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SIMON PLANS BIG THINGS FOR MILLS, AFGHAN WOMEN GAIN RETAIL SAVVY, AND STARBUCKS PURSUES SELF-IMPROVEMENT

Mills makeover

Though Simon Property Group may have stepped into the bidding for The Mills Corp. at the eleventh hour, the decision was anything but last minute, said CEO David E. Simon at an investor conference. “We want to make sure we win” before entering any bidding war, he said. Simon’s $1.64 billion bid with co-bidder Farallon trumped an existing deal for Brookfield Asset Management to acquire Mills for $1.3 billion.

Although Mills had not released financial data in several quarters, Simon was confident of the information it was able to mine about the company, which owns about 37 malls, totaling 47 million square feet, according to CFO Steven Sterrett. “We did more due diligence on this than any other deal we’ve done, because of the lack of reliable information,” Sterrett said. “We visited every property, studied the rent rolls and constructed the NOI [net operating income] lease by lease, tenant by tenant.” And Simon took Mills’ largest shareholder, Farallon, in as a partner to ensure a victorious bid, David Simon said. “We felt Farallon would give us a high probability of winning,” he said. “Having them aboard also helped from a risk management perspective.”

Simon aims to achieve a 10 percent return on its stake, David Simon told investors. The firm also wants to juice Mills’ unique brand position by selling more sponsorship opportunities at such landmark properties as Arundel Mills, Maryland; and Sawgrass Mills, Florida. “Consumer awareness of the Mills brand is unique in the industry,” said David Simon. “The landmark Mills properties have tremendous brand equity.” Simon will probably sell off the various traditional regional malls in the Mills portfolio and focus on the branded Mills centers, most of which are tenanted by a mix of outlet and value-oriented retailers. Simon also plans to boost NOI at the Mills properties by redeveloping and re-tenanting them. “Little capital has been spent on Mills centers for a period of years,” David Simon said. Nordstrom, for instance, has wanted to open a store at Mills’ Stoneridge Mall, outside San Francisco, for some time, but Mills was too distracted with corporate turmoil to pursue the deal, he said. Though Simon is pleased with the in-line tenants at Mills’ properties, an anchor shake-up may be looming. “We’ll go back to the original emphasis Mills focused on: value and outlets,” David Simon said. “They did too much entertainment. We’ll de-emphasize that.” Once Simon boosts cash flow at the properties, he said, a number of them will probably go on the block.

Home Improvement?

After a sluggish 2006, during which the U.S. housing market cooled, home improvement chains Home Depot and Lowe’s say they expect business to pick up in the second half of this year. At Home Depot same-store sales fell 6.6 percent for the fourth quarter and 2.8 percent for 2006. Chairman and CEO Frank Blake says he expects to see Home Depot’s same-store sales in the negative single digits for this year and that he does not anticipate any improvement in the residential construction or housing markets until late this year or early next. “We can improve our performance and grow at, or faster than, the market beyond 2007,” he said. “That’s why we are making significant investments in our associates and our stores.” He said Home Depot would be stocking more competitively priced grilling, landscaping and patio products to draw shoppers back. At Lowe’s, meanwhile, same-store sales fell 5.3 percent for the fourth quarter and were flat for the year. “Sales continued to be pressured by a slowing housing market, tough comparisons to last year’s hurricane recovery and rebuilding efforts, and significant deflation in lumber and plywood prices,” said Lowe’s Chairman and CEO Robert Niblock. Lowe’s, which plans to open 15 new stores during the first quarter, also expects to endure a same-store sales decline of as much as 4 percent over the period. The second half should bring some relief, however, according to company executives. “We are encouraged by implications our sales trends have bottomed,” Niblock said. Lowe’s says it anticipates a same-store sales rise of as much as 2 percent for 2007 on the whole.

Bitten by the Apple

There’s a place on the Internet for Apple addicts who are as fond of the company’s stores as they are of its iPods, iBooks and iPhones.

Ifoapplestore.com is a Web site devoted to those who hang on Apple’s every retail movement. Gary Allen, a former fire and police dispatcher who now works in publishing, created the site about three years ago. It features recent store openings, and any information gleaned from sources about future construction. It all started after Allen and his son regularly found themselves going early to store openings to catch the buzz and score a chance to see Apple CEO Steve Jobs. At such events Allen got to know people with similar interests, and they suggested he start a Web site for Apple store spotters. “It’s a lot of amateur detective work,” Allen said. “I get little pieces of info from various people, and the information begins to come together about [Apple’s] next move.”

