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Safe at Home

The category is hot, but can the winning streak last?

Home is where the retail sales are, but for how long?
Years after the cocooning trend was first identified, sales of home-related products are still strong, and home stores continue to help lure consumers to U.S. shopping centers.

But some say the potential is there for the industry to become too dependent on home stores, with analysts wondering, for example, when baby boomers are going to wake up and realize they have enough martini glasses.

Shopping centers now contain more home-related stores than ever before, and many retailers — including apparel stores — have added merchandise to reflect this trend.

There are fears, however, that the industry could be facing a repeat of the early 1990s, when the recession affected developers who were top-heavy on the apparel side.

"Those same developers may now be at risk of overweighting themselves with home stores," said Howard Davidowitz, chairman of Davidowitz & Associates, a national retail consulting firm based in New York City. "For a while there, it seemed they wanted nothing more than to get rid of the apparel guys, because there were too many and a lot were going bankrupt."

Because homes are so dependent on interest rates, and therefore the economy, the same danger now exists, he added.

"The home business has always tended to be a cyclical business, because that's the case with anything related to interest rates, so developers are going to have to be a little concerned about that," he said.

The space being devoted to retailers that sell home-related merchandise, has been increasing for years. One only has to scan the retail landscape to see the gravity of the shift that has been occurring.

Retailers such as Bed Bath & Beyond, Linens 'n Things, Restoration Hardware, Crate & Barrel, The Home Depot and Lowes Home Improvement Warehouse to name a few, have become some of the industry's most sought after tenants. The trend has also appeared to transcend price points, affecting everything from midmarket to upscale retail centers. Even apparel-based retailers, including Eddie Bauer, Polo and Laura Ashley, have begun to sell merchandise for the home.

The trend — driven by people's desire to stay at home more, in conjunction with a booming home sale market and shifting consumer spending habits — is hardly new.

The gap between the spending curves of apparel and home furnishings has been narrowing for years, finally crisscrossing in 1996, when spending on home merchandise outpaced spending on wearables for the first time, according to Kurt Barnard, a retail consultant and president of Barnard's Retail Trend Report in Montclair, N.J., who says the shift is even more apparent when analyzed from a broader perspective.

Between 1990 and 1998, spending on household items leaped 71%, from $173.5 billion to $296.3 billion, while apparel crept forward a mere 28% over the same period, from $217.9 billion to $277.9 billion, according to Barnard.

Since that time, Barnard said the gap has widened and should only continue to accelerate in the near future.

"All you have to do is look at the figures released on a monthly basis on new and existing home sales; they are absolutely staggering," he said. "Every time a home changes hands or is occupied for the first time, tens of thousands of dollars are spent."

That alone, he added, guarantees that space devoted to home-type stores is going to increase.

Sales of existing homes, by the way, continued at a pace in August (5.25 million units) that was expected to challenge the previous record annual total, which was set in 1998, according to the National Association of Realtors, Washington, D.C.

Besides home sales, another factor contributing to the trend is the graying of America, Barnard said. "People are getting older, and as people get older the home becomes the focus of their expenditures, and less is spent on apparel."

Just 10 years ago, the opposite was the case, he explained. "Today the growth of expenditures on homes is much faster than the growth of expenditures on apparel, and I only see that continuing."

Bob Obernesser, a partner with the Chicago-based retail consulting firm of McMillan Doolittle, said the shift follows many of the lifestyle trends that are occurring today.

"People are making a lot of money in the stock market, but instead of spending on lavish gifts or clothes, which was the case in the past, they are putting money into lifestyle enhancements, which translates directly to homes sales, not apparel," he said.

Also weakening apparel sales is the move by a growing number of businesses from casual Fridays to casual work weeks, lessening the need for business apparel, he added.

A quick glance at the retail landscape, Obernesser explained, reveals how dramatic the shift towards home sales has become.

"The major players in the fashion home accessory business — the Pottery Barns and Crate & Barrels of the world — are entering markets all over the country and getting a disproportionate share of dollars," he said.

At some point, however, Obernesser said that could become a problem for shopping center developers.

"There's a good possibility they will run up against the same type of things as the apparel people have, which means they'll be competing against a slew of players in the business with similar products."

Although the potential for such a dilemma certainly exists, Davidowitz said developers can take steps to protect themselves.

The key, he emphasized, is not to overweight any one category. "A shopping center is a portfolio, so you have to have a good representation from each segment, not only to make it interesting for the customer, but to balance your risk."

On the other hand, many retailers in the home category are much stronger than those that ended up in Chapter 11 on the apparel side, which Davidowitz said could help them weather any storms ahead.

"You also have to remember that many of the hottest retailers today are on the apparel side, including Abercrombie & Fitch, American Eagle Outfitters, and The Gap and all its divisions," he explained. "The truth of the matter is a rising tide lifts all boats, and we're in the midst of the greatest retail economy in 20 years, which has lifted an awful lot of boats."

Shopping center developers are largely optimistic that the home category has not run its course.

"I truly believe we have another 10-year run on the home side," said Nicolina Columbo, vice president, retail leasing for PREIT-Rubin, a Philadelphia-based real estate investment trust (REIT).

The shift, which Columbo attributes to baby boomers' increased emphasis on the home, has been influencing PREIT's leasing on a national level for a good four to five years now, she said.

"It's all part of the evolution of how people are shopping, and positioning yourself to take advantage of whatever that may be," she said.

The home trend is so strong that there appears to be a need for additional growth, according to Kenneth Simon, vice president of Konover Development Corp., an Englewood Cliffs, N.J.-based retail developer which is an affiliate of Konover & Associates.

"I don't think the country is nearly as oversaturated as it might appear," he said, noting that he expects the trend to continue.

"A strong economy and low interest rates are the two primary factors that translate directly into home sales, and as long as those conditions apply I don't think we have anything to worry about."