Retail sector and a changing market

For the past several months, the slowdown of residential sales has dominated headlines of newspapers, nightly news reports and political debates. The
effect of this slowdown on the economy
ranges from moderate to severe depending
on whom and where you ask. Experts’
answers and explanations are varied as
they try to predict the impact on the economy from both a macro perspective and its
effect on the average family.

“One sector that is impacted by residential activity is the retail market — globally,
since goods are primarily imported from
China and other countries, down to the
locallevel where spending habits change,”
says David Conn, a retail specialist with CB
Richard Ellis in Tampa.

Smart Business talked with Conn for his
insight about the retail sector, its response
to current market conditions and how the
industry plans to serve changing consumer
demographics.

What is the current effect of the slowdown in
the housing market on retail?

After a period of significant growth, the
downturn in housing came very quickly, so
we are just starting to see the effects as
third quarter results are reported. It appears
that most retailers are experiencing or
expect a decline in recent same store sales.
A major portion can be attributed to the
drop in housing activity. Purchases normally associated with setting up a new residence have obviously been the most
affected.

However, there are a number of other factors contributing to declining sales at other
retailers. These include high real estate
taxes, rising insurance premiums and rising
fuel prices. These all put pressure on disposable income. A drop in consumer confidence is also often cited by experts. Despite
the negative news and disappointing third
quarter sales, many retailers are still predicting anywhere from moderate drops in
sales to moderate gains in same store sales
for the holiday season.

How does the retail sector address such
forces in play?

In those markets where residential activity has slowed dramatically, retail developments may get delayed, scaled back or even
cancelled if retailers can’t get comfortable
with sales projections. Fortunately for
those of us living in Florida, most retailers
continue to believe in Florida as a growth
market and see the housing slowdown as a
temporary event. However, there are other
influences that affect retail sales. Two such
influences include an increasingly diverse
consumer market and opening new stores.
Products and fashions have relatively short
life cycles, so buying decisions, product
placement and competitive pricing are critical in the face of increasingly compressed
life cycles.

At the same time, retail developers face
increasingly longer time-lines when developing new centers due to a variety of factors. These challenges include finding
affordable land, increasing construction
costs, impact fees and increasing opposition from homeowners, and lengthy and
expensive entitlement processes. These
challenges make it harder for retailers to quantify their expansion plans and deliver
new stores as promised to Wall Street.

What are some of the major changes you
have seen from the shopping center environment itself?

Probably the most evident is the physical
changes in shopping centers themselves.
The total redevelopment of Clearwater Mall
five years ago transformed a nonperforming, older enclosed mall into a vibrant new
outdoor center and is an example of the
new generation of shopping centers. These
centers are anchored by discount department stores, such as Target, as well as specialty anchors, like Bed Bath & Beyond,
The Sports Authority and Staples, each
with a unique offering to customers in a setting that allows for convenient parking. In
some cases, these centers combine lifestyle
retailers, such as Chico’s, Coldwater Creek
and Talbot’s that were once found inside
regional malls, but now prefer the convenience and lower occupancy costs of outdoor centers. Even successful regional
malls are adding outdoor expansion areas
that typically include restaurants and non-typical mall anchors to draw shoppers that
might otherwise bypass the mall.

What is the impact of online shopping?

Without question, online shopping continues to grow as consumers seek convenience and ways to save time. In addition,
the young people of today are very computer-savvy and use the Internet in almost
every facet of their daily lives. That said,
there are some limitations, since you cannot touch or feel items. A picture and text
of an item is not always adequate. Now
retailers are complementing their physical
stores with an online store, so they can
reach customers 24 hours a day. It really is
the best of both worlds.

DAVID CONN is a retail specialist and executive vice president
with CB Richard Ellis in Tampa. Reach him at (813) 273-8440 or
[email protected].