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Fears for Sears

Analysts’ statements that the 2004 merger of Kmart and Sears presaged the slow death of Sears Holdings appear to have been exaggerated, at least so far. Nevertheless, retail landlords remain unimpressed with the chain’s prospects for longevity. At press time Sears expected to end its fiscal year with about $3.5 billion in cash on hand, most of it from cost-cutting, not from sales at the Sears and Kmart stores, which fell during the critical holiday period. “We’re not going to see Kmarts coming on the market this year,” said Daniel Hurwitz, senior executive vice president and chief investment officer of Developers Diversified Realty Corp., at a February conference. “But we’re going to see the whole company come on the market someday if they don’t start merchandising their stores and start gaining market share instead of losing it.”

Despite steadily eroding sales at the Chicago-based company’s 3,800 Kmart and Sears stores in Canada and the U.S., its stock price continues to climb, largely driven by investors’ faith in chief executive Edward Lampert and in the operation’s underlying real estate value. Sears’ stores in Hawaii and Puerto Rico are particularly sought after and could sell for hundreds of millions, observers say. For the nine weeks ended Dec. 30, Kmart’s same-store sales fell 1.2 percent year on year. Sears’ U.S. same-store sales, meanwhile, declined 5.6 percent. Despite the sliding sales, Sears shares have grown from $15 before the merger to as high as $180 in recent months. Some former Kmarts are seeing double-digit sales increases after being revamped to include more of Sears’ brand-name merchandise, said David Henry, chief investment officer of Kimco Realty Corp., which has a joint venture with Kmart to help recycle its old stores in Memphis, Tenn. But that will not be enough to let the chain catch up with its competitors, Hurwitz said. “Every single day a spanking new Target or Wal-Mart or Kohl’s opens up and takes another little bite at these old, tired Kmarts,” said Martin E. (Hap) Stein Jr., chairman and CEO of Regency Centers. “They’re not putting billions into the real estate, and they’ve stopped doing other things. The prognosis isn’t great.”

Mirror, mirror

Technology may be turning shopping into a social-networking opportunity, to judge by the Store of the Future exhibit at the National Retail Federation’s annual conference, in New York City in January. The store, designed by IconNicholson, featured a “magic mirror” that allows a shopper trying on clothes in a fitting room to solicit feedback from friends and family, wherever they may be. A button on the mirror lets her send text messages as they watch a live video stream from the room. The mirror displays their text replies, and the network even extends to the popular MySpace and Facebook social-networking Web sites, where friends can chime in on an outfit’s “hot or not” rating. The mirror has a touch-sensitive computer screen that permits the viewing of other outfits without leaving the fitting room. Some retailers are eager to adopt this technology, according to the designer. “I would not be surprised,” said Christopher Enright, IconNicholson’s chief technology officer, “if you see this in a major U.S. retailer in the next three to six months.”

Latin beat

Latin American retail chains operate at higher profits and are growing faster than their counterparts in other regions, says a report from Deloitte Touche Tohmatsu. Between July 1, 2005, and June 30, 2006, retail volume in Latin America stores rose 20.3 percent. By comparison, the world’s 250 largest chains (including Latin American ones) averaged 8.4 percent sales growth for the period. Net profit margins for the 250 showed a healthy improvement, up 3.5 percent on average, versus last year’s 2.7 percent gain and the 1.7 percent increase of 2000. For Latin American retailers, net income averaged 4.4 percent of sales. Asia-Pacific retailers were the least profitable, at 2.9 percent on average. Within Europe, U.K. retailers led the pack, with a 5.5 percent net-profit margin on average. Germany, historically a low-margin market, trailed its European peers with an average profit margin of 2 percent.

Presidential run

The public loves dollar coins, insists the U.S. Mint, which hopes retailers and landlords will play a key role in getting a new presidential dollar into circulation. The Mint began issuing dollar coins bearing the likeness of George Washington in mid-February, and each quarter it will roll out a coin honoring another president, in historical order. The program will run through 2016. A survey conducted by the Mint revealed that though more than 75 percent of the public is willing to accept dollar coins in their change, less than a third of retailers believe their customers will accept them. To get the word out, the Mint is setting up information booths at malls across the U.S. and is encouraging retailers to order coins from their banks. The Mint believes that the dollars will be avidly collected, just as state quarters have been in recent years. The Mint has struggled to get the dollar coin accepted in the past, mainly due to its lack of availability. “The Mint is trying to reduce or remove barriers to ensure a robust circulation,” said Kevin Hamer, deputy associate director of sales and marketing for the U.S. Mint. There are solid economic reasons to get the dollar coin accepted, says Hamer: They’re cheaper in the long run, because they last about 30 years, compared with the 18-month life span of a paper bill.

