As holiday shopping enters the homestretch, sales expected to finish strong

Paige Yowell/The Omaha World-Herald - Holiday shopping comes to a close this weekend, and retailers may finally have a reason to celebrate: Sales for the season are expected to be up heftily over last year.

That’s after years of stagnant sales or nominal year-over-year sales growth.

Experts say a few things are behind that increased spending: One, consumer confidence nationally is at a record high, said Jeff Green, a retail consultant with Jeff Green Partners.

 

And, for the first time in at least a few years, the weather has been fairly typical for the season across the United States.

“It wasn’t too wet, it wasn’t too dry, wasn’t too hot or cold. It’s like the Three Bears: It’s just right,” said Glenn Fodor, a senior vice president and head of information and analytics at payment processor First Data, which tracks holiday spending data.

Holiday sales in November were up about 6 percent over the same month last year, according to the National Retail Federation. That’s more than the 3 to 4 percent growth retailers have seen in the holiday shopping periods of the past two years.

“The strength was so prominent we had to double- and triple-check the numbers,” Fodor said.

Another thing that won’t hurt: With Christmas falling on a Monday, there will be an extra weekend for the season, Green said.

“Every time we’ve had that, it has been a boon to Christmas sales,” Green said.

First Data, which employs about 5,000 people in Omaha, isn’t in the sales projection business, but Fodor said that unless something major happens — like a stock market crash — “you have the table continuing to be set for positive spending trends” through the end of the season.

While sales have been strong for brick-and-mortar and online stores alike, e-commerce spending for November was up 10.5 percent over the same period last year. E-commerce sales were about 29 percent of total sales, up from 25 percent last year, Fodor said.

“E-commerce is growing multiples ahead of regular commerce. That’s here to stay. I don’t think that’s going to slow down anytime soon,” he said.

Borsheims, owned by Berkshire Hathaway, is a testament to the trend. The jewelry store’s online sales are up 47 percent for the year so far, and sales in December are up 51 percent as of Monday, said Adrienne Fay, the store’s director of marketing, comparing the figures with last year’s numbers.

“There’s definitely a different feel this year,” Fay said. “We’re not a huge Black Friday destination, but we really did start to see our sales gain some momentum after that start to the holiday shopping season.”

The store has ramped up its digital marketing to capture new customers and has added some new products, including “Bling Box” value sets that range in price from $165 to $525. Each box includes several different gifts that are themed and match.

“That’s like Borsheims in a little box,” Fay said.

Sales at local bookstore the Bookworm have been on pace with last year, said co-owner Beth Black. But the store is expecting a few busy days this weekend, opening earlier than usual on Sunday, at 9 a.m., and could finish stronger than last year thanks to the extra weekend.

“The last two-and-a-half weeks have been crazy good, really crazy good,” Black said.

Sales at Nebraska Furniture Mart, also owned by Berkshire Hathaway, have been strong, said Mark Hamilton, director of marketing. The company doesn’t release sales figures.

Especially popular this year is the buy-online, pick-up-in-store option, which the Furniture Mart has offered for years, thanks to its pick-up lanes.

“It’s like ordering a sandwich at a fast-food restaurant,” Hamilton said. “It’s really efficient, and people, especially toward the end of the Christmas shopping period, recognize that and are using it.”

Hot items at the Mart this year: Nintendo Switch gaming consoles; home appliances, like air fryers and robotic vacuums; and recreational furniture, like pool tables and air hockey tables.

Angie Tumik of Omaha spent one afternoon this week doing some final shopping at Regency shopping center with her cousin, Kate Medic, visiting from Minnesota.

In line with national reports, Tumik said she thinks she spent a little more than she did last year on gifts. She planned to do more shopping today, and said she did most of her shopping in brick-and-mortar stores.

“I like going to the store and looking at and feeling stuff,” she said.

Her cousin, on the other hand, said she did most of her shopping online.

“I’m a stereotypical millennial, so I did all online except one gift,” Medic said.

She said she also spent a little less than last year — giving fewer gifts and focusing on experiences instead.

“I’m all about the experiences,” she said. “I don’t want presents, I want to go to New York.”

 

10 psychological retail tricks to make you splurge this holiday season

Quentin Fottrell/Market Watch - This year is shaping up to be a bumper year for retail. The National Retail Federation, the industry group representing retailers, said that it expects sales in all of November and December — excluding autos, gas and restaurant sales — to hit $682 billion this year, up 4% on last year. Last year, America had its biggest online shopping day ever on Cyber Monday with $3.39 billion in sales, and that’s in addition to the $5 billion spent online on both Thanksgiving Day and Black Friday. Shoppers are bombarded by tricks worthy of a magician when they walk into a store and, some at least, are growing wise to them.

To avoid overspending, there are some rules of what not to do, says marketing consultant Martin Lindstrom, author of the book “Brandwashed: Tricks Companies Use to Manipulate Our Minds and Persuade Us to Buy.” Rule No. 1: “Don’t bring your kids with you,” he says. They’ll help you spend 29% more than your budget, according to a study of nearly 3,000 consumers Lindstrom carried out. No. 2: “Don’t shop with your partner,” he says. He or she will make you spend 19% more than planned. No. 3: “Don’t use a shopping cart. People who carry their stuff spend 8% less.” No. 4: Carry $100 bills. “People are far less likely to want to break bigger notes,” he says.

People like to believe they’re getting a good deal, experts say, even if they doubt stores are being honest about the original retail price. But we don’t always know that we’re being manipulated, especially when navigating crowded malls.

1. They treat you like a long lost friend

 Graphic designer Daniel Drenger had an odd experience when he went to a J. Crew in New York two weeks ago to buy a pair of skinny jeans. “I wasn’t sure if the pants would get tighter after they were washed,” he says. “Out of the blue, the sales clerk told me his father was a cyclist and had large thighs, and had a problem finding jeans that fit.” Drenger was taken aback, but the story amused him and put him at ease — as if he were getting advice from a friend. After more sharing by the sales clerk, “I bought five pairs of jeans in different colors — and a bunch of other stuff too,” he says. (He decided to return half the loot a week later.) “Customers want more meaningful experiences,” Daye says. The overly-friendly staff at perfume counters are trying to fulfill that desire, he says.

2. They sell you a reusable bag or supply large trolleys

Why not send a message that your company cares about the environment and — at the same time — ensure customers hit the stores armed with an empty bag? Ikea, Wal-Mart WMT, +0.49%  and Whole Foods US:WFM  are among the many retailers that offer reusable shopping bags or large trolleys. The bags sometimes even bear the company’s logo, providing free advertising for the store. (Ikea’s blue bags are instantly recognizable even without a logo.) But mainly the bags create a void that needs to be filled, encouraging consumers to buy more than they need, says Johan Stenebo, author of the book “The Truth About Ikea.” “There’s a reason why they’re so big,” he says. (Ikea, Wal-Mart and Whole Foods did not respond to requests for comment.)

