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The boom times have passed for many Florida retailers, who face daunting challenges — from hurricanes to a steep housing slump.
“The Florida market was one of the hottest, so the wilder the party, the worse the hangover,” said Per Berglund, senior economist at Moody’s Economy.com, noting that Florida and California have had the most dramatic declines in real estate. “These problems will continue to trickle down to retailers into 2008, which will be a tough year.”
Retailers, who are also beset by rising insurance rates and property taxes as well as lackluster consumer spending, range from Stein Mart, with 46 stores in the Sunshine State, to Dolores Vaccarelli, the owner of a single boutique.
“Florida continues to be difficult, with a sales decline relative to the rest of the country,” said Michael Fisher, who departed in August as chief executive officer of Jacksonville-based Stein Mart, which has a total of 271 stores in 30 states. “While the company’s comparable-store sales have declined between 1 and 2 percent per quarter in 2007, the decline in Florida’s comparable-store sales has been triple that.”
After four years of solid growth, Vaccarelli, owner of LaModa Boutique, a better-to-bridge women’s specialty store in Satellite Beach, noticed a downturn in October 2006, and sales have fallen 20 percent since then.
“Real estate is huge, and trickles down,” said Vaccarelli, also a principal with Vaccarelli & Assoc., a contemporary wholesale showroom at AmericasMart in Atlanta. “Florida is overdeveloped…so now everybody from mortgage brokers to construction workers and real estate agents are feeling it.”
The slump in Florida home sales began in mid-2005 and has continued with monthly year-over-year declines in double digits — as much as 47 percent in some areas, according to the Florida Association of Realtors. Nationally, sales of existing homes dropped 4.3 percent in August to an annual pace of 5.5 million, which is the slowest in five years.
The Florida Association of Realtors reported existing single-family home sales in August fell 26 percent statewide compared with the same period last year, and 28 percent year-to-date. Condominium sales were down 25 percent versus a year ago, and 27 percent year-to-date. Median home prices dipped 6 percent in August, to $231,000 from $246,800 the previous year, and 4 percent for the year.
This story first appeared in the October 17, 2007 issue of WWD. Subscribe Today.
Analysts said the glut of unsold homes is greatest in affluent South Florida, including areas of West Palm Beach, Fort Lauderdale, Naples and Sarasota. Speculative buyers, who bought and “flipped” houses for quick cash, have abandoned the market. And homeowners no longer rely on getting quick cash by taking out second mortgages or home equity loans, as they did in record numbers over the past decade, Berglund said.
“When homeowners felt wealthy, they relied on home equity cash, and spent it on big-ticket items….That’s not happening now, and we believe it will affect luxury spending, as well,” he said.
In addition, the long-term effects of hurricanes — and the anxiety of facing new ones — is a constant. Hurricane Katrina in 2005 and four hurricanes in 2004 caused a combined $45 billion in damages and sent property taxes and insurance rates on a fast-rising spiral.
Retailers are still struggling with weather-related losses and increased costs. Bealls Inc., a Bradenton-based chain with 72 full-line moderate-to-better department stores in Florida, closed four stores and lost 120 business days and an estimated $10 million because of hurricanes in 2004.
This year, Bealls put more effort into preparing for the hurricane season, such as taking extra steps to secure its building equipment, said Conrad Szymanski, president of Bealls Outlet Stores. “It’s hard to predict where hurricanes will hit in Florida,” he said. “The 2004 storms hit everywhere.”
Specialty store owners are trying to deal with higher rents and insurance costs as sales soften.
Joe Falowitz, ceo of A Nose for Clothes, a 31-year-old specialty store chain with six Florida locations and two in Georgia, said 2004’s hurricanes resulted in unrecovered losses when power failures closed all the Florida stores for as long as a week. Rents are rising 10 percent annually and insuring property now is either too expensive or almost impossible, he said.
“Not only have rates gone up…but even finding someone to insure you is a problem,” he said. Certain stores require additional insurance, and separate wind, flood and liability policies for all locations. “I dropped wind and flood insurance on the warehouse since it would have to sustain $100,000 in damage to break even. The rates are that absurd.”
In the past two years, retail rents rose 10 percent a year, up from 3 to 5 percent previously. Affluent snowbirds and locals still shop the Aventura and Boca Raton units of A Nose for Clothes, but annual sales are flat or only slightly up, compared with robust sales five years ago, Falowitz said, adding that better margins through sharper buying, planning and selling is crucial to staying afloat.
To be sure, in some areas, such as Miami Beach, tourists continue to propel sales higher.
At Bal Harbour Shoppes, north of Miami Beach, 50 to 60 percent of business is generated by tourists. Anchored by Saks Fifth Avenue and Neiman Marcus, with Chanel, Gucci, Prada and a Who’s Who list of luxury specialty stores, Bal Harbour sales through August were up 19.7 compared with a year ago, and are running at $1,829 a square foot, said Matthew Whitman-Lazenby, general partner and director of leasing.
“Tourism is the largest contributing factor,” he said. “The 2004 hurricanes were a hiccup in business, and we haven’t seen a downturn related to real estate, but we have South American and European tourists and wealthy New Yorkers.”
But analysts said Bal Harbour’s success doesn’t extend to all South Florida retailers.
“Bal Harbour is a unique enterprise, but other South Florida luxury developments, with a few exceptions, such as Aventura mall in North Miami, are not doing well,” said Herbert Leeds, president of Leeds Business Counseling Inc., a Miami-based consulting firm. “The Eighties and Nineties infatuation with glitz here wasn’t realistic.”
Leeds said Florida has a “high percentage of the population that is affluent — the most self-indulgent anywhere — and also the opposite, low income levels, and very little in between, and is not supportive of retailers that support middle-to-lower incomes.”
The emphasis on affluence, and the high cost of living in South Florida, has priced all but the wealthiest consumers out of the housing market and has made it less attractive to middle-class retirees, experts said.
“We’re seeing the beginning of a shift,” said Jeff Humphreys, director of the Selig Center for Economic Growth at the Terry College of Business at the University of Georgia. “Affordability in Florida is becoming an issue. The cost of living is high, insurance tripled and property taxes are soaring. People are starting to reassess cost and risk.”
Humphreys said the trend wasn’t reflected in 2006 census figures, taken before the current problems had time to evolve. Florida’s population of about 17.4 million increased 13.2 percent from 2000 to 2006. But recent indicators show outbound moves from Florida exceeding inbound moves, which dropped 22 percent last year, according to United Van Lines.
At The Condo Store, a retail division of Coldwell Banker in Atlanta, 33 percent of new home buyers ages 55 and older in 2005 and 2006 came from Florida, said Leslie Johnson, vice president of business development, who cited “insurance and hurricanes,” as the reasons those Boomers listed for relocating.
And, of course, the threat of future storms adds to the anxiety for the state’s residents.
“Hurricanes are just the last straw,” said James Cobb, a history professor at the University of Georgia. “The image of Florida, from the Sixties and Seventies, as inviting, is from a bygone day. Florida has become the worst example of overdevelopment and other problems that are causing people to consider more stable environments.”