and offering steep discounts to try to counteract the slowing economy, and at the same time trying to trim their employment costs, he said.

“This has resulted in notable declines in service, particularly in department stores,” Yamarone said. “Long lines, unkempt displays and essentially no help on the sales floors are commonplace at many large department stores. Now that there aren’t too many tax rebate checks left, we suspect that retail-related layoffs will trend higher in coming months.”




Source: WWD

CBRE’s Torto Sees CRE Correction, No Catastrophe

More pain is in store for the U.S. commercial real estate market and the for the rest of the year, but reports of a meltdown are greatly exaggerated.

That is the conclusion of CB Richard Ellis Inc.’s global chief economist, Raymond Torto (pictured), in a mid-year report. Difficulties in areas ranging from the job market to CMBS that will take time to resolve. Still, the economy should avoid the severity of the doldrums a generation ago, Torto argued. “We feel the headlines do not accurately reflect U.S. or global real estate fundamentals,” the report states.

A generation ago, 12 months of job losses more severe than this year’s pounded the economy, followed by another 9 months of flat growth. Job losses will continue nationwide for the next three to six months; however, the slump in the employment market will not reach the scale of the early 1990s crisis. Indeed, considering the adjustments experienced by the housing, auto, and airline industry, “it is surprising that the job losses to date have not been greater,” the report states.

The short-term outlook for commercial real estate is comparable to the job market’s: a relatively shallow, if extended weakening. Commercial real estate is already reflecting the softening of the economy. Second-quarter vacancy rates are up 50 to 100 basis points year-over-year nationwide. In the industrial sector, for example, vacancy for the markets tracked by Torto Wheaton Research, an affiliate of CB Richard Ellis Inc., rose from 9.3 percent to 10.3 percent since the second quarter of 2007. Office vacancy is at 13.2 percent, up from 12.5 percent a year ago. For the rest of the year, vacancy will continue to rise and absorption will dip into the negative across property types.

Another indication of the downturn’s shallow nature is economic rent, which Torto defines as a measure of the change in a property’s gross income. That metric is expected to dip only 1.2 percent during the current downturn, a much lower drop than either the 6.1 percent falloff registered in the 1990s or the 23.4 percent slide tallied in 2001. Meanwhile, strong cash flows are keeping a lid on CMBS delinquency rates, which are less than one-half of one-percent for all property types.

Souce: Commercial Property News

The Nation’s Hottest Retailers 2008

Hot retailers had to be exceptionally hot in the economic environment that settled over most of the country in 2007. The hottest of the hot, the top 10, performed comparably to chart-toppers from prior years; more challenged were those at the lower end of the chart.

Two years ago, the companies tied for the 75th spot on the inaugural STORES Hot 100 Retailers chart showed a sales increase of 10.3 percent, while the same ranking last year came with a 12.4 percent year-over-year gain. This year,

Neiman Marcus has sole possession of that spot with an 8.9 percent gain – still mighty respectable, since the Dallas-based company is one of only two department stores represented in the Hot 100.

The companies heading the 2008 STORES Hot 100 Retailers list took the typical route to the top — acquisitions. CVS joined forces with Caremark; Rite Aid completed its deal for the Brooks Pharmacy and Eckerd operations; IHOP took over the larger Applebee’s chain. Amazon.com made some small transactions to enhance existing merchandise categories while extending its e-commerce expertise into new areas, while Coldwater Creek and FTD continued multi-channel diversification.

GameStop continues to reap the synergistic benefits of some strategic acquisitions two years ago, and American Apparel and Chipotle Mexican Grill both have been growing store counts for a couple of years, with the resultant sales increases up in this year’s figures.

With CVS Caremark resting at the top of the chart and Rite Aid commanding the runner-up position, it is not surprising that drug chains constitute the hottest retail segment among companies on the Hot 100 chart, sporting a gaudy 42 percent year-over-year volume increase.

Last year was the first full year of operation for the combination of drug retailer CVS and prescription benefits manager Caremark Rx: Their joint revenues of more than $76 billion were 74.2 percent above the $43.8 billion CVS generated in 2006.

Rite Aid’s revenue boost came from its purchase of the Brooks Pharmacy units in New England and Eckerd drug stores along the East Coast that had once been part of Canadian Jean Coutu Group’s ill-fated experiment doing business south of the border. It is only this summer that Rite Aid is wrapping up the conversion and integration of those stores into its coast-to-coast network.
Walgreen is beginning to slow its three-stores-every-two-days expansion pace, abetted by some selective acquisitions of specialty pharmacies.

Convenience store heat

Ranking behind drug stores as the second-hottest group of retailers is a quartet of fuel, food and convenience merchandise merchants in the quick-stop/c-store segment with an average revenue increase of 21 percent. The four include TravelCenters of America, the truck stop/travel center and restaurant operator spun-off by a group of private equity investors early last year; Susser Holdings, which once operated under the Circle K banner before renaming and launching the Stripes convenience store chain in 2006 and buying Town & Country Food Stores last year; Casey’s General Stores; and The Pantry, the latter two having made a practice of buying small operators to either in-fill or grow the perimeters of their operating territories.

Holding down the third position on the Hot 100 list is IHOP, one of three restaurant companies in the top 10. IHOP startled industry observers last summer when it announced its intentions to acquire Applebee’s, the nation’s largest full-service dining chain by number of locations. Though
IHOP built its name and reputation running pancake restaurants, it has spent the last five years transforming itself from an operator to a franchisor of restaurants and is now nearly 99 percent franchised.

Most of Applebee’s units were company owned and operated; it began changing that shortly after consummating its takeover last November. In a deal typical of its plans for Applebee’s, the company last month announced the sale of 26 Applebee’s restaurants in Southern California to Apple American Group, a deal which generated approximately $27 million in after-tax cash proceeds.

To signal a new stage in its development — and reduce the potential for confusion among the restaurant-going public — IHOP Corp. earlier this year changed its name to DineEquity. The company boasts that, with more than 3,300 units, DineEquity is the largest full-service restaurant company in the world.

Joining IHOP among restaurant operators in the top 10 are No. 8 BJ’s Restaurants and No. 9 Chipotle Mexican Grill, both of which are growing organically rather than through acquisitions.

BJ’s, which started serving deep dish pizza in the Los Angeles suburb of Santa Ana 30 years ago, has grown into a chain numbering 73 locations.After opening its first brewery in 1996, the company’s latest restaurant is styled as BJ’s Restaurant & Brewhouse, where pizza is still a major component of the menu. Though more than half of BJ’s locations are in California, the company has grown eastward, with units stretching into Texas and Louisiana, as well as Indiana, Ohio, Kentucky and Florida. In July, the company created the post of chief marketing officer and filled it with Matt Hood, who had been national brand restaurant consultant for Google.

Denver-based Chipotle, which split from McDonald’s in 2006, experienced explosive growth before and after the alliance, even though some quick-serve conventional wisdom has been cast aside. For one thing, the company operates its own restaurants and doesn’t franchise; for another, it eschews TV advertising.

Chipotle is the brainchild of Steve Ells, whose approach is to marry the pedestrian burrito with ingredients such as freshly chopped cilantro and beefsteak marinated for 12 hours, ideas worthy of someone trained at the Culinary Institute of America. Ells was one of the early proponents of pushing suppliers to use natural and humane methods of raising farm animals. More recently, the company has begun a program of buying at least 25 percent of its produce — romaine lettuce, green bell peppers, jalapenos, red onions — from local farms.

Chipotle has nearly 750 restaurants across the country, is opening its first Canadian units this year and is casting an eye toward Europe, where Frankfurt, London and Paris have been mentioned as possible expansion sites.

Supermarket segment

The supermarket segment has five representatives in the Hot 100, but none are in the top quartile. As a group, they posted a 17.2 percent year-to-year revenue rise, led by A&P’s 19.2 percent boost following its acquisition of Pathmark Stores. The differential was enhanced by A&P’s downsizing in the several quarters preceding the combination of the two New Jersey-based chains.

Rising food prices have helped all grocers’ top lines, and SUPERVALU benefited from this, as well as from the inclusion of its distribution business in total revenues for the first time this year.
Spartan Stores has shed its drug store chain and also distributes to some independent grocers.

Rounding out the hot grocery segment are Ingles, a low-profile but well-respected operation based in western North Carolina, and Whole Foods Markets, which is still opening stores.

Apparel stores are well represented among the Hot 100 Retailers, with the ’tweens and teens category enjoying an aggregate 13.3 percent sales lift. Included in this group are chains that have grown through rapid store openings rather than acquisitions, operations as disparate as Zumiez, Urban Outfitters, Aéropostale, The Buckle, and one-time Limited divisions Tween Brands (the erstwhile Limited Too) and Abercrombie & Fitch.

As a group, specialty apparel retailers didn’t fare as well as those focused on the younger set, but two members of the group did earn single-digit rankings on the big chart. American Apparel sports a 35.8 percent sales gain, good enough to place fifth among all Hot 100 chains, and No. 6 Coldwater Creek is right behind with a 33.8 percent increase.

American Apparel has been opening stores with a vengeance, fueling its torrid sales gains, but the expansion might be coming at the expense of fiscal prudence, with securities analysts and industry watchers raising red flags over equilibrium on the company’s balance sheet. Coldwater Creek began as a catalog retailer that ventured into e-commerce, bricks-and-mortar stores – even day spas in conjunction with some store locations. Its winning streak has not continued into the current year, as sales in the early months had dropped from year-ago levels. In the words of president and CEO Daniel Griesemer, the major factor appears to be that the chain’s merchandise offerings have “become part of the circle of sameness.”

Amazon.com hasn’t carved out a niche so much as it has defined what online retailing is and how it should be conducted. The result is a formidable seller of books, music, movies and a lot of other goods, as well as an entity that functions like an electronic shopping mall — directing shoppers to branded stores carrying other retailers’ names — and as a facilitator and consultant for retailers too small or too inexperienced to establish e-commerce businesses on their own. All the while, Amazon has remained innovative and creative while adding new merchandise categories (like groceries) and introducing the Kindle, an electronic device enabling the downloading and reading of books in digital formats.

GameStop spreads internationally

GameStop has no direct competition in this country, though retailers from Best Buy and Blockbuster to Target and Walmart all sell electronic games. GameStop continues to open stores here, aiming for about 300 this year, but its greatest opportunities are overseas, where it buys entire chains to enter a new country or market. Earlier this year, GameStop acquired the 49-unit Free Record Shop in Norway to go with the 100 units it already operated in Scandinavia. More recently, GameStop agreed to purchase The Gamesman, New Zealand’s largest independent game retailer, which will give it 308 locations in New Zealand and Australia.

No. 10 FTD sells flowers and gifts directly to consumers through ftd.com and is also a web and telephone marketer of merchandise through its network of approximately 20,000 North American flower shops. Merchandise includes flowers, plants, pots and vases as well as books, plush toys, jewelry and collectibles. This is likely FTD’s final appearance on the Hot 100 chart, since it has agreed to be acquired by United Online, a provider of consumer Internet and media services based in Woodland Hills, Calif.

A number of retailers have displayed the ability to maintain their heated growth pace over the three years of the Hot 100’s existence. In spite of the sluggish consumer spending environment, GameStop, CVS Caremark and Amazon.com sport triple-digit growth over the extended period. What might seem counterintuitive is that not all of the three-peat Hot 100 retailers are active in the mergers and acquisitions arena or are young go-go companies. Among the 40 retailers showing sustained sizzle are Walmart, Costco, Tiffany and Abercrombie & Fitch.

No food service businesses are included in this group because restaurants weren’t part of the initial Hot 100, but restaurants now constitute the largest segment among Hot 100 Retailers, though for compilation purposes they are grouped into three sub-segments (Sandwich/beverage, casual and upscale dining).

Size is not an impediment to hot sales, with fully 30 companies appearing on both the Top 100 chart and the Hot 100 list, ranging from Walmart at the top end to No. 99 Saks Fifth Avenue, which is prospering after slimming down from its foray into regional department stores. Jewelry, a retail segment not represented at all in the Top 100, is well-represented among Hot 100 Retailers, including Tiffany, Blue Nile, Finlay Enterprises (operator of leased departments and parent of the Bailey Banks & Biddle and Carlyle chains) and Birks & Mayors, which operates stores in both Canada and the United States.

Source: Stores

Grocery shoppers switching to store brands

CINCINNATI - After watching the price of her favorite bread rising too quickly, Michele Shores decided it was time for a fresh approach.

She began picking up store-brand breads, Kroger Co.'s namesake brand or Wal-Mart Stores Inc.'s Great Value, when her usual bread went from $2 to $3 a loaf. Less than half the price, and not half bad.

''My husband takes his lunch to work and we all eat a lot of sandwiches here,'' said the 30-year-old mother of two from Atlanta. ''So that's a lot of money for us.''

As budgets get tighter and food gets more expensive, American shoppers are increasingly switching to store brands - even upper-income consumers who may not have been inclined to give them a try before.

The nation's biggest grocery-sellers, Wal-Mart, Supervalu Inc., Safeway Inc. and Kroger, which does business in Utah as Smith's, all report that sales of their own brands are jumping, as customers can't stop regularly buying food and household items but need to reduce spending. ''There are things we can do to drive less, but how do you eat less? You don't,'' said Erin Frehner, a Brigham Young University senior.

Frehner said she and her husband, both full-time students with part-time jobs, always try to get the store brand unless they strongly prefer the national brand or if the price is almost the same.

Marketing Institute, an industry trade group, found this year that the number of shoppers who say they are buying more store-brand items has been steadily rising, now up to some 60 percent. Candace Corlett, president of the consulting firm WSL Strategic Retail, says her group has found that even upper-income shoppers are more willing to buy store brands, which have traditionally been seen as appealing most to people on limited budgets.

That shift comes as the chains are offering more store-brand products of better quality.

Gone are the gray, no-frills cans with nondescript labels such as ''peas,'' packaging that evoked cheap, bland taste. Many now sport colorful labels with names like Kroger's ''Private Selection'' and ''Naturally Preferred'' that don't shout ''store brand.''

Stores have been pushing their own brands in areas such as dairy products, meats and breads where prices have risen especially fast, and are tapping into increased demand for organics and natural foods.

''Store brands have come a long way,'' said Tod Marks, a senior editor at Consumer Reports, which has tested store brands against national brands for quality and customer response. ''Over the years, retailers realized that store brands were not just something to be floated out during hard times . . . 'This is a signature product of ours. We want to be known for this.' "

Source: Salt Lake Tribune

Is It Time For A Massive Mall Meltdown?

It's the icky Darwinian side of every economic downturn--watching the weaker brands perish just yards away from the watering hole, while vultures and buzzards fill the air.

