News

Reinvented Department Stores and Malls See Robust Rebound

BY CSA STAFF

Department stores and shopping centers malls are gaining market share for the first time in three decades, according to consultants Customer Growth Partners, and this month most will report their best annual earnings in years — if not ever.

“Department stores from Macy’s to Nordstrom, and mall operators from Macerich to Simon, have used the recession not just to cut costs, but to reinvent themselves,” said Craig Johnson, president, Customer Growth Partners, a consulting and research firm serving retail and other consumer industries.

As a result, Johnson explained, department store anchors are no longer artifacts of a bygone shopping era. They have stemmed a generation-long attrition of customers to the big-box retailers, and have gained market share versus off-mall retailers for the first time since the 1980.

According to CGP’s just-released study, department stores’ share of the U.S. retail market rose for the first time since the 1980’s in 2010, fueled both by innovation and superior mall anchor execution — combined with topline weakness at Walmart’s U.S. division, now suffering through almost two years of lagging sales.

“Industry leaders such as Macy’s, Nordstrom and Saks have all used the recession’s down years to reinvest and reinvent themselves for today’s shoppers, and to bring back levels of newness, excitement and execution not seen in years,” Johnson said. The result is that over the holiday season, department stores enjoyed their first fourth-quarter sales increase since 2006.”

Later this month, Johnson added, Macy’s will report its best performance since its 2005 acquisition of May Co., with 2010 sales up 6.5% to $25B from 2009’s recession-depressed levels.

“More important,” he added, “Macy’s operating income will reach an estimated $1.87B, a 75% increase over 2009, and the best results since 2005, propelled by the steep earnings leverage created by combining years of cost cuts with renewed topline growth.”

Johnson singled for credit the merchandising excitement that Macy’s has generated from partnerships with Tommy, Martha and Madonna — and the kind of inventory and selling space productivity its MyMacy’s localization effort has achieved.

Nordstrom has also just completed a stellar comeback year, with sales of $9.3 billion a 13% year-over-year increase. According to Johnson, Nordstrom’s 2010 topline growth was fueled by great merchandising; continued full-line and Rack store, and e-commerce, expansion; and by improving store productivity.

“Although 2010’s $400 per square foot productivity is a sharp improvement from 2009’s $362 per square foot, Nordstrom still lags 2007’s peak productivity of $435 per square foot,” Johnson said. “But it’s headed in the right direction, and when the year-end financials come out next week, Nordstrom’s earnings leverage will be as steep or steeper than Macy’s, and it will report its most robust earnings in years.”

Mall Growth: Looking at malls, Johnson said mall vacancy rates reached 10 to 20 year highs in 2008-09. But by later 2010, the rebound in consumer spending — which underpins retail expansion plans — led to the sector’s first increase in occupancy rates since 2007, and year-end regional mall occupancy rose to an estimated 92.5%.

One of the factors behind the increase in occupancy rates, according to Johnson, was a drop in retail Chapter 11 filings.

“But the primary growth driver was fleet growth at domestic retailers, such as Aeropostale/PS, Forever 21, Francesca’s, HH Gregg, Love Culture, Rue 21, Vera Bradley and Vineyard Vines,” he added. “Many foreign players such as Cotton On, H&M, Pandora and Sephora have also been rapidly expanding.”

Johnson also pointed out that mall operators haven’t been standing still waiting for consumers to return over the past three years. Developers such as Simon and Tanger, for example, have continued to expand their highly successful outlet malls. And while traditional enclosed mall development has been in the deep freeze for over five years, some REITS, such as Macerich, Simon and Westfield, have focused instead on redeveloping existing properties, bringing “B” malls to “A”, and even “AA” status, he said. “Redevelopment has focused on opening up older enclosed malls, repurposing — and then retenanting — vacated mall anchors such as Mervyn’s, or sometimes even adding off-mall big boxers such as Costco and Target,” Johnson said.

In August, for example, Macerich reopened Santa Monica Place to a rousing reception. The center is now anchored by Nordstrom, a SoHo-merchandised Bloomingdales, a host of high-end specialty stores — and a rooftop restaurant area overlooking the Pacific.

“By bringing both newness and new tenants to shoppers, developers have sharply increased sales productivity at their anchor and in-line tenants, by as much as 40% or more,” Johnson said.

As a result of such initiatives, mall productivity rose in 2010 for the first time since 2007, to $469 per square foot, an 8% increase over 2009. It’s important to note, Johnson said, that Macerich is about to announce the first new traditional mall in years, to open in suburban Phoenix in 2014.

CGP’s 2011 retail forecast calls for 5.1% growth, the fastest since 2006’s pre-recession 5.3%. The $2.87 trillion 2011 forecast would top the total sales record of $2.73 trillion set in 2010.

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B.Brent says:
Nov-30-2012 03:26 pm

Department stores need to
Department stores need to reinvent, else, they will become like the dinosaurs, extinct. Its biggest competitor in terms of clients are the malls. Good that they reinvented, we could use a little bit of fresh air right? - Garrett Hoelscher

B.Brent says:
Nov-30-2012 03:26 pm

Department stores need to reinvent, else, they will become like the dinosaurs, extinct. Its biggest competitor in terms of clients are the malls. Good that they reinvented, we could use a little bit of fresh air right? - Garrett Hoelscher

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News

The new LEED For Retail certification: Can it improve the bottom line?

BY CSA STAFF

By Katherine Oberle and Monica Sloboda, [email protected], [email protected]

On November 18, 2010, the U.S. Green Building Council announced the long-awaited launch of its newest green building rating system, LEED for Retail. There are two distinct certification tracks available, LEED for Retail: New Construction and LEED for Retail: Commercial Interiors.

