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Shopping Centers Today -> April 2008
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GIFT CARD SALES SPUTTER, A LANDLORD GIVES AWAY FISTFULS OF CASH, AND RESTAURANTS SPEND BIG TO DRAW TRAFFIC
Solar energy
Retailers that have shied away from the initial costs of installing solar energy systems are welcoming a system that shifts the burden to the solar providers and their lenders.
Energy companies Beltsville, Md.-based SunEdison and San Jose, Calif.-based SunPower Corp. have teamed with finance company Wells Fargo to create a program that handles the construction, funding, ownership and operations headaches of solar energy systems. Retailers will pay only for the solar energy their systems produce over a period of 10 to 20 years at prices below or equal to current rates. “It's a workable structure that all three parties to this are happy with,” said Craig M. Kline, a partner at New York City-based law firm Troutman Sanders who specializes in renewable energy transactions. “We only see it expanding.” The types of buildings most amenable to rooftop solar technology are big-box stores with flat roofs, says Kline, who assisted SunEdison and Wells Fargo to structure the program.
SunEdison and its customers receive a 30 percent credit against the cost of solar equipment from the federal government. (The credit is set to expire by year-end, but Congress is considering an extension.) “In order to really thrive, the industry is looking to Congress to take a leadership role in extending the credits to seven or eight years,” said Philip Spector, a tax partner at Troutman Sanders. This model is currently applied to individual retailers but could be expanded for shopping centers, says Kline. The systems require minimal maintenance. “They just have to be kept clean and free of debris,” he said.
Staples says the system helps it to lower energy costs and reduce carbon emissions, according to the SunEdison Web site. Last year Wal-Mart said it would buy solar energy from SunEdison and BP Solas, a subsidiary of SunPower Corp., for 22 combined Wal-Mart-Sam's Clubs stores and distribution centers in Hawaii and California. Wal-Mart called it another step in its stated goal of becoming 100 percent reliant on renewable energy.
In some ways, solar energy systems can make shopping center lease negotiations more complicated than usual. Chief among the concerns is the question of who gets to claim the tax incentives, the landlord or the tenant, says David Rabinowitz, a partner at Sutherland Asbill & Brennan, a New York City law firm. “If you don't get the credit, it can be cost-prohibitive,” said Rabinowitz. “A lot of the leases right now don't give the tenants the right to do this or to sell any energy surplus to the grid. Naturally, the landlord is going to view the roof as its space.”
Report: Gift cards may not keep on giving
The gift card trend may have peaked. The percentage of U.S. holiday shoppers who gave gift cards has declined from 60 percent in 2003 to 44 percent in 2007, according to consulting firm WSL Strategic Retail. Lower-income shoppers cut gift cards from their lists last year, the firm says. Nearly 60 percent of shoppers with annual household income in excess of $100,000 bought gift cards last year, versus 34 percent of those earning below $50,000, according to a WSL survey of 1,500 U.S. consumers. Consumers also appear to be tiring of the generic nature of the cards, the firm said. Fifty-eight percent of consumers surveyed said they like receiving gift cards, while 41 percent said they prefer cash.
Wal-Mart has witnessed the trend firsthand. In January the company reported that gift card redemptions fell below expectations and that customers are holding cards longer and using them to buy food and other consumables instead of discretionary items.
Americans are counting the cost, survey says
Forget convenience, quality and service. U.S. consumers are most attracted to retailers that offer value, according to AlixPartners' annual survey of 7,400 shoppers. This is the first time in 10 years that price has topped the list in the research firm's consumer sentiment survey. “Clearly, 2008 will be 'the year of value' in U.S. retailing, and that's going to have a dramatic impact on retailers of all stripes,” said Fred Crawford, an AlixPartners managing director. “This year is going to be batten-down-the-hatches time in retail.” Survey respondents also said they seek out stores that offer the guaranteed lowest prices and whose prices remain constant. Discounters and lower-price department stores are well positioned as U.S. shoppers look to buy various items in single locations for better value, Crawford says. “Consumers who were shopping at Nordstrom's and Macy's are now looking at JCPenney or Kohl's, and those that were shopping at JCPenney are now at Wal-Mart,” he said in a press release. “You're going to see a lot more Lexuses and BMWs in Wal-Mart parking lots going forward.”