Buying time

In a move inspired by consumers’ changing shopping habits, General Growth Properties has decided to extend operating hours at its 210 malls. The Chicago-based landlord will be opening its malls at 8 a.m. on Saturday mornings, compared to the industry norm of 10 a.m., and will keep them open until 10 p.m. on Friday and Saturday nights. Most U.S. malls close at 9 p.m. “More than two-thirds of our shoppers have said they wanted extended hours on the weekends,” David Keating, a General Growth spokesman told the Bergen County, N.J., Record. “You see places like Target and Best Buy and Wal-Mart opening as early as 8 a.m. and 9 a.m. on the weekends. We have the same things that the big-box retailers have, so we’re trying to capture some of that shopping.”

Chattanooga-China express

Nanjing, China-based mall operator Jinsheng Group credits itself with being the first Chinese landlord to bring all aspects of home improvement retailing under one roof. Eleven years ago the firm opened the 3.2 million-square-foot Jinsheng International Home Furnishings Jiangdongmen Plaza, in Nanjing’s Hexi district, with 2.1 million square feet dedicated to construction materials retailers, 215,000 square feet to home decor vendors and a further 53,000 square feet to home appliance sellers. Additional space is allocated to real estate brokerages and other office tenants. Today the center posts about $130,000 in annual sales. Jinsheng has opened three other, home-improvement-focused malls in Nanjing and Shanghai. Jinsheng says that as China’s secondhand housing market grows, the market for the firm’s home improvement malls will boom, and American investors agree. In fact, CBL & Associates Properties, of Chattanooga, Tenn., is placing its first international bet on Jinsheng, investing $15 million in the Chinese firm as part of a $60 million venture with Boston-based Bain Capital Partners. “Jinsheng Group is an established Chinese mall operator and real estate developer with tremendous growth potential,” said Stephen D. Lebovitz, CBL’s president, in a press release. “This investment positions CBL to take advantage of the incredible expansion and development opportunities currently under way in Chinese retail real estate.” CBL and Bain have also been granted a three-year option to invest an additional $7.5 million in Jinsheng, which controls some 7.1 million square feet of retail space.

Wal-Mart goes greener

Because water has four times the heat-carrying capacity of air, Wal-Mart is saving money and energy at its stores by heating and cooling them with custom-made, water-based systems. At the chain’s recently opened energy-efficient prototype store in Kansas City, Mo., a boiler and pump package circulates water to all the building’s air-conditioning and refrigeration units. The store runs at optimal efficiency during the winter, Wal-Mart says, because 100 percent of the refrigeration heat, normally rejected to the outside air, is reclaimed through the water system and provided to the store by means of water source heat pumps. These pumps, similar to those in many homes, extract the heat out of the water loop and deliver it to the space. Like at other Wal-Mart stores, additional waste heat from the refrigeration system is used to heat domestic hot water for rest rooms and kitchen areas. In the U.S. about 70 percent of the hot water needs for Wal-Mart Supercenters and for Sam’s Club and Neighborhood Market units are generated this way, the retailer says, saving enough energy to provide hot water for over 30,000 homes.

Putting on a show

Landlords are finding new and stylish ways to get in with the “in crowd” of high-fashion tenants. In late January a gaggle of supermodel wannabes descended on Westfield Garden State Plaza, in Paramus, N.J., to snap up souvenirs from the mall’s H&M, Nordstrom and Steve Madden stores. The paparazzi-documented shopping trip, which generated a ton of publicity for landlord Westfield Group, was part of the famed Ford Models agency’s annual Supermodel of the World contest. The yearlong contest brings aspirants from 46 countries together to vie for a $250,000 modeling contract. Westfield sponsored the contest’s runway show finale, which drew fashion and media celebrities.

Meanwhile, in Dallas, the upscale NorthPark Center planned a four-day event with runway shows, benefits and parties, called Fashion at the Park. The event was set for early this month to promote the mall’s $225 million expansion, kicking off with a Salvatore Ferragamo cocktail party and finishing with a day full of fashion shows put on by such tenants as Barneys New York, Custo Barcelona and Nordstrom. The event should help establish the center as the fashion epicenter of the Southwest, says Nancy A. Nasher, president of the mall’s owner, NorthPark Development Co. “Fashion at the Park brings the energy of the international fashion scene from New York City, Milan, and Paris to Dallas and showcases our incredible collection of exclusive luxury and trendsetting retailers,” she said. At press time participating stores planned to sell Fashion at the Park tickets to top customers for between $25 and $150. NorthPark even brought in such high-end sponsors as Cadillac, champagne maker Moët & Chandon and fashion magazine Vogue.