But observers say it's probably a little too soon to declare a meltdown in the retail sector, despite the recent Chapter 11 filing of Mervyns, the Hayward, Calif.-based chain. Other recent casualties include Steve & Barry's, Linens 'n Things Inc., and the Sharper Image Corp., as well as widespread store closings, such as those announced recently by Starbucks.

Yes, there will be more to come: In its most recent report, the International Council of Shopping Centers predicts that close to 144,000 stores--or about 36,000 per quarter--will bite the dust in 2008. That's a 7% jump from 2007, and the largest increase in 14 years. But the trade group points out that those numbers mask the many stores that will open. For instance, it says, in 2006, 139,000 stores failed--but 123,000 new ones sprung up. Clothing stores, it says, continue to be the most vulnerable, with such chains as Wilson's Leather, Geoffrey Beane-outlet stores, Goody's Family Clothing, Ann Taylor and Talbots among the many retailers that shuttered stores in the first half.

But the retail deathwatch is enough to set tongues wagging about even the strongest brands. Macy's recently had to respond to concerns about its financial health, with the CEO filing a letter with the Securities & Exchange Commission to defend its finances: "Our same-store sales trends are better than J.C. Penney, Kohl's, Dillard's, Nordstrom, Bon-Ton, The Gap and Limited Brands, to name a few," he wrote.

Some experts believe the worst of the shakeout will be restricted to smaller, weaker chains.

"Retailers that have a reputation for offering good value, those that have diverse geographic portfolios--both in the U.S. and around the world, and those that offer a broader selection of merchandise are in a better position," says Tony Gao, Ph.D., marketing professor and retail expert at Northeastern University's College of Business Administration in Boston, who points out that Mervyns and several of the other more troubled chains had a strong presence in California, which has been particularly hard-hit by the housing downturn. "And specialty stores tend to file for bankruptcy first."

Among higher-end stores, he says, those with the broadest global presence, as well as access to wealthy U.S. urbanites and international tourists, also have an edge.

Source: Media Post

Study finds Americans reduce credit card spending

NEW YORK — Americans in all age and income groups have reduced credit card use and cut spending on non-essential items as oil and food prices soar, home prices sink and lenders tighten credit, a new study shows.

Thirty-seven percent of consumers said they have reduced spending on credit cards, while just 10% said they are spending more, according to the study released Wednesday by Javelin Strategy & Research of Pleasanton, Calif.

Meanwhile, 54% of consumers said they plan to spend less on "discretionary" or luxury items, while a mere 5% plan to spend more. The percentages of consumers spending less were even higher among consumers aged 35 to 64.

And 57% said they are "more careful" about eating at restaurants, where bills are often paid with plastic.

COMPARING CARDS: Find the credit card that suits you best

On Tuesday, the company behind Bennigan's and Steak & Ale filed for Chapter 7 bankruptcy, joining a few other operators of casual dining chains that succumbed this year as more people chose to dine at home.

"Consumers are getting more cautious and the credit crunch is far from over," said Curtis Arnold, a consumer advocate and founder of CardRatings.com.

Americans in May had $961.8 billion of revolving debt, U.S. Federal Reserve data show, equal to roughly $3,150 per person. The total amount is up about 58% this decade.

Card issuers face pressure as credit problems brought about by the housing slump extend into other forms of debt, causing higher delinquencies and forcing even the wealthy to cut back.

Among 13 issuers polled by Javelin, nine said they have pared efforts to solicit new customers, while eight have reduced customer credit lines.

Several issuers reported lower second-quarter results from cards, including Bank of America, Citigroup, JPMorgan Chase, Washington Mutual and American Express.

On July 21, Amex Chief Executive Kenneth Chenault called the U.S. credit situation "disappointing."

Regulators are keeping watch. The Fed said it received more than 41,000 public comments on proposed rules to thwart "unfair or deceptive" card practices, such as excessive rates and fees. (Two-thirds of the comments came on form letters.)

Fed Chairman Ben Bernanke, in announcing the proposed rules in May, said cardholders "should be better able to predict how their decisions and actions will affect their costs."

Arnold said many consumers are charging more day-to-day expenses, as issuers offer rebates to encourage such card use.

But he added that some issuers, including Wells Fargo & Co, have also begun reaching out, even to customers who pay bills on time, to prepare them in case times get tough.

"Yes, the card issuers want to collect finance charges, but they don't want their customers to be delinquent," Arnold said. "We've never before seen the industry start to reach out to their customers, saying, 'we know you're hurting."'

Wells Fargo spokeswoman Lisa Westermann said that bank recently promoted counseling and automatic payment services to "select" customers, whose responses were "mostly positive."

Javelin's survey covered 1,500 consumers who answered questions online in April.

Source: USA Today

Shoppers to face higher prices for holiday shopping this year

NEW YORK (AP) - Christmas in July? Maybe not a bad idea this year.

Retailers are already talking about price increases of up to 15 percent this year on holiday goods, from staples like tree ornaments and toys to luxury gifts like European handbags and clothing. The main cause? It’s the same old chestnut, soaring energy prices.

While most consumers are just starting to think about back-to-school shopping, retailers are already preparing for the critical holiday season. Consumers have been seeing prices creep up for many products, but now escalating cost pressures - which are also being fueled by the weaker dollar and higher labor costs in China - are forcing merchants from low-price warehouse clubs to upscale clothiers to pass on more of the burden in the months ahead.

Many stores are still deciding on their holiday prices, and receding oil prices in recent weeks could provide a bit of relief. Still, buying that status handbag now might help shoppers save a little - but for some items, it’s already too late.

And any big surge in demand could lead to more bad news on the inflation front, serving as a catalyst for prices to spiral.

With bigger price increases, the nation’s merchants risk turning off shoppers who may end up buying fewer holiday gifts to keep to their budgets. That could mean a serious hit for the economy, since consumer spending accounts for two-thirds of all economic activity and the holiday period accounts for a huge chunk of merchants’ sales and profits.

“Truthfully, I probably won’t purchase items that go up that much - especially something like Christmas decorations,” said Marilyn Reese of Cincinnati, who works at an insurance company. “I will just go with what I have.”

Carl Steidtmann, chief economist at Deloitte Research, says that price inflation will be yet “another factor that undermines consumer purchasing power and will hurt spending even more.”

“This will be a very difficult holiday season,” he said.

The price increases come as stores also have to be pushing even deeper discounts this holiday season to attract customers. But that 50 percent off may not be as good a deal as last year since the original price could be higher.

Even Costco Wholesale Corp., which had been one of the bright spots in retailing, warned last week that its profit was getting squeezed by rising energy costs and it would have to raise prices more. Richard Galanti, Costco’s chief financial officer, specifically cited holiday decor and rotisserie chickens, which are popular for holiday meals.

Holiday decor will be as much as 12 percent pricier this holiday season than a year ago, and the price of rotisserie chicken, which had been $4.99 for years, was raised to $5.49 about three months ago and just went up to $5.99 last week.

Toy prices are likely to be about 10 percent higher for the holidays than a year ago, said Sean McGowan, an analyst at Needham and Co.

K-B Toys Inc., which focuses on selling past toy hits at discounted prices, says it isn’t increasing prices for now. The chain even unveiled a program Monday that offers temporary price cuts on some already reduced toys. But the discounts are a result of logistical maneuvering. Advertising director Geoffrey Webb said the chain has started consolidating trips from the distribution centers to stores to save fuel costs.

Kathleen Waugh, a spokeswoman for Toys “R” Us, Inc., said that prices for some products will stay steady, while others will have “gradual” increases beginning in early fall. Waugh declined to comment further because pricing is still being worked out. But at Kidstop Toys and Books in Scottsdale, Ariz., which offers mostly European brands as Haba and Corolle, 10 percent price hikes have already begun, according to owner Kate Tanner.

European luxury goods are also getting even pricier as the dollar erodes against the euro. New York-based luxury consultant Robert Burke estimates that the price tag on European status handbags, shoes and clothing, whose prices have been creeping up in recent years, will rise as much as 15 percent starting this fall.

“No one expected the weak dollar to last this long or get weaker,” said Burke.

Sandy Neiman, director of marketing for clothier Paul Stuart Inc., whose tailored men’s suits are priced from $1,700 to $5,000, expects up to a 10 percent increase on European clothing starting in September. While he believes that his wealthiest clientele won’t “blink an eye,” others may switch to less expensive labels or shift their purchases away from items like knit shirts and more toward suits, which can be worn for several seasons.

Prices for mass-market apparel, which have fallen for decades because of oversupply and cheap labor from China, are also seeing prices rise a bit because of higher wages from that country and that’s forcing stores to shift production to other low-cost countries like Vietnam. Quentin Crenshaw, a spokesman at J.C. Penney, which sources in 17 different countries, said that the department store chain doesn’t expect to increase overall prices for the holidays - even for goods that are sourced primarily in China like footwear and porcelain, which are expected to see an increase in costs.

Officials at Wal-Mart Stores Inc., Sears Holding Corp., and Target Corp. declined to comment, but a clearer picture on inflation is expected after they report their second-quarter results in August.

The profit outlook isn’t pretty. Retailers have been forced to absorb costs at the expense of profits but can’t do it any longer, since the holiday period accounts for about 40 percent of merchants’ profits and 50 percent of sales, says Ken Perkins, president of research company RetailMetrics LLC. The retail industry is set to report an overall profit drop of 5.2 percent for the current quarter compared to a year earlier, what will be the fifth consecutive quarterly declines. Excluding Wal-Mart’s figures, Perkins estimates a 13 percent drop.

Customers shouldn’t expect to see relief after the holiday season, either. Galanti, of Costco, said prices for patio furniture for next spring will rise as much as 15 percent.

Source: WSLS.com

MA schedules sales tax holiday

For the fifth year in a row, Massachusetts shoppers will have a brief reprieve from state sales taxes this summer.

Gov. Deval Patrick signed legislation Wednesday that established a tax-free weekend, which will take place August 16-17. Purchases of items $2,500 or less will be exempt from the 5 percent tax.

“I am glad we can provide people with this small break in time for back-to-school purchases,” Patrick said in a statement. “We hope it stimulates all sorts of sales activity during what is otherwise a slow time of year.”

This year the proposal was under fire from fiscal watchdog groups as the state grapples with potentially a $1 billion budget shortfall. Regular sales tax receipts, which exclude food and motor vehicles, are up a paltry 0.8 percent over last year, but $48 million below state Department of Revenue benchmarks used in budget calculations.

Retail groups say the holiday will provide a needed boost to the economy.

“The sales tax holiday weekend is a highly effective way to stimulate economic activity and couldn’t come at a better time for the retailing community,” said Jon Hurst, president of the Retailers Association of Massachusetts in a statement.

More than dozen other states have established sales tax holiday this year, according to the Federation of Tax Administrators.

Source: Boston Business Journal

Retail Detail. The Top Ten List of The World's Most Expensive Retail Addresses

Fifth Avenue - NYC

Location, location, location! Sometimes a location is more than a location, it's a brand.

The CEOs of Tiffany & Co., Bergdorf Goodman and Harry Winston already know this real estate tidbit as their flagships are located on Fifth Avenue between 56th and 58th streets in Manhattan...some the most coveted and expensive retail stretch in the world.

Retailers looking to set up shop on Fifth Avenue - between 59th and 42nd streets - can expect to spend $1,500 a square foot. To put that into context, many shops on that stretch are around 20,000 square feet, making annual payments about $30 million a year.

Even as stock prices and consumer confidence slide, the world's elite addresses, like New Bond Street in London, Ginza in Tokyo, Bahnhofstrasse in Zürich, Switzerland, or Avenue des Champs-Elysees in Paris are not showing signs of stress.

Gangnam Station - Seoul, South Korea This month, Abercrombie & Fitch signed a lease for 90,000 square feet at 666 Fifth Avenue (at 53rd Street) and agreed to pay over $2,000 a square foot. British retailers Topshop and Reiss are in the midst of an international expansion, especially in the U.S, and Apple opened its first flagship store in London.

Still, that doesn't mean retailers aren't aware of the slowdown. "People are using a slowdown as a negotiating tool," says Jeffrey D. Roseman, executive vice president of Newmark Knight Frank Retail, the New York arm of the London-based firm. "But once it's all said and done, retailers are not necessarily losing business from it. The folks buying the $5,000 or $10,000 suits, or $1,000 shoes aren't as affected by what's going on in the world."

In Asia, Hong Kong is home to luxury shoppers. Foreigners can visit on a passport, and Chinese can travel freely to the city because of its status as a special administrative region. Guess where the huge shopping districts for Chinese and international wealth form as a result? In Hong Kong's Causeway Bay, a district built on fill, retail goes for $1,213 per-square-foot per year.

Pitt Street Mall - Sydney, Australia While the highest-end properties continue to hold out, the big questions for the remainder of 2008 and into 2009 are how long properties, retail and office can hold up in the face of a global economic slowdown as investors and businesses alike start to feel the pinch.

But no matter how much you worry about real estate, it's safe to think that the draw and status of places like Ermou Street in Athens, Greece, or Grafton Street in Dublin, Ireland, along with Fifth Avenue in New York, will hold their value longer than other neighborhoods.

Here is the top ten list of the world's most expensive retail real estate:

10. Gangnam Station
Seoul, South Korea
Price-per-square foot, per year: $431

9. Ermou Street
Athens, Greece
Price-per-square foot, per year: $451

8. Pitt Street Mall
Sydney, Australia
Price-per-square foot, per year: $489

7. Bahnhofstrasse
Zürich, Switzerland
Price-per-square foot, per year: $492

6. Grafton Street
Dublin, Ireland
Price-per-square foot, per year: $669

5. Ginza
Tokyo, Japan
Price-per-square foot, per year: $683

4. New Bond Street
London, U.K.
Price-per-square foot, per year: $814

3. Avenue des Champs-Elysees
Paris, France
Price-per-square foot, per year: $922

2. Causeway Bay
Hong Kong, China
Price-per-square foot, per year: $1,213

1. Fifth Avenue
New York City, N.Y.
Price-per-square foot, per year: $1,500

Source: SecondCityStyle.com

How long can Americans stick to newfound frugality?

NEW YORK - Adrienne Radtke plans to keep riding her bike to work even if gas prices drop. Steve Pizzini got rid of his Cadillac Escalade in favor of a 16-year-old Acura and doesn't expect to have another gas-guzzler.

"I had a paradigm shift," said Pizzini, a financial analyst. "I spent the money on a nice car. But to me, it's not worth it. I don't think I will go that route again.

"Every economic downturn changes shoppers in some way. But this time, experts say the new behavior -- fueled by higher gas and food prices, tightening credit and a slumping housing market -- are the most dramatic and widespread that they have seen since the mid-1970s.

