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TRC Blog

January 02 , 2010

How will struggling stores fare in 2010?

Saturday, January 2, 2010

 

By MARIA HALKIAS / The Dallas Morning News
mhalkias@dallasnews.com

After the Christmas rush, retailers step back and figure out what needs to happen next.

Those unable to stabilize their business during the holiday will close more stores in 2010, but the numbers shouldn't be as big as in recent peak years, says Alan Shor, president and co-founder of the Retail Connection LP, a Dallas-based retail real estate firm.

Store closings in 2009 are below the record-setting years of 2001 and 2008. By Thanksgiving, retailers had announced 4,644 store closings, according to the International Council of Shopping Centers.

In early December, the Walking Co. shoe chain filed for bankruptcy and said it would close 90 stores, including six in Texas. Blockbuster has been closing stores in several markets, including Dallas. It was the final Christmas for fine jewelry chain Bailey Banks & Biddle. Village Jewelers is closing its five area locations.

But this holiday doesn't compare to 2008, when major chains like Circuit City, Linens 'n Things and KB Toys went under, leaving gaping vacancies in many shopping centers across the country.

The Retail Connection gives advice to 190 national retail and restaurant chains. Shor is an attorney and earlier in his career was managing partner in the Washington, D.C., office of Troutman Sanders. He serves on the board of several regional furniture and home improvement chains and Teavana Holdings Inc., the nation's largest specialty tea chain.

He was president and chief operating officer of Irving-based Zale Corp. before leaving in 2003 to create the Retail Connection with Steve Lieberman, who had been president of the Weitzman Group in Dallas.

Here are Shor's observations about decisions facing struggling retailers:

What's the fallout from holiday 2009?

In the first six months of this year, there will be additional retraction of retail space, not as bad as the last 18 months, but it will be material. Also, it will be hard to track how many mom and pop stores don't make it to the end of 2010. Some consolidation is good for the retail industry. It will recover, but it will be slow and painful.

How do retailers decide which stores to close?

Retailers do everything they can to get through the holiday period. They have three major expenses: people, inventory and occupancy costs. In a big chain, each store is allocated some of the corporate expenses, too. If it's losing money inside four walls and you can't reduce payroll and get rent concessions, you've got a big problem. Big chains with 500 [or] 1,000 stores can let a small number of money-losing stores remain open. They have time to figure out if there's something they can correct. A store could also do better by relocating up the street. If a store is losing money, you have to figure out how to make it profitable or figure out how to close it.

Are rent reductions enough to save retailers?

Not every store needs rent help, but when they do, landlords have shown they are good partners. Renegotiating the rent could save a store, but sometimes it's just buying more time. Retailers are asking some landlords to allow them to make up reduced rents in the back-end years of a lease, or they're getting new leases. Some are asking for shorter leases and have had some degree of success there.

What's the upside of today's retail environment?

If you're a growing business, you are seeing some of the best real estate opportunities you will ever see in your lifetime. There's so much real estate to be redeployed. We're working with Bed Bath & Beyond to expand its new Buy Buy Baby chain. Studio Movie Grill's business is another one that's booming. Chains with smaller space requirements are benefiting, too. Houston-based Charming Charlie sells affordable fashion accessories and is doing great in this economy. It opened stores in 10 states and will open several more in 2010.

What are the prospects for new retail development in Dallas-Fort Worth?

This year, new development will be close to an all-time low, probably a 15-year low, of 2.5 million square feet in 2010. That compares with 5 million square feet in 2009 and 7.8 million in 2008.

Is Dallas over-stored?

It's a heavily retailed market. It's a consumption driven market where a lot of concept testing happens. People love to shop here. And some of it can be explained by people being willing to drive here from outside the area. But the market has too much retail.

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