Retail sector and a changing market Featured

7:00pm EDT November 25, 2007

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 david.conn@cbre.com.