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Specialty leasing pros debate issues

By Kevin Kenyon

ATLANTA -- Tackling hot-button issues such as consolidation, rents and the Internet, a panel of specialty leasing industry professionals held a no-holds-barred "Town Meeting" here in February, during the 13th annual ICSC Temporary Tenant, Short-Term Specialty Retailing Conference and Trade Exposition.

Held at the Hyatt Regency, this year's conference drew roughly 1,100 attendees, while approximately 112 companies exhibited at the deal making session. This marked a sharp increase over last year's conference, which was attended by 850 people.

More than 200 of the attendees were first-time retailers, which many saw as a sign that specialty leasing will continue to be an area of considerable growth within the shopping center industry.

Already one of the shopping center industry's fastest growing segments, specialty leasing continues to provide a helpful boost to developers who have seen some of their in-line retailers close their stores or go into bankruptcy.

But as the industry matures, it is facing some of the same challenges that many traditional retailers and developers are dealing with today. Some of these issues include mergers and acquisitions within the development industry, the Internet and pressure from powerful national chains.

Some of these issues were tackled by a panel of industry professionals during the conference's general session, "Town Meeting: Politically Incorrect."

Some panelists expressed trepidation over the possible long-term effects of the growing trend of consolidation.

"I think the amount of mergers and acquisitions should be a concern to retailers, especially as some developers become more powerful," said Anton X. Faford, CLS, director of specialty leasing for WellsPark Group, Newton, Mass., who challenged merchants to face their problems head-on. "Retailers need to develop strategies to deal with that and become problem solvers."

Richard J. Bordeaux, senior vice president for San Francisco Music Box Co., Walnut Creek, Calif., agreed that consolidation was something on retailers' minds these days.

"It's a major concern to us," he said. "A large amount of consolidation is not good for retailers in general. Over the years many deals are based on relationships. If you end up with a smaller pool of developers it makes it more difficult to make deals and harder for us to achieve our goals."

The impact of consolidation had been felt on the panel: One member, Deborah J. Georgetti-Piro, had recently learned that her company, New York-based Corporate Property Investors (CPI), would be acquired by Simon DeBartolo Group, Indianapolis. However, Ms. Georgetti-Piro, CPI's director of specialty leasing, was taking a positive view.

"I feel as though I'm blessed to have a career in an industry that I love, and that has nothing to do with whatever developer I'm working for," she said.

Bruce Goldman, president of specialty retailer Adventure Shops Inc., Berwyn, Pa., lobbied developers to look out for the interests of smaller retailers.

"It's much harder for the smaller tenants than it was years ago," he said. "Now we are competing with national tenants for space, and we need help from developers to grow."

But he took a more sanguine view of the Internet, arguing that malls could benefit from the increased exposure.

"The Internet can reach out to customers who don't go to malls," he explained. "They might not necessarily buy the items but they can preview them, which can be a benefit in the future and another traffic generator."

Certainly the Internet is not going to be the threat to traditional retailing that some have predicted, according to Ted Kaminski, specialty leasing director for Westfield America Inc., Paramus, N.J.

"Everybody was concerned years ago when [television shopping channel] QVC came along, but the bottom line is that the mall represents interaction," he said. "There's a human element that you just can't get in your living room."

WellsPark's Mr. Faford agreed that the Internet is not as big a threat as some people believe, especially regarding the mall's bread and butter -- apparel.

"[The Internet] may take some market share, but when it comes to apparel I think people need to touch and feel the merchandise to determine the quality, and you can't do that over the computer," he said.

Technology is not the only aspect of retail that has become more sophisticated. As the specialty leasing industry has evolved, so has rent structure. Paralleling this, the respect accorded temporary tenants has risen, said CPI's Ms. Georgetti-Piro.

"When the program started, no one knew the answers. We had to base [rent] on historical sales at the property. As specialty leasing grew, it became more sophisticated and tenants no longer felt like stepchildren who didn't get respect from mall management, didn't feel treated equally," she said.

Panelists raised the subject of the Internet at another session at the conference titled, "Retail.com: Retail on the Internet Today and Tomorrow."

It is inevitable that Internet shopping will erode certain segments of the shopping center business, according to Stephen Pospisil, associate director, corporate merchandising and creative services for The Rouse Co., Columbia, Md.

"I'm not so sure about all the predictions of doom and gloom, but I'd say in the near future it will have more of an impact, and it already has to some extent today," he explained.

Studies in 1997, he said, indicated that half the households in the United States had a personal computer, 20% of U.S. households were connected to the Internet, and 7% of households had purchased something on line.

Recent predictions for 2000, Mr. Pospisil noted, showed that the number of households with a PC is expected to grow to 60%. The percentage of households connected to the Internet is expected to increase to 40%, with another 10% connected either in school or at the office.

On-line sales also are expected to grow. Such sales totaled $700 million in 1996. That number quickly grew to $2 billion in 1997, Mr. Pospisil noted, adding that the figure is expected to swell to $79 billion by 2002.

Of the current $2 billion in sales, 40% is for computer-related merchandise, while 20% is spent on books, Mr. Pospisil said. Other categories include: travel (16%), clothing (10%), music (6%), gifts (5%) and investments (4%).

But while the Internet has made strides in recent years, its potential is barely being scratched, Mr. Pospisil argued. Of the top 180 retailers in the United States, as many as half have no World Wide Web presence. Only 36% have even tried an information-driven site, which offers background on the company, but not the ability to shop on line, he said. Only 12%-15% of retailers currently offer some form of e-commerce, he added.

However, as on-line shopping continues to evolve, Mr. Pospisil said that even those retailers who are on-line may end up left behind. "The real threat may be consumers being able to deal with manufacturers directly."