So retailers, marketers and investors are all trying to figure out which habits shoppers will keep and which will they drop when the economy recovers. Will the people who switched to store-brand ice cream go back to Breyers or Edy's? Will shoppers return to department stores or keep looking for labels at T.J. Maxx?

"We are looking at stuff that reminds me of the 1970s," said Patricia Edwards of investment manager Wentworth Hauser and Violich. "Americans have seen a huge amount of their balance sheet evaporate. The effects will be more lingering.

"Wendy Liebmann, president of WSL Strategic Retail, says people's new spending patterns are forcing companies to change the kinds of products they sell and tweak their marketing to appeal to cost-conscious shoppers. She points to the last big recession of the early 1990s that helped trigger a fundamental shift in retailing as affluent shoppers started buying at discounters as well as upscale stores.

Radtke, 31, who holds down two jobs -- at a veterinarian's office and at a flower shop -- recently picked up shoe glue to fix the soles of her worn sneakers. She's buying store-label soups and crackers and bought a bike for her commute after not having ridden one for five years.

"We weren't big spenders, but now we are watching our money more," said Radtke, of Manitowoc, Wis., whose husband works in construction. "Even if I fell into a pile of money, I still wouldn't be spending a lot.

"According to a survey released recently by market research company Nielsen Co., which tracks consumer habits, about two-thirds, or 63 percent, of consumers are cutting spending due to rising gas prices, up 18 percentage points from a year ago.

According to the study, which queried nearly 50,000 consumers by e-mail during the first week of June, 78 percent of them are combining shopping trips and 52 percent are eating out less often. Consumers are also cutting more coupons, doing more of their shopping at supercenters and buying less expensive brands, the survey found.

A rebounding economy may let some consumers revert to their old ways -- like people who switched to smaller cars when times were hard in the 1970s but flocked to sport utility vehicles when gas got cheap again. But with more economists believing that the current woes will last well into next year, many think the underlying frugality will linger. Some Americans say their parents or grandparents affected by the Great Depression are still hoarding buttons and squeezing out several soup meals from ham bones.

"I shop cautiously," said Edna Sott, an 88-year-old resident from Berkeley Heights, N.J. "I would say that is a hangover" from the Depression.

Marian Salzman, chief marketing officer for public relations agency Porter Novelli, cites a "Depression mentality" that's making people "rethink their optimism in the economy.

"The widening gap between discounters and mall-based apparel sellers was evident in monthly retail sales figures released last week. The International Council of Shopping Centers-UBS tally of 38 stores found that same-store sales at discounters rose 5.1 percent in June and 9 percent at wholesale clubs. Discount giant Wal-Mart Stores Inc. posted a robust 5.8 percent, its best June performance since 2002.

At department stores, though, same-store sales -- or those at stores opened at least a year -- dropped 4.1 percent.

"People are spending money on food and the products they need to sustain life," said Todd Hale, senior vice president at Nielsen.

He noted sharp declines in visits to clothing, office supply and hardware stores. He also pointed out that sales of store-brand products in grocery items are up 9.1 percent for the year ended April 19, while sales of branded products rose a more modest 3.9 percent. More than half the sales growth from store label grocery items is now from dairy like milk and cheese, an area that has seen soaring inflation.

Liebmann says Americans are trying to take "control of the little things" like mending socks or buying more store-brand food because they can't control the big things like gas and food prices.

Their little changes, though, are forcing some companies to respond in big ways.Auto executives predict that consumers' newfound appreciation for smaller cars will be permanent, causing major pain at auto plants. Toyota Motor Corp. was among the latest to announce a product overhaul, saying it will shut down truck and SUV production to meet the changing consumer needs.

Pizzini, 29, of Eagleville, Pa., says his elderly Acura gets almost three times as many miles per gallon as the Escalade, whose lease he got out of through a company called LeaseTrader.com. Since last October, LeaseTrader.com has seen a 24 percent increase in the number of people who want to downsize to a smaller car, spokesman John Sternal said.

Fred Clements, executive director of the National Bicycle Dealers' Association, said consumers stung by $4-per-gallon gas are shifting toward utility bikes and away from recreational versions. That's forcing bike shops to change their inventories and offer more training for consumers who may not have ridden a bike in years, he said.

Plenty of stores that have benefited from shoppers' woes are hoping to retain them when the economy rebounds.

Andrea Thomas, executive vice president of private brands at Wal-Mart, thinks that many shoppers will stick with store labels since the quality has improved so much. Overall, Wal-Mart expects to retain the affluent customers when the economy recovers because it has made improvements in its stores and customer service.

Edwards, of Wentworth Hauser and Violich, agrees that new fans of discounters will keep buying at discounters as long the products measure up. And she sees lower-income shoppers switching back to meat from beans and rice before going back to name-brand food.

At the Alexandria Shoe Repair and Leather Service in Virginia, sales have increased 18 percent since February.

"I am seeing a younger crowd who lives in the disposable world," said owner Barbara Steube. "They are learning an economics lesson. They will see the benefit of the savings and how much money they walk away with when they fix their shoes."

Source: Baltimore Sun

Retail Fundamentals Look Solid for Second Half 2008

While some REIT sectors more than others reveal signs of the economic slowdown, retail REITs are heading into the second half of 2008 with their fundamentals still on solid ground. The sector is largely unaffected in the short-term by changes in consumer confidence and spending, both of which have been slowly receding since last summer. “Retailing is a constant,” says Wachovia Securities Equity Analyst Jeff Donnelly. “The average lease is four to seven years, and there are still positive earnings. Retailers are still paying the rent.” Sector Stats # of REITs 26 Industry Market Cap (in thousands) $84,602,036 % of Industry 25.7% Yield 4.63% YTD Total Return 7.19% One-Year Return -17.42% Three-Year Return 10.09% Five-Year Return 19.64% Average Daily Trading Volume (Shares) 520,586 Source: NAREIT data as of May 31, 2008 Moderate Rental Growth Retailers are paying the rent, but they are shopping for bargains. This represents a role reversal compared with the scenario in recent years, Donnelly notes. “In the past two years, retail REITs have benefited from being able to push rents,” he says. “This year, they cannot be as aggressive as leases expire.” On the contrary, retailers are emboldened by current conditions and asking for significant discounts on rent, reports RBC Capital Markets senior analyst Richard Moore. “They always ask, but this year, they are asking for larger reductions. So far, they aren’t getting them. Landlords are holding firm.” At some centers, sales are still healthy. Retailers have much less negotiating leverage at centers with strong sales volumes. Property owners are not going to offer meaningful rent concessions, according to Deutsche Bank senior real estate analyst Louis Taylor. “Retail sales levels today are much higher than they were 10 years ago when most of expiring leases were originally signed. As a result, rents on those locations will increase,” he says. Rents on leases signed in 2008 should be able to grow at an acceptable rate for the rest of the year, although growth will be somewhat stronger for regional mall REITs than for shopping centers. He predicts rents on leases this year will be 15 percent to 20 percent higher than the expiring rents for mall REITs. Strip centers will experience a moderate increase in rental growth for the rest of the year, limited to 8 percent to 10 percent, attributed to the shorter duration of those leases plus the slight uptick in vacancy rates the subsector is enduring. Even so, Donnelly notes, the major retail REITs will enjoy stable rental income because of the diversity of their portfolios in terms of size, geography and tenants. However, some recent studies caution against making overly broad assumptions about rental growth. Submarket differences in rental growth may be exacerbated by current economic conditions. For example, PricewaterhouseCoopers reported in its recent “Emerging Trends in Real Estate 2008” that Baltimore, Boston, Denver, Los Angeles, New York City, San Francisco, San Diego, Seattle and Washington, D.C. are the top retail markets where rental growth may exceed the average. At the other end of the spectrum are areas like Miami and Orange County, Calif. that have been hard hit by foreclosures in residential real estate, so rents may stay flat or even decline. Quality is Key to Occupancy The retail vacancy rate for the first quarter of 2008 was 7.7 percent, with strip centers and regional malls at their highest vacancy levels since 1996 and 2002, respectively, according to Reis, Inc. data. By the second quarter, Marcus & Millichap, a national real estate firm based in Washington, D.C., posted predictions of a 10.2 percent vacancy rate for the year. However, retail REIT analysts aren’t buying these gloomy predictions. “The vacancy forecast is irrelevant,” Moore says. “Retail is not a commodity. There are good assets and bad assets, and they are all figured into those averages. I pay little attention to them.” The bottom line, Moore says, is that “business is very good for existing assets, and retailers will continue to take space at quality locations.” Where retail malls are feeling a bit of a pinch is with lower quality, less productive space in less attractive markets. “That’s where we are starting to see a pullback in demand,” says Christy McElroy, senior analyst and head of REIT equity research with Bank of America Securities. “High productivity space—producing more than $600 a square foot in a desirable mall in a top city—there’s no problem in leasing it.” Shopping centers anchored by grocery stores are holding their own. However, strip centers of smaller shops with local and regional owners are pulling back, pushing up the vacancy rate in some centers, McElroy says. She expects big box chains to close more stores this year but sees continuing good demand in urban and infill shopping centers with higher barriers-to-entry. Retail Snapshot * Sector's total market capitalization is $76,645,168,000, the largest of any REIT sector. * REITs own ¼ of the retail industry, the highest penetration among all REIT sectors. * Kimco Realty Corporation (NYSE: KIM) is the largest retail REIT overall, owning 630 properties with a total market capitalization of $5.6 billion. * Developers Diversified Realty (NYSE: DDR) is the largest grocery-anchored shopping center owner with 205 centers and a total market cap of $2.4 billion. Source: 123jump.com and NAREIT Supply Slowdown The combination of softening demand from retail tenants, stiff credit requirements and the resulting decline in development yields will keep new retail development constrained for the rest of the year. As an alternative to growth by development or acquisition, retailers are pursuing better opportunities to grow internally through strategies such as increasing margins and closing unprofitable stores, Donnelly says. As a result, the demand for new space will continue to be modest at least through the rest of 2008. Retail REITs are responding by postponing opening dates for new shopping centers and scaling back the scope of their projects. Stricter lending rules are the other force affecting development. Bank requirements for pre-sales and pre-leasing levels are so high that even the most experienced developers find them challenging, analysts report. “Instead of 10 percent or 20 percent, banks want 60 percent of a new project leased before a shovel goes into the ground,” McElroy says. That’s not to say that retail REITs are pulling back completely. Retailers will still want to expand in high productivity areas, but at a lower velocity, she says. “We will continue to see a pullback on expansion plans, but not a complete stop. It’s still about asset quality and location.” In the newly restrictive credit market, large loans—more than $150 million—for development have the strictest underwriting requirements. This is more of a restraint on regional mall REITs than shopping center REITs due to the nature of their projects. “However, the big players with lease commitments in major markets can still get financing,” Donnelly says. Taylor agrees that the top retail REITs can readily obtain financing if they are willing to pay the higher cost of capital. “These are companies with strong balance sheets, high quality assets and solid management teams. They still have access to capital if they want it,” he says. Even so, analysts expect that retail REIT construction starts will be down for the rest of 2008 as the sector reaches the peak of the construction cycle that started two years ago. This constrained supply growth, however, will not support strong occupancy and rental growth because of the underlying economic conditions, Moore notes. “This time, the advantage is tipped toward the retailer,” he says. Meanwhile, REITs unwilling to risk development exposure at this time are embracing redevelopment as a growth strategy. “Shopping centers and malls are being redeveloped to add value, particularly as they get space back from department store consolidations,” McElroy says. Simon Property Group (NYSE: SPG), for example, will spend $450 million upgrading its 20 New England malls over the next two years. Even more than renovation, converting shopping centers and older malls to lifestyle centers, such as mixed use, open air shopping centers with plenty of greenery and pedestrian areas, will continue to be a popular trend in retail. Retail REITs are transforming existing properties into lifestyle centers in every region of the country, as they continue to focus on strategies to enhance profitability of existing real estate. At this halfway point in the year, Moore believes retail fundamentals will remain solid for the balance of 2008. “The sector is a little softer than in 2007, but the difference is in growth, not the heart of the fundamentals,” he says. “The general health of the sector is high, and retail REITs will continue to be a good defensive play for investors.” Source: NAREIT

Global Apparel Retailers Set Their Sights on U.S. Market

America's shopping venues are getting an international makeover as moderately priced apparel retailers from Europe, Asia and Canada increasingly set up shop in the U.S.

In coming to America, these retailers are following high-end European designers, who planted their flags in recent decades, expanding first to big cities and then to smaller markets. Now, more foreign retailers are taking advantage of the weak dollar, which reduces the cost of their initial investment, and favorable terms on store leases as landlords look for new tenants to attract shoppers as midpriced U.S. chains like AnnTaylor Stores Corp. and Talbots Inc. contract.

Sweden's Hennes & Mauritz AB, with 156 U.S. stores, calls the U.S. its "largest expansion market." Since the beginning of its fiscal year in December, the "fast-fashion" chain has opened 11 stores in the U.S., including its first store in Seattle on Friday. It plans about 27 more openings this fiscal year, including a store at Westfarms Mall in Farmington, Conn., in August.

Canadian yoga-wear retailer lululemon athletica Inc. plans to open 32 U.S. stores this fiscal year, almost doubling its U.S. presence to 66 stores. South Korea's Who.A.U, which is taking aim at Abercrombie & Fitch Co.'s Hollister chain, hopes to open 450 stores in the U.S. in the next 10 years. And Canadian teen retailer Garage hopes to have 500 stores in U.S. malls in seven to 10 years.

Also expanding in the U.S. are Spain's Zara (owned by Inditex SA) and Mango chains, Germany's luxury sport brand Bogner, Russia's Kira Plastinina, Iceland's Kisan, Japan's Muji and Britain's Topshop chain and Karen Millen brand. "There aren't too many important global apparel retailers that aren't looking at the U.S. market for its potential," says Ken Nisch, chairman of JGA, a Southfield, Mich., retail-strategy and design firm.

Opening shop in the U.S., of course, isn't a slam dunk. There's no guarantee that the economy -- or apparel sales -- will recover from the current slump any time soon. Furthermore, the U.S. is a low-growth market where retailers have long had to fight for market share. But "the U.S. is still the world's largest consumer market," says Christine Day, lululemon's chief executive. "Even if it contracts, it would be a mistake not to be in it."

The retailer, which is opening both urban and suburban locations, has been able to negotiate lease terms that are more favorable across the board than a year ago. The terms, which vary by lease, include fewer built-in rent increases, the option to terminate leases after three years rather than five years and higher sales thresholds before lululemon has to pay a percentage of sales in addition to base rent.

