Special Report: Are Older Shoppers Getting Enough Respect?
Paul Rosta / Commercial Property Executive
In January, Kimco Realty Corp. bought Bell Camino, a 63,000-square-foot grocery-anchored shopping center in Sun City, Ariz., one of two neighborhood centers the retail REIT acquired in the Southwest that month. Kimco prefers well-located properties with attractive fundamentals in major metropolitan areas, often with potential upside, and Bell Camino is no exception. Located some 15 miles north of Phoenix, the center was about 95 percent occupied at the time of the transaction, offering a CVS drugstore as an anchor and a population of 87,000 within a three-mile radius. One other element caught Kimco’s attention: Sun City is one of the nation’s first master-planned retirement communities.
Like all sophisticated retail real estate investors, Kimco weighs a complex set of demographic and economic factors in its strategy. Conventional wisdom has it that retailers primarily covet shoppers in their twenties, thirties and forties. There is an element of truth in the assumption that those age groups, especially those at the younger end of the spectrum, are the most energetic shoppers and the most open to developing brand loyalty. According to the U.S. Bureau of Labor Statistics, shoppers age 55 and under spent $3.8 trillion for retail items in 2010, accounting for 66 percent of retail expenditures in 2010, the most recent year for which the bureau has figures. By contrast, only 34 percent of retail spending—$2 billion—could be credited to the 55-and-older set.
But those figures tell only part of the story. “Marketers often focus on younger adult consumers due to sheer strength in number of consumers, but pound for pound, older consumer segments still hold the most spending power,” explained Gregory Fisher, senior data analyst for The Nielsen Co. The research and consulting company is CPE’s partner in a series of special reports on the confluence of demographics, economic trends and retail real estate.
This year’s report found that, although younger age groups do most of the spending in aggregate, older adults generate far more bang for the buck. Shoppers age 55 and younger spent an average of $16,518 per capita in 2010. But the average expenditures by those 55 and older was 57 percent more, at $25,952. Moreover, incomes in several of the upper age brackets are likely to grow faster than those of younger generations. During the next five years, average incomes will grow 4.3 percent among those 55 to 64, 4.8 percent for people 65 to 74 and 4.3 percent in the 75-to-84 group, according to Nielsen Co. projections. On the face of it, this may come as a surprise to those who assume that Americans simply get out of the habit of spending once they hit 50. But this runs counter to the fact that Baby Boomers who are nearing retirement are at the peak of their earning years and are also accustomed to spending on various categories of creature comforts.
“The key in (this) research is that the more senior, more mature residents are more affluent and have more disposable income,” noted Scott Onufrey, Kimco senior vice president & managing director of investment management. The shopping habits of older Baby Boomers will take on added interest in the next few years because of a generation gap. Online shopping makes up a small but growing proportion of overall retail, and it will grow fastest among shoppers in their twenties and thirties, argued Jeff Green, a Phoenix-based retail real estate consultant. Many younger consumers treat shopping centers like showcases where they can go for a close-up view of merchandise before going home and making their purchases online.
While many Baby Boomers are embracing technology, shoppers in their late forties, fifties and sixties often prefer to shop in person. “There’s more of a need to touch and feel the product, because that’s the way (they’ve) shopped all their lives,” Green explained. In an effort to shed new light on how older Baby Boomers should figure into leasing, investment and development decisions, the Nielsen Co. analyzed a variety of demographic and economic factors.
Fisher began by identifying counties where density and volume of Baby Boomers is greatest. That translates into locations where those age brackets are larger than the national averages of 18,000 and 18 percent of the population. He then looked for counties where retail spending is also growing faster than the average national rate of 6.4 percent annually. It is difficult, if not impossible, to directly tie a given age group to a specific percentage of retail spending growth. But Fisher surmised that if retail expenditures are growing unusually fast where a high proportion of older Baby Boomers and seniors live, those consumers must be doing a lot of the spending.
That effort turned up 68 counties (out of the more than 3,100 nationwide) where those factors aligned most strongly. The initial expectation was that the findings would lean heavily toward the Sun Belt states, many of which are not only fast growing but considered magnets for people of retirement age or nearing it. Indeed, Florida alone accounts for 18 of the top 68 counties with fast-growing retail markets and a large proportion of seniors. But the research also revealed that the South and Southwest have no monopoly. “Surprisingly, Pennsylvania ranks second, with seven counties from the list of 68,” Fisher pointed out.
In fact, four counties are located in metropolitan Pittsburgh, the most of any market. And the roster of states with three or more counties that fi t the criteria extends from coast to coast: California (five counties), North Carolina (five), Oregon (four), Arizona (three), Ohio (three), South Carolina (three) and Tennessee (three). Massachusetts, Rhode Island, New Jersey, Texas and Washington have two counties apiece.
Patterns related to demand also emerged. The top 68 counties demonstrate retail spend- ing that is double the national average in 20 categories. The top 10:
1. Health/personal care
2. Building equipment/garden supplies
3. Home centers
4. Lawn/garden equipment
5. Nurseries/garden centers
9. Household appliances
10. Other home furnishings
To further explore the relationship between affluent markets with a high proportion of seniors and potential development and investment opportunities, Fisher looked at the retail inventory in each of the top 68 markets. He compared the gross leasable area and retail centers per capita with the national median, and developed an index. Counties with a lower-than-average GLA for their population size include Douglas, Ore.; Carteret, N.C.; Clallam, Wash.; and Newport, R.I.
“The analysis highlights areas where the valuable Baby Boomer population may be underserved in terms of GLA and shopping centers,” Fisher said. “If Baby Boomers spend over twice as many retail dollars on health and personal care as the average American, for example, placing drugstores in these counties could provide some easy wins.” The analysis can also provide guidance on tailoring a center’s tenant mix to the market, he added.
Some experts suggest that the findings have implications beyond the top 68 counties. “If you’re going to be developing in Fort Myers, Fla., you’re going to be considering that demographic,” explained Bob O’Brien, head of U.S. real estate services for Deloitte. As O’Brien sees it, the question is: “Are there other … retail development or redevelopment opportunities that haven’t been taking advantage of that demographic?”
Another group of counties in the high-senior, high-spending-growth categories showed above-average retail inventories, including Baldwin, Ala.; Beaufort, S.C.; Santa Fe, N.M.; and El Dorado, Calif. With retailers and investors mindful of the strong seniors market, properties in these counties might be better candidates for retenanting than for the addition of new retail stock. And if the high retail inventory suggests barriers to entry, properties that currently offer good performance or a strong upside may be attractive to investors.
Kimco’s Scott Onufrey cautioned against relying exclusively on the index for investment or leasing decisions, but he agreed that the findings are provocative and suggest avenues for further research.
And Green said that retail real estate strategy must do better in factoring in the loyalty of aging Baby Boomers to shopping in person. “The implication in terms of existing assets is that in older communities, it’s going to be important to bring certain aspects of their lives into the retail setting.”
He pointed to pioneering examples like 100 Oaks Mall in Nashville, Tenn. The year after buying the fading 850,000-square-foot property in 2006, ATR Associates leased 436,524 square feet to Vanderbilt University Medical Center. That sparked a comeback that brought the center’s occupancy to 99 percent.
After a harrowing recession, retail players are likely even more cautious than usual. As Green pointed out, “Nobody wants to pull the trigger first.” When they do, giving the needs, shopping habits and spending power of affluent Baby Boomers their due will be essential to success. “I think the centers are finally going to understand that the more uses you put into your retail property, the more reasons you give for people to come more often.”