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Shopping Centers Today -> May 2007
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BRITS EMBRACE BIDS, TAUBMAN TELLS TALES, AND TOKYO WARMS UP
BEST BUY’S CHINESE LESSONS
Best Buy is learning much from its new Chinese employees. “We see enormous opportunities to retail locally in China, but also to take the goods and products from China elsewhere in the world,” said Bob Willett, president of the Minneapolis-based electronics chain’s international division.
Last year Best Buy bought a majority stake in the 136-store Jiangsu Five Star Appliance Co. for about $180 million. Since then, the company has immersed itself in learning the Chinese retail system, in which store owners have closer ties to vendors, which often hire and manage the sales clerks that work in the stores. As China is a hotbed for consumer electronics manufacturing, Best Buy is hoping to exploit its relationships with those vendors to have them create proprietary, private-label goods Best Buy can sell exclusively in its stores, Willett said. “We are clearly seeing significant amounts of small Chinese manufacturers that have some quite unique products that we’re assessing in our Five Star and Best Buy store, and we see that product traveling back here to the U.S. and Canada,” he said.
Best Buy’s China operations have posted a modest loss year to date, caused mostly by the expense of opening stores in such major cities as Shanghai, Willett says. But the experience gained from the Five Star management team is well worth the investment. “We’ve had some incredible learnings through private-label, particularly,” he said. “And if there’s one area where we are significantly underdone, and this is, generally speaking, in the entire U.S., the use of private-label and exclusive brand is a huge opportunity. The opportunity is probably fivefold from where we are.” Best Buy also plans to forge ties with Turkish vendors, Willett says, as the company considers opening its first stores in that country.
NAME THIS BABY
Imagine letting a stranger name your baby. That’s just what the development team behind a new mixed-use development in the city of North Las Vegas is doing with a promotion designed to form a bond between the shopping center and its neighbors. The developers of the 160-acre project — The Athena Group, Celebration Centers of America and Vestar Development Co. — launched a citywide contest in March for area residents to name the 1.2 million-square-foot, open-air center, which will include about 800 residential units and is currently referred to as The Heart of North Las Vegas. The roughly 100 prizes include a $25,000 shopping spree at the center and a $200,000 college scholarship.
“Since acquiring the property at the end of 2005, I knew that I wanted to involve the residents of North Las Vegas in a special way,” said Linden Nelson, chairman and CEO of Celebration Centers, which owns the physical site. “So when the development team gathered to brainstorm a name for the project, we agreed that, more than anything else, we are giving a beating heart to this community. It was only proper to give the residents the opportunity to really make it their own by naming it themselves. And what better prize than a full college scholarship?” That scholarship will be valid at any accredited college, university or trade school in the U.S.
The contest closes June 23; the winners will be announced within 60 days. Residents can register their entries, one per household, at www.theheartofnlv.com. “The current retail options in North Las Vegas are slim, forcing residents to drive to the Strip for any type of retail, dining or entertainment,” said Nelson. “When the Heart of NLV is complete, the community will have a place to call their own.”
The developers are promoting the project in a number of ways, including a huge, flashy Las Vegas-style billboard at the development site that reads “Give This Baby a Name.” In addition, residents are receiving mail directing them to the Web site. “In a matter of weeks, we have already received significant response and entries from the residents of North Las Vegas,” said Rick Kuhle, president of Vestar Development. “We are eager to see the names suggested by the community.”
INVESTORS ORDER MORE FAST FOOD
Real estate investors aren’t letting trans fats dampen their enthusiasm for properties tenanted by fast-food chains, according to Marcus & Millichap. The firm reports that the median price for these properties rose 5 percent year-over-year in 2006, to $497 per square foot, with cap rates rising about 20 basis points to the mid-6-percent range. Taco Bell and Wendy’s stores were the most popular targets. Drugstores continue to be the most popular type of single-tenant investment, with sector leaders Walgreens and CVS achieving a 9 percent jump in median price, to $393 per square foot, and 6 percent to $384 per square foot, respectively. Investors were less enthusiastic about big-box properties. The median price for big-box stores fell 2 percent to $87 per square foot.