The new rating system, which has been in the works for several years, was developed to recognize the unique design and construction needs of the retail market sector. According to Scot Horst, senior VP of LEED (Leadership in Energy and Environmental Design), USGBC, “LEED for Retail builds on the strengths of other commercial LEED rating systems while taking special care to address the distinct needs of retail spaces, from occupancy demands to waste streams, energy and water use.”

Nearly 100 national and independent retailers and franchisees participated in LEED for Retail pilot projects under the pilot program that began in 2007 and their feedback helped to develop the rating system. Those retailers included Best Buy, Chipotle, Coldwater Creek, Kohl’s, LL Bean, McDonald’s, Starbucks, and Target, to name just a few.

Now that the new rating system is in effect, LEED for Retail will be required for retailers seeking LEED certification if more than 60% of the square footage of the project is devoted to retail uses. The Retail rating system will not be available for projects with less than 40% of the square footage devoted to retail uses, and for projects in which 40% to 60% of the square footage is devoted to retail uses, the Retail rating system may be used but is not required.

USGBC is expected to launch a related rating system, the LEED Volume Program, sometime this year. The Volume Program is intended to streamline the LEED certification process for high-volume developers of uniform projects. It uses a prototype-based approach that enables companies to submit their prototype to design review and receive LEED certification for multiple locations using that design at a lower total cost than would be possible with individual building reviews. The Volume Program will likely benefit users by facilitating the bulk purchasing of materials and the ordering of materials ahead of schedule, and by allowing for streamlined consultancy and reporting requirements.

Although the retail industry has experienced a slowdown in construction of retail space in the past several years, the number of applications for LEED certification is increasing. As USGBC celebrated its tenth anniversary in 2010, it reported that LEED certification had reached the one billion-sq.-ft. milestone for commercial projects. And there are indications that retail sales may be starting to turn around. MasterCard and the International Council of Shopping Centers both reported that consumers accelerated purchases into the 2010 holiday season. Preliminary figures indicate that retail sales were up industry wide in 2010 by 3% or more over 2009.

But the fact that it is still a difficult and competitive retail climate leads retailers to look for ways to improve customers’ shopping experience and to enhance customer loyalty as ways to increase sales. Taking affirmative steps toward minimizing a retailer’s environmental impact may help them reach those goals. Barbara Farfan reports in her recent article, “Retail Industry Information: Overview of Facts, Research, Data & Trivia,” green facilities and green activism, along with green products and services, are being heavily publicized by U.S. retailers and strongly supported by U.S. consumers. With consumers focused on all things green, both retailers and retail space developers are taking environmental responsibility seriously. They recognize that a company’s retail space can tell consumers a lot about the company’s commitment to environmental sustainability.

Starbucks is one example. With more than 16,000 stores in more than 40 countries, Starbucks has made a commitment to seek LEED certification for its company-owned stores, and to do so within standard store construction budgets. The company intends to significantly reduce its environmental footprint by 2015 and using green design elements in its stores is part of its strategy to achieve that goal.

Some of the design elements used by Starbucks and other companies pursuing LEED for Retail certification include the use of LED and CFL light bulbs to provide more light while reducing energy usage (on external signage and in parking lots, as well as inside the stores). More light is important because research has shown a direct correlation between increased levels of natural light in retail spaces and time and money spent by customers. More and larger windows and skylights can make a big difference.

Other design elements include the use of low-flow faucets and dual-flush toilets to significantly reduce water usage and the use of hand dryers to minimize paper towel usage. Some retailers such as Recreational Equipment Inc. (REI) are designating preferred parking spaces for both employees and customers with alternative fuel vehicles.

Consumers are more likely than ever before to recognize and appreciate a retailer’s efforts to achieve LEED certification for its retail stores and what that certification says about the company’s commitment to environmental stewardship and sustainable business practices.

As retailers cope with today’s difficult retail climate, a commitment to green facilities and green services may improve more than the environment. It just may increase the bottom line by enhancing the customer experience and earning the loyalty of those customers.

For more information about LEED for Retail, visit the USGBC website at usgbc.org.

Katherine Oberle, Esq. is of counsel with the law firm of Morgan Miller Blair in Walnut Creek, Calif., where she represents both national and local companies in all aspects of commercial real estate transactions, including office, retail, and telecommunications leasing, and real estate-secured financing. An LEED-credentialed attorney, Oberle is a member of the Northern California Chapter of the United States Green Building Council and has served on the boards of directors of several community organizations. She can be reach at [email protected].

Monica Sloboda, Esq. is vice chair of Morgan Miller Blair’s Real Estate Practice Group, and a LEED-credentialed attorney. Sloboda advises local and regional clients on a wide range of commercial and residential development transactions, including retail, office and industrial leases, and real property acquisitions and dispositions. Sloboda is a founding board member of East Bay CREW, a board member of the women’s section for the Contra Costa County Bar Association, and an active member of the International Council of Shopping Centers and the Northern California Chapter of USGBC. She can be reached [email protected].

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OPERATIONS

Civil rights complaint against CVS to go forward

BY CSA STAFF

New York City — The Rhode Island Commission for Human Rights will allow a civil rights complaint over an online job application used by CVS Caremark Corp. to go forward, saying there is probable cause to believe the pharmacy chain violated state anti-discrimination laws, the Associated Press said.

The finding, released by the American Civil Liberties Union, allows the ACLU to sue the company.

The complaint, filed in 2009 by the Rhode Island chapter of the ACLU, says CVS’s application for customer service jobs at its pharmacies includes a series of about 100 statements that applicants are asked to respond to regarding their emotional well-being.

The ACLU said the application could be used to elicit information about people’s mental health, and discriminate against those who have depression, attention deficit disorder, social anxiety and other mental impairments or disorders. It believes the statements violate state law, as well as the federal Americans with Disabilities Act.

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