Many international retailers are approaching U.S. expansion cautiously. Muji and Topshop, which is set to open its first U.S. location in New York in October, plan to wait and see how their stores in New York perform before opening stores elsewhere. That's the lesson of Japanese clothing chain Uniqlo, part of Fast Retailing Co., which launched its U.S. operations three years ago with stores at three New Jersey malls. Last summer, Uniqlo closed the stores in favor of building brand awareness via the flagship store it opened in New York's SoHo in late 2006. A spokeswoman says the retailer is looking at further expansion in the U.S.

Foreign midtier retailers still account for only a small percentage of U.S. retail sales overall. Twenty-two foreign chains queried by The Wall Street Journal said they will operate about 475 stores in the U.S. by year's end. The U.S. had roughly 150,000 clothing and accessory stores in 2006, according to the latest government data. But the value of foreign retailers' investments in clothing and accessory stores in the U.S. continues to grow. Between 1997 and 2007, it rose more than 60% to $4.1 billion, according to the U.S. Commerce Department's Bureau of Economic Analysis, which released the most recent data Friday.

Furthermore, foreign retailers have had an outsize impact on the U.S. market. The invasion of fast-fashion chains like H&M and Zara has prompted U.S. retailers from Gap Inc. to J.C. Penney Co. to update their selections faster or more often.

Still, it is unlikely that the influx of foreign chains will offset American store closures that have pushed U.S. mall vacancies to 6.3% in the second quarter, their highest level since 2002, according to market-research firm Reis Inc. For example, over the next few years, AnnTaylor is closing about twice the number of stores lululemon plans to open in the U.S. this year.

International retailers "will provide some incremental demand for the better properties," says Rick Sokolov, president of Simon Property Group Inc., the largest U.S. mall owner by market value and number of properties. He says those most likely to benefit are top-tier malls in high-traffic urban areas generating the highest sales per square foot.

At many malls, developers looking for new concepts to excite shoppers are giving international retailers the deals traditionally reserved for top tenants. "These terms have always been there for the hot retailer, but historically the hot retailer was an American company," says Julie Taylor, senior vice president with real-estate-brokerage firm Cornish & Carey Commercial-Oncor International. "Now, more often than not, those are foreigners."

Source: Wall Street Journal

Retailing: New habit of discount shopping hits all economic strata.

Desperate times call for discount measures. It's the new rule of retail, and cash-squeezed consumers are laying down the law.

An astounding number of penny-pinched shoppers are handing the industry some wake-up news this back-to-school season: Because of expensive gas and overall economic woes, consumers plan to scavenge for bargains like hustlers in a cash-flow crunch, according to two surveys out this week.

In vogue: Dollar stores, off-price discounters like Marshall's and T.J. Maxx, and comparison-shopping on the Internet.

Out of vogue: Pretty much anything not on sale. Serious sale.

Most shoppers plan to buy their children's pens, bookbags, clothes and other back-to-school necessities at discount stores - 73 percent, according to the National Retail Federation; 88 percent, according to Deloitte L.L.P.

Almost four in 10 will shop at dollar stores; eight in 10 will look to buy more things on sale than last year, according to Deloitte.

The nation's newfound penchant for discount shopping is cutting across all economic strata, according to Deloitte's mid-July survey. One analyst said the humbler habits may be here to stay, unlike past downturns, when consumers pulled back until the storm passed.

"It's not just affecting those with less in their wallets," said Tara Weiner, managing partner of Deloitte & Touche's Greater Philadelphia office in Center City. "It's affecting just about every wallet. And it's causing a change in behaviors. It's changing how they shop."

Weiner said 61 percent of consumers polled by Deloitte said they believed the nation was in a recession, even though economists and politicians continued to duke this out.

Those consumers are acting like recession shoppers, and a "structural shift" in shopping habits has set in, said Weiner, who has monitored the retail industry for 20 years.

The discount-hunting trend has emerged since last summer's implosion of the subprime-lending market and soaring crude oil prices shocked the economy and began draining consumer wallets and retail profit.

A similar thing happened during the 2001 recession. Then and now, discount-shopper ranks swelled with people "trading down" from marquee stores.

"People didn't go without," Weiner said, "but they were in greater search of value."

Back then, 83 percent of shoppers said they planned to do some of their holiday shopping at discount retailers - including three quarters of households with income of $75,000 or more, according to Deloitte.

In 1993, only 57 percent of all households planned to shop at a discount store, Deloitte said.

While conventional retailers like Macy's and a number of mall stores have struggled in this environment, dollar-store chain Dollar Tree Inc., and off-price retailers such as Marshall's and T.J. Maxx, have benefited.

Dollar Tree, which has 76 stores in the eight-county Philadelphia region, plans to open as many as 245 stores across the country this year, while other retailers have pulled back.

Broker Donna Drew, of Metro Commercial Real Estate Inc., said the expanding chain has kept her busy 13 years as they've pursued store locations to meet growth goals.

"I just think people are really trying to stretch their dollar," said Drew, who also brokers lease deals for TJX Cos. Inc. - the parent company of T.J. Maxx, Marshall's and A.J. Wright.

Dollar Tree reported record sales last quarter, exceeding the $1 billion mark and logging a 14.4-percent profit increase, said spokeswoman Chelle Davis.

"We definitely think we are right for the times," Davis said. "Everyone likes to save money."

Dollar Tree shares closed up $1.76 yesterday to $38.07 on the Nasdaq and have risen steadily in value since January, thanks to shoppers like Sandra Harvey-White of Lansdowne, Delaware County.

Harvey-White, 43, walked into a Lansdowne Dollar Tree yesterday to buy bottled water, but walked out with a shopping cart full of $1 buys - including boxes of Tastykake treats, frozen waffles, frozen pasta and Herr's potato chips.

"I always stop at the dollar store before I go to the supermarket," said the mental-health therapist, who has amped up her bargain shopping this year. "Because of the economy, I find myself making smaller trips - purchasing either what's on sale, what I can use, and not particularly the brands I used to buy."

On the clothing side of shopping, Nadine Phillips is just as devoted to the T.J. Maxx on City Avenue near Overbrook Park, in a strip near the Philadelphia and Montgomery County line.

Phillips, 31, a nursing assistant who often works overtime, sneaked into the store between shifts yesterday in full nursing garb to pick up two bags of merchandise she had put on layaway.

At $198, the buys were a bargain. Gone are the days, she said, of treating herself to designer duds at Macy's, which she would occasionally do before this year. Money is just too tight now.

"At the other stores, I feel as though the stuff is overpriced," Phillips said. "But at T.J. Maxx, you can get the same stuff for less."

Source: Philadelphia Inquirer

Inflation's next front is retailers as costs rise

Coming to a store near you: Even higher prices.

Most inflation this year has come from food and fuel, as retailers resisted passing along to strapped consumers the higher prices manufacturers charged them, but coming increases from companies such as Johnson & Johnson and Hasbro Inc. may leave them with no choice.

"While these increases have not for the most part been passed on at the retail level, it is inevitable that they will be at some point," said Dean Baker, co-director of the Center for Economic and Policy Research. "Car dealers and other retailers cannot continue to absorb rising costs at the wholesale level and not pass some of these increases on to consumers."

Sherwin Williams Co. on July 17 announced its third price increase in eight months. The company has been having "difficult discussions" with retailers, Chris Connor, chairman and CEO, said on its quarterly conference call.

The price increases are "well supported with facts in terms of why the company needs them," he said. "Our customers, to the best of their ability, are passing them on."

Hasbro said the retailers it sells to didn't like price increases the company announced Monday "but they recognize that their own private-label costs are going up and they've accepted it."

The increases leave retailers in a bind: They can keep prices steady and cut profit margins or raise prices and risk losing sales.

Wal-Mart Stores Inc. has been in the lead of aggressively keeping prices down, pressuring its competitors to do the same.

"We have seen inflation and we have passed some of that through," said John Simley, a Wal-Mart spokesman. "We have, wherever possible, worked with our suppliers to reduce the inflationary impact as much as possible."

Costco Wholesale Corp. said Wednesday its fourth-quarter earnings would be "well-below" Wall Street estimates of $1 a share as it delays price increases. Stock in rival BJ's Wholesale Club Inc. fell more than 10 percent as investors feared the competitor would have to match Costco's prices.

Some economists say that once Americans spend their $106.7 billion in tax rebate checks, consumer spending may shrivel, sparking a round of price cuts to entice shoppers. Others think price increases may be postponed, but they're on their way.

Much of this depends on how much money consumers have after buying gas and groceries - and what kind of mood they're in once they've filled their tanks. On Friday, The Reuters/University of Michigan index of consumer sentiment for July came in at 61.2, beating expectations and slightly better than the 28-year low of 56.4 hit in June. Still, the confidence index was at 90.4 a year ago.

Even Costco said it won't swallow price increases from suppliers on key items, but would postpone passing them along to consumers, if only for a few weeks, because it wants to be the last retailer to raise prices.

The company raised its prices for rotisserie chicken from $4.99 to $5.49 about three months ago. Last week, the prices rose to $5.99.

"I think the consumer is just starting to see, not only with us, rising commodity costs and rising general merchandise costs in a much bigger way then they've seen other than with gasoline itself," said Richard Galanti, Costco's chief financial officer, during a conference call Wednesday.

Inflation hit 5 percent for the year in June, the highest it's been since 1991, but the price increases hitting manufacturers have been far worse.

Prices manufacturers paid for crude materials rose 70 percent for the three months ended in June, but companies weren't able to pass all those increases along. Prices for the intermediate goods made from those materials rose much less, about 27 percent. The prices for finished products made from those goods rose 14 percent, according to the Bureau of Labor Statistics Producer Price Index.

Kimberly-Clark Corp., which makes Kleenex, Huggies diapers and Viva paper towels, said Thursday that energy and commodity cost increases this year would total as much as $900 million, double its prediction at the beginning of the year.

Saying the company might raise prices for the second time this year, Chief Executive Thomas Falk added, "The reality is that the rapid run-up in commodity costs has outpaced our ability to offset inflation in the near-term with price increases and other actions."

The increases keep coming.

Dow Chemical Co., the second largest chemical company in the world after Germany's BASF, is raising some prices by as much as 25 percent this month, following June price increases that were as high as 20 percent on all products. The increase is sure to put more pressure on manufacturers, since Dow's chemicals are used in everything from packing peanuts to frozen-food trays to diapers.

Source: Macon.com

Destination retailers feel gas price pinch

CHICAGO -- Consumer spending is down and gas prices are up. That's bad math for the scores of destination retailers across the country that want customers to fill up the tank for a gas-guzzling day of retail therapy.

So to cajole shoppers into stores, some of the nation's chains are changing marketing strategies, launching in-store classes and drumming up other special events aimed at getting road-tripping shoppers to pump up sales.

Customers at Bass Pro Shops drive an average of 100 miles to reach the company's 50 locations and many are known to drive up to 300 miles each way to spend time at the massive outdoor supercenters.

But with the average price of a gallon of regular gas above $4, getting even the most devoted customer to make the trip is becoming increasingly difficult.

That's why the Springfield, Mo.-based chain is launching a slate of events this weekend, offering outdoor skills workshops, s'mores-making, scavenger hunts and foam shooting competitions for shoppers.

Bass Pro Shops spokesman Larry Whiteley says foot traffic in stores is falling, but the company hopes this weekend's events give customers more than just one reason to make the drive.

"We're teaching them how, for less than $100, they can have their own camping outfit and they can go to a lake or a campground or they can use it in their own backyard," he said.

As gas prices rise and food prices soar, the American shopper is scaling back: driving less, postponing major purchases, putting off vacations, cutting back on their shopping expenses.

That means those shoppers who do make purchases are making them closer to home.

It's a trend George Rosenbaum, co-founder of Leo J. Shapiro and Associates, calls a retailing transformation.

"Any store that has significant dependence on drawing traffic from more than 30 miles is going to have pressure on it," he said.

WSL President Candace Corlett worries about what kind of long-term effect the changing shopping patterns could have on the nation's retailers _ particularly those such as Ikea, Cabela's and far-flung outlet malls _ whose bricks-and-mortar business models requires shoppers to spend hours in a car.

"Not only is it far away, so it's a gas-guzzling trip, they're selling merchandise that's a purchase that can be postponed, and they're the type of retailers where there's too much temptation," she said. "If you go into Ikea with nothing in mind, you come out hundreds of dollars later. This isn't a time when people are proud to be buying lots of stuff."

Just ask John Wallace and his wife Margot.

The Oliviehain, Calif. residents, who visited a Cabela's sporting goods store in Nebraska during a cross-country road trip to see family, say they can still afford the nearly $5-a-gallon gas in their hometown. But they're still bundling shopping trips into fewer stops, sharing rides with friends for longer journeys and scrapping visits to other faraway destinations altogether.

"I think everybody's trying to become a little more wise and savvy," said Margot Wallace, 50.

But not all destination retailers are feeling the squeeze.

American Girl stores _ veritable wonderlands for doll-loving girls and their parents _ are seeing increased traffic this summer. Stephanie Spanos, a spokeswoman for the dollmaker owned by Mattel Inc., attributed the increase to the movie "Kit Kittridge: An American Girl," showing in theaters nationwide.

"Given the timing, we're seeing probably a lift in store traffic," she said.

At the Mall of America in Bloomington, Minn., foot traffic is up, too _ thanks largely to the 1.5 million international shoppers who were lured to the mega-mall in the past year by the weakened U.S. dollar.

But officials say they're still changing their advertising strategy, spending more money in markets a day's drive from the 520-store mall. They hope the targeted campaigns offset any potential decrease in far-flung shoppers deterred by the high price of fuel.

"We're always out there hustling to get the word out," said spokesman Daniel Jasper. "But we've been a little more aggressive this year, to be honest."

The same goes for Cabela's Inc., whose stores routinely draw shoppers from three hours away.

The Sidney, Neb.-based retailer known for its elaborate, one-of-a-kind stores is launching a new display advertising campaign with a gas-saving theme, encouraging shoppers worried about fuel prices to scrap in-store visits for online or catalog orders.

"We can hopefully direct customers to those channels so they don't have to fire up the car," said spokesman Joe Arterburn, who said the company is likely drawing fewer in-store shoppers from great distances. "Everyone is tightening their belt."

Source: Washington Post

What Women Want...From Shopping Centers

In 2000, Hollywood released the film, What Women Want starring Mel Gibson and Helen Hunt. The film features a non-plausible storyline as Gibson suddenly finds himself blessed with the power to read women's minds.

This new ability allows him to relate to women in a whole new way and in the end (sorry if I'm spoiling this for anyone), he gets the girl. In 2008, Fort Worth, Texas-based Trademark Property Co. decided they too would delve into women's minds...and listen.