U.S. outlet output up

Thirteen developers are planning to develop a total of 23 U.S. outlet centers over the next two years, according to research from SCT’s sister publication, Value Retail News. If all are completed, they could add as much as 8.5 million square feet of gross leasable area to the current U.S. outlet total of 55.7 million square feet. The projects are spread across 15 states. Among them are three each planned in New Jersey, Pennsylvania and Texas, and two each in California and New York. Chelsea Property Group has the most dirt to turn, with seven projects planned, followed by Horizon Group Properties, with three. Tanger Factory Outlet Centers and Craig Realty Group plan two new centers each. If nine centers open this year, as developers say they will, that will be the highest number of first-phase outlet projects to go up in the U.S. in 10 years.

Let gift cards keep giving

Mall gift card sales continued to grow at double-digit rates during the Christmas shopping season, but mall owners want shoppers to buy the cards all year round. The back-to-school season is a key opportunity, says Garry Butcher, vice president of research at The Macerich Co. Parents can save time and effort by putting funds onto the card and letting their fickle teens shop for themselves, he says. Football season is another possibility, says Columbus, Ohio-based Glimcher Realty Trust. The firm recently rolled out an Ohio State University-themed Buckeye gift card. The cards, which are good anywhere Discover is accepted, have been enthusiastically received, along with child- and teen-themed cards at certain Glimcher properties, says Jill Clark, Glimcher’s manager of advertising and public relations. Malls have also begun to dedicate more marketing and advertising dollars to gift cards. “We have been very aggressive with the promotion of the mall gift cards,” said Butcher. “It’s been a huge initiative, and it’s a priority for the company and the properties.” Print and electronic media and large amounts of signage have all been used to hawk the cards, he says. Retailers are also getting more aggressive with their gift cards. Kroger, Safeway and Walgreens all offer gift cards from restaurant chains and from such retailers as Eddie Bauer, Gap, Nordstrom, Pottery Barn and RadioShack.

Experiencing retail design

Americans say the former Wanamaker’s store in Philadelphia is the most architecturally significant retail space in the U.S., according to a survey conducted by the American Institute of Architects. The building, now home to Macy’s, features the famed John Wanamaker Grand Organ, reputed to be the world’s largest pipe organ. “The Wanamaker Building has been a part of the holiday traditions and celebrations of generations of Philadelphia residents,” said Tipton Housewright, a principal at Dallas-based architecture firm Omniplan, which recently designed an expansion of Dallas’ landmark NorthPark Center. “The experience of the Grand Organ and Christmas light show has provided the public memories and traditions that are strongly associated with the architecture of the building and its Grand Court.” The Wanamaker building was one of only five retail structures to rank among the top 150 in the survey. Research firm Harris Interactive surveyed 2,000 people, who were shown photos and asked to rate 247 buildings nominated by 2,500 architects in various categories. “Each of the retail projects on the AIA list goes beyond the sale of merchandise and delivers an experience to the customer that is as much theater and entertainment as it is commerce,” Housewright said. Wanamaker is ranked No. 32, followed by Apple’s glass cube store on Fifth Avenue in New York City, at No. 53; Boston’s Faneuil Hall Marketplace, at No. 64; the Frank Lloyd Wright-designed V.C. Morris Gift Shop, in San Francisco’s Xanadu Gallery, at No. 126; and Apple’s SoHo store, in New York City, at No. 141. “You have to love the Apple Cube,” says Kevin Kinnon, a New York City-based architect and designer of nine Bloomingdale’s stores. “It is the best example of architecture becoming the brand. It is simple yet enigmatic. See it once and it lasts forever.”

Rick Caruso, innkeeper?

For almost seven years, the residents of Montecito, Calif., had been waiting for someone to clean up a 20-acre mess on the tony resort town’s pristine waterfront. The former Miramar Hotel was a shambles, sitting in ruins while a succession of owners tried to revamp the site. But now local residents see a light at the end of the tunnel. At the end of January, Rick Caruso emerged with shovel in hand. The Southern California developer and president of Caruso Affiliated Holdings announced that he had bought the property from Beanie Baby tycoon Ty Warner. Now Caruso, better known for his high-end shopping environments and community-relations skills than for his experience in the hospitality business, plans to build a luxury hotel on the site. “We’ve had plans for a number of years to get into the hospitality business,” Caruso said. “We’ve just been waiting for the right opportunity. This property is probably one of the nicest, most unique hotel sites in the state. It’s one of only five hotel properties that go down to the beach, so we basically own the beach.”

