SAN DIEGO — Slower and smaller are the watchwords for retailers that are reevaluating their real estate options.
Even before the financial crisis went into overdrive, the caution signs were firmly in place. That was clear this month during the International Council of Shopping Centers’ three-day Western Division Conference and Deal Making.
“From Target’s perspective, we have certainly been surprised by how quickly the economy has changed,” said Brian Treber, senior real estate manager for Target Corp. “Today, our strategy is much more conservative….We are able to take a deep breath [and] a little more time to make a thoughtful decision.”
Treber spoke at a panel discussion titled “The Perfect Storm.” Joining him was Kevin Sendry, a real estate manager at J.C. Penney Co. Inc., and Colby Tanner, a real estate planner at Wal-Mart Stores Inc.
“In tough economic times like this [when] sales are down, you’ve got to look at all aspects of your business,” said Sendry, who pointed out that Penney’s has pulled back from a proposal to add 250 units by 2011. He noted the retailer, which has 1,083 stores, expects to open 35 this year and 20 next year. Penney’s is cutting 2009 capital expenditures to $650 million from $1 billion.
At Wal-Mart, Tanner said, “We are being very, very cautious with which deals we are going to make.”
When retailers do move forward with stores, the panelists suggested smarter choices are being made. In one example, Treber explained that two to three years ago Target was placing stores in neighborhoods where it anticipated population growth, but now the company requires an established population base. He continued that, in successful markets, the retailer can adapt to previously unworkable real estate layouts by integrating underground parking, for instance.
Sendry highlighted Penney’s drive to attract shoppers by upgrading its merchandise with Sephora shops-in-shops and exclusive brands, including Ambrielle Lingerie and American Living produced by Polo Ralph Lauren Corp. Those initiatives are being incorporated into the new, freestanding, roughly 104,000-square-foot store prototype — compared with as much as 165,000 square feet for a conventional unit — that’s being introduced on the West Coast, where the fourth such store in California is slated to open next month in Manteca. “This is our tribute to Target,” joked Sendry while showing a store rendering.
Tanner stressed that Wal-Mart is being flexible with the amount of square footage it needs and is concentrating heavily on smaller footprints. He singled out the Wal-Mart Neighbor Market concept, which runs from 10,000 to 12,000 square feet and is being tested in the West in the Phoenix area, and indicated that Wal-Mart is more likely to consider 90,000-square-foot spaces for Supercenters, which traditionally range from 98,000 to 261,000 square feet. “We can generate as much sales, as much profit, from a smaller” store, Tanner said.
No matter the store format, the panelists said retailers are zeroing in on expenses. “We are much more focused today on operational costs,” Treber said. Sendry had this plea for city governments: “Waive your fees.” Treber seconded the request, saying, “I am not sure many cities realize how much they are negatively impacting retailers.”
In California, the planning process is further complicated by the California Environmental Quality Act, which requires a retailer to reveal the impact of new stores. Tanner criticized the measure for allowing opponents to stymie projects at every turn and stalling development. “Because it takes so long to get a project done in California, it almost makes it impossible to do,” he said.
The panelists were not entirely gloomy, however. One bright spot in the storm, they agreed, is declining land prices. “The downward impact on land prices is actually welcome,” Treber said. Added Tanner of the cost of land, “I think it is going to continue to go down.”
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