Store closings in 2009 less widespread than predicted
What ever happened to the wave of store closings announced last year? Many have yet to materialize, observers say. By ICSC’s count, the number of announced store closings last year totaled 4,763. That is far fewer than the 6,913 announced in 2008 and the 7,041 announcements ICSC tallied in 2001. “Because our announced store-closures series has been done using the same methodology for nine straight years, it is a good gauge for comparing 2009 against other years,” said ICSC research analyst John Connolly. “The real story here is that things are not necessarily getting worse.”
Media reports often treat these announced figures as synonymous with the number of stores actually closed in a given year. In fact, this number reflects only announced closings by national chains and includes no data for mom-and-pops. “There is essentially no comprehensive way to track the actual, physical closures,” Connolly said. Still, ICSC researchers do their best to come up with comprehensive estimates. Working with Bureau of Labor Statistics data, they estimate that 148,000 stores closed in 2008. No estimate is available yet for 2009, because the bureau’s numbers lag by nine months.
The dynamics on the street also appeared to jibe with the numbers. “It seemed as though half the amount of closings had occurred [at year-end 2009] that we thought would occur,” said Michael Wiener, president and CEO of Excess Space Retail Services, a consulting and advisory firm focused on real estate disposition and lease restructuring for retailers.
Ultimately, however, 2009 was a very tough year, as anyone working in commercial real estate knows too well. In the Retail First Glance report, Reis economist Ryan Severino details a litany of harrowing retail performance trends from the fourth quarter. Though the pace of store closures did continue to slow, he writes, signs of “massive distress” in retail were unmistakable. These included spiraling vacancies at both malls and shopping centers, and across-the-board declines in rent.
How, then, did chains manage to announce fewer store closures in 2009 than in previous years? Experts cite several factors, among them progress on the credit front and new coping strategies adopted by both retailers and landlords. Even as retailers lured shoppers to their stores by offering deep discounts, they also made great strides tightening their inventories and slashing payroll and operating costs, says Jeff Green, president and CEO of Mill Valley, Calif.–based consulting firm Jeff Green Partners. “Even on flat or declining sales, some retailers have now repositioned their businesses so that they are making money,” Green said. “What a surprise.”
But this also hints at a sobering possibility: that the avalanche of predicted store closures has merely been delayed by the smart, but ultimately fruitless, adjustments of both landlords and tenants. “The reality is, all these store closings were stemmed by the anomaly that is lease-restructuring,” Wiener said. “But now there is probably going to be a host of store closings in 2010, because things are still very bad.”
Impressive gain for January sales
The year began on an encouraging note, with January retail sales rising at a pace considerably better than anticipated and in the face of some contrary factors. Same-store sales for the month were up 3 percent over last January, according to ICSC’s index. “Despite lean clearance inventories and some adverse weather that held back sales in January, industry sales posted an impressive gain,” said Michael P. Niemira, ICSC’s chief economist and director of research. “Easy comparisons with the aggregate decline of 4.8 percent for January 2009 helped lift the performance, especially for the apparel chains marking the strongest monthly gain for that segment since March 2007.” Luxury stores posted the strongest gain, at 10.9 percent. Wholesale clubs, which, unlike apparel and luxury retailers, were spared a precipitous sales decline in January 2009, also posted an uplifting increase, at 8 percent. Looking ahead, ICSC expects sales to rise about 2 percent for February and between 3 and 3.5 percent for 2010.
Puerto Rico, Brazil beckon developers
Puerto Rico and Brazil are two bright spots amid the global recession for Developers Diversified Realty Corp. Brazil, with its pent-up economic potential, is no surprise, but economically challenged Puerto Rico might be. The U.S. commonwealth is drawing continued interest from retailers and mall developers, as delegates were told at ICSC’s Idea Exchange, in San Juan.
“Our assets in Puerto Rico are as good as we have,” said Paul Freddo, Developers Diversified’s senior vice president of leasing and development. “Our [Puerto Rico] portfolio continues to perform above what you would expect in this current environment.”
Occupancy rates at Developers Diversified’s malls stand at 97 percent in Brazil and 96 percent in Puerto Rico. The Puerto Rico retail real estate assets make up only 3 percent of the firm’s total gross leasable area, but they generate one-fourth of the company’s overall auxiliary income through advertising, sponsorships, cart leasing and temporary in-line leasing, Freddo said.
