Occasionally, one of our readers will ask us questions concerning the services we provide. In brief, we are marketplace crafters in the sense that we define a market opportunity and then craft a built environment to answer the needs of merchants, restaurants, entertainment venues and most importantly the consumer. On the surface, it may appear to the more casual reader that we are something between architects and real estate developers. While we posses many of the same skills, our core competency is our ability to interpret trends both current and future in contemporary culture and translate those into the marketplace. As such, we do extensive market research, create multi retail marketplace concepts, direct the design execution and recruit merchants.

In the next several months, we will begin to share more of the innovations we are bringing to the marketplace. As such, our primary clients obviously include shopping center and mall owners but the depth of our knowledge really comes from pioneering work in resort hotels, urban districts, national parks, tourist destinations and mixed-use developments. We are excited about these diverse laboratories and will share with our community the grass roots trends we see developing around the world.
We are currently working on a project in Seoul Korea, another in Hanoi Vietnam, two projects in southern India, a 5,000 acre new town on the US Atlantic Coast, redevelopment of Atlanta’s Peachtree Center, and the revitalization of Louisville’s East Market district. From this base we are researching and exploring the introduction of dynamic new markets for the 21st century. Examples include a movable marketplace that travels from city to city and a dynamic new direct to the consumer fashion initiative. Certain aspects of these new efforts will be tested and explored in expanded versions of MyVillageSolution.com next spring. Ideally, the real genesis of these new marketplaces will come from an international community of visitors to our site who freely share ideas for the creation of the next marketplace, which may just as easily show up in Hyderabad or Tianjin as in Miami or Los Angeles.

The owners of Creation Gardens, a distributor of produce to restaurants and the food-service industry, plans to move to a new site and expand their business.

Ron and Mollie Turnier have signed contracts to purchase about two acres of property on the northwest corner of Market and Shelby streets, including the Neurath & Underwood Funeral Home.

They plan to build a retail and commercial distribution center, featuring a 27,000 square foot building. It would include a 17,000-square-foot, regional fresh-food and produce distribution center primarily for commercial customers and a 10,000-square-foot market open to the public.

In an interview, Ron Turnier said that he hopes to have the new Creation Gardens open in about a year. He declined to say how much he expects to spend to acquire the land, or to invest in the development. He said that the design of the project is not final.

Turnier, who is president of Creation Gardens, projected that the facility will attract over 200 chefs a week, many of whom regularly shop at his current location at 609 E. Main. The new location will include a lounge for member chefs and a resource library.

The land that the Turniers have under contract includes a large vacant lot fronting on Market owned by Service Welding & Machine Co., which will continue to operate its present site on East Main.

Rick Hill, who heads Village Solutions Co., a real-estate strategies and consulting firm working with the Turniers, said the Neurath & Underwood Funeral Home and its carriage house will be renovated and redeveloped with new uses, perhaps as one or more restaurants or other food-related businesses.

The staff of the funeral home referred questions to owner John Bruington. He said in a phone interview that he isn’t sure whether the funeral home will close, or relocate. He said it opened in 1904; he bought it in 2001.

The Turniers, who bought Creation Gardens in 1997, said the Main Street property is targeted for acquisition by the state in connection with the Ohio River Bridges Project and the planned reconstruction of Spaghetti Junction.

The Creation Gardens plans are being unveiled in conjunction with the NuLu Festival this weekend, which uses a new name being promoted by some developers for the area generally bounded by Jefferson, Washington and Campbell streets and I-65.

Sales at Whole Foods continue to slide with sales down 4.8% in their last quarter.  The upscale super market is facing new competition from the major chains such as Kroger and Safeway and has a core shopper problem that buys items rather than an entire cart of goods.   Likewise, many of their core shoppers have switched to cheaper goods within the store and to lower priced retailers such as Traders Joe.

On top of competitive and consumer problems the company is trying to swallow a pill of bad real estate decisions.  A combination of too many stores in marginal markets; markets that are too small for a new generation of larger stores up to 80,000 square feet; and high rents have significantly reduced profits.  In response the chain has slowed new store openings from a planned 25-30 for 2009 but openings have been scaled back to 15.

More importantly, Whole Foods has begun a major repositioning program where it is moving away from gourmet foods to natural food and healthy eating.  Likewise, founder John Mackey has vowed to remove the junk food from his store.  Makes you wonder how he is going to fill up all of those oversized stores acquired in the last few years.

J.C. Penney

In recent years J.C. Penney has tried to upscale its stores to compete for a higher share of department stores sales, especially those of Macy’s.  Will it work?

