10 Problems with Dubai

1. Birds of a Feather. Many of the development companies in Dubai were managed by self-serving groups who were good at covering everyone’s back. As an example, some firms consisted primarily of Australians, and another all British. Their reaction to outside of the family managers was “it’s our tea party and you are not going to crash it.” In this regard, one would get a sense that the players knew they were building a house of cards and wanted to get as much as they could until the party was over.

2. How many times could you slice the same pie? Too many related development companies chased the same market with the same product.

3. Lack of Experience. There were not enough managers on the ground that had significant experience with multi-tenant retail development and even fewer with mixed-use property management experience. In their place were former academics, PHDs, engineers, graduates of the London School of Economics and more. But what was missing was conviction in knowing how to get things done.

4. Flawed Research. Market research was viewed as icing on the cake and not a reality check. People who did the research were well educated but had spent little time in doing real research on the performance of actual operating properties.

5. Wrong starting point. Market researchers bought the notion of 35,000,000 annual visitors to Dubai by 2012 and most projections flowed from that initial flawed estimation.

6. Lack of real people. Many new developments failed because the required density of buyers, tenants, shoppers and guest could not be generated fast enough to support the enormous infrastructure costs of highways, bridges, monorail system, airports, water and sewer and more.

7. Alice sighed wearily. `I think you might do something better with the time,’ she said, `than waste it in asking riddles that have no answers.’ Timetables for new developments and justification for projects were unrealistic and when questioned about the underlying reasoning I would often be told, “Everything is possible in Dubai”.

8. Lack of Transparency. Information and communication regarding all aspects of a project were often hidden within their own development teams. There was little transparency in top to bottom directives. In brief, there were too many levels of management and when asked the hard questions one would often be told a lie and the other would swear to it. In this example, almost every project in Dubai was going to be bigger, grander, and more creative than the next. A decision maker would communicate a vision of the world’s tallest building, the world’s largest mall, and so on. An architect would then translate the vision into wonderful computer generated images of the vision which would become the plan. Yet, there was limited central planning that was charged to connect all of the individual projects. As a result simple issues of capacity, parking, sidewalks, crosswalks, and more were thrown to the side.

9. Multi-brand tenants. Through licensing agreements, joint ventures, partnerships and franchises, single entities operated numerous storefronts with different brands. In some cases the full product line and the brand experience was appropriately transferred to a Dubai mall, but more often than not, one could see significant differences between company owned and operated shops as opposed to the Dubai presentations. As an example, Kitson in Wafi Mall just does not compare to the full experience on Robertson Street in LA.

10. Master Plans. Most projects in Dubai were driven with a vision communicated by excellent illustrations, models, and elaborate brochures but there was limited master planning of the entire city/state. As a result, the edges of projects, the zones between projects, and connection with adjacent properties were just short of horrible.

Now that I have vented, there is a lot of hope for Dubai. Hope that the vision is filtered and modified to allow it to grow at a sustainable rate. There is a hope that thecity/state regains its momentum and that new leadership finds its way to the top of the best development firms.

Then in 2008, along came Aventura Mall, located a few miles north of Bal Harbour with a report that their sales were exceeding $1100 per square foot and they were closing in on Bal Harbour.  But not to be out done, Bal Harbour came back with astounding sales projections that jumped to $2,139 per square foot in 2008.  In nearby Orlando, upstart Mall at Millenia reported sales per square foot at a surprising $1000.

So what’s up with these sales when the more mortal mall produces sales of $350 per square foot?