3. They give you a place to put your feet up

Some stores are even more thoughtful: They provide a path through the store punctuated with relaxing spaces for weary shoppers to rest their feet. Don’t loiter too long though: These rest areas are often placed next to displays of products that stores want to unload, says Stenebo, who worked at Ikea from 1988 to 2008 in a variety of roles from product development to management, and is also the former assistant to the group’s 90-year-old billionaire founder Ingvar Kamprad. “Retailers call this the hot-hot-hot spot for inventory that’s not shifting,” he says. That said, Ikea is a destination store usually situated on the outskirts of a city, and not a department store where people pop into for five or 10 minutes while running errands.

4. They offer comparatively pricey luxury items

The “compromise price effect” is most often used by discount retailers and electronics stores that want customers to pay extra for a better camera or computer, says Michelle Barnhart, associate professor of marketing at Oregon State University College of Business. Here’s how it works: If a $225 Polo Ralph Lauren down winter jacket is strategically placed next to a slightly cheaper — but very similar — $195 jacket by Kenneth Cole, the customer might be tempted to opt for the latter and walk away still believing that he or she got a good deal. The “compromise price effect” can be effective in a store or even online, she says.

5. They price everything one cent short of a whole number

Nobody believes they’ll be persuaded to buy something simply because it’s priced $9.99 instead of $10, but studies say otherwise. It’s called the “left-digit effect.” The difference of one cent can turn a window shopper into an actual shopper, according to a 2009 study by researchers at Colorado State University and Washington State University, published in the Journal of Consumer Research. In one test, the researchers asked participants to evaluate two identical pens: They priced one at $2.00 and the other $3.99 — amazingly, 44% of the participants chose the higher-priced pen.

6. They offer to solve your life problems

The influence of the Apple Store AAPL, -0.11%  can be seen in other electronic outlets from Best Buy to Microsoft MSFT, +0.77% Apple Store employees are not paid on commission and they often remind shoppers of that fact, says Carmine Gallo, author of “The Apple Experience: Secrets to Building Insanely Great Customer Loyalty.” Apple’s “genius bar” is a team of sales people designed to solve problems and empower the customer rather than (just) make sales, he says. It’s been paying off: There are roughly more than 500 million visits to Apple retail stores per year, according to market researcher Asymco; that’s roughly equivalent to the population of the European Union. (Apple did not respond to requests for comment.)

7. They offer free shipping

Even retail pros fall for this: Free shipping is rarely offered without strings. Instead, stores set a threshold for each purchase, encouraging you to buy more. And they move that threshold depending on demand, says Brent Shelton, savings expert at deals website DealCrunch.com. “I catch myself looking for more items to qualify all the time,” Shelton says. “I tell myself, ‘There’s got to be something that I need.’ It’s pretty rare that my shopping will be exactly $35 or $59.” Walmart.comWMT, +0.49%  offers free shipping on orders over $35, but Target TGT, -0.16% offers free shipping on all purchases on every purchase. Amazon AMZN, +1.78%   offers free shipping on orders of $25 and over, plus free two-day shipping for all orders for Amazon Prime customers, which costs $99 per year.

8. They use cheap items as the thin end of the wedge

Beware of half-priced socks, chocolates or bags of tea lights positioned next to the entrance. They are designed to break a psychological barrier and get consumers shopping, independent retail consultant Jeff Green. In retail parlance, they’re “open-the-wallet” items and they often appear as an elaborate and random display. Displays could include everything from plastic to-go cups to tea-and-cookie gift bags. U.S. retailers have also taken the “open-the-wallet” concept to a whole new level by promoting cheap stuff in October in the hope that people will keep shopping in November and December. “Americans are cautious,” Green says, so they need a little extra push to get them in the mood to spend money.

9. They turn bargain hunting into a game

There’s a reason a minimalist design works at the Apple Store, but turns off regular shoppers in a store like J.C. Penney JCP, +0.58% Apple sells luxury gadgets and rarely discounts its prices, while J.C. Penney is a promotional store where people enjoy the voyage the bottom of the bargain basement, Shelton says. “Big box department stores make you dig around and see what’s on sale,” he says. “People feel like they’re on a treasure hunt and finding a bargain that someone else missed.” (Music is used to either keep people moving briskly through the store or to slow them down, depending on how busy they are, according to an analysis of big supermarkets by Casino.org. Plus, there’s no free shelf space at the checkout, leaving no room to dump unwanted items.)

10. They pile on the accessories

Buying toys for kids can be a gift that keeps on giving: Batteries are often not included and — as Barbie might tell you if she could — dolls are more fun with a range of accessories. The same goes for adult toys, Shelton says. Case in point: The battery life of Apple’s iPhones has long been a bugbear for Apple fans. But customers still complain about the impact of apps and downloads on the phone’s battery life. One solution: Apples sells a Mophie Juice Pack Plus charger case ($120), which doubles the time to talk, text and surf the Web. Retailers are like Lieutenant Columbo, Shelton says, “There will always be ‘Just one more thing.’”

Black Friday has officially taken over November

Anna Marum/The Oregonian - For the second year running, Black Friday started the day after Halloween.

 
Candace Corlett, president of WSL Strategic Retail in New York, said the retreat on Thanksgiving Day hours shows that retailers are weighing their decisions carefully. And in some cases, the sales aren't worth the costs to staff the stores.

"I think it's more of a cultural ambivalence," she said. "If people were rushing out at 5 p.m. to shop, believe me the retailers would be open."

And while JC Penney will open at 2 p.m. on Thanksgiving – one hour earlier than last year – it will be among the few stores open that early. Similar to last year, Macy's, Kohl's and Toys R Us will all open at 5 p.m.

 
Tim Campbell, a senior analyst with Boston-based Kantar Retail, said that shoppers have more choices in terms of how and when they shop, and that they're increasingly dictating what retailers do during the holidays.

For instance, shoppers can get many of Thanksgiving's doorbuster deals on their phone without leaving the dinner table or braving any lines. Choice is key, Campbell explained: Shoppers can get products delivered to their doors, or, if they'd rather not wait, they can pick up products in-store.

"The shopper has taken control of the season," he said, "and (retailers) are scrambling to keep up."

Consumers also are taking advantage of the early November discounts by starting their holiday shopping earlier.

According to a survey by RetailMeNot, 45 percent of respondents said they planned to start their holiday shopping before Nov. 1. And 54 percent said they hoped to start buying gifts before Black Friday.

But analysts like Corlett insist procrastinators haven't missed out on the season's best deals.

To score a great price on an item, she suggests leaving it in your online cart and waiting for the retailer to email you with a coupon code or news of a sale.