The development company is starting a new trend--bringing real, live women in to consult on shopping center projects. The company recently hired two female retail consultants and invited more than two dozen women to give feedback on a recent mall project.

The women were given free reign to dish their opinions on the center's layout, landscaping, parking, outdoor art and restaurant options. Because of this, the company went on to create shopping centers that grab the attention of their target market--women.

Many developers are following suit, often taking dozens of women out to lunch to have them sit down and provide feedback for upcoming retail center projects. According to the New York Times, many women want shopping centers to incorporate more items for children, such as nursing stations and open playrooms, especially as women in the 35-to-55 age range become a larger focus for retailers.

Developers soon discovered that women not only knew exactly what they wanted from a shopping center, but also how it should look and feel. How very fabulously female, eh? Drum roll, please (and feel free to take notes). Here's what women want from their shopping centers:

-Less formal building structures
-More green space
-Walking pathways
-Wider parking spaces and sidewalks
-Community centerpieces--like fireplaces
-"Calming" water areas
-Interactive play art for the kids
-Outdoor restaurant seating

Well, developers, you asked. And much like Mel Gibson in the movies (not in real life), you're learning that women just can't hold back when it comes to what they want.

It will probably come as no surprise, but I absolutely love, love, love that developers are consulting women on the design of shopping centers. All retailers and developers need to take heed, especially since women are the chief purchasers in families today. So, be on the watch, as you may find the face of shopping centers shifting to a more feminine look and feel.

Source: Retail Design Diva

Too Many Malls, Too Few Tenants

Retailers at Open-Air Shopping Venues Cancel Expansion Plans, Shut Stores As Slow Economy Hurts Sales

The hottest trend this decade in shopping-center development has gone cold.

Known as lifestyle centers, the open-air shopping venues offer small parks, fountains and cafés amid name-brand retailers selling fashion apparel, housewares and other discretionary fare. Developers raced to add new ones as they became popular with shoppers, especially women between 20 and 50 years old, a coveted category. Meantime, construction of traditional enclosed malls all but stopped.

Kris Hudson/WSJ

A Cedar Hill, Texas, lifestyle center is only half occupied. The storefront in back remains vacant.

But now, with the economy slumping and shoppers spending less, retailers that had flocked to the centers -- like Chico's FAS Inc., AnnTaylor Stores Corp. and Talbots Inc. -- have begun canceling expansion plans and even shutting stores. Others, such as Linens 'n Things Inc., have sought bankruptcy protection.

This couldn't happen at a worse time for lifestyle-center developers, which were putting up more of the shopping centers than ever. Last year they built 37 centers totaling some 12 million square feet, or roughly 40% of the total lifestyle-center square footage added this decade, according to market-research firm Portfolio & Property Research Inc. Double the 2007 total is now under construction, and three times as much is in the planning stages.

The economic slowdown, of course, means many of the planned projects won't leave the drawing board. But many centers where constuction has begun will probably have difficulty leasing space when they open. That raises the specter that eventually they may not be able to pay their debt, adding to the strain on the already ravaged finance sector.

Leasing problems have clearly begun. Developer M.G. Herring Group opened its Uptown Village regional lifestyle center in the Dallas suburb of Cedar Hill in March with only half of the space occupied and the rest walled off with wood panels bearing the center's marketing images. President Gar Herring says he has so far signed retailers for 60% to 70% of the 725,000-square-foot project, though it remains only half occupied five months after its opening.

Kris Hudson/WSJ

The small-shop space at Prairie Center shopping center in Brighton, Colo., is mostly empty.

In Brighton, Colo., THF Realty Inc. has filled most of its new Prairie Center retail project with such big-box retailers as Dick's Sporting Goods Inc. and PetSmart Inc. But Prairie Center's small-shop space -- erected in a lifestyle-center format nearby -- is mostly empty. Half-a-dozen tenants, including Heidi's Deli, Verizon Wireless and Elite Nails, are sprinkled among vacant storefronts sporting "for lease" signs.

Herring and THF executives say they anticipate no difficulties paying their debt service on the projects.

Some believe that the lifestyle-center craze was about to run its course in any case. The metropolitan locations that are best suited to the centers are mostly taken. "There were a number of projects proposed in markets that didn't really have the [sales] demand to support the projects," says Stephen Lebovitz, president of mall owner CBL & Associates Properties Inc., which has built two open-air centers.

Certainly the centers being built now show an evolution in the approach to the centers. Recent versions have larger formats and more diverse tenant rosters, including department stores and movie theaters. Few developers now propose the original format, which offers only small shops and spans 200,000 square feet or less. "Those are dead," says Maury Levin, a retail-property broker at commercial real-estate firm KLNB Inc. in Baltimore.

Construction of other retail-property formats is also slowing as consumer spending wanes. Portfolio & Property Research forecasts that in 2009, retail-space construction in the top 54 U.S. markets will drop 48%, to 71 million square feet, from this year. Existing properties are hurting, too. Vacancy rates at U.S. malls and shopping centers have climbed to 7.4% this year, the highest level this decade, according to market-research firm Reis Inc.

Many developers that have the option are canceling or scaling back projects. Citing slow progress in leasing, Opus Corp. opted to proceed in phases at a lifestyle center in the Seattle suburb of Issaquah, Wash., scheduling the opening of 150,000 square feet of shops in 2010. It had planned to open three times as much space in 2009.

In Canonsburg, Pa., developer Cullinan Properties Ltd. has delayed by a year, to 2010, the opening of 200,000 square feet of small shops intended to accompany a 14-screen movie theater as it struggles to lease the space.

What's tripping up many developers is the tendency of lifestyle-center tenants to travel in packs. The centers often don't have big anchor stores, so many retailers insist that several complementary stores agree to open in a given center before they will do so. "You may have 10 tenants you want to get, but eight are waiting until the fall to make a decision and the other two are waiting on those eight," says Frank Natanek, Cullinan's group president of real estate and marketing.

Poag & McEwen Lifestyle Centers LLC, which has developed 10 lifestyle centers, recently scrapped plans for one in Boise, Idaho, after five retailers reneged on signing leases there and then several more did the same. The Memphis, Tenn.-based developer proceeded with construction of a lifestyle center in Plainfield, Ill., only after tenants there waived the requirement that certain fellow retailers such as Chico's join the project. Chico's has pared its expansion markedly to 45 new stores this year from 118 last year.

Despite these stresses, most new lifestyle centers aren't in danger of immediate foreclosure. Developers and lenders typically structure construction loans to carry fledgling projects through lease-up periods, and they're hoping that the economy will rebound by the time those reserves are depleted.

"You're not really going to see these projects get turned over to the lenders until later this year at the earliest," says Ben Yang, an analyst with Green Street Advisors.

Source: Wall Street Journal

School Ties

As high-density development becomes a popular trend, more and more universities are exploring the possibility of building mixed-use projects on their campuses. In the latest example, the University of Maryland in College Park, Md., plans to use a 38-acre site on its East Campus to house the school's administrative facilities plus two million square feet of graduate student and market-rate housing, professional offices and retail space. The university, which still has to work out all the details, has partnered with Rockville, Md.-based developers Foulger-Pratt Cos. and Argo Investment Co. for the project.

Upscale retail chains, including Whole Foods Market, have been dotting college campuses. In addition to grocers, campus-oriented developments provide a good fit for large bookstores, casual apparel chains, fast casual restaurants and various service providers, including wireless phone stores and health-oriented stores, according to Jeff Green, president of Jeff Green Partners, a Mill Valley, Calif.-based consulting firm.

Green cautions that large-scale commercial development won't work on every college campus. The best candidates are prestigious private schools, where students are likely from well-heeled families and have deep pockets with the discretionary income to spend. On the other hand, state-run institutions, where students are more likely to have taken out loans and are working their way through school may not be as financially appealing.

Schools that have been using campus space in creative ways include the University of Pennsylvania in Philadelphia and the College of William & Mary in Williamsburg, Va. Last year, Penn teamed up with Houston-based Hanover RS Limited to complete a $100 million mixed-use complex in its University City. The complex features 295 luxury apartments and 26,000 square feet of retail space. The College of William & Mary is in the midst of building New Town Williamsburg, a 365-acre mixed-use community that will combine 1,000 homes with 500,000 square feet of office space and 300,000 square feet of retail and restaurants. The project, the result of a joint venture between the Endowment Association of the College of William & Mary and developer C.C. Casey Ltd., Co., will be completed sometime in 2018.

In addition, the University of Connecticut, in Storrs, Conn., will break ground this year on Storrs Center, a $165 million, 49-acre mixed-use development across the street from its main campus. When completed, Storrs Center will include 800 residential units, 200,000 square feet of retail and restaurants, up to 75,000 square feet of office space and between 5,000 and 25,000 square feet of community space.

Commercial developments on the sites of college campuses have been gaining in popularity because they allow schools to raise their revenue streams while also providing steady demand for the projects' residential and retail components, according to Roy Higgs, CEO and managing partner with Development Design Group Inc., a Baltimore-based planning, architecture and design firm. One of the projects Development Design Group is currently working on is College Row, a 114,620-square-foot mixed-use redevelopment at Franklin & Marshall College, a four-year private school in Lancaster, Pa.

“Many of these universities are well located, they have a high visitor component because of the students' families, plus you've got the increasingly higher spending power of the student body itself,” Higgs says. “It's a combination of competition for both students and their dollars.” Median household income within a one-mile radius of U. Conn., for example, is $86,348, according to Pitney Bowes Business Insight, a Newport Beach, Calif.-based consulting firm. That puts the market 79 percent above the national average.

Source: Retail Traffic

U.S. consumer electronics sales to exceed expectations this year

Overall shipment revenue of consumer electronics will top $173 billion in the U.S. this year, which is $2 billion more than January’s prediction by the Consumer Electronics Association.

The Arlington-based association’s semi-annual sales forecast shows that consumer electronic shipment revenues will grow by 7.3 percent this year, reaching more than $183 billion by 2009.

“The consumer electronics industry is a backbone of economic activity in this country,” said Gary Shapiro, president and chief executive officer of the association. “In a tough economy, consumers turn to consumer electronics products for many reasons -- from entertaining in the home to telecommuting to save gas.” . . . more

In-store clinic growth slowing

Financial backers pull plug on some

The sputtering economy and impatient private investment firms could be slowing the push into retail medicine, a consulting firm finds.

The number of retail clinics fell by 12 last month, to 969 from 981, according to the latest monthly tally by Merchant Medicine, a Minneapolis-based research and consulting firm that advises medical-care providers and employers on how to work within the retail clinic industry.

"It was the first month we saw a net drop," said Tom Charland, chief executive at Merchant Medicine, which has been tracking the growth of retail clinics for two years.

Although the number could be a blip and Charland said growth will continue based on his early evaluation of this month's growth, it's the latest example of the slowing of clinic expansions. A year ago, they were opening at a rate of about one a day, Merchant Medicine figures show.

Some markets are not making money, but retail giant Walgreen Co., which finances its own expansions, said that can take two years, citing profits in more established markets such as St. Louis and Kansas City, Mo., where it opened its first retail health clinics in 2006. Where clinics have closed, private-financed ventures in some cases did not even wait a year.

In recent years, hundreds of retail clinics have opened across the country. Typically staffed by advanced-degree nurses known as practitioners, the clinics are open seven days a week, with no appointment needed. The clinics treat patients who have routine maladies, such as ear and sinus infections, strep throat and pink eye.

The model has been greeted by health insurers, employers and consumer groups as a way to address the national problem of accessing medical care, particularly with the rising number of uninsured Americans. And consumers continue to flock to them, retailers report.

But their financial backers can be key to success of the retail clinics. "The track record of private investors and venture-capital firms has been abysmal," Charland said.

Earlier this year, for example, a physician-staffed model of retail medicine known as Medical Marts of Las Vegas shuttered its operations in various retail outlets across the country, including clinics it had in Meijer supercenter locations in the Chicago suburbs. An executive at the time of the closure said, "Venture capitalists backing the company had a change of heart and decided to go another direction with their funding.

"Although located in large retailers such as Meijers or Wal-Marts, the clinics that have failed tend to be backed by private backers who partner with large retailers. For example, privately backed SmartCare closed 15 retail clinics inside Wal-Marts last month throughout Colorado.

Wal-Mart Stores Inc. referred calls to SmartCare executives who could not be reached for comment.

It's unclear whether the recent credit crunch has anything to do with private-equity backers pulling the plug, but analysts say that could be a contributing factor.

"The big ones that have closed have been backed by private investors rather than those backed by large retailers," Charland said.

Deerfield-based retail pharmacy giant Walgreens, for example, bought a clinic operator, Take Care Health Systems, last year and is financing its own clinic expansions with plans to double the number of its clinics by the end of the year.

Walgreens has 189 clinics, including 29 in the Chicago area. Walgreens clinics, which operate under the Take Care brand, will number about 400 by the end of the year. The company has not released projections for 2009.

"We're strongly committed to our Take Care Health Clinics and are continuing our expansion of them as planned," said Walgreens spokesman Michael Polzin. "Just like our newly opened drugstores, we anticipate our clinics taking two to three years to become profitable. That's the pace our oldest clinics, which opened in 2006, are on.

"Wal-Mart, too, said it is committed to its expansion plans announced last year that called for opening as many as 400 in U.S. stores in the next three years and possibly 2,000 of them within five to seven years.

"We are still committed to those goals," Wal-Mart spokeswoman Christi Gallagher said. "Some clinics are run by hospitals while others are entrepreneurial start-ups backed by venture capital.

"Lately, Wal-Mart said its relationships with hospitals wanting to lease space for clinics in its stores is strong. "We've had more than 400 hospitals and health systems approach us about leasing opportunities," Gallagher said.

Source: Chicago Tribune

Mall Owners Join Retailers to Drive Back-to-School Sales

As retailers shift into high gear for the all-important back-to-school shopping season, mall owners and operators looking to boost sales at their centers are riding shot-gun.

Next week, Simon Property Group will begin its Teen Spree shopping events at 12 select properties. The Teen Sprees, which run between three and five hours, were tested last year at two of Simon's more than 200 U.S. properties. On a given day in August, shoppers can buy a ticket for $5 and get various discounts on purchases from selected mall stores ranging from specialty apparel to electronics to athletic footwear.

In its inaugural Back-to-School survey, released this month, Deloitte cited 79 percent of U.S. consumers said they will be more focused on buying products on sale this year than they were in 2007. In addition, 53 percent said they will use store coupons more than they have in the past.