Land of the free
The Shops at Atlas Park, in the New York City borough of Queens, has issued a challenge to shopping centers to boost consumer confidence in the U.S. Shops at Atlas Park owner Damon Hemmerdinger (above, right) says he will give away a total of $20,000 from his personal savings to consumers in various increments — equal to 5 cents per square foot of the 400,000-square-foot mall. The program, called The Atlas Solution, began giving away $1, $5, $10, $20 and $100 bills on Feb. 18, and one $1,000 bill will be handed out during the promotion. A van loaded with dollar bills wrapped in paper bearing the printed words “I Support the Economy!” is traveling throughout Queens. “It's not enough to turn the economy around,” Hemmerdinger said. “But if nobody does anything and waits for the world to turn around by itself it will definitely take longer. I've been hearing people say that the economy won't get better until the election and that's a long time away.” According to Hemmerdinger, if every shopping center across the U.S. contributed their own equivalent of 5 cents per square foot, it would total $342.8 million. The total was arrived at using an ICSC estimate of shopping center space in the U.S. Such retailers as California Pizza Kitchen have joined in the plan, Hemmerdinger says, and are giving away stickers redeemable for dollars for shoppers to pick up if they visit the Queens mall. Hemmerdinger says the plan helps shoppers realize that by spending money, they're doing their part to keep the economy afloat. “I tried to think of what would make a difference,” he said. “This sends a message about each of our ability to impact the future.”
Landlords face real fines for fake goods
Landlords whose tenants sell counterfeit goods are beginning to feel the heat. Police raided three buildings known as the Counterfeit Triangle in New York City's Chinatown last week, seizing some $1 million in alleged counterfeit merchandise, according to published reports. The buildings housed 32 stores from which fake goods were allegedly being sold, including knockoffs of Burberry, Coach, Fendi, Gucci and Prada, police said. The city won a temporary restraining order shutting down the storefronts and ordered the landlord, Vincent Terranova, to replace those vendors with legitimate businesses and to pay a fine. “The [Counterfeit Triangle] has been one of the most notorious knockoff shopping malls in the five boroughs,” New York City Mayor Michael Bloomberg said in a press release. “One with more than 150 employees operating with impunity 10 or more hours a day, seven days a week, even while the building owners were under a long-standing federal court order to stop counterfeiting activities.”
Under New York City law, landlords in such cases can face months in court before their buildings reopen. Legitimate brands are getting more aggressive in Asia and Europe as well, sending landlords cease-and-desist letters and threatening lawsuits. “The whole intent of the cease-and-desist letters is so that the landlord can't later argue, 'I did not know it was going on,' ” said Larry Munn, chairman of the privacy law group at Clark Wilson, a Vancouver, British Columbia-based law firm. “They are sort of setting up the battle, taking away a potential defense from landlords. So landlords who have received these letters are going to have to be particularly vigilant.” And landlords relying on liability insurance may be in for a surprise if court action by a retailer goes forward, Munn says. “You have to look at the exclusions under the policies. … Insurance policies usually work so that, if it is something you can prevent, they're not going to cover it.”
Service chains are best-performing franchisers
Franchising isn't all about food anymore. In fact, of the 230 various business lines that franchise in the U.S., consumer service providers opened the most new units in 2006, according to FRANdata, an Arlington, Va.-based research firm. The trend was reflected in The Wall Street Journal's annual list of 25 best-performing franchises, published in February. The ranking criteria include return on equity and franchisee turnover. Such service-oriented businesses as fitness centers, lawn care specialists and pet hotels make up 10 of the 25. Among the more interesting service franchises was The Maids International, a 28-year-old housecleaning service that operates 914 units and plans to open nearly 90 more over the next several years. Stanley Steemer, a carpet-cleaning service, currently has 228 franchise units and plans to open 32 more. Banfield, The Pet Hospital is growing at a clip. Many of this veterinary care provider's 165 franchises operate within PetSmart stores, but the company says it aims to open 15 freestanding units as well. Meanwhile, Arthur Murray Dance Studios, which operates 149 units, says net income has grown 84 percent on average over the past three years. The chain hired football star Emmitt Smith (above), a winner of the Dancing with the Stars reality TV program, to be its spokesman.