"The nature of retail now, is there's a sale 24/7," she said. "If what you want isn't on sale now, hold your breath for 10 seconds and it will be on sale."

Apparel retail is ceding its lead role at the mall

Joel Groover/Shopping Centers Today - Mall landlords are doubling down on a strategy that would once have been unthinkable: reappraising their apparel-based tenant lineups. Several have been outspoken of late about this pivot, a signal to Wall Street of their commitment to this new direction. “If there’s any criticism to be made on our industry, it’s that we’ve been way too apparel-focused,” Simon Chairman and CEO David Simon said during a conference with analysts this past September.

Both he and Sandeep L. Mathrani, chief executive of GGP, touted their portfolios’ lowered exposure to apparel chains during second-quarter earnings calls this summer. In Simon’s portfolio the percentage of apparel tenants is now down to the low 40s as an allocation of gross leasable area, according to a call transcript. The exposure to apparel for class-A assets at GGP is also in the low 40s, Mathrani told analysts. That number, which would have stood at about 70 percent at the typical mall as recently as eight years ago, is now down to about 50 percent sectorwide, according to a report by Boenning & Scattergood, a securities, asset management and investment banking firm. So far this year only 25 percent of GGP’s new leases have been with specialty apparel retailers, Mathrani said.

CBL Properties is similarly conveying a new approach to tenants. “Our properties are not just about retail or shopping — they serve as gathering places for their respective communities,” said Stephen D. Lebovitz, president and CEO of the Chattanooga, Tenn.–based mall REIT, in a press release last month. “They are evolving through the addition of more food, entertainment, service, fitness and other new uses, and we are actively exploring adding hotels, medical, office, residential and education components.”

These shifts are notable, given U.S. malls’ heavy focus on specialty apparel and accessories over the years, experts say. Back in 2010 the top tenants in the portfolios of Simon and GGP were the same: Abercrombie & Fitch, Foot Locker, Gap and Limited Brands, according to an analysis that year. By contrast, today only a few of GGP’s top 50 tenants fall into the specialty-apparel category, according to Mathrani.

The dip in enthusiasm for these stores has everything to do with trends in the category, says Jeff Green, a Phoenix-based retail consultant. “We have been seeing this since the beginning of the year because of the number of store closures in the specialty-apparel segment,” he said. “Everybody in the mall space is trying to diversify away from apparel by bringing in entertainment and restaurants, or [by] moving big-box chains into the mall so as to downsize small-shop space.”

These moves come just as retailing in general happens to be growing nicely: According to an IHL Group report titled Debunking the Retail Apocalypse, retailers and restaurants this year will have opened 4,080 more units than they have closed. The fastest-growing categories include mass merchandisers, convenience stores and grocery chains. Specialty apparel is another story: By IHL’s count, the sector is set to lose 3,137 stores. Among the apparel chains closing stores this year are Abercrombie & Fitch, American Apparel, Ascena Retail Group, BCBG, BeBe Stores, Gap, The Limited, Rue21 and Wet Seal. “Shoe stores are also having a tough go here, and part of that has to do with Payless [ShoeSource] — they’re closing 700 stores,” said Lee Holman, IHL’s vice president of research and product development, during a webinar about the report. Among department stores, JCPenney, Kmart, Macy’s and Sears are scaling back store count, with a loss of about 400 department stores in total.

The IHL report underscores the reality that store closings are normal even in times of economic growth. And any notion that all of specialty apparel is in a nosedive is a misconception as well, according to Kelly Sayre, an IHL retail analyst. “The data in our study shows that 2,783 store closings in specialty soft goods are attributable to just nine retailers,” Sayre said. “Further, there are no less than 16 specialty soft-goods retailers that are showing a net increase of 20 or more stores for 2017. Five of those are opening more than 50 stores each.”

When it comes to apparel retailers and department stores, the real issue is sluggish growth and productivity relative to other tenant types, explains Melina Cordero, head of retail research in the Americas for CBRE. “The traditional mall model that was developed nearly 70 years ago is heavily dependent on categories that are no longer fast-growing or meeting today’s consumer demands,” she wrote in a September report.

To understand why some of these tenants fall short, start with the cash-strapped consumer, says Paco Underhill, founder and president of New York City–based Envirosell, a behavioral research and consultant firm. According to the Census Bureau, it was only last year that U.S. median household income hit $59,039, surpassing what it had been in 1999. As Underhill sees it, this stagnant income growth goes a long way toward explaining why fewer shoppers are loading up on full-priced fashions at the mall: Once Americans pay for cable TV, mobile phones, Internet access, health and child care, insurance, taxes, tuition and more, he says, they have little money left over for discretionary spending. “There are only two places where you have flexibility in your wallet: one is apparel, and the other is food,” Underhill said.

The need for consumers to stretch their dollars to the max is reshaping tenant mixes across much of the retail real estate landscape, says Mark Hunter, managing director of retail asset services for CBRE. “Overall, value and off-price apparel is a growing category,” he said. “You’re seeing this not only in outlet centers but also in traditional malls and typical power-center-format locations.”

In this bifurcated U.S. economy, Cordero says, luxury and discount retailers alike are well positioned, but stores selling branded, midprice apparel and accessories often struggle. “It’s the midrange pricing that has been hit the most, and that tends to correspond with the tenants you see in the malls,” she said.

In this environment, off-price retailers such as Burlington, Ross and T.J.Maxx are among the winners. According to a September report by JPMorgan, the off-price retail sector will grow by up to $19 billion over the next five years. If current trends hold, department stores will lose about $22 billion in sales during that period. Off-price chains deserve credit for smartly capitalizing on the rise of the value imperative, Cordero says. “Off-price retailers like T.J.Maxx have really invested in their store formats and in their branding and marketing,” she said. “Going into a lot of these stores, you do not feel like you’re in a bargain basement. There has been a change in the image or the stigma around buying off-price.”

Fast-fashion chains Forever 21, H&M, Uniqlo, Zara and others, known for their discount pricing, also continue to perform well in ways that are reshaping mall tenant mixes, Green says. “They’ve taken a big chunk out of the sales of traditional U.S. apparel chains,” he said. As Holman noted during the IHL webinar, so far this year clothing and shoe sales are off by 1.1 and 0.9 percent, respectively, but fast-fashion sales are up by 6 to 7 percent. On the department-store side, IHL cites the deleterious effects of cosmetics and beauty concepts striking out on their own. “Companies like Sephora, Ulta Beauty, Lush and Body Shop are opening individual stores instead of being sections of department stores,” said Greg Buzek, IHL’s president, during the webinar. “Those are big, big changes that have affected the margins and the traffic within department stores.”