“Teens and children are still going back to school,” says Cathi Weiner, senior vice president of development with Simon Brand Ventures, Simon’s Property Group's marketing arm, adding that they will continue to need school supplies even in a troubled economy.

The Deloitte survey reported up to 71 percent of U.S. households will spend less money this year on back-to-school purchases than they did in 2007. American consumers are too worried about falling housing values, job security and shrinking credit to spend as they did two or three years ago.

In addition, with gas prices continuing to hover near $4 a gallon, consumers will limit their shopping trips —69 percent of the Deloitte respondents said they would shop at no more than three stores.

“It’s about trying to limit the number of destinations [consumers] go to," says Stacy Janiak, U.S. retail leader with Deloitte. "Retailers can bundle promotions. . . offering discounts on certain products together will have some appeal.”

As a result, both retailers and mall owners have been aggressive with their promotion campaigns, even kicking them off earlier—in mid July, instead of the last week of the month.
The back-to-school season, typically an eight-week-long period that spans from the last week of July and runs through the third week of September, is not only the second most important season of the year for retailers, accounting for as much as 15 percent of their annual sales, it is a bellwether for the all important holiday sales season.

Aware of how critical this back-to-school season will be, mall owners have been stepping up their marketing efforts.

At several of its malls near Detroit, Taubman Centers, Inc. has been running back-to-school campaigns targeting Canadians, who stepped up their cross-border shopping in recent months. At Great Lakes Crossing in Auburn Hills, Mich., for example, shoppers can take advantage of a (U.S.) $159.99 shop-and-stay package that includes one night at a Holiday Inn hotel, free breakfast, two $25 mall gift cards, a student backpack, a lunch voucher for one child 16 years of age or younger, a Great Lakes Crossing tote bag and a Great Lakes Crossing Visitor Savings Pass.

The other Taubman properties in Michigan taking part in this promotion include the Mall at Partridge Creek in Clinton; the Twelve Oaks Mall in Novi and the Fairland Town Center in Dearborn.

Despite all these efforts, the 2008 back-to-school season will be weak, says C. Britt Beemer, founder of America’s Research Group, a Charleston, S.C.-based consumer behavior research firm. He forecasts back-to-school sales will register a decline of as much as 2 percent.

Beemer estimates, same-store sales between mid-July and mid-September will grow no more than 0.5 percent. By comparison, from July through September of 2007, same-store sales at U.S. chain stores saw an average increase of 2.4 percent.

“Parents are going to be much, much, much more focused on getting good deals,” says Beemer. “I think we will see a back-to-school season that’s going to be very challenged.”

Source: Retail Traffic

Northern NJ: Tight Vacancy Persists in Retail Market

Retail properties in Northern New Jersey continue to perform well, despite the effects of an economic downturn on retailer space demand. Retail sales are growing at a slower rate than a few quarters ago, and a modest pace of spending growth will persist in the months ahead. Reflecting the reduction in retail spending, overall vacancy has inched up in the past few quarters, although the rate remains tight in the mid-4 percent range. Within specific segments of the market, softening demand has lifted vacancy in smaller strip centers and at properties in Hudson County, where the housing market has become sluggish. On the supply side, deliveries of new space will increase to 3.5 million square feet this year. Most of the total is attributable to the Xanadu project, which will have a mix of traditional mall merchants and entertainment-oriented tenants. Although pre-leasing has been slow at Xanadu, other projects such as Center City Paterson and the Promenade Shops at Clifton lifestyle center have enjoyed relatively strong pre-leasing. Recent development announcements in the market include an 89,000-square foot lifestyle center addition at the Paramus Park mall.

By the numbers, a slowing regional economy will hinder job creation, leaving total employment unchanged in 2008. Last year, 11,500 new workers were hired, a 0.5 percent gain. Builders completed 1.1 million square feet of space in 2007 and will increase production to 3.5 million square feet this year. Most of the amount is attributable to the Xanadu project, which is slated to come online in the fourth quarter. Assuming reasonably strong pre-leasing at large projects and softening demand for existing properties, the marketwide vacancy rate is expected to climb 70 basis points this year to 4.9 percent. In 2007, the vacancy rate was unchanged. Rent growth will continue to slow in step with weaker space demand. In 2008, asking rents are forecast to rise 2.4 percent to $28.63 per square foot, while effective rents tack on 2 percent to $26.51 per square foot.

During the past 12 months, velocity in single-tenant assets has declined 58 percent, compared with a gain of 61 percent in the preceding period. Velocity has slowed to a trickle for all single-tenant property types, including drugstores and fast-food restaurants. In a limited number of fast-food deals, prices have ranged from $284 per square foot to $432 per square foot for a regional chain along a heavily traveled stretch of state Route 35. Generally, assets leased to highly rated national tenants can trade with cap rates in the mid- to high-6 percent range, extending to 8 percent or more for lesser tenants and locations. In 2008, lenders will continue to draw distinctions on credit quality, effectively limiting single-tenant activity to assets occupied by tenants with the best credit profiles.

Trades of multi-tenant properties have slackened considerably. In the past year, transaction velocity for these assets has declined 45 percent. Activity has been very limited so far this year, but during the last 12 months, the median price has increased 21 percent to $234 per square foot. Some strip centers and grocery-anchored properties have sold for more than $300 per square foot, but those deals were executed before credit market problems intensified late in 2007. Cap rates for the best properties in established retail corridors in Bergen County, for example, start at about 6.5 percent. Initial returns rise from there to approximately 8 percent for assets in highly urbanized areas of the region. Multi-tenant activity is expected to pick up in 2008 as owners adjust pricing to satisfy buyers’ requirements. High population densities and generally strong demographics in most areas in the region are expected to sustain investor interest during the long term.

In the investment market, transaction velocity for all assets has decelerated. Underwriting criteria have changed during the past several months, and deals are taking longer to execute as buyers scrutinize tenant mix, re-leasing risk and rent growth assumptions more closely. Owners have been slow to respond to changes in the investment climate and are only now beginning to price properties at the higher cap rates buyers require. Cap rates vary widely in the market, though it is not unusual for top multi-tenant centers in high-density areas with solid demographics, such as sections of Bergen and Passaic counties, to price with rates in the mid-6 percent range. Cap rates move higher from there, reflecting property location and potential near-term upside.

Source: Globe St.

More New Jersey Bucks Stop Here

While other retailers are cutting back, dollar stores are expanding in the state

At a time when many retailers are suffering losses and scaling back expansion plans, dollar stores are attracting more customers and are poised to grow in the economic slowdown. Fueled in part by the rising demand for inexpensive goods, such discount retailers are opening new stores and are likely to have an easier time leasing space in the state’s traditionally tight retail market, real estate experts say.

“In today’s economy, people are looking for bargains,” says Donna Drew, a Metro Commercial Real Estate broker who represents Dollar Tree, a Chesapeake, Va.-based dollar-store chain that has 80 locations in New Jersey. “People are looking for the best deal for their money, so they’re shopping at [dollar stores] as opposed to paying higher prices in grocery stores.”

Retailers have largely suffered as the housing slowdown, credit crunch, weak jobs and income growth, and rising food and gas prices have all constrained consumers’ budgets. Dollar stores and other small-format value retailers, however, have been one of the brighter spots in the lackluster retail market, according to a report published last month by TNS Retail Forward, a Columbus, Ohio-based retail consulting and market research firm. Small discount retailers saw a 2.6 percent gain in same-store sales during the first quarter of 2008. While a small increase, the bump was still better than the 1 percent growth for overall retail same-store sales during the same period and the negative growth for industry sectors such as apparel, accessories and home goods.

“Basically, more customers are visiting dollar-store chains,” says John Gabriel, a retail analyst at Morningstar, a Chicago-based investment research firm. “It’s not just your lower-income consumers like in the past.”

Dollar stores are not invulnerable to economic pressures, however, he asserts. “Sales are increasing, but profitability is under pressure because they’re selling less profitable goods,” says Gabriel, noting the average ticket, or the amount each customer spends on a visit, is currently $7 to $10 per person.

“Consumers are just buying what they need, the less profitable consumables,” rather than more profitable discretionary items, says Gabriel. Dollar stores have to be more price-competitive when they’re buying consumables, so their profit margins are smaller, he says. Rising fuel costs are also a concern for these discount retailers, which need to transport goods nationwide and still keep their low price-point, he adds.

Nonetheless, many dollar-store chains have been solid retail performers. “We certainly see some growth this quarter, and that could be attributed to the economic environment,” says Josh Braverman, a spokesman for Family Dollar, a Matthews, N.C.-based dollar-store chain with 78 locations in New Jersey. “There is some opportunity for us in the discount retail sector, and we’ve seen some increases in sales.”

The retailer’s net sales for the third quarter of its fiscal year 2008 were $1.7 billion, up 2.9 percent from the same period a year ago, while its quarterly net income was up 7.1 percent from the third quarter of its fiscal 2007, according to company earnings reports released last month. Food has been a top driver of traffic to Family Dollar stores, which last year expanded its existing food offerings of snacks and candies to include quick-prep and ready-to-eat meals, according to Braverman. Other popular items include household cleaners, seasonal items, home goods and apparel, he says.

Boosted by higher sales volume and traffic, dollar stores are expanding their real estate presence, says Michael Levin, chief operating officer of Fameco Real Estate, LP, a retail real estate brokerage firm with offices in Woodbridge and Plymouth Meeting, Pa.

Dollar stores “are really thriving right now in these economic times,” says Levin, noting some brokers expect such stores to be signing more leases in New Jersey. “They’re going to take more and more advantage of opportunities that are out there,” says Levin. “Real estate comes back to who can do business, and today, they are the ones who are doing business.”

Fameco represents Five Below, a teen-oriented discount chain that sells all of its items for $5 and under. Philadelphia-based Five Below, which has 23 stores in New Jersey, is slated to open 20 new locations in the Northeast this year, with the majority of them in the New Jersey and Philadelphia markets, says Levin.

Family Dollar says it has opened three new stores in the 8,000-square-foot range in New Jersey since the end of 2007, and has signed leases for an additional six to open by 2009. Dollar Tree would not disclose state-specific numbers, but Drew says the retailer plans to open 20 new stores ranging from 10,000 to 15,000 square feet for each of its two divisions: the dollar-only Dollar Tree business and its $5-and-under Deal$ concept.

Other retailers, meanwhile, have either cut back on store openings or closed existing locations, brokers say. The retail vacancy rate in northern and central New Jersey is currently 4.2 percent, up from 3.8 percent during the same period a year ago, according to The Goldstein Group, a retail brokerage based in Glen Rock.

The relative strength of dollar stores versus other types of retailers may make it easier for discount retailers to lease space in New Jersey, which still has one of the lowest retail vacancy rates in the nation, some brokers say. “Historically, New Jersey has been fairly mature with its retail landscape,” says Levin. “For any retailer that grows, it’s been a challenge to find space.” The lack of available space has led to high rents, which many dollar stores have been unable to afford, he says. But increased vacancies may prompt landlords to lower rents, which would make it easier for dollar stores to lease space in the state, Levin notes.

Also, some landlords have traditionally been hesitant to take dollar stores as tenants, because of the low-income image that some discount retailers project, says Chuck Lanyard, president of The Goldstein Group. Now, “landlords are probably taking a second look at dollar stores, where they normally would have turned them down in the past,” he says. “Today, there’s not as many of the national regional tenants looking for new store locations, so they’re more apt to look for these types of uses in their shopping centers.”

Dollar stores are a good draw for shopping centers, adds Lanyard. Aside from offering bargains, they attract primarily female shoppers, which helps to increase traffic to shopping centers during daytime hours, he says.

But dollar stores don’t fit into every retail property, says Matthew Harding, president of Levin Management Corp., a North Brunswick-based retail real estate services firm. A landlord needs to take into consideration the type of property, the location, the demographics in the area and the image that the shopping center is trying to create, he says. Dollar stores simply don’t work for certain retail sites, such as an upscale shopping center in a wealthy area, Harding notes.

Source: NJBiz

Big pitch to uneasy school shoppers

Retailers ready deals amid grim indicators

Anxious merchants are trying to get ahead of the sputtering economy by rolling out penny bargains and promoting price cuts to lure reluctant back-to-school shoppers.

Framingham office supplier Staples Inc. today is unveiling its back-to-school campaign, including television ads called "Gas" and "Grocery" that empathize with consumer concerns over soaring costs and promise to make school shopping more affordable. Last week, rival OfficeMax Inc. launched its "Power to the Penny" campaign, with offers for single-cent glue and protractors, and other deals. Meanwhile, some retailers, including Target and Aeropostale, are promoting free shipping for school purchases, a perk usually reserved for the holidays.

These marketing efforts are the latest example of retailers responding to reduced consumer spending. And there's reason for more concern: 71 percent of shoppers are planning to slash their back-to-school budgets this year, according to a Deloitte LLP retail survey released yesterday. Almost half of those surveyed expect to reduce their household spending by more than $100 and 88 percent plan to do their school shopping at discounters and value department stores.

"Consumers will likely stick to the basics this fall, and parents may be saying 'no' more often as they head to the registers," Stacy Janiak, Deloitte's US retail leader, said in the report.

Consumers are getting hit from all sides. Despite the recent retreat in oil prices, gasoline prices, comfortably above $4 a gallon, are near all-time highs. Overall inflation for the past year, 5 percent as of June, is running at its fastest rate in nearly 20 years. Food prices are rising even faster, up 5.3 percent from a year ago, the fastest climb since 1990. Meanwhile, the job market is weakening: The unemployment rate has climbed nearly a percentage point over the past year, to 5.5 percent.

Although millions of tax rebate checks hit mailboxes in June, consumer spending remained soft last month, making retailers especially nervous for the back-to-school season, which is typically the second largest shopping period after Christmas. Back-to-school spending nationwide, including college students, is projected to grow about 2.5 percent to $51.4 billion compared with last year, the lowest increase in spending since at least 2003, according to the National Retail Federation, a Washington, D.C., trade group. The organization, which is releasing its report today, said college back-to-school spending will drop significantly in the Northeast, to an average of $669.61, compared with $760.05 last year.

Andrea Maffeo, 38, of Billerica, is planning to halve her back-to-school budget to $250 for her two children. "The kids are getting essentials. A new pair of sneakers, a backpack and not as many clothes as they would normally get," she said. "The price of gas, food, oil is crazy. We had to redo our budget."

Maffeo is constantly scouting coupons and sales, and last week scored big with a promotion at children's clothier Limited Too that offered consumers two $25 coupons off their next purchase when they spent $50. She received more than $200 in coupons for her spree.

"Things are tight right now for everyone and I think stores are aware of that," Maffeo said.

