2009: Retailers And Consumer Behavior
An interview with retail expert Jeff Green yields light on changing consumer behavior and hot retailers are reacting to the market.
With the uncertainty in the retail marketplace, all shopping center owners are keeping an eye on retail sales. In January, retail sales were up 1 percent, but many retailers are still reporting downward trending sales. To get a take on the market, Shopping Center Business interviewed Jeff Green, president of retail consultancy Jeff Green Partners, in early February just after January sales results were released.
SCB: In the past week, a lot of sales figures have been released by retailers. The overall result is up, but there are categories that are up and those that are down. One that is up is teen apparel.
Green: That is a fickle category. You either hit it or you don’t hit with each merchandising season. Even when times are good, a retailer might be hot one quarter and off the next. Among the apparel categories, teen apparel is doing the best. It’s the woman who is not shopping for herself anymore. Women’s apparel is the category I’m most concerned with throughout the entire retail spectrum.
SCB: That is the one area with a lot of problems right now. Liz Claiborne, Ann Taylor and Talbots, and a number of other players in this category have announced store closings or scaled back openings, as well as experienced significant downward sales trends.
Green: It’s back to what I said: the woman is not spending money on herself right now. There is also some substantial overstoring in that category. In some cases, those retailers have cannibalized their existing stores by locating newer stores too close to existing ones.
SCB: What are some of the buying trends you are seeing out there among women?
Green: Women will shop for their children. They won’t shop for the home right now and they won’t shop for themselves. In general, people are not spending money on much these days. They are buying the necessities. They are spending less in restaurants and more on food at home. The supermarket segment is holding up surprisingly well.
SCB: What retailers are doing well in the economic downturn?
Green: You have some great chains within categories that are holding their own. In terms of retail categories, they are almost all down except discount stores. Even within that category, you have Wal-Mart stronger than others. Among warehouse clubs, BJ’s Wholesale is seeing sales increases when Costco has not. You have your winners within every category.
SCB: What is the trend among restaurants?
Green: All restaurants are in a downturn now. Nobody wants to spend money at a restaurant, or they can’t afford to take their family out. The only category within restaurants that is doing well is fast food.
SCB: In every store you go in now, everything is marked down. Is this going to have a widespread effect on the retail industry? Are we retraining the consumer?
Green: It already is changing consumer behavior. The department stores have taught us to shop for value and that is going to have a negative effect. They have been trying to compete with the discounters, but it is even a deeper discount than that. This Thanksgiving, you started to see huge discounts. I think they had a fear of getting caught with a lot of merchandise. It will be very difficult for the department stores to recover from this — how are they going to teach people to shop at full price again?
SCB: How about luxury department stores?
Green: They have been affected. A year ago, I was one of the people who said they wouldn’t be as affected in an economic downturn, but I was wrong. There are two things going on: people don’t have the money to shop luxury and their shopping habits are changing downward. Look at Saks Fifth Avenue, Neiman Marcus, and to a lesser extent Nordstrom. They have been hit hard. They are now discounting to get people in the door. I’m not sure what they’re going to do to get out of this situation. They are retraining their customer to expect a value, which they never had to do before.
SCB: What do shopping center owners have to say about this?
Green: I always hear a strange comment from developers who have an underperforming luxury department store at their center. They say, ‘My Nordstrom, for example isn’t merchandised like a typical Nordstrom; they don’t put their best items here.’ That’s just not the case. Certainly each department store micro-merchandises based on demographics and lifestyles (or psychographics), but there’s no huge shift from store to store.
SCB: Do you think a lot of this fire-sale mentality comes from the recession of the early 1990s? That’s when it seemed to start with the department stores.
Green: They did become very promotional during that time. And, as consumers, we’ve expected that for a number of years. But the shock, to me, is how deep the discounts have gone. I have found clothes at Macy’s for 70 and 80 percent off.
SCB: How are you observing consumers, other than by watching data?
Green: I go to the malls and lifestyle centers frequently. On the day after Christmas, for example, I went to observe behavior. People were crawling all over the sale racks. That’s the only area that had any activity. So, what happens when the new spring merchandise comes out and the department stores are not discounting it? People will shop even less when new merchandise comes out unless stores discount it from the start, and I don’t think retailers will be willing to do that. I see a continuation of this behavior. Who is going to survive this? Especially among the department stores, this is certainly a scary situation.
SCB: What does a developer do with stores that aren’t performing well? If you were the owner of a lifestyle center right now, would you be afraid?
Green: It depends on the lifestyle center I had and my history. If I have a history of having strong shopping patterns, like at Deer Park Town Center in suburban Chicago, I would not be afraid. If I had a center that was a combination of being a destination and of convenience — the destination will expand the trade area and the convenience will bring regular traffic — I would not be afraid. Also, if people are coming for other reasons: they’re staying at a hotel there, or they work in an office building nearby, I wouldn’t be afraid. One of my current projects is to develop a new definition for lifestyle centers. That term is too broad and it has been overused.
SCB: Let me rephrase that then: if you are the owner of a lifestyle center that has a heavy emphasis on women’s retailers, should you be worried?
Green: Yes, because the underperforming retailers will be back to renegotiate the leases of their stores. Developers have to be proactive. These retailers are sitting back and looking at where to close stores. The questions are: 1) how many stores and 2) which ones? If a developer is proactive and renegotiates the lease, his will be off the chopping block and will probably see increased sales once the store a few miles away is closed instead. As a developer, you don’t know where your stores fall in the scheme of the retailer’s market presence. To hedge your bets, you should be out there renegotiating.
SCB: The developer may lose a lot of money by renegotiating all those leases.
Green: The developer will lose a lot of money, but it will lose even more money if it has a lot of vacancy it can’t fill.
SCB: What about power centers?
Green: One of the biggest concerns I have is with big box vacancy. Are their retailers to fill those? There are no tenants. You have a 30,000-square-foot box. You can’t fill it with a replacement tenant and you can’t fill it with two 15,000-square-foot tenants because the frontage isn’t wide enough.
SCB: The other problem is the radius clause restrictions that the big boxes put into their leases.
Green: There are few big box chains that are expanding, and there are no new categories. The only one I know that’s taking some of the vacant big box space are food users like Sprouts. Unfortunately, with box space, you can’t expand it most of the time and you can’t downsize it too much.
SCB: Are there bright spots in the industry?
Green: One bright spot is the number of people out there who want to acquire shopping centers. Three things are holding them up: timing, pricing and capital. When is the optimal time to acquire? Can they secure capital? For some, this isn’t a problem because they have a lot of equity. For them, the issue is timing. They’re waiting for the prices to drop. They’re waiting for properties to be taken by the bank. I hear it from my clients all the time. They have assets already targeted for potential acquisition. They just want to be ready for it when the time is right.
SCB: Among shopping center types, what do you see positive?
Green: The one that’s sitting the prettiest is still the neighborhood shopping center. You still have to go there every week to get groceries. Actually, you are going more because you’re eating at home more than you used to. That should remain strong.