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Surviving the Slump

BY Katherine Boccaccio

Around this time last year I was fantasizing about a new house. Something a little smaller, but updated, with the expansive master bath and huge closets that come standard with most new construction.

But as 2007 has rolled into 2008 and the smattering of “Home For Sale” signs hasn’t budged from front yards in my Lincoln, Neb., neighborhood, we abandoned the idea of selling and focused instead on ramping up our remodeling projects. (While I may never have that cavernous master bathroom I’ve dreamed about, I’m quite happy with my new granite countertops in the kitchen.)

The housing slowdown that is impacting some of my neighbors is also affecting neighborhood retailers. Underperforming stores are closing—and leaving undesirable empty bays in their wake. And larger markets are taking bigger hits. In nearby Omaha, which is about four times the size of Lincoln, projects planned along the 204th Street corridor, anticipated to increase the retail-space inventory by a mind-boggling 20%, are now delayed, scaled back or scrapped altogether.

A recent property report on the Phoenix market predicted that the retail vacancy rate will double by the middle of next year—this in an area that added 9.3 million sq. ft. of new retail space in 2007, with another 7 million expected this year.

The outlooks for Omaha and Phoenix aren’t dissimilar from other once-vibrant markets, such as California’s Inland Empire near Los Angeles which is now riddled with foreclosures. Retail vacancies are reportedly at 12.8% now, and are forecast to hit 15.5% by the end of 2011, according to Boston-based Property & Portfolio Research, Inc. News coming from farther north in California, however, appears brighter.

San Francisco retail real estate brokerage Retail West issued some rosy predictions recently for its home base. Owners Matt Holmes and Rob Kashian say they see an economic upturn in the offing for the San Francisco retail real estate market, forecasting three distinct trends for the Bay Area. They predict:

The “Manhattanization” of San Francisco. What Holmes and Kashian mean by this, they say, is that San Francisco will, according to their predictions, continue its metamorphosis into a transit city, as well as master-plan and redevelop more walkable communities, which will in turn draw new retail outlets designed to service convenience-hungry consumers.

Innovation will trump establishment. The challenges that are sending vacancy rates elsewhere, they say, will instead foster more creative retail in San Francisco, prompting boutique retail shops to compete effectively with traditional national powers. “San Francisco has clearly imagined the possibilities of a city that is non-chain focused,” said Holmes.

Expect growth in cross-border investing, as, according to Retail West, San Francisco attracts Asian and European investors who will inject new concepts and money to fuel retail growth throughout the Bay Area.

Other scientific soothsayers, such as Marcus & Millichap, bear Retail West’s findings out, presenting evidence that San Francisco is weathering the housing slump far better than many other markets, based largely on its smart redevelopment efforts.

Clearly, smart redevelopment is the tack to take, whether on a real estate developersize, or a homeowner-size, scale.

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Lampert, the Eli Manning of retail?

BY CSA STAFF

HOFFMAN ESTATES, Ill. The New York Giants triumph over the highly favored New England Patriots in the Super Bowl earlier this month, has become an example of coming from the bottom to win it all. Sears Holdings chairman Edward Lampert is one of the latest to use the Giants win, even going as far to compare himself, and the leaders of his company, to quarterback Eli Manning.

The Giants analogy, and Eli Manning comparison, is applied mainly to the company’s Kmart division. In a letter to investors, posted on the Sears Holdings investor relations Web site, Lampert said during Kmart’s bankruptcy in 2002, the unit was “like an undrafted free agent who nobody thought had a chance to play in the big leagues.” Lampert went on to say, “Like Eli Manning, we know what it’s like to be underestimated and questioned, but we intend to keep working on our game to achieve our full potential.”

Sears Holdings reported net income of $426 million, or $3.17 per diluted share, for the fourth quarter ended Feb. 2, compared with net income of $811 million, or $5.27 per diluted share, for the fourth quarter ended Feb. 3, 2007. For the fiscal year ended Feb. 2, 2008, net income was $826 million, or $5.70 per diluted share compared with net income of $1.5 billion, or $9.58 per diluted share, for the fiscal year ended Feb. 3, 2007.

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Circuit City investor seeks to replace board

BY CSA STAFF

RICHMOND, Va. Circuit City Stores today acknowledged that it has received two proposals from shareholder Wattles Capital Management regarding its board of directors. Wattles holds approximately 6.5% of the outstanding shares of the company’s common stock.

Circuit City reported that Wattles proposed the idea of replacing the company’s Circuit City 12-member board of directors with its own nominees. Circuit City said its board of directors will review carefully the shareholder’s proposals and the qualifications of the nominees in accordance with its fiduciary duties, mindful that the proposal would give the shareholder absolute control of the entire board, which would be disproportionate to its relative ownership of the company’s shares.

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