In Massachusetts, state legislators also are hoping to jump-start consumer spending. The House took steps yesterday to introduce a bill that would designate the weekend of Aug. 16-17 as a sales tax holiday, despite recent concerns by some officials that the state could not afford the annual tradition.

For its part, Staples, which typically focuses its back-to-school marketing on the chain's wide selection, now is touting deep discounts on school supplies. For example, the retailer featured 5-cent deals in this week's circular, including erasers and paper folders. Staples also advertised several "two-for" deals, including Sharpie highlighters, originally $4.29 each, as two for $5.

But with discounters and warehouse clubs taking an increasing share of back-to-school sales for basic supplies, Staples has also set its eyes on college students, joining forces for the first time with Bed Bath & Beyond to promote a sweepstakes for customers to win gift cards and prizes at the retailers.

At OfficeMax, executives said it became clear this summer that the faltering economy was weighing heavy on consumers. So the Illinois chain honed in on the most compelling offer: the penny.

As part of the campaign, OfficeMax sent an actor with a hidden camera around New York City trying to buy a used car, jewelry, and carriage rides all with pennies. In nearly every case, the "Penny Prank" actor was rejected by unsuspecting shop owners. The clips are posted on YouTube.

"These people won't take your pennies but we will," said Ryan Vero, OfficeMax's chief merchandising officer. "With the difficult economy, what stands more for low price than one cent? You really can't sell something for less than that. You can't even buy a piece of gum for a penny anymore."

Source: The Boston Globe

Hard times for open-air shopping

The hottest trend this decade in shopping-center development has gone cold.

Known as lifestyle centers, the open-air shopping venues offer small parks, fountains and cafes amid name-brand retailers selling fashion apparel, housewares and other discretionary fare.

Developers raced to add new ones as they became popular with shoppers, especially women between 20 and 50 years old, a coveted category. Meantime, construction of traditional enclosed malls all but stopped.

But now, with the economy slumping and shoppers spending less, retailers that had flocked to the centers — like Chico’s FAS Inc., AnnTaylor Stores Corp. and Talbots Inc. — have begun canceling expansion plans and even shutting stores. Others, such as Linens ’n Things Inc., have sought bankruptcy protection.

This couldn’t happen at a worse time for lifestyle-center developers, which were putting up more of the shopping centers than ever. Last year they built 37 centers totaling some 12 million square feet, or roughly 40 percent of the total lifestyle-center square footage added this decade, according to market-research firm Portfolio & Property Research Inc. Double the 2007 total is now under construction, and three times as much is in the planning stages.

The economic slowdown, of course, means many of the planned projects won’t leave the drawing board. But many centers where constuction has begun will probably have difficulty leasing space when they open. That raises the specter that eventually they may not be able to pay their debt, adding to the strain on the already ravaged finance sector.

Leasing problems have clearly begun. Developer M.G. Herring Group opened its Uptown Village regional lifestyle center in the Dallas suburb of Cedar Hill in March with only half the space occupied and the rest walled off with wood panels bearing the center’s marketing images. President Gar Herring says he has so far signed retailers for 60 percent to 70 percent of the 725,000-square-foot project, though it remains only half occupied five months after its opening.

In Brighton, THF Realty Inc. has filled most of its new Prairie Center retail project with such big-box retailers as Dick’s Sporting Goods Inc. and PetSmart Inc. But Prairie Center’s small-shop space — erected in a lifestyle-center format nearby — is mostly empty. Half a dozen tenants, including Heidi’s Deli, Verizon Wireless and Elite Nails, are sprinkled among vacant storefronts sporting “for lease” signs.

Herring and THF executives say they anticipate no difficulties paying their debt service on the projects.

Some believe that the lifestyle-center craze was about to run its course in any case. The metropolitan locations that are best suited to the centers are mostly taken. “There were a number of projects proposed in markets that didn’t really have the (sales) demand to support the projects,” said Stephen Lebovitz, president of mall owner CBL & Associates Properties Inc., which has built two open-air centers.

Certainly the centers being built now show an evolution in the approach to the centers. Recent versions have larger formats and more diverse tenant rosters, including department stores and movie theaters. Few developers now propose the original format, which offers only small shops and spans 200,000 square feet or less.

“Those are dead,” said Maury Levin, a retail-property broker at commercial real estate firm KLNB Inc. in Baltimore.

Construction of other retail-property formats is also slowing as consumer spending wanes. Portfolio & Property Research forecasts that in 2009, retail-space construction in the top 54 U.S. markets will drop 48 percent, to 71 million square feet, from this year.

Existing properties are hurting, too. Vacancy rates at U.S. malls and shopping centers have climbed to 7.4 percent this year, the highest level this decade, according to market-research firm Reis Inc.

Many developers that have the option are canceling or scaling back projects. Citing slow progress in leasing, Opus Corp. opted to proceed in phases at a lifestyle center in the Seattle suburb of Issaquah, Wash., scheduling the opening of 150,000 square feet of shops in 2010. It had planned to open three times as much space in 2009.

In Canonsburg, Pa., developer Cullinan Properties Ltd. has delayed by a year, to 2010, the opening of 200,000 square feet of small shops intended to accompany a 14-screen movie theater as it struggles to lease the space.

What’s tripping up many developers is the tendency of lifestyle-center tenants to travel in packs. The centers often don’t have big anchor stores, so many retailers insist that several complementary stores agree to open in a given center before they will do so. “You may have 10 tenants you want to get, but eight are waiting until the fall to make a decision and the other two are waiting on those eight,” said Frank Natanek, Cullinan’s group president of real estate and marketing.

Poag & McEwen Lifestyle Centers LLC, which has developed 10 lifestyle centers, recently scrapped plans for one in Boise, Idaho, after five retailers reneged on signing leases there and then several more did the same. The Memphis, Tenn.-based developer proceeded with construction of a lifestyle center in Plainfield, Ill., only after tenants there waived the requirement that certain fellow retailers such as Chico’s join the project. Chico’s has pared its expansion markedly to 45 new stores this year from 118 last year.

Despite these stresses, most new lifestyle centers aren’t in danger of immediate foreclosure. Developers and lenders typically structure construction loans to carry fledgling projects through lease-up periods, and they’re hoping that the economy will rebound by the time those reserves are depleted.

“You’re not really going to see these projects get turned over to the lenders until later this year at the earliest,” said Ben Yang, an analyst with Green Street Advisors.

Source: Rocky Mountain News

FMI Report: Supermarket Pharmacy Business Healthy

ARLINGTON, Va. — A new report from the Food Marketing Institute here shows the supermarket pharmacy business to be healthy, and growing in services and tie-in opportunities. Among other findings, “Supermarket Pharmacy Trends 2008” reports that key benchmarks are up significantly from 2002 to 2007, including median number of prescriptions filled per day, median percentage of prescription sales from generic drugs, media percentage of prescription sales to total store sales, and median of the gross margin for the pharmacy department. Additionally, the study said 92.7% of supermarket pharmacies will be ready for e-prescribing by the end of the year, while nearly half offer Medication Therapy Management in either all or some stores, with another third planning to implement it over the next year. “What is most significant [about the report] is that in today’s volatile marketplace, whether it is competition from other retail pharmacy providers, mail-order providers, or competition to keep the overall health care costs down, supermarket pharmacies continue to post strong and steady performance figures,” said Cathy Polley, FMI’s vice president of pharmacy services. “It shows that pharmacy in the grocery industry is healthy and continuing to show uptrends in sales, while also showing some improvements in efficiencies,” said Randy Heiser, vice president, pharmacy, Giant Eagle, Pittsburgh. Heiser is the immediate past chair of the FMI Pharmacy Services Committee.

Luxury Retail Fights the Downturn

If the saying is true that the rich are always with us, those hoping to be or feel rich are stepping back from shopping at luxury stores right now.

The slowdown in sales seen for some time at mid-priced chains is affecting higher-end retailers as well. Though Tiffany reported sales increases, the gains are from overseas stores and its New York City flagship. In its most recent quarter, Neiman-Marcus reported a 2.5% comp-sales decline.

“For the first time, we’re seeing a slight softening in the luxury market,” said Steven Greenberg, a Hewlett, NY-based leasing consultant who represents a number of luxury chains. “A lot of aspirational people are good luxury shoppers – for $400, you can buy a small handbag at Louis Vuitton. Those are the customers we’re seeing affected right now.”

Yet owners of high-end centers report that their projects remain strong, because of their location, opportunities for expansion, and a healthy tourist business.

“The markets where we do have luxury and better properties are some of the best in the world,” said Anne Singleton, vp-luxury leasing of the Macerich Co., Santa Monica, CA, which owns such high-end properties as Scottsdale Fashion Square near Phoenix and Tysons Corner Center outside Washington, DC. “The San Francisco Bay area is still great, as is Southern California. Phoenix has proven itself as a luxury market, though not as mature.”

“The deBeers and Harry Winstons want stores in the right locations,” added Debra Gunn Downing, executive marketing director of South Coast Plaza in Costa Mesa, CA.

Another critical component is merchandise, one that developers do not control, said William Taubman, COO of Bloomfield Hills, MI-based Taubman Centers. Developers are in the business of leasing and presenting retailers. If retailers are doing their jobs, they can continue to attract the more affluent shopper.

“Where there is newness, people will pay,” Taubman said. “No one is questioning the cost of an iPhone.”

In addition, these retailers also have a “secret weapon” Greenberg says: outlet stores.

“For Coach and Polo, it’s a windfall,” Greenberg said.

In addition, centers with a strong tourism base have something of a cushion, as the weak dollar is encouraging travelers from Europe, Asia, South America and even Mexico and Canada to take advantage of U.S. goods that are instantly on sale. Though the numbers are impossible to track, center managers report anecdotal evidence of increased numbers of affluent shoppers from Canada and Mexico, in particular, taking advantage of a favorable currency exchange.

“Because the hotels are so inexpensive, people are bringing empty suitcases,” said Kate Cavaliere, senior manager of tourism for Macerich.

And property management has been working hard to promote the projects to tour operators and discriminating travelers, expanding on a trend of several years.

“We have always been a strong destination for tourists, and we spend a lot of time cultivating them,” South Coast Plaza’s Downing said. “Right now, we see this as a low-hanging fruit opportunity.”

Developers are creating packages that feature private fashion shows, and extra services – South Coast Plaza will even close a store for a couple of hours for the most elite shoppers to browse privately. The lesson: even the wealthiest shoppers like something extra.

“Everyone likes a special offer. And both Carmel Plaza and Scottsdale Fashion Square have personal shoppers who take care of their every need,” Cavaliere said. “They just loved that.”

The result is that the better centers remain well leased, though rents are becoming more flexible, Greenberg says. Taubman reports strong leasing at his centers and South Coast Plaza boasts a 98% occupancy level, with several high-end tenants, including luxury jewelers including Harry Winston and deBeers, as well as designers Oscar de la Renta and Calvin Klein, opening this year. That continued expansion allows the luxury centers the chance to avoid compromising the integrity of the project by leasing to lesser space, Taubman added. And all emphasize that this is just another retail cycle, that smart companies will take advantage.

“There’s a healthy regeneration going on,” Greenberg said. “I wouldn’t want to be a multi-brand mid-priced retailer right now. But it’s a great time to reinvent your center.”

Source: GlobeSt.

New England Retail Report

Strong fundamentals keep things rolling in New England.

The New England retail marketplace continues to be a steadfast environment for retailers, despite the current market squeeze. Chuck Irving, the director of KGI Properties, which has approximately 5 million square feet of retail property throughout New England, says, “The good thing about New England is that there is less retail space on a per capita basis than any other part of the country, so it has always been a healthy retail market.” He adds, “I don’t expect to see any major vacancy issues, but I do expect to see a slowdown in the development sector of the retail economy.”

This slowdown is being felt in the big-box sector, as developers decrease construction of big-box projects such as Wal-Mart, Lowe’s and Home Depot. “It is a healthy decision in relation to where the economy is right now,” Irving explains. “These companies have not stopped growing, they are just moving forward more cautiously this year.”

On the other hand, supermarket retailers are still charging forward. “From Wegman’s to Fresh Market, there is a new spectrum of players in the supermarket business, which is prompting innovation among those already established in the market such as Stop and Shop,” notes Irving.

There are many projects going forward with smaller supermarkets that are piercing higher end communities that they have not been able to penetrate before. These supermarket retailers are doing that by literally downsizing stores and being more creative with prototypes. “Since these supermarket retailers have already paid for the ad dollars in the market and they have the distribution capacity in place, there is no reason not to expand their stores in the areas even if they have to downsize,” explains Irving.

Aside from supermarkets, lifestyle centers continue to be the premier retail development trend in New England. “Banks are very willing to finance them and tenants are interested in being a part of them,” says Irving. “Tenants just seem to be prefer upscale outdoor centers to upscale malls and the sales volume at the stores in these lifestyle centers demonstrates that.”

The surge of lifestyle centers has also changed the type of projects KGI has historically been known for — big-box projects such as Wal-Mart and regional power centers. However two of their newest projects are quite a departure from that format. According to Irving, the shift in development for KGI was in correlation with the current demand in the marketplace. “KGI’s projects were being driven more by supermarkets than by the big boxes. And since we finance our projects off of them, we go where they want to go,” he says.

In Lyme, Connecticut, KGI, along with joint venture partner Konover Development, is developing Gateway Commons, a 400,000-square-foot lifestyle center. The project will include one large format store of more than 100,000 square feet, a supermarket and approximately 85,000 square feet of small shops and restaurants. The project is currently in the process of permitting, with an anticipated groundbreaking in 2009 and completion most likely in 2010. “Lyme is one of those markets that has a high income demographic market, and despite the economy, retailers are still very interested in becoming part of this project,” remarks Irving.

Wayland Town Center in Wayland, Massachusetts, exemplifies the shift in retail design in New England.

KGI is also set to break ground in August on Wayland Town Center, a high-end, mixed-use project that will feature retail, office and civic space, as well as approximately 100 condominium units. Situated between Wellsley and West End in Wayland, Massachusetts, the project will offer 205,000 square feet of leaseable space. “Upscale projects like Wayland and Lyme are unique for us, but they are simply reflective of the communities we are putting them in,” explains Irving.

Leasing activity has slowed somewhat, depending on the type of project and its location. “In the upper end categories, leasing is still strong, but leasing in some strip centers has become more difficult,” notes Irving. “It is just a slow time right now.”

Over the past 3 years, a great deal of retail development was completed in markets such as Maine and New Hampshire. Southern Maine has been especially busy with about a million square feet of retail development either permitted or under construction, according to Mark Malone, vice president of Malone Commercial Brokers. “It has actually been busy in the past year considering the current economy,” he says. “For a market our size, that is a good addition to the market.”