HISTORY REPEATS
Savannah, Ga., a city synonymous with Southern charm and mystique, has changed little since General James Oglethorpe designed its original six-square plan in 1733. The city, Georgia’s oldest, is considered not just the first example of urban design in the U.S., but also among the finest. Needless to say, Valdosta, Ga.-based developer Ambling Cos. is proceeding with much respect for the city’s character as it works on its $800 million, 54-acre, mixed-use Savannah River Landing project. The project will extend the city’s picturesque riverfront and river walk by about 2,000 feet. It will contain 11 midrise buildings with 350,000 square feet of office and retail space and two hotels, plus about 1.6 million square feet of residential condominiums, homes and town houses, clustered in pedestrian-friendly blocks and six city squares planted with mature live oaks. Oglethorpe originally planned for the site to become garden lots granted to the town’s settlers, but the site was too low for development. Modern technology allowed Ambling to raise the site’s grade, however, by transporting some 50,000 truckloads of dirt. This will emulate Oglethorpe’s original blueprint for downtown by extending the city into a series of additional “wards,” says Christian Sottile, a professor at the Savannah College of Art and Design, who is also a principal of Sottile and Sottile Urban Design, which consulted on the civic master plan. Construction is scheduled to start this year and run for 10 years. “Savannah has enjoyed an uninterrupted tradition of urbanism, so we have the opportunity to grow the city in a very authentic way,” he said. “We are returning to the way we grew towns hundreds of years ago.”
WINNING BID
London’s West End business improvement district became the U.K.’s first BID to survive into a second term in January, when over 63 percent of businesses and property owners in this area surrounding Piccadilly Circus and Leicester Square voted to renew the program.
Founded in February 2005 and known as the Heart of London Business Alliance, the BID has already cleaned up the neighborhood’s Coventry Street with a $2.7 million initiative that included widening and cleaning the bustling thoroughfare’s sidewalks. Now that the BID has been renewed through March 2012, its management aims to expand its efforts to curtail anti-social behavior in the tourist-centric district. The BID expects to secure about $4.3 million in voluntary contributions from property owners in the area within the new five-year term. Efforts include a team of street enforcers to patrol the area and prevent illegal street vendors as well as vandalism and other unsavory activities. The BID will also do marketing and PR work to promote foot traffic in the area, which can already draw upwards of 450,000 visitors on a weekend day. “Being part of a wider West End marketing campaign is a smart way of making money work harder,” said BID member James Stacpoole, managing director of U.K.-based souvenir chain Crest. “Particularly for independent retailers, it gives us a real profile we could never afford on our own,” he said. “We all need to show people that this area is a key reason why the West End is the ultimate shopping and leisure destination.”
CLOTHESHORSE
Known for using art installations to distinguish its luxurious stores, Barneys New York drew inspiration from the Lone Star State and commissioned New York City artist Terence Gower to design a whimsical horse sculpture for its new Dallas flagship at NorthPark Center. The 12-foot-high, 10-foot-long horse was handmade from about 1,000 steel-plated clothes hangers. Shipped in sections from Amuneal Manufacturing Corp., Philadelphia, the sculpture got final welding and hand-plating treatment inside the 88,000-square-foot store. The sculpture won the National Association of Store Fixture Manufacturers’ 2007 Special Installation Award.
GREEN WEB
People looking to live a “greener” existence on the West Coast now have a Web site that, among other things, lists environmentally sustainable retailers. Greenopia, as this “urban dweller’s guide to green living” is called, offers a directory of such retailers in the Los Angeles and San Francisco Bay areas, along with customer reviews and “green” ratings. The site covers news of ecological events and contains fashion and beauty, arts and leisure, and family activities features. It also offers advice on such issues as recycling, home furnishings and pet care. “The site really guides people who want to go green,” said Stef McDonald, editor of Greenopia. “We have seen that there is really a hunger for this kind of thing.”
Greenopia founder Gay Brown dreamed up the site two years ago; friends were always asking her where she obtained the products and appliances she was using to make her home ecologically “sustainable.” Retailers do not pay to be listed; they are chosen strictly on their merits, says McDonald. “If it’s a supermarket, there must be a certain amount of organic food sold,” McDonald said. “If it’s a clothing store, there must be organic cotton used. And beauty products must contain eco-friendly, nontoxic ingredients.” There are currently about 800 Los Angeles-area stores listed on the site, which is still in beta version. There are also a chat forum and a Greenopia Community, where users share information about best places. A Greenopia Guide book for travelers is available in bookstores and at some Whole Foods markets. The site quips that it has been made with “100 percent recycled pixels,” and it makes its official debut this year on April 21 — the day before Earth Day.
