REAL ESTATE

Cherry Hill Mall and GoMoto aim to change auto retail

BY Michael Fickes

Philadelphia — Want to buy a car? Check out the automotive showroom at Pennsylvania Real Estate Investment Trust’s Cherry Hill Mall.

PREIT has undertaken a three-month partnership with GoMoto, an automotive tech company that aims to change the way people shop for cars.

GoMoto’s first-ever showroom enables car-shoppers to drive and compare competitive classes of vehicles all in one location starting this month. The idea is to cut down on the significant amount of time shoppers must spend traveling from dealer to dealer to test drive and research vehicles. The GoMoto concept provides a quick and easy way to drive, compare and evaluate different brands, models and categories all in one place.

The Cherry Hill Mall GoMoto showroom will feature 2014 Class Leaders and allow customers to explore and compare various models of pickup, sedan, SUV and luxury categories from brands such as Acura, Audi, BMW, Dodge, Ford, Honda, Kia, Lexus, Nissan, Mercedes and Toyota.

Shoppers will stage test drives right from the mall parking lot with up to five other competitive vehicles in each respective class. Knowledgeable brand experts staff the GoMoto showroom and will answer questions about the vehicles.

The brand experts do not sell the vehicles. In fact, they will not discuss prices, financing terms or any issue connected to a financial transaction. The idea is to remove the stress of sales pressure from the research phase of buying a vehicle. Shoppers interested in taking the process further receive information about dealerships near them. GoMoto also provides the dealerships with interested shoppers’ information.

“We are excited to announce this event that offers our mall customers yet another innovative experience at the mall that will not only b new but is also a convenience,” said PREIT CEO Joseph F. Coradino. “Integrating with pioneering partners like GoMoto aligns us with evolving consumer habits. “

The showroom opened at Cherry Hill Mall on May first in the mall’s Grand Court. It will operate through July 31.


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News

ODP plans 400 store closures

BY CSA STAFF

Office Depot said it plans to close 400 of its 2,000 stores as it looks to realize efficiencies related to its merger with OfficeMax.

An estimated 150 of the stores will close this year, according to company, which reported first quarter results and continued weakness in same store sales. The company anticipates that the closures will generate annual run-rate synergies of at least $75 million by the end of 2016 and will begin to be accretive to earnings in 2015.

Total reported sales for the quarter were $4.4 billion compared to $2.7 billion in the first quarter of 2013, and were 3% lower than combined pro forma sales of $4.5 billion in the first quarter of the prior year.

The company reported an operating loss of $79 million and a net loss attributable to common stockholders of $109 million, or $0.21 per share. The operating loss included special charges totaling $151 million, which were made up of $96 million in merger-related expenses, $41 million in non-cash IT-related impairment charges, $9 million in non-cash store impairment charges, and $5 million in International restructuring and other operating expenses. The tax effect of these pretax charges was $4 million. In the first quarter of 2013, the company reported operating income of $10 million and a net loss attributable to common stockholders of $17 million, or $0.06 per share.

“We are pleased with our first quarter performance. After a weather-challenged start to the year, sales trends improved as the quarter progressed, and we exceeded our expectations for both cost reduction and operational execution,” said chairman and CEO Roland Smith. “With our new organizational structure established and leadership team largely in place, the execution on our critical priorities is improving, and we are delivering merger integration synergies more quickly than anticipated. Accordingly, we have increased our full year 2014 outlook for adjusted operating income to be not less than $160 million from our prior outlook of not less than $140 million.”

The company’s North American Retail Division reported sales in the quarter of $1.8 billion compared to $1.1 billion in the first quarter of 2013, reflecting the inclusion of OfficeMax sales in the first quarter of 2014. On a combined pro forma basis, first quarter 2014 sales declined 5%, and same-store sales declined 3% versus last year. Same-store sales decreased primarily due to lower transaction counts partially offset by higher average order values.

Meanwhile, the Business Solutions Division reported sales of $1.5 billion in the quarter compared to $0.8 billion in the prior year period, reflecting the inclusion of OfficeMax sales in the first quarter of 2014. On a combined pro forma basis, sales declined 2%.

International Division reported sales of $1 billion in the quarter compared to $0.8 billion in the prior year quarter, reflecting the inclusion of OfficeMax sales in the first quarter of 2014. On a combined pro forma basis, sales declined 1% in constant currency.

For the remainder of 2014, Office Depot continues to expect that market trends will remain challenging across the company’s product lines and distribution channels, and therefore continues to anticipate total company sales in 2014 will be lower than 2013 combined pro forma sales. The expense deleverage from lower sales is expected to offset a portion of the merger synergies and operating improvements anticipated during the year. Based upon earlier than expected realization of cost synergies and improved operational execution in the first quarter, the company now expects to generate adjusted operating income of not less than $160 million in 2014 compared with its prior outlook of not less than $140 million.