Much of the new development within Southern Maine has been small lifestyle centers within more suburban areas. “Traditionally in Southern Maine, the Maine Mall, which has drawn from as much as 50 to 75 miles out, has always been the hub of retail. But most of the growth is happening in outlying areas such as Biddeford, Augusta, Lewiston and Auburn, which have started to add more retail,” says Malone. “Developers are now going out to those markets that would have come to the mall for their shopping. They are opening up Target stores and Super Wal-Marts, Lowe’s, Home Depot, and Bed Bath & Beyond.”

KGI is currently developing two power oriented centers in Maine. In Scarborough, just south of the Maine Mall, the development firm is in the process of constructing Scarborough Gallery. A Lowe’s is open at the 650,000-square-foot center and a Wal-Mart is currently under construction. In Sanford, KGI also recently held a groundbreaking for a new Wal-Mart.

In addition, some retail opportunities are popping up north of Portland. Cedarwood Development is currently planning a 319,166-square-foot lifestyle center set on 35 acres 4 miles from the city of Portland. Development is slated to begin spring 2010, with a store openings set for spring 2011.

As construction costs go up and barriers to entry become even tougher, Malone believes that development activity will begin to center more on the reuse of older retail centers. “Developers and some REITs are buying up older centers, putting a new finish on them and bringing them back to life,” notes Malone. “Maine has just passed some new vernal pool laws that are very restrictive on what can be built around wetlands, so there will probably be more and more of this type of retail development. ”

Despite recent growth, Malone believes retail development will begin to slow down. “I think we will mostly see infill development and the absorption of the spaces in projects that are already online or permitted.” Irving concurs, adding, “There are not enough demographics to support building new stores as rapidly as we have been in the past. The retail development in Maine has been mainly large discount stores such as Wal-Mart, Home Depot, Lowe’s, Kohl’s, and those retailers are now focusing on much denser demographic areas in the near-term.”

Leasing activity within Maine and its more popular Southern Maine submarkets has slowed, but, vacancies are still rather healthy. “In the past 10 years, the vacancy rate in this market has not gone over 2.5 percent, but in the past year, the vacancy rate has risen to 5.6 percent, more than doubling,” notes Malone. “Now building owners are offering more incentives such as free rent and discounted rates.” Depending on the location and the type of center, rental rates range from $15 to $25 per square foot. “Many of the new projects are suffering a little bit on infill space. It is just not being leased up as quickly because landlords are holding their prices in the mid $20s and the market is just not there for it,” explains Malone. “It is also a combination of tenants being cautious because of the economy and supply increasing to the point beyond what the population has grown.” For example, retail sales in the Maine Mall area in the past 5 years have gone up about 1 percent per year, but the supply of retail space has gone up more than 20 percent in that same period.

Investors continue to be keen on retail properties within Maine. “The sales that have happened have been very quiet and under the radar. Cap rates on local multi-tenanted properties with varying lease terms from 2 to 10 years are around 7.5 to 8 percent,” says Malone. In the future Malone believes that more large corporations and REITs will continue to come into the market to buy up some of the older centers. “The private money, the local developer and the local investors are having a harder time with banks tightening credit, so more big developers will come in and re-use space,” Malone explains.

Overall, the Maine retail sector will hold fairly steady. “The market is price sensitive and smart developers will fill their spaces at the rates that are going today,” remarks Malone. “Some developers are going to hold onto their mid-$20 prices, but because the infill is coming from local and regional tenants, the competition is just too great to get those kind of higher prices right now.”

The Boston retail market is another integral component to the overall success of the New England retail market. According to Pat Paladino of Colliers Meredith & Grew, retail development has been aggressive in the Boston area. “There is more development being planned, permitted and developed in this market than I have seen in quite some time,” he remarks. “There are several lifestyle centers underway, so in a sense, Boston is just now catching up to other parts of the country in terms of the lifestyle trend. Much of this lag has to do with this market being an older market without much developable land. To get anything done or permitted of any size or scope takes a long time to get approved and constructed.”

There are more than 9 million square feet of retail projects in suburban Boston that are either permitted or are planned to be built in the next 3 years, and although the question of whether they will all be built remains unanswered, Boston is proving to be a popular market for retailers. “As a whole, Boston has been under retailed both from the amount of retail space and the quality,” says Paladino. “Also, Boston is obviously an older area with little available land and the existing product is older, so Boston is just now starting to catch up with the rest of country to have the quality of retail that this highly educated and high-income consumer demographic requires. It is a place that many retailers want to be.”

Like so many of the other markets within New England, a good deal of the planned and current retail development in Boston is taking place in the suburbs, although growth has been more project specific. Developers are scouting for holes within underserved markets that have good demographics and locations.

In Dedham, Massachusetts, W/S Development, and joint venture partner National Amusements, are currently developing Legacy Place. The 675,000-square-foot lifestyle center will feature a 60,000-square-foot Whole Foods Market, and a 16-screen, 91,000-square-foot cinema de LUX. Other tenants include L.L. Bean, Anthropologie, Urban Outfitters, Legal Seafoods, P.F. Chang’s and Ruth’s Chris Steakhouse. The center is slated for a summer 2009 opening.

Along the front of Gillete Stadium in Foxborough, Massachusetts, The Kraft Group is developing Patriot Place, the largest mixed-use retail and entertainment destination in New England. The 1.3-million-square-foot lifestyle center will feature large and boutique retailers, a state-of-the-art movie theatre, restaurants and other nightlife options, a live music venue, a four-star hotel, a medical and wellness center and the New England Patriots Hall of Fame and Museum. The first phase of the project is open and the second phase is nearing completion. The center also features New England’s first Bass Pro Shops. Also a first for New England, the largest Apple Store in the U.S. just opened in the Back Bay area of Boston in May.

Grocery stores are in demand in the Boston retail market as well. Grocery stores such as Whole Foods Market continue to grow in the marketplace, many of which are part of new lifestyle centers. “There are many top retailers that are currently in the market, but they have not had the opportunity to expand, and now these retailers are comfortable going into some of the new, upscale centers,” remarks Paladino. Entertainment components such as high-end, theaters, bowling alleys and themed bars and restaurants are also being incorporated into more mixed-use projects and lifestyle centers throughout the Boston area.

In the future, more development will likely be seen in the more urban areas of Boston. The seaport area just outside downtown Boston has roughly 13 million square feet of development in the permitting process or already permitted, much of which is retail.

Although national tenants continue to expand in the Boston area, Paladino notes that retail leasing is noticeably slower this year. “Retailers are slowing down, pulling back or rethinking what they do. The good thing about Boston is that it is not over-built for retail. If retailers have to choose where they are going to expand, Boston will still be high on the list because of the demographics here,” he explains. “From a pure activity standpoint — the good projects still have plenty of demand, but marginal product and older space are taking longer to fill.”

The future of the Boston retail market is expected to remain solid. “Retailers will continue to scope out quality projects,” says Paladino. “As supply remains tight, activity should not slow down anymore and hopefully there will be stabilization and improvement over the next year.”

Overall, high barriers to entry, fewer product opportunities, and good demographics make New England an ideal place for retailers. As retail vacancies increase in other parts of the country, all of our experts agree that New England should hold steady, insulated from outside circumstances. “The retail market always goes through cycles and New England has historically been the least affected of any area in the country and that is my prediction again,” says Irving.

Sorce: Northeast Real Estate Business

D.C. releases detailed 3-D data on Google Earth

The public can now access detailed views of domes, crevices and corners of every building in D.C.

D.C.’s Office of the Chief Technology Officer spent a year compiling new data from pre-existing photography to release one of the largest collections of three-dimensional building maps on Google Earth.

D.C. had 7.4 square miles of 3-D data prior to the recent 69-mile expansion.

Included are 84,000 3-D buildings and corresponding two-dimensional footprints that provide height information for each building.

The data includes rooftop details of penthouses and spires, differentiating each building from those around it. Google Earth also hosts a large collection of New York City’s structures.

The purpose of compassing the entire mileage of D.C. was so that developers, architects, and planners have data needed to assess possible new structures throughout the city.

Source: Washington Business Journal

Teen Retailers' Back-to-School Blues

If Steve & Barry's financial woes are any indication, the back-to-school season will be a difficult one for teen-focused retailers.

The Port Washington, N.Y.-based company filed for Chapter 11 bankruptcy last week, citing $693.5 million in assets and $638 million in debt. Best known for celebrity fashion lines, including Bitten by Sex and the City star Sarah Jessica Parker and Starbury by New York Knicks star Stephon Marbury, Steve & Barry's sells super-cheap clothing for teens and college students. Prices rarely exceed $20.

In an economic downturn in which the Wal-Marts of the world are succeeding (see "Consumers Save Money, Discounters Live Better"), one would presume that a teen retailer like Steve and Barry's, which is also a discounter, would be somewhat immune to hardship.

Instead, the outlook for specialty retailers that rely on high school and college students with disposable income to cushion sales, particularly in the back-to-school season, is dismal.

In 2007, retailers made an estimated $18 billion on back-to-school purchases, according to the National Retail Federation, a Washington, D.C.-based trade group. A whopping 95% was spent on clothing and accessories, with the majority of shoppers heading out to stores two to three weeks before school started.

But this year, these purchases are expected to be made online and at discounters like T.J. Maxx and Ross, says Dr. Robert Passikoff, founder and president of New York-based customer loyalty research company Brand Keys. These alternative outlets are expected to lure customers away from traditional brick-and-mortar hot spots like Abercrombie & Fitch, American Eagle Outfitters and Gap.

On Web aggregators like Shopstyle.com or Shopwiki.com, for example, teens can look at items from hundreds of e-commerce shops. And at discount retailers like TJ Maxx or Marshalls, famous brand names are available for a fraction of the original price.

"There's been a kind of paradigm shift in terms of which retail distribution outlets teens finds acceptable," says Passikoff, who believes that, in general, the teen has ultimate say in where he or she wants to shop, regardless of whether he's spending his own money or his parent's money. "Not only is it a matter of changes in tastes, but it's also the fact that at online and discount retailers, there's more of a choice," says Passikoff.

Growing Pains
Retailers set to face the most challenges include JCPenney, which recently announced the launch of six young adult-focused brands for Fall 2008, including Dorm Life--a home goods range for college students--and Fabulosity, a hip hop-inspired girl's line designed by Baby Phat director Kimora Lee Simmons. Brian Sozzi, a retail analyst at Wall Street Strategies, a New York-based independent stock market research company, believes JCPenney "will have a tough time gaining that teen customer." Younger generations still associate the retailer with fuddy-duddy, dated garb of older generations.

Sozzi also sees dark skies ahead for the already-struggling American Eagle. For years, the brand seemed to be an invincible force in the specialty retail sector. However, Sozzi says that the brand's sales numbers in recent months continue to plummet because it's missed key trends in the denim department, kept prices higher than competitors and expanded too quickly, with 135 store openings planned this year for a total of 1,000 since 1977.

Gap's prospects don't look good either. Despite restructuring that includes expense reductions and inventory control, sales have been sluggish for more than a year. Not even designer collaborations--including a line of covetable shoes by high-end cobbler Pierre Hardy and a second installment of the Vogue/Council of Fashion Designers of America line of white shirts, created by up-and-comers like Phillip Lim and Michael Bastian--could offer a boost. (Many of those shirts are now available for less than $30 in stores, down from $78.)

Who might fare well next month? Aeropostale. Once considered the nerdy cousin of Abercrombie & Fitch's star quarterback and American Eagle's head cheerleader, Aeropostale has done remarkably well during the downturn. Same-store sales increased by 12% for June 2008, almost double what was estimated by analysts. Sozzi says that within the last year, the company has improved on its designs and quality while keeping its price points lower than competitors.

Looking beyond Fall 2008, Passikoff believes some specialty retailers simply won't make it through. "It's like you're on a crest of a wave and it's moving--it's a tsunami," he says.

However, those that do survive will have something in common with every successful retailer, whether it be specialty, discount or luxury: brand loyalty. "The ones that are going to survive are the ones that recognize customer loyalty means an emotional association with a brand," says Passikoff. "They have to be willing to create a value-added experience around that."

Source: Forbes

For Back-To-School, Family Values Make A Comeback

From Staples to JC Penney to Wal-Mart, retailers are already hyping the heck out of their back-to-school offers. But experts expect that nervous parents will rein in their spending.

TNS Retail Forward, which tracks consumer spending plans, says that only one-third of shoppers are planning to do any back-to-school shopping this year--down 5 percentage points from last year. And families who will be shopping say they plan to spend about $506, down from the $668 in school-related expenses they predicted a year ago at this time. Perhaps more tellingly, 26% of those shoppers say they are planning to spend either somewhat or much less than they did last year, compared with 13% who expressed that sentiment a year ago.

And a consumer survey from Staples finds that 79% of moms say that current economic factors, including fuel prices, will influence the way they shop for school supplies.

"'Shopping down' is going to continue to be the big trend, not just for back-to-school, but through the holiday season and into next year," says Tim Henderson, senior director and consumer strategist at Iconoculture, a Minneapolis-based trend-spotting firm.

What's more, he says, the new frugality is a sentiment cutting a wide swath through American shoppers--not just those who are directly under pressure because of the weaker economy. "Even for people who aren't affected, there's the growing perception that conspicuous consumption is gauche right now, given all the negative economic headlines. And for years, we've known that consumers have a low level of anxiety about the amount of debt they carry. All this talk about a weaker economy makes them that much more uncomfortable."

That doesn't mean parents won't go shopping, he says. "We think there's a real analogy between back-to-school and gift giving," he says. "There will still be spending, but it will be more restrained--fewer outfits, and more parents saying to teenagers, 'Are you sure you can't live with the sheet set we bought for your dorm room last year?'"

Another trend he expects to see intensify is the wait-and-see teen, as younger shoppers develop their own spin on economic uncertainty. "Because these kids are very influenced by the economy--directly, in that it's been much harder for them to find jobs and indirectly, hearing their parents talk about their own financial concerns--these kids are much more likely to hold back spending their own money until school starts. They want to make sure they know which jeans and handbags are hot before buying. Many of them are adapting that 'It's cool to be thrifty' sentiment."

"Shopping down is a big deal for people, because they know they can get the same value--a No. 2 pencil from Wal-Mart is as good as a No. 2 pencil from anywhere else, and consumers know it-for a better price," Henderson says. "So they're paying less, but not making a quality sacrifice."

Last week, teen retailers Abercrombie & Fitch and American Eagle both posted a decline in same-store sales for the month of June. The more affordable Aeropostale, however, saw its same-store sales jump 12%.

The National Retail Federation is scheduled to make its predictions for both back-to-college and back-to-school spending in the next few weeks.

Source: Media Post