Slashing prices is one way for mall-based apparel chains to try to compete, Cordero says, but this is hardly optimal for businesses that had mostly been charging full price before the recession. “Consumers may actually be purchasing the same number of apparel items they were buying 10 years ago,” she said. “It is just that the pricing on those items has changed significantly, so the volume, in terms of sales, is actually lower than it once was.” Competing in the e-commerce realm, too, tends to become a drag on these chains, Cordero says. “The pressure apparel retailers are facing is much more on the profit-margin end of things as opposed to losing a ton of share to online players,” she said. “The problem is that the cost of operating e-commerce is much more expensive than the cost of operating a store. So even as sales may be flat or growing, [retailers’] costs are going up.”

But just because specialty apparel is down does not mean it is out, some say. One intriguing possibility is that a breakaway fashion trend could reinvigorate sales, Cordero says. It has been about 12 years since so-called skinny jeans became enormously popular, she notes. “When a fashion trend like that comes out, it then spurs all of these other purchases around that item: certain kinds of tops that go with skinny jeans, or shoes,” Cordero said. “There are some in the apparel industry who believe we are overdue for the next new thing.” Individual chains can also shine by scoring a hit with shoppers. American Eagle Outfitters, for one, surprised Wall Street by posting same-store sales growth for the second quarter ended July 29. The retailer credited the popularity of its Aerie lingerie, sales of which had jumped by 26 percent.

or well over a decade, Underhill, author of the books Why We Buy (1999) and The Call of the Mall (2004), has urged U.S. mall owners to make their malls more like those in Europe or Asia, where tenants typically include grocers and other nonapparel uses. Now Underhill lauds the accelerating efforts of U.S. landlords to take their properties in this direction. “They are recognizing that if a mall is going to succeed, it has to be more of a destination,” he said. “That means bringing in other things that drive traffic. It could be food, electronics — everything from a locksmith to an art gallery.”

GGP’s portfolio now includes 58 movie theaters, 36 entertainment concepts, 14 fitness centers and 12 grocery stores, as Mathrani noted in his earnings call. The firm has also added mixed-use elements to roughly 75 percent of its properties, he said. The latter tally includes 15 hotels, 6 million square feet of offices and 2,000 residential units. “It’s all about location, location, location,” Mathrani said. “Our centers are within an hour’s drive of 56 percent of the U.S. population.”

Already, U.S. malls have doubled the amount of space they lease to entertainment and food-and-beverage tenants, according to the Boenning & Scattergood report. The report writers caution, however, that so far the prime beneficiaries of these moves have been the owners of higher-end malls; those with lots of class-B and ‘C’ properties will have a harder time replacing department stores or wooing the best nonapparel chains.

“U.S. malls have seen declines in traditional retail categories, particularly among apparel tenants,” the analysts wrote. “However, nontraditional retail categories, including food-and-beverage, have seen a consistent increase in sales during the past five years. For the first time ever, the value of restaurant sales surpassed those of grocery stores last year. The operators within our coverage universe have continuously repositioned their store base and tenant mix to maximize tenant sales and rental income.”

Apparel trimming seems to be a good fit for many malls.

Inside The L.A. Mall That’s Defying The Retail Apocalypse

Sheila Marikar/Fast Company - As malls across the country succumb to declining foot traffic and the lure of online shopping, a development in Los Angeles’s artsy Culver City neighborhood is proving that it’s still possible to draw customers in person—if you design the right experience. Called Platform, the year-and-a-half-old space is a cluster of boutiques, workout studios, offices, and restaurants by up-and-coming chefs, all housed in an Instagram-worthy refurbished industrial complex. As customers line up for the mall’s free yoga classes and stroll through its outdoor gardens, Platform is emerging as a template for a new kind of shopping experience.

Developers David Fishbein and Joey Miller, principals of the real estate company Runyon Group, prioritize experimentation. To secure a lease, each of the 26 long-term tenants had to offer an experience unique to its Platform location. At the on-site Sweetgreen, for example, customers can choose one of the fast-casual chain’s salad staples or sample a dish from the in-house test kitchen. (Sweetgreen’s headquarters are located in the development too.) At Reformation, shoppers who prefer not to sort through racks of clothes can order styles from touch screens installed throughout the boutique. Fishbein and Miller also set aside spaces for short-term pop-ups, which online surfboard maker Salt Surf and event producer Spring Street Social Society have used as launching pads to physical retail. “We thought we knew who our customer [would be], but there was no way to know until we opened,” says Fishbein. “The pop-ups allow this period of discovery to continue.”

Coast to coast: Developers Joey Miller and David Fishbein have opened Platform to East Coast companies, such as Salt Surf and Brooklyn-based clothing store Bird. Fishbein and Miller have also given visitors plenty to post about online. They commissioned L.A. artist Jen Stark to paint an 80-foot-high mural on one of Platform’s buildings, and a #helloplatform sign greets customers as they arrive. Brightly colored tables and chairs sit outside the low-rise buildings, and a playlist featuring artists such as Grimes and Glass Animals is pumped through common spaces. “People are photographing every activity they’re doing,” says Fishbein. “[If] you can create these unique moments people want to be associated with, you can be a place they want to come back to.” The strategy is working so far: Fishbein says the average tenant is on track to take in $850 per square foot in annual sales, compared to an estimated $165 per square foot in shopping centers nationwide. “Traditional malls are formulaic,” says Jeff Green, founder of the real estate consultancy Jeff Green Partners. “There’s a Bath & Body Works in every center. [At Platform,] you don’t know what you’re going to find when you come back.” For Fishbein and Miller, it comes down to that element of surprise. Soon they’ll have even more room to experiment. In the coming months, they will add another 6,000 square feet of retail space to Platform, along with three new restaurants.

The latest victim in the retail apocalypse? Outlet malls

Lisa Fickenscher/New York Post - Et tu, outlet malls?

After years of being seemingly insulated from the ills affecting department stores, the country’s 200-plus outlet malls are starting to show signs of strain.

Tanger Factory Outlet Centers, which owns 43 centers in 22 states and is the largest publicly traded pure-play outlet operator in the US, is throwing off some warning signs, experts tell The Post.

The Greensboro, NC, company, seen as a bellwether for the sector, is not planning any outlet openings for 2018, one industry watcher said — noting it was the first time in recent memory that no new opening has occurred.

Plus, Tanger isn’t attracting the shoppers that it was used to, according to RS Metrics, a satellite data company.

Tanger used to lead all outlet centers in drawing consumers but now, like all centers, is seeing only a modest increase in shoppers, according to RS Metrics, which uses satellite to monitor cars in scores of shopping centers.

“They are no longer an outperforming the sector,” said Mike Gantcher, managing director of RS Metrics.

At investment bank Boenning & Scattergood, analyst Floris van Dijkum predicts that base rentals will rise 3.5 percent next year, down from a 6.6 percent bump in 2016.

