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.
Strolling the Agora column for the June 18th, 2009 issue of SHOPPING CENTER DIGEST.
For several years now, “civilians” ignorant of the industry or how it operates have been calling it dead in the US and Canada, and writing its obituary in newspapers, magazines, on television specials and on the internet. Especially that niche involving large malls. Meanwhile, we have continued to flourish and re-invent our projects with mixed-use developments, lifestyle centers, entertainment-oriented projects, hybrids, and the basic, ever-present strip center.
Now, with increasing vacancies reaching historic proportions here – resulting in liquidations and bankruptcies of major and minor retailers and developers – some solvent behemoths on both sides of the negotiating table are focusing on offshore, more fertile ground for new development and expansion.
China, India, Brazil, Dubai, South Korea, Russia, the Middle East, the Far East, Europe, in essence, any market or emerging/developing nation with a stable government, growing population and prosperity, whose welcoming arms offer joint ventures and attractive financing, are attracting North American landlords and tenants.
Why There Instead Of Here?
Why there instead of here? The easy responses are the clichÃ©s and platitudes that have become over-used in relation to the industry domestically: We've reached saturation. Over-building has resulted in duplication of goods and services. The internet has made it too easy to shop based on price, or made the shopping center redundant. Too much competition has destroyed opportunities for future growth. New developments face extensive public opposition, litigation, and excessive time and costs due to requirements for numerous layers of governmental approvals. Etc., etc. Sad to say, there's more than a kernel of truth in much of this.
But the potential elsewhere? One report says more than 100 malls encompassing 30 million sq. ft. are to be built in India by the end of 2010. Though China has a population of 1.3 billion people with most of the per capita income at the poverty level, much of its growth is centered along the coastal regions where income and population are booming and a city of 1 million people is a small town. The stock index in the last three months has jumped 64% in India, 41% in Brazil, 37% in China, 80% in Russia. The largest department store in the world may very well be in South Korea, Shinsegae Centrum City, which covers some 3, 163,000 sq. ft..
Suzanne Gardent of PBW, Czech Republic, says “shopping malls are becoming a key feature in the retail panorama. Since the fall of communism over 250 shopping centers were built in the Czech Republic, with many of them now over 100 shops – this is huge for Central and Eastern Europe.”
Even though Czechs have a relatively low income, she says, “food and drinks are cheap… they still manage to spend a lot of it [income] on fashion clothes and girls especially are increasingly wearing the same garments as other Western girls… tax system in the Czech Republic is advantageous, and GDP per capita is growing… All that brings to interest to develop more shopping centers [here].”
International Profits Are Greater
Paul Fetscher of Great American Brokerage pointed out that chain restaurants are going international mostly as joint ventures or partnerships with established companies in those countries. “At TGIF, for example, its profits internationally are greater than that of all its domestic units combined.”
In China, said John Cirillo of Strategic Market Insites, “… the construction cranes over there are not for decorative purposes (as opposed to the ones I saw rusting in place in Las Vegas).
“A strong(er) economy, emerging middle/upper class households and a thirst for western brands are a few of the drivers for U.S. retailers to look east. Younger consumers in China are not as focused on saving like their parents; much like baby boomers outspent their depression era grandparents.”
Anil Suri with Inorbit Malls Cyberabad, said “there are around 400 Malls in India and the Number is likely to go up to 1000 soon.” In Mumbai malls work “because of the population and Mumbai is finance capital. Retailers & Developers are now targeting tier II and tier III cities because the potential is immense.”
Andrew King, who manages East Europe at Aston Worldwide, points to Poland's rising economy and its stability “through European membership since 2004. [It has a] Transparent business environment with high level of international compliance,” citing “Government and EU incentives available to foreign companies for a range of business activities.”
Poland Is Highly Skilled, Educated
The population of 40 million, he says, is “highly skilled and educated, multi-lingual labour pool of over 2 million students [and] with low attrition rates.”
The reason for the push for foreign development “is simple,” according to Geok Ser Lee, International AssocAIA, RIBA, NZIA, LEED AP. “The emerging market there is as big if not larger than the US and Canada now and is growing exponentially as their purchasing grow[s] in tandem with high economic growth… .the population of China's middle class alone is the size of the US and is largely virgin territory with unsatisfied demands, high saving rate, well informed by global standard… They may represent a minute percentage of their total population but is a huge market in absolute term[s]… “
“The two main drivers for international expansion [from the retailer point of view],” said Thomas Naslund, strategic commercial advisor at Longship RE, are retaliation and brand upgrade. “… you need to fight your competitors on their own turf in order to make sure that your competitor can't make excessive profits on their home market. Money that could be used against you on your own home market.” He cites “the Inditex (Zara)-H&M-fight in Spain and Sweden” as examples.
Also, Naslund states, “Most brands tend to go pricey when they cross borders. This brand upgrade would/could have a positive effect in your home market as well.” An example is the sticker many fashion retailers place on store fronts indicating stores in fashion cities “giving higher status to the shopper… “
“The companies are not so complicated,” according to consultant Marco Federico Del Ponte. “If their domestic results in the last year don’t register a growth, the only way to hope in better results is to invest and plan expansion in new markets. An example? Abercrombie! They are planning new european openings, but in US they are in stand-by.
“And it is the same for european companies/retailers,infact they are investing a lot in asian markets but not at home.”
Hazards, Dangers On Horizon
The push to expand offshore, though, is replete with many dangers, experienced dealmakers stress.
Said Lee: “However, it is not a bed of roses and only those who are serious about helping [China] grow and plug into the global grid are rewarded handsomely.” Many have been successful, others have been harmed. “Simplistically speaking, half hearted attempts through sending in their second liners or pinching pennies when recruiting staff to lead their foray into these markets are the primary causes of their failures.”
“While demand is great [in China],” said Cirillo, “retailers need to be aware that Chinese consumers are sophisticated. U.S. firms that go over there resting on their brand awareness laurels will be in for disappointing sales.
“Many market sectors in first tier (Shanghai) and second tier (Hangzhou) cities are already over-stored… and some centers in working class trade areas have a much too upscale tenant mix.”
Joseph Wan, chief executive of London-based Harvey Nichols, is expanding through local partners in the Middle East, Russia and South America, but is avoiding Mainland China. He says 80% of the population is at the poverty level. “Leave the coastal regions and go inland and you'll see very primitive conditions, with people struggling for access to electricity and hot water.” In the cities, rents are too high, though “mono-brands are doing well because they charge high margins and can absorb the high rents.”
This concern of areas being over-stored, was echoed by Suri regarding India, “especially in Mumbai there are too many malls and has reached a saturation point… Major real estate companies which were in residential and commercial development have stepped in mall business and a lot of local companies too… We will see a boom till 2012 and then consolidation will happen… “
Domestically, The Future Is Good
“Once the economy rebounds and the industry in the US and Canada recovers,” said one noted shopping center executive, “tenants and landlords have a bright future here. All the guidelines and economic signposts are positive.
“Leading foreign retailers are already seeking locations in our major cities and surrounding markets, especially now when rents are low and there is a push on to diversify the tenant lists in the higher-end markets,” he said.
“With an ever-growing domestic population in North America being forecasted by the census bureau and numerous think tanks – much of course do to second generation citizens reaching maturity and entering the workforce – a strong shopping center/retail industry must grow to meet their demand for goods and services.”
More information on Shopping Center Digest and our associate publications, Expanding Retailers and the Directory of Major Malls, may be obtained from our website, www.shoppingcenters.com.
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.