The answers are as follows:

• A new Apple store can raise the average sales of a good shopping center, dramatically.  Take for example their 10,000 square foot Fifth Avenue store in New York where gross sales were in the $350,000,000 range last year.  That equates to sales of $35,000 per square foot.  Add those types of sales to a specialty store mix and you can quickly see what happens to overall mall sales.  This is not to suggest that all Apple stores approach anything like their Fifth Avenue location but the more mortal mall can realize big overall gains in sales per square foot with the addition of an Apple store.  Smart real estate people are no longer accepting blind projections on average sales.  They now ask for a center’s average sales without Apple.
• In Bal Harbour very high end jewelers like Graff have been added to the mix in the past couple of years with the likes of Harry Winston, Cartier and Van Cleef & Arpels.  But with store sizes of 1,000 square feet or less and an inventory with average price points in the tens of thousands it is not uncommon to see the addition of one store make a big difference in overall sales.
• Many malls exclude their underperforming shops when they report sales to the media.
• Malls with traditional lower producing uses such as a cinema will often be excluded from sales performance calculation.
• Smart developers constantly prune their tenant mix by terminating the leases of underperforming shops and replacing them with stores that will perform at a level higher than the center average.
• The highest producing malls realize a high percentage of their sales from international visitors.  As example, Aventura Mall generates 40% of its sales from visitors and Bal Harbour 50%.
• The devalued dollar has helped propel the sales of many malls that attract international shoppers.

1. Required Healthy Diets – Consumers are increasingly becoming more concerned with eating healthy food, not so much as by choice but out of necessity.
2. Food Network – The food network makes celebrity chefs out of all of us.
3. Gourmet Kitchens – We are no longer content with kitchen gadgets and a new cook book, they want professional kitchens with multiple ovens, oversized refrigerators and other tools of the trade.
4. Exotic Travel – Lower airfares, globalization, travel magazines and world travel books have all contributed to a desire for people to see the world and not just cosmopolitan cities.  As people travel to places like Yerga Cheffe in Ethiopia they want to bring back authentic coffee beans to become the new trophy over the living room mantle.
5. Gourmet Markets – Today, Whole Foods and a host of other specialty food purveyors are located in every city of any real size.  These markets provide the inspiration and a plentiful supply of ingredients to compliment virtually every type culinary adventure.
6. Celebrity Chefs – Finally, seemingly everyday people have become overnight celebrity chefs providing inspiration for every home chef.

Outlined below is a summary of major culinary changes in the market.
CULINARY TRENDS

1. Fresh new twists to humble foods such as artisanal cheeses used in macaroni and cheese.
2. Local produce.
3. Smaller portions.
4. Artisanal Liquor and Culinary Cocktails that are paired with foods.
5. Smoked meats and not fried.
6. Local sourcing.
7. Healthy foods.
8. Philosophy driven food choices (organic, free range).
9. Lean Protein.
10. Discovery of new corners of the world dishes such as Korean BBQ and Mongolian spiced roasted lamb.
11. Exotic Teas.
12. Slow food movement.
13. Bite size desserts.
14. New fabricated meat cuts.
15. Super fruits.
16. Regional versions of ethnic food, especially from Mexico and Italy.
17. Sustainable Seafood.
18. Chef’s Gardens.
19. Small plate menus.
20. Casual dining prepared by skilled chefs.
21. Healthy side items for children.

RESTAURANT TRENDS

1. Major, celebrity chef driven restaurants will be limited to major hotels, casinos and large new developments, which are willing to bankroll their lavish culinary edifices.  Conversely, stand alone culinary destinations are largely a phenomenon of the past and not something we will see in numbers as seen in the past decade.
2. In 2009 Las Vegas had more Top 20 restaurants (total sales volume) than New York City.  Other top culinary destinations include Chicago and Miami.  Surprisingly, Los Angeles does not have a restaurant in the top 20 in total volume.
3. Many of the highest volume restaurants in the U.S. opened their second units in Las Vegas in 2007 and 2008, only to be faced with a significant turn down in traffic in 2009.
4. Waiters will be replaced by chefs who served their own guests.
5. Restaurants will exploit the public interest in all things culinary with more face time with the chef, tours of the kitchen, cook books and blogs.
6. Elimination of special rooms for corporate parties.
7. Gourmet kitchens for take-out only.
8. Mobile kitchens serving gourmet simple food such as the Kogi BBQ truck in Los Angeles followed by thousands of Twitter followers.
9. Dining Decisions based on value.
10. Chef’s private gardens.

However, in recent years the American culinary marketplace experienced a momentous change in the way people eat, cook and dine. As such, five primary factors have changed food and the way we consume and experience it.