Tanger shares are down 31 percent over the past 12 months, and the company earlier this year said profits for 2017 would be lower than expected.

Bank of America analyst Craig Schmidt recently downgraded Tanger to underperform from neutral.

Many of the same shoppers who filled parking lots at these far-from-urban center outlets now see just as strong a value at off-pricers like T.J.Maxx or Nordstrom Rack, some said.

Investors have also expressed concerns about the company’s reliance on apparel stores — among the worst hit by the so-called retail apocalypse — which make up 58 percent of the company’s rent roll, according to van Dijkum.

Other outlet center operators, like Simon Properties — owner of the largest outlet center in the country, Woodbury Common Premium Outlets — and Macerich Properties and GGP have also come under pressure.

The warning signs in the outlet industry “are going to show up in Tanger first,” said real estate analyst Jeff Green, of Jeff Green Partners.

There could be a new threat to outlet centers coming down the pike: new centers opening up smack dab within the borders of big cities like New York, San Francisco, Los Angeles, Chicago and Philadelphia.

Macerich is developing several urban outlet centers, including a $500 million makeover of the former Gallery Mall into the Fashion Outlets of Philadelphia at Market East.

In the Big Apple, an enormous project — Empire Outlets, billed as the city’s first outlet center — is expected to open next year on Staten Island’s waterfront.

“The outlets are coming closer to, and into, cities — and that’s a two-edged sword for retail,” said Customer Growth Partners President Craig Johnson. “You have the risk of cannibalization of the full-price retailers.”

The Future of Food Shopping

Charisse Jones & Zlati Meyer/USA Today - Amazon's purchase of Whole Foods makes it a major player in the U.S. grocery market, and that leaves a lot for consumers and fellow retailers to chew on.

Experts say the move will translate into lower prices for consumers and more competition among traditional supermarkets, discount chains and food-forward big-boxes such as Walmart. And Amazon's tech heritage could completely refashion grocery stores, from layout to merchandise mix to how shoppers get their purchases.

Amazon is now bringing its firepower to an industry plagued by thin profit margins. Whole Foods -- dubbed by some "Whole Paycheck" because its prices are higher than those of regular supermarkets -- has had room to coast on wider margins because it helped create and grow the organic food space.

But its promotion of natural foods proved to be such a hit that mainstream stores wanted a piece of this higher-margin action, too. They've increased the amount of organic produce, proteins and packaged goods they offer -- and that's cutting into Whole Foods' business. "

Amazon has a great reputation for value. Bringing that mind-think to Whole Foods is going to be a big change," said supermarket analyst Phil Lempert, who founded the industry website supermarketguru.com. "June 16 is going to go down in the industry as the day the grocery business changed."

Shoppers can expect more than just extra money in their wallets when they leave their local grocery stores. They might see completely overhauled stores -- smaller footprints and larger assortments of exclusive brands, which is the successful German approach already invading the United States. Lidl opened its first U.S. stores Thursday, and Aldi is planning to add another 900 American stores and remodel the majority of its 1,300 existing ones.

Amazon has its own branded products, too, such as pet supplies and batteries. Whole Foods is already onboard with that; the Austin-based chain has the well-regarded 365 Everyday Value brand, which last year it parlayed into a new affordable-price store concept called 365 by Whole Foods with four locations across the country and another 13 planned.

"Once Amazon is a player in the industry, anything can go," said Joe Agnese, senior food retailing analyst at CFRA. "The big threat is what else they can do. Now that they have a retail presence with 400 stores, long-term they can expand on that threat. They can (bring) pricing pressure. They could bring down prices, and everyone would have to match them or lose share."

Another possible in-store change is what food retailers put on their shelves -- and in their refrigerators. Lempert predicts stores increasing the amount of fresh items they sell to as much as 50% -- more meat and seafood, baked goods, and ready-to-eat and made-to-order foods -- while reducing the amount of lower-margin center-store packaged items.

That dovetails with the click-and-collect model supermarkets are using now, which customers prefer to delivery.

"Delivery is interesting, yes, but click-and-collect has more legs. A lot of people don't want to stay home and wait, or they think it's not safe," Lempert said. "Instacart delivery will be hurt. It was built on Whole Foods. ... Also, AmazonFresh's delivery model frankly hasn't done a good job in perishables."

But the Amazon-Whole Foods deal could invigorate grocery delivery, too."

Amazon will use Whole Foods as hubs to deliver into neighborhoods. Other grocers, if they want to compete, will have to follow suit," said Neil Saunders, managing director of GlobalData Retail.

According to experts, warehouse stores and dollar stores that are selling more food now than in the past have little to worry about, thanks to the limited overlap between them and Whole Foods. Ditto for Walmart.

More mainstream competitors, especially regional chains, will need to take a hard look at themselves, though.

"Some players, like Wegmans and Publix, are strongly differentiated. I don't think they'll lose because of that. The ones that are not so strong and differentiated are more likely to fall victim to the price squeeze, and you'll see the shake-out. Other chains will look to buy these chains to consolidate," Saunders said, pointing to Buy Low Market in California and Ingles in the South as examples of those that might struggle to survive.

One key way Whole Foods has always made itself stand out is its ethos -- a dedication to healthy eating, sustainability and animal welfare. That doesn't completely mesh with Amazon's brand feel.

Not yet, anyway.

"What's a little strange about it is Amazon hasn't necessarily been focused on quality and service, and isn't that what Whole Foods' point of differentiation is?" asked Jeff Green, CEO of the Phoenix-based Jeff Green Partners, a real estate consulting firm that provides analytical and interpretive services for retailers and others across the U.S.

"Amazon is smart enough to make it work. Will their model be profitable instantly with Whole Foods? Probably not, but Whole Foods, as it is, is struggling."

Amazon to buy Whole Foods for $13.7 billion in bid to become major grocer

Angel Gonzales/The Seattle Times - Amazon.com is about to give “whole paycheck” a new meaning.

With its $13.7 billion purchase of Whole Foods Market, the undisputed king of one-click shopping just bought itself a lot of bricks — and a golden ticket into a juicy retail stronghold it has long sought to breach.

The deal sent shock waves through other major grocers, making shares for Wal-Mart, Kroger and Costco Wholesale tumble. The acquisition, expected to close this year, is more than 10 times what Amazon spent on its next-biggest deal, buying online shoe retailer Zappos in 2009.

The purchase gives the e-commerce giant, which has been experimenting with various physical grocery concepts and online food delivery, an instant footprint of 460 high-end brick-and-mortar stores across the U.S., in Canada and in the U.K.

Whole Foods became a household name retailing organic and fresh products, while earning the “whole paycheck” moniker for the lofty prices it charged shoppers. The company has been struggling recently amid stepped-up competition as other retailers, even Costco, jumped on the organics bandwagon.