In addition to fighting Kohl’s head-on, the store often is being squeezed on the low side by Target and Wal-Mart and on the high side by Macy’s.  In response the company has engaged name fashion designers to create proprietary lines and formed a partnership with Sephora to open mini-cosmetic boutiques across the country in Penney stores.

Recent research found that consumers thought of Penney as a place where their mothers or grandmothers shopped and they did not know that a fashion upgrade was underway.

Aloft

I recently stayed in Starwood’s new Aloft Hotel in Chesapeake, Virginia.   As expected I arrived to find a hip entry lobby with an island reception desk, concrete floors, open industrial ceilings and a thriving little bar inhabited by a couple traveling sales men and several career service men from nearby Norfolk.  Perhaps it was the suburban location adjacent to a Residence Inn, but the whole arrangement seemed a little contrived and misplaced, which brings me to a point.  Commercial developers seldom really understand the underlying principles of a trend and often respond to a shift in consumer attitudes with misplaced embellishments that cater to an attitude about a trend but far from the essence of a trend.

I couldn’t help thinking this was the case in suburban Virginia.  Perhaps if the location was downtown Seattle, I would have been more forgiving but my Aloft experience was not as lofty as imagined.

Other examples include adding the words village, commons, green, street, town, and the like to the name of every new shopping center, along with the addition of a simulated town squares and the proverbial village green.  While the name evokes memories of another era, the physical manifestation often incorporates bits and pieces of a variety of styles and liberally draws from different eras with little understanding of why those elements were created in the first place.  These different styles, icons, and embellishments result in a confusion of place and only serves to cloak the true essence of the commercial marketplace which it was intended to be in the first place.

I suspect my impression of Aloft may have been a little different if I was just off of Lincoln Road in Miami or on University Avenue in Palo Alto, but sandwiched in between the Residence Inn and Holiday Inn Express and a sea of parking just did not seem to match-up with the expectation, with one exception – being the $99.00 room rate, which was the lowest of the half dozen or more hotels in the area.  Then it occurred to me, perhaps Aloft has been positioned at a price point that may only work in low rise suburban areas and  cannot support downtown real estate costs unless located in a fringe area.

Chinese Consumers

Many experts predicted that China would enter into a recession after the 2008 Olympic Games as a result of the staggering investment to stage the games, and these predictions were before the collapse of the subprime and capital markets in general.  Likewise, the Chinese economy has been largely dependent on its exports which have fallen as a result of the global slowdown.  On top of all of those problems it has a citizenship which would rather save than spend.  But, to the surprise of many, China’s GDP is projected to grow anywhere from 7% to 8%. How are they doing it?  The Chinese consumer is driving growth.

Luxury goods in a consumption slump

The first recession in the luxury-goods markets in nearly 20 years has forced companies like Bulgari, Burberry, Cartier, Montblanc and other high-end labels to modify their traditional focus on glamour and glitter. Luxury goods sales dropped worldwide by 15%-20% in the first half of 2009, the first time the sector has recorded an annual sales decrease since Bain began tracking it in the early 1990s. Christian Lacroix and Escada have both filed for bankruptcy in response to the times.  Bulgari has embarked on broad cost-cutting that includes shelving plans for new stores, except in locations where leases have already been signed. Burberry has announced a similar initiative, while Richemont, the owner of Cartier and Montblanc, is limiting openings to a few fast-growing markets in the Middle East and Asia.

The consumer is still buying luxury, they have just moved to entry level goods and surprisingly to high end items that evoke craftsmanship, exclusivity, and one of a kind, while leaving the brands in the middle in trouble.  Overall, Brioni suits in the $4,000 range are still selling as well as are Zegna suits in the $900 to $1500 range. Getting caught in the middle is the $2,000 suit house brand suit at Saks and Bergdorf.  Ties are selling at $100, but not $150; shirts are selling at $200, but not the $350 Borelli’s.

Internet Sales

Internet retail sales still only represent 6% of all retail sales, but that is more than $156 billion, a whopping number when you consider that auto sales, lumber, gas station sales, and groceries are all part of retail sales.

Housing market still has problems

Homes in lower priced markets have picked-up in recent months.  Sales of new homes and existing homes rose for three consecutive months through June 2009, the last month that data was available.  However, home prices remained 17% below those of a year earlier.  Fueled by the $8000 tax credit for first time buyers and increases in low interest loans backed by the FHA, Fannie Mae and Freddie Mac recent homes sales have been up and as much as 70% in Las Vegas.  But the housing market on the higher end remain slow.  While the high priced market for homes of $750,000 or more make up less than 5% of the total housing market, they contribute a disproportionate share of retail purchases.  The top 10% of U.S. Households in terms of income account for 20-25% of all retail purchases.