Developers Diversified owns and manages some 665 properties across 44 states and in Brazil, Canada and Puerto Rico. With partner Sonae Sierra Brazil, the firm is set to open another mall in Brazil this year, in addition to expanding some existing ones in its 10-mall portfolio there, Freddo said.
In Puerto Rico the firm’s emphasis has been on redevelopment of the 15-mall portfolio it bought there five years ago. Meanwhile, the company continues its efforts to bring new retailers to Puerto Rico; PetSmart and T.J. Maxx arrive this year. Other names that will be setting up shop there this year are Express, Express Men, Olive Garden and Villa Fresh Italian Kitchen.
Puerto Rico has attracted attention from other developers too. Venezuela’s Sambil Group plans to build Sambil Guaynabo, a 1 million-square-foot mall in the city of Guaynabo, which boasts Puerto Rico’s highest per capita income. “It’s time for a new big mall in Puerto Rico’s market,” said Alfredo (Freddie) Cohen, director of Sambil Group. “There are good retailers in Latin America that have not come to Puerto Rico and the U.S., and Sambil Guaynabo can be the bridge.”
Valentine’s Day spending to rise
Valentine’s Day spending this year will rise 3.3 percent from last year, to $17.6 billion, but consumers will be more inclined to dine out than to give gifts, according to research firm IBISWorld. “Restaurants are likely to gain traffic throughout the entire weekend,” said Toon van Beeck, a senior analyst at IBISWorld. “Because Presidents Day is on the following Monday, many consumers will be able to travel over the three-day weekend, further boosting restaurant sales.”
As regards Valentine’s Day, Sunday is the worst day for florists, according to the Society of American Florists, making this year’s sales prospects especially bleak. “Many retailers see Valentine’s Day as an opportunity to kick-start the new year, but the unemployment rate and continued uncertainty of the economic recovery will hamper growth and expansion,” van Beeck said.
A survey of 1,200 men and 1,200 women conducted by New York City–based consultant firm Brand Keys found that 30 percent of the respondents plan to stay home on Valentine’s Day, more than twice the number that said so last year. “The average price consumers placed on love this year is $103, down about 5 percent from last year,” said Robert K. Passikoff, who heads Brand Keys. “Ninety-three percent indicated that they are going to celebrate in some way, just at a slightly lower level.”
National Retail Federation and BIGresearch, which have predicted a $14.1 billion spending total in their joint Valentine’s Day forecast, said Americans will spend slightly less on their significant others this year ($63.34, versus $67.22 last year) but increase their shopping for friends ($5.37, up from $4.74) and pets ($3.27, up from $2.17).
The men said they would spend $133 each, the Brand Keys survey says, down from $140 last year, and women said they would spend $72 each, off from $75 last year. The respondents indicated they would spend 10 to 15 percent less on flowers, candy, jewelry and lingerie, relying instead on less expensive items or homemade gifts. “The purchase of gift cards had nearly doubled over the past five years,” said Passikoff. “But this is the second year in a row that gift card purchases have decreased slightly.”
TRANSACTIONS
Chicago-based REIT Management & Research paid $75 million to buy Hill Country Galleria, an 802,000-square-foot mall in Austin, Texas, out of foreclosure.
Singapore-based CapitaMalls Asia bought the 624,000-square-foot Meili Mall, in Chengdu, China, from China Vanke for $67 million.
Loja Group, of Walnut Creek, Calif., acquired The Shops at Waterford, a 125,000-square-foot neighborhood shopping center in Dublin, Calif., from Aliso Viejo, Calif.–based Shea Properties for $44 million.
Santa Barbara, Calif.–based Investec purchased The Plaza at Sunbow, a 99,000-square-foot neighborhood shopping center in San Diego from Levine Investments, of Phoenix, for $21.2 million.
Cedar Shopping Centers and RioCan paid Newman Development Group, of Vestal, N.Y., $18.9 million for Towne Square Plaza, a 123,101-square-foot neighborhood shopping center in Reading, Pa.
Los Angeles–based Westwood Financial sold the 122,446-square-foot Coalmine Shopping Center, in Littleton, Colo., to New York City–based Rothenberg-Rosenfield for $10.1 million.