But in the hands of Amazon, Whole Foods could become a potent weapon against archrival Wal-Mart, the world’s largest retailer, which dominates the grocery world and has been stepping up its challenge online.

On Friday, Wal-Mart said it would buy Bonobos, a popular internet apparel retailer; last year, it acquired Amazon competitor Jet.com and appointed that company’s chief executive, Marc Lore, to rev up the Arkansas behemoth’s e-commerce operation.

News of the Amazon-Whole Foods deal pushed Wal-Mart shares down 4.7 percent Friday, while Kroger’s stock tumbled 9.2 percent. Costco shares were down 7.2 percent to $167.11.

“For other grocers, the deal is potentially terrifying,” Neil Saunders, managing director of consultancy GlobalData Retail, said in a statement. “Although Amazon has been a looming threat to the grocery industry, the shadow it has cast has been pale and distant. Today that changed: Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat.”

Not only competitors are wary.

 

Marc Perrone, head of the United Food and Commercial Workers International Union, which represents millions of grocery workers, said that Amazon’s “brutal vision for retail is one where automation replaces good jobs. That is the reality today at Amazon, and it will no doubt become the reality at Whole Foods.”

Stacy Mitchell, co-director of the Institute for Local Self-Reliance, a nonprofit that advocates for the development of local communities, called for antitrust regulators to block the deal, which she said “would dramatically amplify Amazon’s online market power.”

 

 

At the Whole Foods store in Seattle’s Interbay neighborhood, reactions among shoppers ranged from dread to curiosity.

“On principle, I’m just against one company owning everything,” said Dave Baldwin, 53, who lives in Ballard. “Everything’s going to be owned by Amazon or Google.”

His friend, Janine Henkel, said that something good could come out of it.

“It might bring prices down,” the 47-year-old said. “Whole Foods doesn’t really make things affordable.”

 

But Henkel added that she was ultimately concerned about three things: “Is it going to be good for the environment? Is it going to offer more healthy, organic, sustainable selections? Is it going to offer more jobs?”

Amazon agreed to pay $42 per share for the Austin, Texas-based grocer in an all-cash transaction, a 27 percent premium over Thursday’s closing stock price. The transaction, code-named “Walnut” according to securities filings, will be financed with debt. The breakup fee was set at $400 million.

Analysts with RBC Capital Markets called the deal “somewhat surprising,” given the size, but they acknowledged that Amazon has hinted at ambitious moves in new realms that would add a fundamental major “pillar” for its business.

The news pushed Amazon’s shares up $23.54 or 2.4 percent, to close at $987.71 Friday.

Whole Foods stock jumped more than 29 percent on the news. It closed at $42.68,above Amazon’s offering price, as stock traders speculated about the possibility of a bidding war.

Analysts with Barclays wrote in a note that although “very few entities could outbid Amazon” for Whole Foods, “many will do anything to make this acquisition more costly” or “prevent the asset from landing in (Amazon’s) lap.”

 

Amazon entered the $750 billion U.S. grocery market in 2007 with AmazonFresh, a service that delivers groceries to customers’ homes for a fee. The service is now available in 21 U.S. metro areas, as well as London and in Tokyo, but it hasn’t had the transformative impact of other Amazon businesses.

That’s in part because most shoppers prefer buying groceries, and especially fresh foods, in person. The logistics of moving fresh food are also complex.

But Amazon kept trying. After all, the grocery market is perhaps the largest untapped opportunity for an e-commerce giant that grew 27 percent last year, said Cooper Smith, who closely tracks Amazon at L2, a research firm.

“If Amazon is going to sustain its current growth rate, it has to get into groceries,” Smith said.

In recent months, Amazon has deployed various brick-and-mortar experiments with the aim of making people comfortable with the concept of buying food from Amazon, and eventually nudging them to move a big part of their grocery shopping online.

Seattle has been the epicenter of that experimentation, which features Amazon’s penchant for automation and tech panache.

 

In December, Amazon opened a store downtown crowded with sensor technology similar to that in driverless cars, allowing shoppers to buy items without going through a register. That remains an in-company test site despite expectations it would open to the public in early 2017.

A few weeks ago, Amazon made available to the public two grocery-pickup locations for Amazon Fresh.

The locations, in Sodo and in Ballard, have sensors that identify customers by their car license plates.

Looking ahead

The Whole Foods acquisition offers interesting possibilities for Amazon.

Smith, the L2 consultant, said Amazon’s technology and operational efficiency could give Whole Foods’ operating margins a boost.

There are also potential synergies from the fact that both companies cater to the same high-income customer base: Many Whole Foods shoppers are also members of Amazon’s Prime loyalty program, Smith said.

 

But there are also perceived incompatibilities. Jeff Green, a retail real-estate consultant, said it isn’t clear to him how the cultures of the two companies will merge.

Amazon’s approach, based on high-tech and relatively little personal interaction with customers, “has never been the Whole Foods model,” he said. “What happens to the Whole Foods brand?”

The acquisition would add Whole Foods’ 87,000 employees to Amazon’s bulging payroll, which as of the end of the first quarter had 351,000 people.

It’s unclear how much integration there will be in the long term between Whole Foods’ operations and Amazon’s tech-driven juggernaut.

Brittain Ladd, a former Amazon executive who worked on the company’s food-retail ventures until earlier this year, wrote in a LinkedIn post Friday that the acquisition addressed Amazon’s Achilles’ heel, a “lack of a best-in-class grocery-distribution network as well as their lack of knowledge on how to operate grocery stores.”

Ladd wrote that he expects Amazon to deploy the sensor technology it experimented with in Amazon Go across the Whole Foods system, redeploying staffers into other tasks and increasing profitability.

 

Amazon will also use Whole Foods stores to fulfill online orders, and also to display gadgets such as the Echo or Fire tablets, he predicted. All of this makes the acquisition an existential threat to Wal-Mart.

“Amazon just dropped a nuclear bomb,” Ladd wrote.

For now, however, it seems not much will change.

A person familiar with Amazon’s thinking said the company’s other food ventures would continue, independent of the acquisition.

The companies said Whole Foods will keep its brand and John Mackey, its current CEO, will remain in place at the company’s Austin headquarters.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Jeff Bezos, Amazon founder and CEO, in a statement. “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades — they’re doing an amazing job and we want that to continue.”

 

3 Philly-area JCPenneys stores to close on June 18

Suzette Parmley/The Philadelphia Inquirer - Darrell Jones leafed through the men’s workout shirts in the J.C. Penney store at the King of Prussia Mall recently, knowing his days there were numbered.

“They have sports apparel stuff that’s really cheap,” said Jones, 52, of North Philadelphia, who works in security. “I don’t understand why they’re closing, and in a mall like this.”

