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REGENCY STAYS OUT OF WAL-MART’S WAY WITH UPSCALE DEMOGRAPHICS

When grocery chain Winn-Dixie filed for Chapter 11 in February, it pinned most of the blame on Wal-Mart. Regency Centers Corp. says it wants to make sure its own grocery tenants are more immune to the Supercenter threat, and its $2.74 billion acquisition of the First Washington Realty portfolio is a step toward that goal.

Jacksonville, Fla.-based Regency is not trying to compete on the discount front. Instead, it is continuing its strategy of pursuing wealthier customers who are happy to sacrifice lower prices to a more pleasant shopping experience. The 101 grocery-anchored shopping centers included in the deal — a joint venture with Australia’s Macquarie CountryWide Trust — are located mostly in affluent areas.

The centers Regency bought in Southern California, for example, “are really in the top range,” said Gwen MacKenzie, vice president of retail investments at the Los Angeles office of Sperry Van Ness. They’re in upper-middle-class areas “and do very strong sales.”

These shoppers are more likely to sacrifice price for convenience, says Mary Lou Fiala, Regency’s president and COO.

Though Regency got its start in the Southeast, a region considered wide open to Wal-Mart because of the availability of land there, the firm has worked to diversify geographically. More than 80 percent of its centers are located in the 50 largest U.S. markets. In 2002 the average household income within a three-mile radius of a typical Regency center exceeded $86,000 — $22,988 more than the national average that year.

Regency’s leasing strategy also helps it compete against Wal-Mart. Six years ago the firm began culling its tenant roster to include only the strongest operators in each merchandise segment, so the likes of Great Clips and Starbucks have a much bigger presence among its centers today. The initiative has also resulted in a larger number of casual restaurants. The strategy is already paying off. In those markets where Wal-Mart has opened a Supercenter within three miles of a Regency center, Fiala says, sales have only dropped by about 2.5 percent during the first three years and then rebounded afterwards.

— Sascha Brodsky