TAUBMAN TALKS
Retail real estate executives will want to read A. Alfred Taubman’s new memoir, Threshold Resistance, in which he reveals much about the formula and strategy he used to build a portfolio of the most upscale and profitable regional malls in the U.S. The publisher is Collins.
With a background in architecture and store design, Taubman founded a shopping center development firm in 1950 at age 26, using a $5,000 bank loan. His father was his first employee. “From the outset, I believed that building shopping centers wasn’t a real estate or development business; it was a retail business,” he writes. “Shopping centers were department stores of stores, and we were the merchandisers.” Taubman made his fortune helping retailers reduce what he calls “threshold resistance, the physical and psychological barriers that stand between shoppers and your merchandise.” He details his journey, from college boy making house calls on Sorority Row in promotion of his employer’s shoe store, to real estate mogul spearheading the multibillion-dollar bidding war for, and eventual purchase of, the massive Irvine Ranch, in Southern California.
Taubman’s frank prose does not sugarcoat the more challenging aspects of the industry. But one big take-away is the value of the relationships he has made through business dealings with such luminaries as auto scion Henry Ford II and retail guru Leslie Wexner. Taubman recalls telling Wexner, founder of Limited Brands, in the mid-1970s that Wexner’s stores did not look sharp enough for Taubman’s malls. Wexner redesigned the stores, the developer says, even consulting with Taubman’s store-planning department.
Taubman opines on the industry’s future as well. “The Internet revolution will occur when television viewers are able to order goods right off their screens during prime-time programming,” he writes. “A blouse worn by one of the cast members of Grey’s Anatomy catches your eye. You click on the character and up comes a description of the item along with ordering information. Your computer knows your size and your credit card number. You click and the blouse is on its way. Technology experts call this ‘convergence.’ I call it impulse buying!”
WARMING UP JAPAN
Critics who say Japanese architecture is too sterile should visit the city’s tallest tower, the Tokyo Midtown, which opened in March in the busy Rappongi district. The 6.1 million-square-foot project, developed by Mitsui Fudosan, includes the 221,000-square-foot Galleria at Tokyo Midtown, which boasts wood finishes that are far removed from the typical glass, steel and stone aesthetic that prevails in Japan. “It’s a modernist take on traditional Japanese design, and it’s probably the warmest shopping center since Park Meadow, in Denver,” said Henry Beer, founder of Boulder, Colo.-based architecture firm Communication Arts, which designed the project’s Galleria portion. The complex is situated on 19 acres once occupied by the Japanese Self-Defense Agency and contains three office buildings, two museums, a Ritz-Carlton hotel and some luxury apartments, all linked to an existing park. Locals appreciate the fresh perspective, he says. “The intensity with which the typical Japanese shoppers inspect architectural and structural details is an interesting contrast to Americans,” he said. “They enjoy the details in an almost critical way.”
MACY’S WEB INVESTMENT
Macy’s, formerly Federated Department Stores, says it will spend $100 million this year to improve its e-commerce sites. “Our online sales continue to grow at a rapid pace as the national expansion of Macy’s and Bloomingdale’s attracts new customers to our stores, Web sites and catalog,” said Terry J. Lundgren, the company’s chairman, president and CEO, in a press release. “In particular, we are seeing exceptional growth in online sales in new Macy’s markets such as Illinois, Michigan, Minnesota, Missouri, Oklahoma, Texas and Utah. “Our direct-to-consumer businesses will grow to more than $1 billion in sales by 2008, from about $620 million in 2006,” Lundgren said. Home goods, which have been weak in the chain’s stores, are selling well on the Web, he added. Many of its rivals have a head start on Macy’s thanks to their long-standing catalog operations, which lend themselves to supporting Web sales. JCPenney’s Web site has already passed the $1 billion mark in annual sales; Penney says it is working toward a goal of $2 billion. Saks Fifth Avenue says its Web site is second in sales volume only to its flagship store in New York City. And Nordstrom currently posts about $500 million in annual online sales, observers say. Macy’s Web operations include macys.com, bloomingdales.com, macysweddingchannel.com and bloomingdalesweddingchannel.com. Most of the money will go toward building new distribution centers to handle merchandise ordered through the Web sites and off the catalog, Bloomingdale’s By Mail.