His Penneys store, as well as those in Philadelphia Mills and Willow Grove Park malls, will begin liquidating on April 17, in preparation for permanent closure on June 18. The dates were confirmed by a company spokesman this week.

“The J.C. Penney closings are very far from a surprise; the store has been steadily shutting down locations since 2014,” Madeline Hurley, senior analyst at IBISWorld Inc., said Friday.  “Mall anchor department stores like J.C. Penney, Macy’s, and Sears have all struggled to keep their brick-and-mortar stores profitable in light of falling mall foot traffic and rising competition from e-tailers and off-price stores.

“Although the slew of store closings is all but a good sign for the department store, J.C. Penney's future is less bleak than many other retailers, like Payless, which recently filed for bankruptcy,” Hurley said.

On Tuesday, Payless ShoeSource filed bankruptcy, joining a growing list of retail defaults in recent months. The moves stem from “increased discounter (including off-price and fast fashion apparel) and online penetration, and shifts in consumer spending toward services and experiences,” Fitch Ratings said the day after the Payless filing. “All of these factors have created a highly competitive retail environment and accelerated mall traffic declines.”

The Limited, Wet Seal, American Apparel, and BCBG Max Azria each announced more than 100 store closings in 2016.

Last month, Penneys announced that 138 stores and two distribution centers would be shuttering, affecting about 5,000 positions nationwide. The closures represented 13 percent to 14 percent of the company's  store portfolio. The majority of them are in regional malls.

Company spokesman Joey Thomas said that the targeted stores were generally poor performers and that the company was trying to better align “its physical store footprint with an online presence to create a seamless experience.”

Fitch was more emphatic: “We believe the proliferation of e-commerce will not lead to the end of traditional retail, rather a fundamental alteration of the sector will occur. To remain relevant, retailers could develop robust supply chains as part of an omni-channel platform that will use online sales as a complement to in-store sales.”

Mall owners such as Pennsylvania Real Estate Investment Trust, which owns Willow Grove Park, and Simon Property Group, owner of King of Prussia and Philadelphia Mills, were seeking replacement tenants for the closing Penneys stores, which had been long-time anchors.

“Other uses include value-oriented big-box locations such as TJ Maxx, Home Goods, Nordstrom Rack, Ollie’s, and Dick’s Sporting Goods,” said retail consultant Jeff Green. “Also, taking a vacant department store and repurposing it into a movie theater, restaurant hub, or food hall is a trend that is gaining traction.”

That was little consolation to Jones, who said the fierce competition just took out his favorite store for gym clothes.

“If you look at the prices here, it’s about half of what you’d pay at Modell’s or Foot Locker,” he said as he pulled out a Nike hoodie from a sales rack. “Now they’re closing.”

Building a Powerful Toolbox

Jeff Green & Jerry Hoffman/Shopping Center Business - As increasingly sophisticated and successful public-private partnerships come together with a renewed appreciation for the power and potential of compelling retail and mixed-use environments, a number of exciting projects are emerging–and reshaping urban landscapes across the country.

Such projects can provide a jolt of commercial and social energy into neighborhoods and communities, transforming empty lots and underperforming spaces, infusing municipalities with dynamic retail and mixed-use options, and creating true destinations with a memorable and engaging sense of place.

To optimize on these transformative developments and redevelopments, municipalities need to master a very specific skill set. Publicly-elected decision-makers, civic and community leaders, and municipal agency professionals should have a strong grasp of how to use the tools that cities have in their “toolbox” to assist the owners and developers of mixed-use projects. They should be familiar with strategies and techniques for recruiting and working with developers, property owners, tenant reps and leasing teams, and should have keen insight into the ways in which a well-conceived public-private partnership is essential in transforming a distressed shopping center/mall into a vibrant city-space.

This is particularly urgent in secondary and tertiary markets, where one or two developments can make a relatively dramatic difference, and competition with neighboring municipalities increases the urgency to add compelling spaces that attract popular brands and businesses.

Financial tools

The most basic (and arguably the most important) tools in the development toolbox remain those public-private financial instruments and arrangements. These tools can green-light projects that would otherwise not get built because the margins are simply too fine for private developers to take the risk. The ability of the municipality to use tools like tax abatements, tax incentives, and dedicated sales tax programs to support infrastructure improvements remains a potential difference-maker, particularly for both individual projects and for larger multi-site initiatives. While the basic tools have not appreciably changed over the last few decades, they have become both more popular and more accepted as communities are able to see successful examples of similar projects that were partly funded through these mechanisms.

Context

The big picture isn’t just a vague notion: when it comes to developing with public-private partnerships, it’s a very concrete (and very important) piece of the design and development puzzle. First and foremost, civic and community leaders need to be thinking about a cohesive and coherent master plan for not only the latest proposed project, but for the municipality as a whole. With a detailed master plan and a comprehensive market and feasibility analysis in hand, each component of a proposed project–retail, office, dining/entertainment, multifamily or hotel–can be placed into context not only within the project and across the municipality, but around the region as well.

That same principle applies whether you are evaluating a single site or considering multiple sites. The question that needs to be answered is not just what is supportable on this one piece of property, but what is supportable in the larger civic, market and regional context. A sophisticated market analysis is critically important in order to understand that context. The analyses are all the more essential when neighboring towns or communities are vying for the same uses. The municipality that executes a thoughtfully conceived center and establishes first-to-market status for certain brands or specific uses can get a significant leg up on the competition.

Stakeholders

Conducting a comprehensive market and feasibility analysis also helps municipalities facilitate discussions between key stakeholders.  This can improve the coordination and integration of different viewpoints and priorities into a cohesive development.  Among the most valuable tools in the development toolbox are the stakeholders themselves, and getting everyone engaged both in the early conceptual discussions and throughout the management and construction stages of the process.  The earlier the buy-in from those stakeholder groups, the better the outcome will be.

In addition to the wheel-greasing properties of collaborative engagement and popular buy-in, the project can be enhanced by exposure to inspired ideas, valuable feedback, and a wide range of different perspectives. Projects that benefit from stakeholder engagement are more likely to become a successful resource that truly serves the whole community. While involving stakeholders can be a complex challenge, the result is a project that is stronger in the long run. Key stakeholders include business owners, developers, leasing or tenant reps, community leaders, city councils, school board members, and other publicly elected officials.

Relationships

For stakeholders to work together in a positive, productive and collaborative fashion, relationships between different people and parties must be nurtured and maintained. The strength of both personal and professional relationships plays an important part in any complex project, but the inherently collaborative nature of a public-private initiative makes those relationships critically important. In some respects, those relationships are even more important in secondary and tertiary markets, where everyone knows each other, and the connections between different stakeholders tend to be more pronounced and interwoven. Even projects in larger markets often hinge on impacts and insights that disproportionately affect smaller communities/neighborhoods within those markets. The result is an irony that those outside the industry may find surprising: one of the most important tools in a brick-and-mortar business is the power and possibility of human connections.

