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WHO IS HURTING MOST?

Conventional wisdom holds that high-end retailers and those that focus on necessities are the most insulated against the effects of skyrocketing gas prices.

Columbia, S.C.-based Edens & Avant, which focuses on grocery-anchored centers, says it has seen no sales falloff among its retailers on rising gas prices. “That’s at the core of why we’re in the property sector we’re in,” said CEO Terry S. Brown. But rising home-heating costs, he says, could have an effect on grocery-anchored centers. “We feel more insulated, but we’re not totally insulated by any stretch,” Brown said. “People might buy fewer prepared foods, shop down in foods, or even make their haircuts stretch a little longer. And retailers would be less able to raise prices.”

Can retailers and developers do anything to protect themselves? No doubt many are already shifting into defensive mode by re-examining expansion strategies, markdowns, inventories and hiring, says Gary Ruffing, a retail consultant at BBK, a Southfield, Mich.-based international business advisory firm. “They’ll be taking a long look over the next few months to make sure their return on investment takes into account higher fuel costs,” he said.

Ernst & Young predicts that many retailers will step up their marketing and promotions efforts this holiday season. Some will place greater emphasis on faster-selling luxury items, the firm says. Others will focus on keeping price points low and, where they can, on pushing necessities rather than nonessentials, observers say.

Developers looking for the right tenant mix might take note of a study by Marketplace Advisors, a Maitland, Fla.-based consulting firm. The research examined consumer spending from 1999 to 2004 and showed which tenants prospered most over that period, during which gas prices rose 40 percent, says David Marks, the firm’s president and founder.

Sales of health and personal care retailers, including drugstores, grew by 33 percent, while home improvement stores rose 30 percent, general merchandise stores increased 23 percent, and restaurants and bars climbed 24 percent.

But specialty stores may be in for a tough few years, Marks predicts, because most Americans prefer to save a dollar or two by shopping at Wal-Mart whenever they can.

— JG