Previous Page  4 / 28 Next Page
Show Menu
Previous Page 4 / 28 Next Page
Page Background

Page 4

— Retail Properties Quarterly — February 2018

Market Update


etail sales have been

declining for several years

nationwide, particularly in

department stores. A look at

U.S. department store per-

formance from 1993-2017 highlights

sales decelerating since 2000. A closer

look shows that the downward trend

has accelerated in recent years, since

the Great Recession began mid-2008.

There are many possible explana-

tions for declining retail sales, which

were discussed thoroughly at The

Counselors of Real Estate Annual

Convention, held in Montreal in

September. Some attendees pointed

to the overabundance of per-capita

retail square footage in the U.S, which

is at least twice that of Europe and

Canada. Others blamed the country’s

aging population, noting that spend-

ing in households with heads aged

65 or older is just

half that of those

headed by people 40

to 54 years of age.

Most agreed that

online sales have a

significant impact.

Back in 1993, online

retail purchases

accounted for just 1

percent of the total,

whereas in 2017

online transactions

peaked at 9 percent



stores historically have been the

slowest in creating a viable online

presence, which may explain why

their store sales have been so nega-

tively impacted by online retail. Some

forward-looking stores have bucked

this trend and

changed their busi-

ness models to cre-

ate a dynamic and

user-friendly online

presence; the most

prominent exam-

ples include retail

giantsWalmart and



stores – traditional

anchors for regional

malls – have been

closing at historic

rates, with over 300 announced in

2017, mainly from three major retail

chains (Macy’s, J.C. Penney Co. and

Sears).With only approximately 1,100

regional malls in the country – and

that number is rapidly declining – a

significant portion of malls are affect-


There is a historic and ongoing

trend of shuttered malls being trans-

formed into mixed-use communities

to create a work-live-play atmosphere

with office, retail, hospitality and

residential components. In Colorado,

we have seen this evolution of older

malls. Villa Italia, the megamall built

in 1966 in Lakewood, was demolished

in 2001 to make way for the lifestyle

community Bel Mar. Southglenn

Mall in Centennial, which originally

opened in 1974, was closed in 2006

and succeeded by The Streets at

SouthGlenn, another mixed-use life-

style community.

Declining retail sales have affected

more than just department stores.

Inline shops, predominantly in

the electronics and apparel sec-

tors, have felt pressure as well, with

approximately 6,000 store closings

announced as of third-quarter 2017.

This thinning has led to high vacan-

cies at many shopping centers.

While bankruptcy declarations

often precede closure announce-

ments, many smaller inline retailers

(whether located in regional malls

or strip centers) that did not invest

in a significant online presence are

impacted negatively by missed oppor-

tunities with customers. Examples

include Office Depot, American Eagle

Outfitters, Bed Bath & Beyond, Game-

Stop and Finish Line, all of which

announced store closings last year.

Inline retailers can be particularly

vulnerable to online competition,

as barriers to entry are much less

strenuous for online retailers than

brick-and-mortar establishments.

Look at the successes of Fabletics, All-

bird, Athleta, Birchbox and others for

inspiration. Online retailers can focus

their operating costs on advertising

and building a brand name, deciding

later if having a physical presence in

a community is the appropriate next

step. Conversely, a brick-and-mortar

presence requires significant upfront

investment in retail space and per-

sonnel, the highest budget line items

along with merchandise.

Since declining retail sales is not

a new topic, much conversation

throughout the retail industry, par-

ticularly in commercial real estate

circles, has focused on how to man-

age this decline, with ample discus-

sion around troubled mall redevelop-

ment and tenant remerchandising.

Retail operators know that proactively

reconfiguring their tenant mixes is

critical to maintaining a healthy

2018 will bring nimble retailers opportunities

Raymond Cirz,


Senior managing

director, Newmark

Knight Frank, New




Director, retail,

Newmark Knight

Frank, Denver

Newmark Knight Frank

Please see Cirz, Page 27