This is the topic of the Strolling the Agora column in the March 8th, 2010 issue of SHOPPING CENTER DIGEST
It is no big secret that a good portion of the shopping center/retail industry has been focusing on the Battle of Behemoths, the almost daily updates, twists and turns involving efforts by Simon Property Group to acquire General Growth Properties – and the new players taking or rumored to be taking a role in the process.
And this is so for many – retailers, landlords, brokers, and numerous others–who may never had made a deal, or may never make one, with any of the principal parties.
But an interesting point is that there isn't more “buzz” going on concerning other subjects that may have much more long-term impact on “our thing” than whether a single landlord will dominate in one segment or market. These are the growing trends by many retailers to reduce the size of their individual stores, and others to trade on convenience and access by offering more food to consumers, and the blurring of lines separating specific retail categories or brands.
Let's touch on the more prominent. Wal-Mart will be opening this year 35-40 supercentres across Canada, and each will be about 10% smaller than its normal footprint, roughly down to 175,000 sq. ft. It is also experimenting with smaller Marketside units in the Phoenix area stressing fresh produce and other foods.
Perhaps the most important retail category in every segment is the supermarket, since “we all have to eat.” Trader Joe's has built its impressive reputation and profits on branded, high-profit groceries and merchandise in units of only about 10,000 sq. ft. Tesco is refining its similar “smaller is better” approach in the West with Fresh & Easy, more variety in a similar-sized footprint. And giant Safeway is now testing this concept in California. This experiment is not always successful, as Super Valu discontinued its Chicago test.
Others like 7-11 and Walgreen's are also adding more fresh foods and ready-to-eat meals in their stores. Family Dollar, one of the leading discounters, is adjusting its merchandise mix, adding about 200 food items and reducing the amount of space for appliances and home categories. Big Lots, another leading discounter, has recently opened a handful of smaller-sized units.
Non-Foods Creeping In
And non-foods is creeping into established supermarkets: RE/MAX opening small real estate offices in Stop & Shop supermarkets in New England; AAA opening AAA Express stores in Lucky supermarkets in California selling car insurance, road-trip planning, passport photos, with others due in Nevada and Utah.
Apple and its 500 store-within-stores deal with Best Buy; Best Buy and its Mobile stand-alone units or as a section within a larger store; Adidas and the National Basketball Association opening 69 shops within Champion Sports; the co-branding of many fast-food operators: Taco Bell and Pizza Hut, Cinnabon and Popeye's Chicken, Dunkin' Donuts and Baskin-Robbins, Church's Chicken in Atlanta teaming up with gas stations, and on and on.
The concept of stores-within-stores and/or leased departments are not at all new. It has been a standby at many top department stores which have been offering designer-label shops across the country for years, whether Liz Claiborne or Prada and other luxury labels. In these anchors, there is no clause in a lease or reciprocal easement agreement (REA) that precludes the retailer from doing this. With numerous other merchants, some in a specific retail category – shoes, women's or men's apparel – it is traditional and they have also been doing this for years.
Where the use clause in a lease becomes questionable is the amount of space in a store set aside for another type of merchandise – and whether the landlord decides it's important enough to try to enforce these guidelines. With high vacancies in many shopping centers, even if another tenant were to complain, it is unlikely that action would be taken; another example of looking the other way is enforcement of radius restrictions.
Some years back, many chains decided if they increased the size of their outlets they could become a destination store and provide one-stop shopping for the consumer, or in one type of merchandise a big box or a category killer. For a while, this was the way to go.
Why Small Is Better
Now, with the recession still casting a depressing pall over much of the industry, smaller stores are cheaper to operate – less rent, less staff, require less power, less CAM charges – and produce higher sales per sq. ft. If the retailer has more space than he really needs, he can turn it into a profit center by subdividing it or renting it out to another operator.
To the landlord, though it's an advantage on one hand to lease 25% or 30% of available space to a single user; if it were 20%, he could add another small tenant or two, maybe a Mom and Pop, have less risk of substantial vacancies if the anchor goes dark, and get higher rents. To the broker, he may have to work harder to lease all the space to more users, but his commissions will also be greater. To other tenants in the project, greater variety may help the center fend off competition and avoid becoming obsolete.
It's a win, win all around
This industry has always prided itself on its flexibility, on its ability to react to changing conditions in the marketplace, to constantly adapt. It's attitude when faced with a challenge: “Oh yeah, I can do that.”
Though I'm not discounting the impact of one landlord being so much larger than its competitors, or being able to export malls around the globe, these trends may resonate greater across the industry domestically.
Further information on Shopping
Center Digest, our weekly Eflash, Expanding Retailers,
and the annual 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.