First, cooking responsibilities are being shared between husband and wife as equality in the home becomes more balanced. But men brought their own sensibilities into the kitchen and to the backyard grille as well as a right to request, “Let’s eat out tonight”.

Second, the public has become highly educated about food and cooking. Everything from the Food Channel to reality TV shows, and from large cook book sections in the mega bookstores to cheap tickets to international destinations have all contributed to the creation of the informed and experimental home chef.

Consequently, ethnic restaurants and specialty food markets have grown rapidly in order to respond to a consumer base that wants more herbs, more spices, more ethnic foods and more varied produce. A subset to the grocery has been the growth of the green market, farmers markets and artisan food shops as found in San Francisco’s Ferry Terminal and New York’s Chelsea Market.

Likewise the well traveled consumer has sampled regional cooking styles from Nairobi to Miami. As they have dined out around the world they have brought back a fusion of tastes. Consequently, a new generation of themed restaurants, with an emphasis on basic fare, has evolved. Examples include national chains like Margarittaville, Cheesecake Factory, and P.F. Chang’s on the lower end of the spectrum and regional one-off establishments such as Spice Market and Buddha Kahn.

Third, the celebrity chef-restaurateur became in vogue. Names like Alice Waters, Alain Ducasse, Daniel Bouland, Thomas Keller and Joel Rubuchon became media celebrities and household names. These operator/chefs were quick to capitalize on their notoriety and opened new outposts in Las Vegas, New York, Paris, Los Angeles and London.

Fourth, a supermarket revolution has taken place over the past decade, with Whole Foods and Wegman’s leading the way. In response, traditional grocery stores like Publix and Kroger added new departments with fresh flowers, sushi stands, and more exotic produce and citrus offerings. With the availability of good ingredients, the consumer turned into their own version of the world traveled gourmet chef.

Fifth, and finally in the wake of the current recession, consumers have now returned to in-home dining with comfort food and the use of traditional brands. When they do dine out, they are often trading down to fast food over casual sit down restaurants.

However, a recent headline in USA Today proclaimed that consumer spending had grown to 71% of the GDP in the second quarter of 2009. On the surface this could be viewed as another positive sign of an improving economy, but in reality it is not. The real fact is that consumption as a percentage of the economy typically increases during a recession because output in manufacturing, construction, and business expenditures almost always drop first and at a higher percentage than consumer purchases. The result is a smaller basket of economic variables with the consumer taking a higher percentage of the whole.

Taking into account the government’s various stimulus packages that provided credits for first time home buyers, reduced taxes for many, and provided credits for clunkers; it is not surprising that consumer expenditures represented 71% of the GDP. However when you compare the actual dollar amount to last year’s figures, the 71% looks bleaker. For instance, now that credit is tight, wages are stagnant, and unemployment is still growing, consumer expenditures actually dropped 1.9% in the second quarter of 2009 representing a staggering $195 billion loss over the same period in 2008.
Conversely, consumption’s share of the economy has historically been more around the 65% level and it did not exceed 70% until last year. As a comparison, China’s GDP has a consumption rate of 35% down from 49% in 1990 largely because the country exports more than it consumes and the average citizen saves and saves – something Americans are trying to do. The implication is not good for retail over the next year or two, and it may suggest a seismic consumer shift in our economy.

JUST THE FACTS
1. The apparel industry is a $191 billion industry.
2. Back to school sales in the U.S. were expected to reach $38.3 billion, up .06% from 2008.
3. A recent study found that in locations with a strong independent retail culture, 45% of every dollar spent at an independent bookstore remained in the local market.
4. In the first half of 2009, the sale of luxury goods dropped 15%-20% over 2009.
5. American families account for 40% of all borrowing in the U.S.
6. Between 2003 and 2004 handbag sales grew by 26%.
7. Handbag sales reached a peak in 2007 of $9 billion, up 100% over 2001.