The site has piqued the interest of Apple consumers across the U.S. and the globe, and it receives approximately 2 million hits a month, says Allen. “I’ve gotten e-mail inquiries from China, Ecuador, South Africa and Australia,” he said. “Everyone is interested in where Apple is going next.”

Devotees frequently trek up to 400 miles to attend a store opening after reading about it first on the site, Allen says.

People send in pictures and videos of new stores with Apple’s trademark wood, glass and stainless steel design. As a result, Allen says he now has the most comprehensive Internet collection of photos and videos of the company’s stores. Some retail brokers and developers have also taken an interest — one part of the site details areas of the country that are still without Apple stores.

Not surprisingly the Web site hasn’t gone unnoticed by Apple, and company officials “begrudgingly acknowledge us,” Allen says, noting the company’s obsession with secrecy. Equally not surprising, no information on the site comes directly from Apple.

Ladies first

Shopping centers are at the forefront of the women’s rights movement in Afghanistan. In the city of Mazar-e-Sharif, the government is subsidizing a retail bazaar consisting of five stalls operated exclusively by women, according to a National Public Radio report. The Muslim country has forbidden women from such activities for a decade, and many residents are up in arms over the bazaar, citing Islamic law and Afghan traditions that say a woman’s place is at home. The bazaar, which is open to men and women, is a grouping of closet-siz e former cargo containers situated on a prime strip of real estate across the street from the city’s most frequented shrine and near the city’s main male-run bazaar. The female-run bazaar’s tenants, who sell clothing, cosmetics and handmade crafts, pay up to a third less rent than those in the area’s other bazaars. The female shop clerks wear only head scarves covering their hair instead of the traditional burqa. “This cannot bring any good to the women here,” said Atta Mohammad, a curtain salesman who operates out of a neighboring bazaar, in an interview with NPR reporter Sorayah Sarhaddi Nelson. “They should have built a market. A bazaar for women in the corner of town that should have been only for women.” Fareeb al-Majid, director of the Provincial Women’s Ministry and founder of the bazaar, hopes to expand it to contain 20 stalls eventually. She told Nelson the government must subsidize the rents at the center so that the women can turn the profits that will keep their husbands happy with the idea of a working wife.

Europe’s turn

After scooping up a bevy of American retailers, hedge funds and other private investment firms are now targeting Europe’s giant retailers. In the cases of megaretailers Carrefour and J. Sainsbury, real estate is the root of the trend. Los Angeles- based Colony Capital bought a stake in French supermarket chain Carrefour in March, prompting observers to predict Colony, the real-estate-centric hedge fund, might press for a sale-leaseback of Carrefour’s 1,200-store, 64.6 million-square-foot real estate portfolio to reap as much as $26 billion. Colony and partner Groupe Arnault might have a hard time convincing Carrefour chief José Luis Duran to sell, though. Duran says he is hesitant to pursue the strategy because he believes food retailers can’t afford to pay rent and sustain razor-thin profit margins. Meanwhile, a consortium of investors led by Kohlberg Kravis Roberts is considering making a bid for U.K. retailer J. Sainsbury, whose real estate portfolio is valued at about $14.5 billion. Belgium-based Delhaize Group, Dutch supermarket conglomerate Royal Ahold and Germany’s Metro Group, are all on investors’ RADAR, observers say.

Penney’s people skills

Most retailers complain about the difficulty of finding and keeping good help, but JCPenney is bucking the trend, CEO Myron (Mike) Ullman told investors. In 2006 the National Retail Federation estimated that turnover in the industry is 60 percent for full-time employees and 110 percent for part-time employees. “One of the things that’s been a by-product of our growth and success is the increasing applicant flow we have at all levels,” he said. “It used to be, for key jobs, we’d have to go out and look and try to generate a sufficient number of candidates to get high-quality people. Now we have at almost every level people asking to get in the applicant pool, so we think that works to our advantage.” Labor experts say low wages and reliance on teens and college students who aren’t pursuing lifelong careers in retail have helped create the problem. But at Penney, associates are happier than ever before, Ullman said. “Our engagement scores of associates have gone up dramatically in one year,” he said. “What that says is people are finding more meaning in their work, feel more aligned with what the company is trying to accomplish and feel part of it, and they really own that experience.” Though many U.S. retailers sounded warning alarms as Congress debated a minimum-wage hike in March, Penney remained unfazed, Ullman said. Abercrombie & Fitch said a minimum-wage increase would cost it $6 million during the second half of 2007. “We typically don’t see minimum wage as our entry level or what we’re offering a sales associate to join us,” Ullman said. “So we don’t see a meaningful impact the way we staff our stores. Frankly, minimum wage has not been a factor because of the inflationary effect on the markets over the last five or six years anyway.”