Our research shows that a household with an income of $100,000 or more typically spent 2-3 times as much as a household with an income of $50,000.  Additionally for every $100 decrease in home value, consumers tend to spend $5-8 dollar less on retail purchases.  Likewise, it is the housing at the top end of the market which is facing the largest decreases in home values with projected total reductions expected to be as much as 40% from home value peaks in 2007 to a bottom projected to occur in late 2009 or early 2010.

With tighter credit controls that require down payments of 20-30% people in general are trading down to lower prices homes.

Based on the above, we do not project a full recovery of the retail market until 2012.

Golden age of commercial development

Is there a golden age of commercial development on the horizon?  Not yet? Actually, a new age of failed developments will appear over the next several years as the consumer refuses to move back to conspicuous consumption, and as the global capital markets absorb a round of foreclosures, walk-a-ways and  give-backs.  In response the media will be quick to chronicle failed commercial properties including functionally obsolete malls, vacant strip centers and dismal lifestyle centers, and poorly planned lifestyle centers.  But while the world laments the failure of many projects,   the seeds of financially viable and dramatic new projects will be planted in China, Brazil, India and the Middle East. Look to our predictions of an era of 100 story towers, 21st century versions of Rockefeller center where art, commerce, and culture are produced side by side.  Look for entirely new visions of mixed-use projects, eco developments and agro-commercial resorts and many others becoming the benchmarks of a golden age of development.

Should the mall survive?

Not long ago, the concept of an enclosed mall included a vision of a better main street with its year round climate controlled common areas filled with fountains and lush landscaping.  One national developer of mall always strived to lease to the best local jewelry store and even encouraged the relocation of his symbolic sidewalk clock to the center court location in the new mall.  Over the years, the mall included the notion of Muffy and Buffy shopping multiple national chain stores, all primarily new to the market followed by lunch in a mall café.  As teens acquired their own cars, jobs in the mall, and liberal curfew hours the mall became the place to be. But today, with Twitter, I-phones, working mom’s, and over expanded chains the mall has lost its uniqueness and consumer appeal – in many cases.  Interestingly enough it is the non-mall discount stores such as Wal-Mart, Ross, TJ Maxx, and Marshalls that are doing well in this economy while once the darling of the mall, Abercrombie, is consistently turning out 20%+ decreases in sales.  Likewise, the back bone of the mall, the department store, is now only a shadow of their former selves.  Which raises the question, should the mall survive and will it?

Consumers preoccupied by loss of job security, depleted retirement accounts, and lower home values are not in a buying mood unless it is for necessities like food and the basics with an occasional splurge on experiences and dining out.  This new commitment to frugality is profound and not likely to go away even after a full recovery is under way.  Frugal, practical, bargain hunting will be the operative words when describing the new consumer.

As signs of a recovery increase, store performances over the next several months are going to be very telling for a number of reasons.  First of all, back to school sales have always been an indicator of the upcoming holiday season where retailers typically generate over 30% of their sales and as much as 60% of their profits.  Secondly, we are only about 75 days out from the one year anniversary where we began to see sharp decline in sales last year.  If sales continue to decline throughout the balance of 2009 you will then have a layering of sales decreases over sales decreases.

Typically, when a store has consecutive monthly decreases in comp stores sales, the decreases become less and less as they reach the anniversary of the beginning of the decline.  As an example, Abercrombie & Fitch started off last year’s back to school sales period with flat to marginal sales increases.  Then everything hit the fan last November when many retailers, Abercrombie included, experienced 20%+ decreases.  Now, as they approach the back to school period again one could expect that sales decreases would slow and then modest increases could be expected since they are going up against such dismal sales from 2008.  But retailers are not going to risk another holiday season with steep mark-downs.  They are therefore being very cautious and not stocking their stores with goods that will only need to be marked down to move off of the shelves.  But, the consumer may demand sales and big discounts on the limited merchandise.  If this is the case, this Christmas may turn out to be a disaster for many retailers.

In order to differentiate itself from McDonalds and Dunkin Donuts, “The Starbucks experience will now include the whir of the grinder and the smell of the aroma all day”, according to new written procedures for the 7000 units  of the U.S. chain.  According to the Wall Street Journal,   Starbucks Coffee, “will now grind beans each time a new pot is brewed”.  Seems like telling the baker to vent his fresh baked goods into the shop than out the back. But, something does not smell right when the most basic of assumptions must be converted into a manual.  Sounds more like a statement in a failure of a corporate culture than a lesson in process management?