RETAILING TODAY
Movie Gallery has filed for Chapter 11 for the second time in less than three years. The Dothan, Ala.–based operator of Hollywood Video stores plans to close 805 of its roughly 2,400 stores.
McDonald’s is expanding in China and Russia. The burger chain will open between 150 and 175 new stores in China this year. It will add 45 stores in Russia, where it faces new competition from U.S. rival Burger King, in 2010, its 20th year in that country.
The Walking Co. filed a reorganization plan under which the Santa Barbara, Calif.–based shoe retailer intends to keep 207 of its 214 stores open and pay off its debts and future obligations. The company filed for bankruptcy protection in December.
Icebreaker, a New Zealand apparel brand known for its merino wool sweaters, is set to open its first factory outlet store in the U.S., in Woodburn, Ore., by April.
Coach will be opening its first menswear-only store, in New York City, in May.
Bed Bath & Beyond will open its first Hawaii store this year. This will give the Union, N.J.–based retailer stores in all 50 states.
Hot Topic said same-store sales dropped 13.1 percent in January year on year, owing to lackluster sales of merchandise associated with the film New Moon.
THE BOTTOM LINE
CBL & Associates posted $2.35 million in fourth-quarter funds from operations, down from $52.8 million a year ago. The firm realized a $57.7 million loss during the quarter, versus a $10 million loss a year ago. CBL wrote down the value of three shopping centers by a total of $114 million to reflect market conditions specific to those centers. Excluding lease termination fees, same-center net operating income for the quarter declined 1.5 percent, versus a decline of 4 percent a year ago. Same-store sales for mall tenants measuring 10,000 square feet or less declined 5.4 percent to $313 per square foot for the year, versus $331 per square foot a year ago.
Kimco earned $40.4 million during the fourth quarter, versus a loss of $63.3 million a year ago. The boost was in part the result of fewer write-downs and some $9.3 million in administrative-expense cuts. Funds from operations were $119.5 million, meanwhile, versus $10.5 million for the year-ago period. Same-property net operating income for the quarter declined 2.7 percent year on year, largely owing to the bankruptcy-related closings of 21 junior anchors. Kimco says it expects same-property net operating income and occupancies this year to be flat.
Regency posted $58 million in fourth-quarter funds from operations, up from $50.8 million a year ago. Net income was $25.3 million, up from $14 million for the year-ago quarter. Regency sold three properties and six outparcels for about $56 million during the quarter. Same-property net operating income fell 7.4 percent, which the firm attributed to rent declines.
THE COMMON AREA
Glenn J. Rufrano will be joining Cushman & Wakefield on March 22 as president and CEO. Rufrano was CEO of Centro Properties Group.
New requirements that British businesses cut energy consumption or incur fines could signal the end of all-night shopping displays on High Street, the U.K.'s Environment Agency says. Businesses and public organizations using more than a specified amount of energy must register for the CRC Energy Efficiency Scheme by April and begin paying for the carbon they emit starting next year.
Lenders are loosening their purse strings slowly but surely, according to the most recent survey of loan officers conducted by the Federal Reserve Board. The Fed says that about 27 percent of respondents reported in January that they are tightening standards on commercial property loans, down from 34 percent in the fourth quarter of 2009. In January 2009, 79.2 percent reported tightening standards. Although commercial real estate conditions are not as dire as they were, the Fed said bank policies on this lending continued to reflect the fact that large numbers of respondents further tightened credit standards during the fourth quarter of 2009. “In addition,” the Fed said, “banks reported that they had tightened terms on CRE loans substantially over the past year.”
Europe’s second-largest building would become a shopping, entertainment and exhibition center under a proposal by Silviu Prigoana, a Romanian member of parliament and businessman. The structure in question is the 1,100-room People’s Palace built by Romania’s toppled dictator Nicolae Ceausescu, who once described it as a “victory to socialism.” Part of the building is now used by Romania’s parliament, but it would make sense for the cash-strapped country to move its parliament elsewhere and use the building to generate revenue, Prigoana argues.
SCTWeek is a free weekly publication of Shopping Centers Today ©, International Council of Shopping Centers, 1221 Avenue of the Americas, New York, NY, 10020; Edmund Mander, Editor-in-chief. Phone: +1 646 728 3487. Fax: +1 732 694 1730. E-mail: news@icsc.org
February 5th, 2010 Vol. 15 No. 5