CIRCUIT CITY PUTS CANADA STORES ON BLOCK
Circuit City is seeking a buyer for its 800 Canadian stores, which have been unprofitable for several quarters. The units, which posted a 4.1 percent drop in same-store sales for the crucial December sales period, account for about 5 percent of the electronics chain’s total sales. The company’s 641 U.S. stores, meanwhile, posted a same-store sales increase of 4.6 percent. “Jettisoning the unit would not only improve returns, but allow Circuit City to focus on domestic operations,” wrote Jonathan Cramer, a retail analyst at Cowen and Co., in a research note. Circuit City closed about 55 Canadian stores in February and says it plans to shut 10 more stores in that country during the first half of next year. The chain announced several other cost-cutting measures, including the layoffs of about 3,400 store workers who were making “above market” wages, to be replaced by new hires making “market” wages.
BORDERS’ NEW PLOT TWIST
Analysts say Borders Group is on the right track with the turnaround strategy it unveiled in March, even though it might cause some landlords a temporary headache. The plan is to close half its 564 Waldenbooks stores, sever its ties with Amazon and create its own Web site, halt its store expansion plans and sell or franchise its 73 international Borders stores.
Following six years of making its brick-and-mortar stores a priority, the move represents an about-turn in the face of the rising popularity of online book and music sales. “We need to reinvent our business to exploit the rapid changes taking place in how consumers access information and entertainment,” said CEO George Jones in a press release. The company also plans to redesign its core Borders stores, which will include “digital centers” that provide information and products for such forms of digital entertainment as e-books and MP3 players. “These superstores will be the heart and soul of its turnaround,” said Howard Davidowitz, chairman of Davidowitz & Associates, a retail and investment consulting firm in New York City. “With the amount of Internet sales, they need a different kind of store to get people in there.” Borders is also forming its own e-commerce division, having pulled out of a 2001 deal with Amazon.com to sell its merchandise over that Web platform. “They are absolutely doing the right thing,” Davidowitz said. “I don’t know how they let Amazon take over the Internet sales for so long.” He noted that Borders is simply following the route its rival Barnes & Noble took years ago, closing stores and focusing on online sales. Borders recorded a net loss of $151.3 million last year, versus a net gain of $101 million in 2005. Its total sales last year rose 1.5 percent to $2.75 billion. For the fourth quarter, the chain's same-store sales slid 2.8 percent. For the year, they fell 2.2 percent.
GAP TURNING SALES SLUMP AROUND
Gap Inc. has decided to convert its 45 Old Navy outlets to regular Old Navy stores by October. “The competitive landscape for the outlet market has changed,” said Donald Fisher, chairman and interim president and CEO. “From a business model and pricing standpoint, there was no longer enough differentiation between the Old Navy outlet and the Old Navy stores. Many outlet centers already contain a mix of full price and outlet stores, so we will still be able to leverage this important real estate channel with our Old Navy brand.” In addition, Gap Inc. plans to remodel about 200 Gap and Old Navy stores, open some 200 new Old Navy stores and close roughly 200 Gaps this year, said Fisher on a conference call. The company expects full-year net square footage to be up about 1 percent.
A “cleansing” of Gap’s 3,100-store real estate portfolio has been under way for some time, says CFO Byron Pollitt. Since 2002, the company has closed about 400 Gap stores. It is closing 80 more this year. More Gap store closures could be announced later this year as the brand shifts its focus to older customers, says Gap North America President Marka Hansen. “In today’s highly competitive and more niche specialty environment, a target of 18 to 35 is too broad, and as a result, we lost a strong point of view,” she said. “While we have not landed on a specific target customer today, you can expect this target to narrow within the 18-to-35-year-old range, and it clearly will not be the 18-year-olds.”
Meanwhile the chain surprised Wall Street in March with its first same-store sales increase in 14 months. The company reported a 6 percent increase in same-store sales versus the previous year. Total sales for the five-week period ending April 7 were $1.56 billion, up 16 percent from $1.35 billion in 2006. The company’s BabyGap and GapKids divisions saw stronger sales than Gap for adults. Warm weather and an early Easter helped drive traffic into stores, the company said.
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