Directory of Major Malls
Directory of Major Malls

Strolling the Agora: Dealmakers Look At New Ways To Keep The Momentum Going

This column of Strolling the Agora appears in the June 21st, 2010 issue of SHOPPING CENTER DIGEST, the twice-monthly newsletter that focuses on leasing/development in the shopping center/retail chain industry. 
Whether due to improved consumer attitudes, a desire to break a logjam impeding forward movement, the positive sales results from many tenants, increased financing available, or a multitude of other reasons, there has been a recent increase in dealmaking activity, at and following the ICSC RECON in Las Vegas. 
But it is still far from a rush to make a deal. And there is no clear pattern, and in numerous cases, we see examples going against recent trends.
Overall, the conventional wisdom points to discount and value-oriented retailers looking at the latest numbers, and then announcing they're back looking for deals.
If that's the case across-the-board, how do you explain Target? This No. 2 discount retailer boosted its quarterly dividend 47% from last year, saying its cash generation is far more than required “for optimal reinvestment in our core business.” After its retail sales surge resulted in a 29% increase in its quarterly profit, it cut back on new-store expansion to less than 10 this year, compared with 60 in 2009 and its more basic annual average of close to 100 new stores.
The retail toy business for years has been dragging, with the leaders in this category trailing behind the strong competition from Walmart and other mass merchandisers. So, how to explain the move by Kohlberg Kravis Roberts and Bain Capital to seek public funding by preparing to raise $800 million from an Initial Public Offering for Toys R Us?
Or that retail operations directed at the teen and pre-teen market were among those at the forefront of a growth market, but recent sales results conclude that some of these operators may be heading for further problems?
Eye On The Deal
“I don't try to explain these anomalies,” said one veteran dealmaker, “since I have no control over what top management at a company may decide, whether it be a tenant or a landlord. I focus on my immediate projects and do what I have to do to get that lease signed.”
When looking at a specific project, and trying to be creative, many senior negotiators go back to the tried and true methods that have worked in the past. They look at the basic rent – and whether an owner-developer or a retail chain – the rate will go up or down based on the square footage of the store, or the immediate occupancy costs: taking a smaller unit so overhead including tenant improvements such as HVAC, fixturing, housekeeping and maintenance, personnel, operations and the like can also be reduced.
Or they may concentrate on the length of the lease, shorter or longer term, maybe throwing a few dollars in at the back end to make the front end a little more acceptable. Or adding or deleting or revising a clause dealing with co-tenancies, or kickouts, or exclusive, and on and on.
Nothing new here.
Emphasis On Franchising 
With the high unemployment rate coupled with the increasing length of time experienced professionals are on the street, many of these workers are channeling their efforts into starting their own businesses; the category of retailing is attracting more than its share, and most of it is directed at established successful franchises. 
To many operators, this is a great opportunity and they are being very aggressive in attracting businessmen with a good track record and substantial financial packages from their former employers. So the franchiser, in many instances, is providing some of the dollars through an in-house financing program to make the deal, cutting its fees, fine-tuning leasing and royalty costs, guaranteeing bank loans, and putting its greater financial standing behind the deal.
They are advising their prospects to work with their local banks where they have a relationship, use relatives and friends as investors, community development groups, consider used equipment from auctions and Craigslist to reduce immediate costs, work with landlords to pay a higher rent upfront to obtain a larger tenant improvements payment from the landlord, etc. 
One experienced dealmaking went into the distant past. “I remember when we owner-developers helped put several retailers into business because we could get better financing from the banks and lending institutions than they could. We used our stature to make it happen, financing them and helping them fixture their stores. In a sense it could have been a reaction against one or two extremely important retailers who essentially controlled a vital part of the women's apparel industry. I can see the connection between then and now with what's going on in franchising, especially with the restaurant and fast-food industry.”
Sooooooooo not much new here either.
Get Someone's Attention
To get some movement started, another stated, “you have to get someone on the other end to pick up the phone or answer an email – you have to grab their attention.
“It's almost like wooing a new lover. You can send the candy, the flowers, the theater tickets – that's become almost common, now. With one real estate VP, we found out she was very involved and committed to a charitable organization, so we made a substantial contribution in her name to that fund. We finally got a callback and made the deal.
“There's no way,” he conceded, “we would have been successful if the location did not fit very well into their criteria. But you have to do something to make them acknowledge that this a good location that they may not be aware of – I won't say overlooked.”
The possible hazard that many involved in leasing and development on both sides of the negotiating table recognize is if the little momentum that is now underway were to stall. There are signs that the normal slowdown that comes with the summer may also impact on dealmaking. Some retail sales results from May show declines from those anticipated; in other instances, sales may be up, but profits may not, because deep discounting was necessary to drive customers into the stores; and in some instances total sales may be up for the retailer, but an increasing proportion of those dollars may be coming from the internet, and not from brick and mortar.
To some retailers, this could be to raise the emphasis on internet sales and to direct their focus internationally where the market may be less competitive and ROI could be much faster. A number of larger landlords are turning their attention for new development offshore, to Asia, especially China and India, South America such as Brazil, Colombia, Mexico, under-served European countries such as Russia, Slovakia, Spain, Portugal.
So the challenge for the deal-maker domestically? Wave, make some noise, get someone out there to recognize that here is an opportunity that is new or deserves a second look.

Further information on Shopping
Center Digest
, our weekly Eflash, Expanding Retailers,
and the annual Directory of Major Malls may
be obtained from our website,

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.
Free Trial
Not getting our latest news sent directly to your inbox?
Sign up for DMM E-News

By submitting this form you agree to receive email communications from Directory of Major Malls/