Including at least $75 million in annual run-rate synergies from the optimization of the U.S. retail store portfolio, the company also raised its estimated total annual run-rate of synergies to more than $675 million by the end of 2016, compared its prior outlook of more than $600 million. Of those synergies, the company now expects to realize approximately $180 million during 2014, and end the year with an annual run-rate of approximately $360 million, not including any benefit from the retail store network optimization.

The company also continues to estimate that $400 million of cash merger integration expenses will be required during the three-year period of 2014 through 2016 to substantially complete the integration, excluding costs related to optimizing the U.S. retail store portfolio, which have not yet been determined. Approximately $300 million of these cash integration expenses will be incurred in 2014. The company continues to anticipate integration capital spending of approximately $200 million to $250 million during the 2014 through 2016 period. In 2014, the company expects capital spending to be approximately $150 million, excluding up to an additional approximately $50 million in integration expenditures. Depreciation and amortization is expected to be approximately $300 million in 2014.

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REAL ESTATE

The Hispanic Market Comes of Age

BY Jeff Green

One topic that’s been on my mind lately is the growing Hispanic market in the U.S., and what its clout and purchasing power will mean for retailers — and, subsequently, for retail real estate — in the years ahead. “Emerging” is probably too mild of a word to describe the Hispanic market — exploding might be more accurate.

As of 2011, the U.S. Hispanic population was just shy of 52 million (17% of the total U.S. population). That’s up from around 35 million in 2000: an eye-opening 48% increase in just 11 years. By 2060, Hispanics are projected to make up 31% of the U.S. population. We don’t have to look decades down the road to get a sense of how important and influential the Hispanic demographic is for retailers, however: In 2013, Hispanic purchasing power reached $1.2 trillion, and it is projected that the Hispanic population will account for 11% of all purchasing power by 2017. It’s also important to note that the influence of the Hispanic market is being felt everywhere. While large Hispanic markets like Los Angeles and Houston lead the way, the Hispanic market is also growing dramatically in northern markets like Minneapolis, and smaller secondary markets like Omaha, Nebraska.

What is particularly interesting to me is how various developers and retailers are adapting (and, in some cases, not adapting) to this foundational shift in the nation’s demographic makeup. In my mind there are really two broad retail shifts in response to growth in the Hispanic market. One is the continued development and redevelopment of centers designed specifically to cater to and appeal to a Hispanic audience. Most of these are smaller centers and more modest sized formats, and they tend to feature Hispanic-friendly tenants. Often, they feature mom and pop chains, which can pose a bit of an issue for developers in this space. With a comparative dearth of national brands, securing sufficient credit and financial backing can at times become problematic. Hispanic supermarkets are often a big part of these projects (Houston-based Fiesta Markets is a good example), and smaller specialty bakeries and fish and meat markets are a popular choice.

The other significant trend to mention are the steps that national chains are taking to improve their standing and boost their appeal. While some brands — JoAnn Fabrics, Family Dollar, Ulta Beauty — have established themselves as effective co-tenants within a strong Hispanic market, many chain stores have never had an easy time appealing to minority communities. It’s actually far easier to list those chains that have been able to transcend ethnic, cultural and racial lines more effectively than others. MAC Cosmetics has been successful, as have Bebe, Charming Charlie, Forever 21 and Coach.

Compare the broad appeal of those brands to the limited cultural appeal of brands like Abercrombie & Fitch and American Eagle Outfitters. In cases where the appeal to Hispanic shoppers falls short, I see the most glaring failure on the merchandising side, which often reflects an inability or an unwillingness to understand, prioritize and address the needs of this market.

While some retailers are expanding their profile in the Hispanic community, it seems clear that (as of today, at least) the Hispanic population in the U.S. is currently growing at a much faster rate than the retail and retail real estate industries are adapting. There are some bright spots, however. Wal-Mart spent $66.6 million on advertising to Hispanic consumers in 2010, and they projected that they will increase that investment by 100% in 2014. Ram Trucks and Pepsi have both recently tapped Hispanic celebrities for big marketing campaigns. I expect to see more of this — much more of this — from a much broader range of national brands in the years ahead. I also expect to see more attention paid to the kinds of retail experiences and environments that Hispanic shoppers enjoy.

For myself, considering how fast the Hispanic market is growing, and as influential as it is now and will be in the future, I honestly don’t think retailers really have a choice in the matter. If they want to be competitive in the retail landscape of the not-too-distant future, the Hispanic market is a critically important piece of the puzzle.

I’d love to hear your thoughts on the matter — especially any examples you have personally witnessed of brands or stores engaging in Hispanic commercial outreach. What brands do you see making smart choices to expand their appeal? How have shifting demographics driven retail real estate trends in your area? Share your comments below or email me: [email protected].


Click here for past columns by Jeff Green.

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