March 30, 2009
The New Era of Retail Economics
By BILL FALLON
Johnny Rockets wants into Mount Kisco Square Shopping Center and the national restaurant chain isn’t waiting for any green light from the powers that be to join eight other retailers there, including Sears Home Appliances that came in November. The Americana-themed eatery signed on the dotted line March 16.
In other shopping centers, the picture is murkier.
Retailers now more so than any of their predecessors, survey a future as unknowable as the High Plains were to the Pilgrims.
How that future plays out and when the good times will return have leapt too quickly from academic consideration to playing out in real time. Among the unknowns are camaraderie in the shopping equation and whether the need to socialize while shopping with friends will trump the desire to save a buck online. It’s a consideration no one has ever had to consider before; during the last cyclical recession of the early ’90s, “online” was a vague noun associated with manufacturing.
For now, the retail contraction nationally is “a train wreck,” according to Howard Davidowitz, chairman of Howard Davidowitz and Associates, a New York City-based investment banking and retail analysis firm. “You had 220,000 stores close in the last year.”
But don’t junk the cash register just yet. The picture in North Las Vegas and Tucson grabs headlines. The regional picture is more nuanced. Some cash registers are jingling and SUVs still jockey furiously the length of Central Park Avenue racing in and out of the lots on either side of the street.
Other stores have shuttered. The Circuit City marquee at Cross County Shopping Center in Yonkers has been stripped of its overlays, revealing the circuits beneath as was never intended. Ditto for the one along Route 9 in Poughkeepsie. As for the 33,000 square feet left vacant in Norwalk, Conn., P.C. Richard & Son will take it over in early summer.
Countering Davidowitz’s train wreck is the assessment of Jonathan Gordon, who sees “hope for optimism.”
Gordon, principal with Admiral Real Estate Services Corp. in Bronxville and who handles retail leasing for 60 percent of the village as well as for Mount Kisco Square, said, “This is a perfect storm. As a country, we have been overly exuberant. We’ve been on a 10-year spending spree and now the credit markets have seized.” He added: “I’m not saying anything that is not being said on MSNBC or CNN when they talk about these things.
“The new emphasis on savings is further hurting retail, just as the absence of savings in the past helped retail,” he said. “Is retail dead? Of course not. People like to shop. They like to touch things with their hands and they like shopping as an activity. They like to eat out while they shop.
“The Web will impact the malls,” Gordon said, “but in Westchester and Fairfield counties – which are in the same boat as far as having the same retail demographics – the shopping boulevards will attract the lunch crowd and they will want to shop and enjoy the activity of shopping.
“The owners and developers know they need to get shoppers,” Gordon said. “They’re working to get the sort of dynamic company that will bring in others.” He cited a children’s activity center as just such a sought-after company, with parents spilling into neighboring businesses while their children master the jungle gym. “They’re looking for synergy,” he said of attracting the right store to the right slot with the right neighbors. “I believe in it.”
In retail, as at Disneyworld, it’s a small world. “Westchester and Fairfield counties have microprovences; some have low vacancies and have been hit less or have retail momentum going for them,” Gordon said. “Surprisingly, Greenwich is seeing some vacancies, which could be related to all the hedge fund activity there.
“Some of the more health-conscious stores are holding their own,” he said. “Cosmetic procedures are down, but the quick fixes like Botox are up. The retailers who can tap into making people feel and look better for not a lot of money are the people who are going to capitalize on this market.”
As for the future: “We hope the good weather brings optimism. We just closed in Dobbs Ferry on a chain of high-end wireless phone stores and with Johnny Rockets in Mount Kisco.”
Stephen Bull, president of the Greater Danbury (Conn.) Chamber of Commerce remains bullish on retail there.
“Obviously we’re not immune to the national trends when it pertains to retail,” Bull said. “Some retailers closed, but if you were to have talked to them before they shut their doors, their facility in Danbury was doing pretty well. It was a national decision to close Circuit City, but there is no doubt that their closures will be filled relatively quickly.
“We’re a destination for many reasons: the crossroads of Westchester and Putnam counties,” Bull said.
Davidowitz’ national retail radar shows the financial sector, automobile manufacture and sales and residential home sales at “a complete collapse at every level. Commercial real estate and the credit card industry are the next shoes to drop.”
Davidowitz cited a familiar list of big retailers that have tanked or are tanking. “There are thousands of jewelry stores alone that have gone out of business,” he said. “The department stores are in terrible shape. It’s an absolute debacle. We have gone from 3.5 percent GDP growth to negative 6 percent in a very short time.
“Who’s winning? Family Dollar, 99-Cent Stores, Walmart. Casual dining is terrible. Who’s doing terrific? McDonald’s.”
Besides gross product, another figure – savings – also troubled Davidowitz, who said its upsurge means, “The worst is yet to come.”
For the last six years, Davidowitz said, the American consumer spent 6 percent more than he or she earned. Now, that same consumer is saving 5.5 percent of earnings, a swing of 11.5 percent that Davidowitz believes will settle around 9 percent. “That was retail money that was being spent that is now not being spent,” he said of the spending/savings reversal.
As for the future: “Living standards will never be the same” Davidowitz said. “Ever, ever, ever. People are worried about their jobs. Their friend just lost a job. The 401(k) has become a 101(k). The consumer is scared and they really should be scared.”