Go Figure
1. Emanuel Ungaro recently announced that it hired Lindsay Lohan as its artistic advisor.
2. Vera Wang dropped prices for next spring’s resort collection and was told by many department store buyers that her price of $600-$800 for dresses maybe too low for a designer department.
3. Designers are wondering why their clothes are being seen as exotically pricey after doing quick-and-dirty lines for fast fashion retailers.
4. Consumers now expect merchandise more frequently with the rise of Zara, H & M, and Forever 21. Yet, designers are trying to reduce the number of lines they create each year (fall, holiday, resort, spring, and summer).
5. In the last quarter ending September 30, 2009, Neiman Marcus sales were down 23% from the previous year.
6. In 2006 and 2007, Chanel introduced clear “naked” handbags. The next year in 2008 total handbag sales dropped $1.1 billion.
7. Luxury consumers are still buying at the high end, which has become somewhat relative, but entry level shoppers are looking for items at lower prices.
8. Gourmet tea is now selling for up to $1000 a pound and sells for 30% more than standard teas in restaurants. The French are the leading connoisseurs and they are bringing as much discernment to tea drinking as wine. The leading purveyors of tea include TWG Tea based in Singapore, and Le Palais des Thes and Dammann Freres in Pairs.

Rise of the Frugal Consumer
1. Consumers have adopted a prolonged frugality, especially in the purchase of luxury goods.
2. Higher income individuals are restricting purchases to items that have a more practical purpose and forgoing items that are trendy and may go out of style in one season.
3. The consumer is moving toward individuality and away from fashion commands on cue such as hem length.
4. Consumers are spending more time at home eating and not as much time eating out.
5. Home improvement shoppers have turned to purchasing repair and maintenance items, instead of buying discretionary goods.
6. Consumers still value high quality, convenience, and healthfulness.
7. The back-to-basics shift in consumer sentiment will likely remain permanent, even after the recession.
8. Consumer behavior as a result of this recession has been modified for an entire generation.
9. While traditional toys sales have declined as a result of competition with video games, iPods, and the internet, Lego’s sales jumped 32% in 2008 and double digit sales gain continue in 2009.
10. Consumers have cut back on all forms of travel: gas, new auto and airplane tickets. Yet, consumer expenditure on all forms of entertainment is up in 2008 and 2009 over 2007.
11. Unemployment, salary freezes, and salary and benefit cutbacks will remain a significant drag on consumer expenditures for some time.

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]]> http://villagesolutionscompany.com/blog/recap/feed/ 0 http://villagesolutionscompany.com/blog/pedestrian-thoughts-3/ http://villagesolutionscompany.com/blog/pedestrian-thoughts-3/#comments Fri, 09 Oct 2009 19:28:11 +0000 Rick Hill http://villagesolutionscompany.com/blog/?p=179 Lego
Lego has opened its first concept store in Concord Mills, located north of Charlotte, NC. The 4,520 square foot store has been designed to create an interaction between children with on-site master builders. The store has room for birthday parties and classes.

Versace
Recently announced it was closing all thirty (30) of its stores in Japan.

New World
A new world is likely to emerge in which designers rebel against long lead times and where they take their collections directly to the consumer through their own boutiques, trunk shows, and over the web.

Web Sales
Web sales are projected to reach $156 billion in 2009, representing 6% of the total U.S. retail pie

The Web Fashion Consumer
Consumers have come to expect new merchandise more frequently, thanks to the web and fast fashion retailers such as H & M. Many cannot understand why they have to wait 6 months to see the fashions seen on the runways. Buyers at department stores generally base their orders on the past, while fashion editors gravitate to the most photogenic and future looking styles, leaving the consumer stuck in the middle. This results in one facet of the fashion industry looking forward and the other looking backwards. The consequence: a consumer on one hand is told what to buy but on the other, not where to buy it.

In response, a new generation of fashion retailers is emerging on the web where news is freely given and fashion is sold. Net-a-porter with average sales of $820.00 per transaction and customers from 170 countries is one example of this new generation of merchants. The company has successfully merged its web retail site with a fashion news site catering to a new consumer who wants credible news over magazine advertisements and the most up to date fashion now.


