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Retail Real Estate News & Trends in Southern California

By SCT Week, March 29, 2012

Best Buy to trim big-box footprint
After a disappointing holiday season, Best Buy is launching a turnaround strategy that includes pinning future growth on smaller shops. “In order to transform our business as the consumer electronics industry continues to evolve, we are taking major actions to improve our operating performance,” said CEO Brian J. Dunn. The company will close 50 of its 1,450 U.S. big-box stores and open 100 Best Buy Mobile small-format stores this year. The ultimate goal is to more than double the 305-unit Best Buy Mobile chain to 800 stores by 2016.

Best Buy will remodel its big-box stores in St. Paul–Minneapolis and in San Antonio to a format that merges the online and in-store shopping channels, says Dunn. These cities will be a test market as Best Buy shrinks its big-box presence there by roughly 20 percent and opens smaller stores by about the same amount. If the experiment boosts sales, the plan could be rolled out to the chain’s major markets nationwide.

Best Buy posted a $1.7 billion loss during the fourth quarter, versus earnings of $651 million a year ago. TVs, digital cameras and videogame consoles are not selling like they used to, while tablet computers, smartphones and e-readers have grown in popularity, giving the retail advantage to the likes of Amazon.com and Apple, says Dunn. Same-store sales for the quarter slid 2.4 percent, versus a decline of 4.7 percent a year ago. The company blamed much of the loss on the buyout of Carphone Warehouse Group’s share of Best Buy Mobile Europe and the failure of its big-box stores in the U.K.

By SCT Week, March 29, 2012

Retail contractors see uptick in business
After some sparse years, retail contractors are rebuilding their bases of clients and staff, thanks to a renovation push in the industry, steady increases in leasing, and stand-alone store and “green” construction. U.S. retail construction spending is set to grow from $46.2 billion this year to about $53 billion next year, with much of that attributable to store remodeling, according to Reed Construction Data.

The year began on a high note, with retail construction spending some 9 percent higher in January than a year before, the Associated General Contractors of America reports. “The pickup reflects tenant improvements, as the surviving chains move into spaces vacated by defunct or shrinking competitors,” said Kenneth Simonson, chief economist for Associated General Contractors. “It’s not new construction for the most part.”

Construction industry unemployment, however, is still far higher than the general jobless rate nationally. It is improving, though, having declined from a staggering 27.1 percent in February 2010 to 17.1 percent this past February, according to Simonson. A construction outlook survey by Associated General Contractors found that 32 percent of commercial contracting firms plan to hire this year, versus only 9 percent that are planning layoffs. In last year’s survey 34 percent said they were planning to hire, but 37 percent were planning layoffs.

Some of the busiest retail contractors now are those with a background in high-performance and sustainable-construction practices, says construction consultant Brian Hill, of San Diego. Enactment of the CALGreen building code in California last year, which set state mandates for energy and water use and treatment of construction waste, forces the issue, Hill says. Retail contractors and design professionals still face challenges though, says Hill. Some are approaching previous clients and offering to perform feasibility studies and cost-benefit analyses to upgrade existing spaces, he says. “Some have seen steady work in health care, which seems to be in an interminable cycle of tenant improvements, and in affordable housing, which was needed after the housing crash,” he said.

Construction starts for shopping centers and stores are flat now, and the projections are for a year-on-year rise of just 0.1 percent, to 12,600 this year, according to Associated General Contractors. Most of the shopping centers in the planning and schematic stages are ones that were in practically the same stage before the downturn, says Jay Dorsey, president of Pearland, Texas–based Triad Retail Construction. “A new shopping center is a rarity, but there are several that are being scheduled for light to medium internal renovations,” Dorsey said.

Meanwhile, rising materials prices are putting pressure on thin contractor margins. In February alone the cost of paint and other coatings spiked 10.5 percent, while copper and brass fittings jumped 5.9 percent, and wallboard rose 5.1 percent — after rising 5.9 percent in January. Contractors’ bids, on the other hand, remained flat, suggesting that the firms must be swallowing most of those increases.

By Reuters, March 22, 2012

Discount retailer Dollar General continues to impress investors with their well leveraged debt position, and with S&Ps latest positive watch affirmation, the sky appears to be the limit.

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By SCTWeek, March 23, 2012

Easter spending to jump this year
Easter shoppers are expected to spend $145.28 each on average this year, up from $131.04 last Easter, according to a survey of about 9,000 consumers the National Retail Federation conducted between March 6 and 13. The group predicts that total spending will reach $16.8 billion this year from $14.6 billion a year ago.

“Though the price of gas is on everyone’s mind, Easter is one of the few holidays some consumers are willing to stretch their budgets, especially because many children look forward to treats and new outfits on Easter morning,” said Matthew Shay, the trade group’s president and CEO, in a prepared statement.

Nearly half the respondents said they plan to take advantage of spring sales on fashions and accessories, with total spending on those items expected to reach $3 billion. Nearly 90 percent of respondents said they would patronize the candy aisle, and thus purchases of chocolate eggs, jelly beans and other traditional favorites will probably exceed $2 billion, the trade group concluded.

On average, the survey calculates that consumers will be spending $26.11 each on apparel, up from $21.51 last year, and $20.35 on candy, up from $18.55. Though 64 percent of the respondents said they would shop at a local discount store, department stores may expect a treat too, as nearly 43 percent (the highest ever recorded in the survey) said they plan to patronize a department store for gifts and other holiday merchandise.

Online retailers will see the biggest increase this year. Close to 20 percent of the respondents said they would shop online, up from nearly 15 percent last year and just about 11 percent in 2008. Some 25 percent are expecting to hit a jewelry shop, an electronics store or a florist, and roughly 10 percent will be visiting a specialty clothing shop.