Best Buy

Facing a number of challenges including new competition, Best Buy reported a 15% drop in earnings for the first fiscal quarter of 2009.  While the company is projecting cautious numbers for the balance of the year, officials are upbeat with recent increases in market share and increases in margins.  After the closure of Circuit City, the firm’ overall market share increased to 21% of all consumer electronics, about 2% higher than 2008, reflecting gains in a computer notebooks, flat panel televisions and mobile phones.  Likewise, the company’s gross margins improved from 23.7% a year ago to 25.3% in 2009.  However, new competition from Wal-Mart, Amazon and regional players such as HHGregg have also taken market share away from Best Buy.  One other challenge is the lack of consumer stimulus checks for 2009 to match those given out in 2008 unless Congress caves into to fund another rounds of consumer confidence for 2009.

Holy Cow

In 2009, McDonald’s plans to open another 40 restaurants to bring its total close to 200 in the Indian sub continent.  But not a burger can be found on the menu in a country where the cow is considered sacred.  To tap a new billion plus market, McDonald’s is selling chicken burgers and vegetables patties.

City Centers Growing Again? Not so fast!

Much has been written about how one can lie with statistics, and it seems that may very well be the case when looking at the change in center city demographics.  While, being a major proponent of center city neighborhoods, I am not so sure that the recent headlines proclaiming population growth in the urban core presents an accurate picture.  New reports are suggesting that people are returning to the center city and giving up the suburban mansion for urban condos.  One headlined stated, “Old big cities doing better than new hot spots”.  Another article quoted an urban advocate who stated the research proves that people want to be in pedestrian locations and would prefer not to have to drive to all of their services.  Now really guys?

Let’s take a closer look.  Population growth in center cities may be occurring for reasons other than quality of life issues.  Clearly, growth in suburban homes construction, new shopping centers and office buildings have all stopped dead in their tracks, along with the jobs they created.  But this is hardly a promotion of urban living over suburban choices.  This is more about the migration of the unskilled and new immigrants to urban environments that offer economies, limited jobs, and better services.  Yes, service jobs ranging from landscaping to restaurant service staff have all made dramatic cutbacks leaving a lower working class stranded with no jobs and expensive commutes.  The only reasonable alternative is to relocate to center cities to be closer to governmental services such as free medical care, unemployment offices, job training centers and other similar services centers. Additionally, the government stimulus package is largely assisting far more urban projects than suburban projects, hence another reason to move back into the urban core to be closer to the jobs.  But one man’s loss is not necessarily one man’s gain.

Back to School Sales: Early Results

Early back to school sales are a barometer of consumer confidence, especially in the all important junior apparel category.  With schools in some states opening in mid August they become an indicator of sales for other states such as New York and California with late school openings.  If sales are not going as planned in the early states, especially the smaller ones, retailers can cut back on their orders for the larger states.  And if a family will not buy for back to school they are likely not going to be making big purchases at Christmas.  I suspect sales will be marginal to poor and that it will continue with certainty through the holiday season with cries for more economic stimulus in early 2010.

Frugal Grocery Shoppers

Grocery stores in our austere economy are aggressively tweaking their formulas in response to changes at Wal-Mart and the overall economy.   In recent years grocery stores went upscale on the perimeter with flower shops, coffee shops, sushi bars, bakeries and prepared food sections.  But the focus is now back in the interior of the stores where as much as 70% of the profits  are generated, yet down from 85% just 10 years ago before the arrival of the discounters.  The biggest gains in profits are coming from the aggressive marketing of private labels.  Partly, fueled by private label sales, Kroger posted a 13% rise in quarter profits releases last month.  Conversely, Whole Foods reported a 4% decline in sales in the most recent quarter.

Luxury Entertainment

Triple Five announced two new anchor concepts for its Mall of America development located just outside of Minneapolis.  The first new anchor, a large Mayo clinic facility is slated to target a non core market of the clinic and the second one is being billed as a luxury entertainment concept.  So we wonder what color is a “luxury entertainment concept?” Scenarios include the next version of a solid gold strip club, maybe an upscale arts cinema or a revamped version of an upscale bowling center or a redeveloped Dave & Buster concept.  Hopefully, something dynamic and new will evolve but don’t “bet on it”.

Reduced Square Footage

Retailers are more than ever studying the sales of their stores with the goal to increase profits by reducing their square footage, inventory levels and the mix of goods to higher margin products.  In general retailers are taking less square footage to display fewer products with higher margins.  If successful look for retailers to give back space to the landlord. Could this be a move back to some less than the huge warehouse stores we have plagued our landscape in recent years.