Entertainment
Families spent 5.1% more on entertainment in 2008 than in 2009, something that has surprised many economists. As consumers tightened their pocket books and wallets one would expect entertainment to be one of the first categories to see significant decreases. But the 5.1% increase in spending equated to 16.5 billion more dollars spent in the category over 2007.

Household debt
The American family is trying to put money into savings and reduce their overall debt, but they are clearly not faring as well as one might expect in this recession. Household debt now amounts to about 125% of after tax income.

High Net Worth Individuals
Luxury retailers are faced with a significant decline in Americans with a high net worth defined as having $1,000,000 of assets available for investment. In 2008 the assets of these individuals dropped by as much as 22%. The result is a major decrease in sales at retailers such as Neiman Marcus where sales have decreased by over 20% in 2009 over 2008.

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]]> http://villagesolutionscompany.com/blog/pedestrian-thoughts-3/feed/ 0 http://villagesolutionscompany.com/blog/commercial-real-estate-vacancies/ http://villagesolutionscompany.com/blog/commercial-real-estate-vacancies/#comments Fri, 09 Oct 2009 17:17:14 +0000 Rick Hill http://villagesolutionscompany.com/blog/?p=168 While the residential market may be showing some signs of recovery, vacancies in commercial properties continue to rise at an alarming rate. In short, non-enclosed shopping centers reached a 10.3% vacancy rate ending in the third quarter of 2009, and enclosed malls jumped to 8.6%.

And it certainly is not looking to get better for some time. As vacancies increased, average rents declined to $16.89 per square foot for non-enclosed centers and down to $39.18 for enclosed malls. Likewise, the Federal Reserve has reported 8,300 store closings including 1,500 large anchor stores in 2009 alone.

Nationwide, office vacancies and rents are faring worse. The vacancy rate, in office properties hit a five-year high at 16.5% in the third quarter of this year. The decline in occupancy came as 19.6 million square feet of office space was returned to landlords in the third quarter and 64.2 million for the year.

As bad as the current environment is for landlords, things will become bleaker as unemployment rises because office occupancy tends to trail employment by 18 to 24 months.

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]]> http://villagesolutionscompany.com/blog/commercial-real-estate-vacancies/feed/ 0 http://villagesolutionscompany.com/blog/coney-island/ http://villagesolutionscompany.com/blog/coney-island/#comments Fri, 09 Oct 2009 16:49:57 +0000 Rick Hill http://villagesolutionscompany.com/blog/?p=161 In the past several years, much has been written about the proposed and controversial redevelopment plans for the boardwalk and adjacent amusement parks of Coney Island. While a great deal of the attention has been focused on the redevelopment plans of Thor Equities, the once popular Brooklyn seaside resort does not lack in alternative schemes suggested by everyone from theme park managers to the Bloomberg administration to the Municipal Art Society of New York.


In short, opposition to Thor’s plan have been centered around the firm’s plan for as many as a 1,000 hotel rooms and 500,000 square feet of retail space including some big boxes. Alternative suggestions for Coney Island range from “three or four wind in your face rides” to an “eye-popping” attraction akin to the London Eye – not bad suggestions but clearly the product of observers that lack a real sense of the historic Coney Island, let alone what is requires to make the redevelopment an economic success.

To be sure, Coney Island will obviously have rides and a dramatic center piece, but size and the newest form of exhilaration hardly made Coney Island special in the first place, nor will they return Coney Island to its glory. It is clear that the current alternative visions to Thor’s plans retreat to a gimmicky skyline of twist-and-spin steel thrill rides, favored by a small percentage of the market. What is missing is the essence of the place where one is immersed into a world unlike any other amusement park, be it Disney or Six Flags.

That said, come next spring Andrew Lloyd Webber will present his vision of Coney Island, circa 1907 with Love Never Dies, the sequel to Phantom of the Opera. Let’s hope that Lloyd Weber’s vision changes the discourse to a more intimate Coney Island where one’s imagination is illuminated at a more intimate scale rather than a pile of twisting metal that looks like the junk yard from Cats.

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