The space has been vacant since September 2000, when then-owner Ian Schraeger shut the Miramar to begin renovations that were supposed to last 18 months. Schraeger ran into financial problems and sold the property to Warner. Warner tried to resurrect the hotel, but ran into difficulties of his own. While developing such California properties as The Commons at Calabasas, The Lakes at Thousand Oaks and, most famously, The Grove, in west Los Angeles, Caruso has shown a knack for succeeding where others flounder, sources say. “A big part of our success is that we’re very community-oriented,” said Caruso. “The Montecito residents were tired of the lot being vacant. They wanted an upscale, family-friendly hotel.” Caruso says the five-star hotel will contain a spa, some restaurants and a private beach club for the area’s wealthy residents. It will open in 2010.

Arbor pay

Landscapers now have proof that trees bring profits to shopping centers. A study by Kathleen Wolf, a researcher at the University of Washington’s College of Forest Resources, found a correlation between the amount of landscaping at a retail center and the amount of money shoppers are willing to spend there. Survey respondents in such disparate cities as Athens, Ga., and Los Angeles, shown photos of tree-lined marketplaces and photos of centers with fewer or no trees, indicated that they would spend between 9 percent and 12 percent more at the former. “We found there were distinct perceptions in places with quality streetscapes,” Wolf said. “There is a belief that merchants would be more helpful, more knowledgeable, and the products of greater quality, which people are willing to spend more on.” Respondents equated the quality of the merchants with the quality of the landscaping, she says. They gave the highest marks to centers with canopies of large, well-maintained shade trees, she says. Now Wolf says she needs a shopping center on which to test the findings, ideally one undergoing a renovation and landscaping transformation. Wolf had to cancel plans to piggyback the study with the $50 million renovation and expansion of Westfield Capital mall, Olympia, Wash., because funding fell through. Most municipalities require developers to replace trees they remove while building a shopping center, but city officials in Roseville, Calif., are targeting existing businesses, too. The city’s Urban Forestry Foundation provides free shade trees to any business that wants them. The program has distributed some 10,000 trees in Roseville since 1992.

Working to live

Of the 42 countries surveyed by ACNielsen in a consumer confidence poll, Portugal has the highest percentage of citizens with no money left over after covering basic living expenses. Some 23 percent of Portuguese respondents said the cost of living ate up their paychecks. About 20 percent of U.S. respondents said the same. Belgians seem to do a good job of managing their money, with only 13 percent of these respondents reporting empty wallets. In other developed markets, 19 percent of the British respondents, 18 percent of the Germans, 17 percent of the French, 16 percent of the Dutch, 15 percent of the Canadians and 14 percent of the Turks reported running out of cash. The global average is 12 percent, according to Tom Markert, ACNielsen’s chief marketing officer. “Though many consumers are well aware they don’t have much cash to spare, that often doesn’t keep them from spending,” he said. The good news, he adds, is that Americans are trying to improve their savings habits. About 40 percent of the U.S. consumers polled said they would use any extra money to pay off credit card bills and loans, versus a global average of 32 percent.

SIGNATURE TENANT

Federal Realty Investment Trust’s Village at Shirlington, in Arlington, Va., gained a dramatic anchor last month — literally. The locally based Signature Theatre production company moved from its space in an industrial garage to a 48,000-square-foot playhouse at the center. The Village is an outdoor, Main Street-style shopping center last renovated in 1989 and made up largely of restaurants and cafés. Tenants include Capital City Brewing Company, Caribou Coffee and Johnny Rockets. Shoppers can have dinner and then see a show, and Sam Sweet, managing director of Signature, says this has worked out very well. “We’ve promoted it as a total entertainment experience,” he said. “Instead of having to find parking and run across the street, people can park in the free garage, walk into Shirlington, perhaps have dinner and see a show.”

The playhouse is in a four-floor complex, with the first floor occupied by the Arlington County Library. The mostly musical repertoire includes Stephen Sondheim’s Into the Woods, which has been a big success, according to Sweet. Walls of glass in the lobby allow patrons to sit at the bar and look out onto the shopping crowd. With the mixture of retail and theater entertainment, Sweet says, traffic has increased, with more visitors walking in for ticket purchases.

On the scent

The world’s emerging markets are getting richer, and the world’s newly minted middle classes are starting to enjoy the finer things in life. Just ask the French beauty business, which saw pretax wholesale sales grow 3.5 percent to $8.22 billion in 2006. The gain was the industry’s biggest in five years, according to the Paris-based Federation des Industries de la Parfumerie, which represents 250 French cosmetics companies. A sales explosion in emerging markets contributed to the boom, the group says, with exports to Russia growing 43.7 percent and exports to China growing 39.5 percent for the year.

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