Strolling the Agora: The Big Transformation of the Industry is Underway

Strolling the Agora column from the May 12th, 2009 issue of Shopping Center Digest
The Big Transformation of this shopping center/retail industry has already begun as an initial reaction to the unheralded number of bankruptcies and liquidations of once-prominent tenants and landlords. However, the record-breaking contraction in the number of actual leading players, according to many veteran dealmakers, is only the beginning and will be the forerunner of a new landscape encompassing those able to react quickly as the economy improves.
“In a nutshell,” said Ira Meislik of Meislik & Meislik, “it will be right-sizing… the retail industry drifts to match its market. The actual behavior of individual consumers [will vary, but they are learning] that they can do with less and they can shop at unfamiliar, previously unconsidered stores [creating winners and losers as the industry adjusts] to the new consumer buying paradigm.”
Though Edward Spivey of Edward Spivey Associates does not expect a “bounce back” like previous downturns, “There will be great opportunities for investors, however, in picking up distressed retail assets and repositioning them or renegotiating lease terms, etc. Cash flow will once again be the main factor in determining asset values, and tenants will likely have more say in what leases rates they are willing to pay.”

Bogus Ploys Are Over
He stressed: “The era of asset values based on bogus financing schemes and refinancing ploys is over.”
Greg D. Icenhour of Shield Engineering says the volume of retail investment is down over 50% and “here in the Southeast almost 80%… As far as new construction, the only activity [in his market of Charlotte, NC] is primarily by end-users,” businesses with specialized space. “With the amount of retail space currently on the market, there should be ample opportunities for lease consultation and property management as these properties change hands.”
Aside from the overall economy, there is little question that the biggest shakeup to the industry has been the bankruptcy filing of General Growth Properties. The experienced dealmakers applaud the refinancing efforts of leaders like Simon Property Group, Kimco, Developers Diversified, Weingarten Realty and Regency Centers to control their debt. They're skeptical about GGP's statements that it will not sell off much of its portfolio to return to solvency, and point to a substantial number of owners and investors – including those above – waiting to cherry-pick the better properties at bargain prices. 
Sam Zell of Equity Group Investments noted recently that today's troubled real estate was due to those using too much debt to buy properties during boom times, and that a substantial number of those acquisitions were “under water.” [They] “have no incentive to sell as long as they owe more than their properties are worth” and investors will be picking up this real estate from foreclosure over the next few years.
Others point out that many larger landlords are now focusing future growth and development internationally, especially in emerging nations, China, Japan, India, South America, and the like.
Impact Of Ethnics
“If you're talking of a changing landscape in the industry,” said one respected dealmaker, “you can't ignore how changing demographics are affecting us. Yes, more price-conscious consumers are gravitating to the dollar stores, but there is also an increase in ethnic-oriented retailers, in malls and specific mini-markets, a reflection of what's taking place all around the country and in Canada. Then, such franchise operators as Church's Chicken are beginning to search out immigrant operators, those that might be able to obtain needed financing through foreign credit markets.”
Harsha V. Agadi, chief executive of the chain which has 1,650 restaurants, stressed that this was only one aspect of its plans to open 120 stores this year and continue an aggressive expansion program. He pointed to Korean, Chinese and Taiwanese banks primarily as financial sources for franchisees.
Another highly-regarded veteran expanded on this point. 
“When I got into this industry over 40 years ago, it was composed of mainly white males. Over the years, women became an integral part of developing and leasing, first entering through marketing. Now the entire demographic is like a rainbow, reflecting what is taking place throughout North America. And, as US companies – retailers and owners – expand their interests globally, you see a major influx of this cross-border pollination domestically as more foreign-based tenants and landlords enter the market, which they see as containing fantastic, untapped potential.” 
Many of the ethnic groups now an essential part of the industry – African Americans, Asians, Hispanics, etc. – he points out, are native-born or first- or second-generation.
[We've discussed this evolving demographic of tenants in this and past issues of Shopping Center Digest, pointing to such apparel chains as Shasa from Mexico and H&M from Sweden, the U.K.'s supermarket chains like Tesco and J. Sainsbury, and others that have been a growing in presence for years: Germany's Aldi, Belgium's Delhaize, Mexico's Gigante, or the existing US retailers that have added more ethnic foods to cater to changing populations.This latter re-tooling of shopping centers to better serve demographic changes has been a vital part of the industry for years.]
Internet Shopping
Laurence Hsu, a developer/investor and contractor in China, Taiwan, sees the changing landscape impacting substantially on brick and mortar construction. “The first impact to retail business was caused by eBay which changed the consumer's behavior… This crisis [will result in an accelerated] “space connect with net shopping.”
Consistent with this assessment, a survey by Forrester Research and Shop.org states that online retail sales in the US rose an average of 11% in the first three months of this year; at least 44% of all e-tailers said sales were up over 10%, and 14% said they increased up to 10%. Citi Investment Research projects US retail e-commerce sales will grow 4.4% to $141 billion in 2009, and then skyrocket 16.5% in 2010.
Many consumers still research their shopping online, and then hit the stores to buy the product, or pick it up at a local outlet. There are few successful retailers who do not now use multi-channel sources to reach their customers.
When we first began the research for this column it was basically a narrow focus, essentially that bigger companies would get bigger, that more smaller operators on the fringe will enter the mainstream. Much of it was due to the current economic crisis, but also on numerous research projections showing a marked increase in future population growth due to the “browning of America.”
Initially, the belief is that this industry is suffering, more than it ever has before. However, just as strong, is the belief that if you can hang in there, the future is bright. 
More information on SHOPPING CENTER DIGEST and our associate publications, EXPANDING RETAILERS and DIRECTORY OF MAJOR MALLS, may be obtained from our website,www.shoppingcenters.com.

Strolling the Agora was a twice-monthly column discussing trends, issues of importance, and commentary on the leasing/development aspects of the shopping center/retail chain industry in the US and Canada. Called Strolling the Agora, it was a part of Shopping Center Digest, a newsletter founded in 1973 published until September 2010. The column provided expert insight into various retail focused topics. It was primarily authored by Murray Shor, Editor & Publisher as well as industry and veteran retail experts.  A smattering of archived columns are presented here for your reading “pleasure”. It's an interesting “look back” at what were current hot topics at the time with regard to shopping center/retail industry focus, development and leasing expansions and processes, retail mix, opinions and more.
About Murray Shor:
Reporting and writing on the shopping center/retail industry since the late ’60s. Began as editor at Chain Store Age, founded Shopping Center World (now Retail Traffic), Shopping Center Digest “The Locations Newsletter” in 1973, and the Directory of Major Malls in 1979. Each issue of Shopping Center Digest contained a column called Strolling the Agora which provides commentary on trends, activity, issues of concern to development and leasing in the shopping center/retail industry.

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