The Post Recession Marketplace
Saturday, February 21st, 2009
EXECUTIVE SUMMARY
- Retail had been rapidly changing over the past several years to respond to new consumer attitudes and changes in technology. Prior to 2008 retail successes were found in the luxury goods, electronics, the tween and teen apparel, home furnishings, gourmet foods and the restaurant sectors. The current economic recession will reset the retail and real estate development industries.
- With post recession credit restraints, forever changed consumer attitudes, and a changed retail landscape many quality retail developments will no longer be viable.
- Many leading retail chains experienced sales decreases of 20% or more in late 2008 and early 2009. Mall traffic is down by approximately 10% and purchases are lower on reduced priced goods resulting in major reductions in profitability, often in the 50% range.
- As many as 150,000 retail stores will close in 2009. This may result in as much as 187 million square feet of new retail vacancies. The impact of these closures on US shopping center owners and governments which rely on retail related tax revenue will be huge.
- Retail commodity goods, like water, will eventually find their most efficient means of distribution to the consumer which may not be in shopping centers as we know them today.
- In the coming post recession era new forms of the retailing will evolve to take a greater share of sales away from shopping centers.
- Change in retail and the retail goods distribution channel after the recession will be greater than the ability of the shopping center development process to accommodate such changes.
- Village Solutions believes that we are on the cusp of a major disconnect between fixed brick and mortar retail locations and other points of purchase. One may be quick to point out the this more prophecy than calculation, given previous predictions of the pending impact of internet shopping, but we believe that the changes will be more profound and involve many more levels and channels than on-line shopping, which will change traditional shopping center. All parties connected to any feasible new real estate development of significance will therefore, require a complete comprehension of these coming changes in the consumer goods distribution channels in order to properly structure future developments.
- Retail developers in the next economy will need to learn new skills in a radically changed retail landscape. The traditional shopping developer was primarily in the business of securing land in order to add containers of long term income generation. In the post recession era, land encumbered with long term leases, a restrained consumer with new values, and retail distributions channels no longer tied to fixed locations will require new development model.
- How will the business of space making and the consumer’s desire for affordable entertainment and places of socialization outside of the home fit into a post recession economy? We see the development of creative, cost efficient smaller projects, integrated into existing densely developed neighborhoods; a new centering of suburban sprawl into true community centers, re-use and redevelopment of poorly conceived projects; district development as opposed to mix-use development; and
- We believe that traditional retail leases of fixed spaces over annual periods of time are going to evolve from their current structure.
- Fashion Designers in recent years have developed an entitled attitude which was seldom justified by the quality and variety of their collections. The market downturn has caught a whole generation of young designers unprepared to respond to the rapid change in consumer attitudes and the ability to innovate for the new economy. Designers in their 20s and early 30s have only the free spending-consumer as a frame of reference and not the wife of an unemployed fund manager who now sees her monthly appointment with her stylist as a luxury.
- Big international luxury brands in recent years have expanded to such an extent that they have lost much of their cachet with their leading luxury consumers which has fueled a demand for high quality clothes and labels which are new, offer a compelling with great cuts, fits, quality craftsmanship and color.
Tags: Retail
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