Taking Lifestyles On the Road
In the early days of the lifestyle center, finding locations was fairly easy. The ideal site was a relatively affluent suburban area in need of a small downtown core.
The format’s expansion has changed that, with many of the standard suburban locations now built out. But retailers are still looking for locations, municipalities are still seeking alternatives to sprawl and developers still want to build. The result is a growing focus on secondary markets, urban locations and other sites that previously would have been ignored by developers.
Of the nontraditional locations, smaller markets seem to be the trend, based largely on the expanding residential market.
“As cities grow and get new housing, people are driving tremendous distances for shopping, and they need a central retail area,” said Jeffrey M. Axtell, a project director at Phoenix-based Vestar Development, which is building a lifestyle center in Beaumont, Calif., a 1 million-sq.-ft. The District at Beaumont planned for the intersection of Interstate 10 and Route 60.
To adjust to a less-populous trade area, he said, the lifestyle portion of the project could be smaller, perhaps two-thirds the size of a center found in a more-developed suburban area. But persuading retailers to locate in areas with fewer than 100,000 people can take some doing—or a unique situation.
Leasing in a smaller location becomes a matter of persuading tenants about future potential as well as current sales. Fortunately, major anchors now plan their expansions as much as seven years in advance, so they are more open to understanding a small market’s potential.
“One thing retailers have gotten better about is planning for tomorrow,” Axtell said.
Other developers are leasing toward ensuring that a project draws from a larger trade area.
“We’re still attempting to find those suburban locations,” said Dan Lowe, managing partner, development, RED Development, with offices in Kansas City, Mo., and Scottsdale, Ariz. “But we’ve gotten into destination lifestyle centers, projects that, instead of drawing from a 1-mile to 5-mile radius, draw from a 250-mile radius.”
Those projects, such as RED’s 1.2 million-sq.-ft. Legends at Village West in Kansas City, Kan., also need to be tenanted differently. The company focused on filling the project with tenants new to the area, including Nike.
That was critical in a location such as Village West’s, which has just 32,000 people in a 5-mile radius. Signing lifestyle tenants more accustomed to hundreds of thousands of potential shoppers nearby was a challenge, Lowe admitted. It wasn’t until destination-tenants Cabela’s and Nebraska Furniture Mart opened nearby that the entire region’s draw swelled. (Today, the project pulls from an average of 82 miles away.)
“You have to have density,” said Brian Smith, chief investment officer of Jacksonville, Fla.-based Regency Centers, which is building a 350,000-sq.-ft. lifestyle center called Shops on Main in Schererville, Ind., outside Chicago. “A downtown can compete with major malls.”
And a regional mall can easily co-exist with a lifestyle center. The density created helps both projects, and prevents overbuilding.
“We were looking at doing a mixed-use project, a lifestyle center with office and residential space, at Glades Plaza in Boca Raton,” said Michael Fimiani, executive VP of leasing for Boca Raton, Fla.-based Woolbright Development. “But it’s across the street from Town Center Mall, and we decided it would be a [one-level] retail project.”
Some are expanding the definition of the typical lifestyle center tenant. While the physical experience of an outdoor center generally remains the same everywhere, the tenant mix can and does change, even including big boxes such as electronics chains.
“The bigger risk is taking the cookie-cutter approach and using the same format everywhere,” RED’s Lowe said. “We are doing hybrids to cater to the market.”
So, too, is Regency Centers, which is incorporating big boxes into some of its upcoming lifestyle projects.
But, while expanding the tenant mix can and does work, some developers are concerned about changing the tenancy of lifestyle projects to accommodate different markets. “If you go to the lower-end tenants, you may not do as well,” Vestar’s Axtell said.
On the other side of the site-selection spectrum are urban locations, where density isn’t a problem, but just about everything else is. Urban markets are far more difficult in terms of assembling a property, or persuading tenants to accept a vertical layout. But developers eventually may have no choice.
“In the suburban opportunities, the demographics are getting thinner, and there are few prime infill opportunities,” Lowe said. RED is working on a mixed-use project in downtown Phoenix called CityScape, which is slated to cover some four city blocks and contain 250,000 sq. ft. of retail.
But, with developers expanding outside the traditional locations, is overbuilding a risk?
“A lot of them are going into places where you scratch your head and wonder. With any project, we do a lot of due diligence. And there is a bit of self-policing,” Regency’s Smith said.
The development of a lifestyle center requires that a core of retailers agree on a location, he noted. Until that critical mass is achieved, the center won’t be built. But there is still room for growth.
“Chances are that if a market wasn’t ready five years ago, it might be now,” Smith said.
But lifestyle centers that incorporate residential components could be a problem, particularly now when that sector has been volatile.
“These projects are so expensive to do,” Woolbright’s Fimiani said. “In peripheral markets, if the residential market doesn’t turn around, you’ll see more one-story traditional retail centers.”
Home Depot Projects Lower Profit in 2007
Atlanta, The Home Depot Inc. said Wednesday it will pump $2.2 billion into improving its business this year even as it expects lower earnings and slim sales growth. Home Depot said that for fiscal 2007 it expects sales growth in the range of flat to an increase of 2%, a decline in comp-store sales in the middle single digit percentages and an earnings per share decline of 4% to 9%.
Including the effect of a 53rd week in its fiscal year, consolidated sales are expected to increase by 1% to 2%, and earnings per share are expected to decline by 3% to 8%, Home Depot said.
CEO Frank Blake told investors at Wednesday’s conference that like last year, “2007 also will be a difficult year.” But he said it will be a year of focus on Home Depot’s priorities and a year with “hopefully less noise.”
The “noise” was apparently a reference to the investor furor over former CEO Bob Nardelli’s hefty compensation in light of the company’s lagging stock price. Nardelli resigned in early January after six years at the helm of the company. He took with him a severance package valued at $210 million.
To improve its business, Home Depot said it will invest $2.2 billion this fiscal year in key priorities, including the opening of 115 stores. The investment includes $1.6 billion in capital spending and $600 million in expense.
Home Depot said it will recruit master trade specialists, simplify its staffing model, use more technology to aid customer service, and redesign employee compensation and reward plans. It also will invest in new merchandise and review its pricing strategies. Additionally, the chain will spend money on customer loyalty programs, direct-ship programs, credit programs and other specialty sales initiatives.
Federated Plans Name Change
New York City, Federated Department Stores on Tuesday said it would ask shareholders to approve changing the company’s corporate name to Macy’s Group Inc. A vote to amend the corporation’s charter to accommodate the new name will be held in conjunction with Federated’s annual meeting on May 18. If approved, the company will be known as Macy’s Group Inc., effective June 1. The move comes on the heels of the company changing most of its store nameplates to Macy’s.
“Macy’s Group is the appropriate name for our company, given that about 90% of our sales involve the Macy’s brand. That said, Bloomingdale’s is—and will remain—a very important part of our company,” said Terry J. Lundgren, Federated’s chief executive. Federated Department Stores also said stronger sales at established stores and lower costs drove a 5% rise in fourth-quarter earnings. For the quarter ended Feb. 3, net income rose to $733 million from $699 million the prior-year period. Sales fell 4% to $9.16 billion from $9.57 billion, as the company shuttered 80 “duplicative” store locations. Comp-store sales rose 6.1% in the quarter.
During the quarter, Federated lowered its selling, general and administrative costs 11% to $2.31 billion.
The company also announced a $4 billion increase to its stock buyback program and said it will immediately repurchase 45 million shares for $2 billion under the plan.