Ready for RECon
Shopping center professionals visiting the North Hall of the Las Vegas Convention Center at ICSC's RECon may be forgiven if they believe they've taken a detour to China. One portion of the hall, organized by Beijing-based developer RDID China, will house a large pagoda-style pavilion with developers, retailers and other firms from China.
Globalization and sustainability continue to be focuses of the newly rebranded RECon, previously called the Spring Convention, which runs May 18 through May 21. Globalization, in fact, is a major reason for the name change.“The meeting has been growing steadily from an international standpoint,” said Jay Starr, ICSC senior staff vice president and chief global marketing officer. “While the Spring Convention was obviously well-known in North America, RECon is more of a brand.”
To support the growing interest in sustainability, the Green Zone, which showcases the industry's contribution to protecting the environment, has been expanded and moved to the first level of the South Hall.
The Trade Exposition, also in the South Hall, will run longer this year, remaining open from Sunday through Wednesday. The Leasing Mall will open Monday through Wednesday.
Education remains a major component of the convention. Returning from last year is a series of international focuses, with experts discusses growth opportunities and challenges of each region: Southeast Asia; South America, Russia/Ukraine, Mexico/Central America; Brazil; India; Japan; the Middle East; China: Turkey; Eastern Europe; and Africa.
“We're really emphasizing the 'I' in the International Council of Shopping Centers,” said Marvin Morrison, ICSC's senior staff vice president of programs and services.
General sessions include a keynote speech by JCPenney Chairman and CEO Myron E. Ullman III; a panel of political experts discussing the global impact of the upcoming U.S. presidential election; and a discussion on reinvigorating the U.S. economy.
Comedian/singer Wayne Brady will entertain at the annual benefit gala for the ICSC Foundation, held this year in honor of the late Charles Grossman, past ICSC chairman and past ICSC Foundation chairman.
Back to school
An Indiana developer is creating an out-of-the-ordinary space for one of its tenants. PTI Ft. Wayne LLC, a partnership of Chicago-based Pine Tree Commercial Realty and Inland Real Estate Corp., decided to relocate a brick schoolhouse, dating to 1890, and keep it as part of its new 32-acre Orchard Crossing development in Fort Wayne. The schoolhouse, weighing approximately 340 tons, was dug up and moved one quarter of a mile on March 12, and will be leased to a tenant in the 275,000-square-foot center. “We felt it was an interesting part of Fort Wayne's history and wanted to preserve it for the community,” Barry Herring, principal and founder of Pine Tree Commercial Realty, said in a statement. “It's been beautifully renovated and will be a very special place for a stand-alone retailer.” The two-room schoolhouse, comprising 1,835 square feet, was decommissioned in 1923 and has since served many purposes, most recently as an antiques shop and beauty salon. The schoolhouse sits on one of 16 properties owned by PTI Ft. Wayne for its Orchard Crossing project. Construction began late last year for the development, which has already signed Target and Gordmans as anchors, both opening in October 2008. SCT
Restaurants ramp up marketing
Shopping centers love department stores, in part because their heavy advertising budgets help draw traffic. Now restaurants, facing economic headwinds, are upping their advertising. P.F. Chang's China Bistro says it plans to ramp up its marketing budget this year to $9 million from $7 million last year. Sales at the chain's Cincinnati restaurants rose after an ad media test that included billboards, direct mail and radio. “We did a number of things from a marketing standpoint, virtually everything other than TV,” said Bert Vivian, the chain's president, on a year-end conference call. “We felt that it provided a nice lift to our sales in Cincinnati. It drove a number of folks into our restaurant. We will try the same type of tactics as we push forward into California again. If we are successful there, we will perform the same type of operation in various markets around the country.” P.F. Chang's operates two restaurants in Cincinnati and 23 in California. The chain is not alone in raising the marketing budget. Buffalo Wild Wings, which operates 465 restaurants and bought its very first national television ads in the fourth quarter of 2006, says it has big plans for this year. “Our first-quarter media buy will be the largest in our history and represents a 22 percent increase over 2007,” said Sally J. Smith, Buffalo Wild Wings' president and CEO, on a year-end call. “The mix of call-to-action promotions coupled with national brand awareness will continue to fuel guest frequencies while enticing new guests.”
 | Current Issue October 2008 |