Growth of E-Commerce Sales, Intense Competition Lead to hhgregg Store Closures

Taylor Williams/Midwest Real Estate News - Electronics and home appliances retailer hhgregg’s Inc.’s decision last week to close 88 stores — or roughly 40 percent of its total outlets — and three distribution facilities over the next two months came in the wake of a rough financial stretch for the company.

Net sales decreased 23.7 percent on a year-over-year basis during the company’s most recent fiscal quarter, which ended Dec. 31, 2016, and the gross operating margin declined 4.1 percent. The net loss for the quarter was roughly $58.3 million, despite the fact that this period encompassed the holidays.

The company was recently delisted from the New York Stock Exchange for failing to meet minimum requirements. Most commonly, delisting occurs when a security trades below $1 per share for 30 consecutive business days; hhgregg had not closed at or above this level since Jan. 9 of this year

As a supplier of consumer goods that span several different sectors, hhgregg has been hit equally hard by the rising popularity of e-commerce and competition from other multichannel retailers like Walmart and Home Depot, both of which have enjoyed upward-trending stock prices throughout the year’s early stages.

Its electronics division, in particular, was hit hard by this one-two combination, says retail consultant Jeff Green, president and CEO of Phoenix-based Jeff Green Partners.

“The rise of e-commerce has had its earliest and largest effect on the consumer electronics industry,” says Green. “This is coupled with the fact that discount department stores such as Walmart and Target have strengthened their consumer electronics departments significantly over the last decade, both in selection and price.”

Another big-name player in retail electronics, Best Buy, has adopted a store-within-a-store approach to remain competitive, a strategy Green believes could ultimately contribute to hhgregg’s salvation.

“Best Buy has developed a strategy to sublease much of its square footage to electronics manufacturers — Apple, Samsung, Magnolia Home Theater — who are building their brand by operating stores within a Best Buy store,” says Green. “Perhaps hhgregg’s strategy ought to be along the lines of Best Buy.”

Several news outlets, most notably Bloomberg, have reported that the company is on the verge of bankruptcy.

The Indianapolis-based retailer, which operates in 19 states, will see more than half its store closures in markets into which it recently expanded, primarily Florida and the mid-Atlantic.

Specifically, 15 locations in Florida alone will be shuttered as part of the move, followed by heavy closures in each of the three biggest states in the latter region: Virginia (16), Maryland (11) and Pennsylvania (15).

The distribution facilities set to close are similarly located: one in Miami, one in Philadelphia and one in Brandywine, Md. All closures are expected to be complete by mid-April, and will result in the elimination of roughly 1,500 positions.

Retail analyst weighs in on the future of malls

Fox 10 Phoenix - With announcement from major retailers such as Macys, J.C. Penney and Sears announcing store closures nationwide, shopping malls could be in for some tough times ahead.

One retail analyst said many shopping malls have "anchor spaces" for major department stores, and when an anchor store closes, it can be hard to find a retailer large enough to replace it, and oftentimes, the closure of a big box store at a shopping mall could be the start of a downward spiral for that mall.

Retail Analyst Jeff Green with Jeff Green partners said one major reason for the mall's decline is online shopping.

"As they go up, brick and mortar sales go down," said Green. "And so many of these retailers, especially department stores like Macy's, Sears, and J.C. Penney are in a bind now, because they've over built and now they're closing many, many stores."

Other reasons for the mall's decline may lie with changing consumer habits. Teens are no longer wanting to spend the day at the mall, and outsoor malls are changing how and where people shop as well.

Green said some brick and mortar stores do do well, because they have a product out for people to test.

"That becomes an experience, and that's what younger consumers want to see," said Green.

Green said while the future of traditional mall is not looking bright, there isn't necessarily a downturn in retail shopping, he did say brick and mortar stores will somehow have to adapt, and many malls could change in the future.

"I think the "C" and "D" malls will certainly go away," said Green. ""A" malls like Scottsdale Fashion Square or even the "B" malls like Arrowhead Town Center and some of the others in town will do just fine. They may have to down-scale some of their retail, and maybe bring in non-retail uses like housing, hotel, or offices."

To see the full segment, visit Fox 10 Phoenix.

Store closings are part of the business, but is this business as usual?

2017 is just two months old, but we have already experienced what feels like a year’s worth of major store closing and liquidation announcements from national brands. This spike in store closings seems to have rattled retail industry professionals, and has gotten retail analysts and observers talking about big shifts – and thinking not only about what comes next, but how painful the transition might be in the meantime.

 J.C. Penney just announced it will take out 140 stores by June. Over  the past few weeks The Limited has closed its doors, liquidating its assets and filing for bankruptcy, American Apparel is closing all of its 110 stores, BCBG is closing stores and restructuring, The Andersons is closing down its stores and going out of business, Wet Seal is closing down all of its locations, Macy’s announced the closure of 68 more stores, and Sears announced that it will be closing 150 Sears and Kmart locations.
 
To be fair, the first few weeks of the new year are always a turbulent time, when post-holiday closing announcements come out in a flurry of activity. But the dramatic uptick in closings feels different this time, and there seems to be an air of concern – perhaps even bordering on panic–across the industry. The topic is dominating conversation in and around the industry. What’s happening with Macy’s? What’s next for Sears? This seems to be all that people are talking about. It’s almost as if, for the first time, these announcements have prompted a broad-scale realization of the fact that shopping patterns are changing in fundamental ways.
 
This is hardly a new development, but it does feel like we might be at a tipping point: where big-picture trends come into sharper focus and events that have taken years to unfold are beginning to pick up some critical and game-changing momentum. Part of the reason for that sense is that there is such a large number of store closings and liquidations all at once, but it’s also that these aren’t small players, these are national brands (in some cases iconic names) that are consolidating or going out of business. We have been talking about the challenges facing brands like Macy’s, Sears, Kmart, and JC Penney for years now, but as closures pick up steam, the reality of what the implications of those challenges might be is sinking in, and those theoretical discussions are turning into conversations about how to deal with the real-world ramifications of these changes. It’s also worth remembering that this is just the beginning for Macy’s and Sears, both of which will likely be announcing more store closings later in the year.
 
Another reason why this feels different – and why so many retail professionals are paying very close attention – is that more stores are liquidating and going directly into Chapter 7 as opposed to declaring Chapter 11. Other brands (including The Limited, American Apparel, and Wet Seal) declared Chapter 11 before being forced to liquidate when they couldn’t secure financing. I can’t help but wonder if that’s happening at least in part because private equity firms are becoming increasingly leery about getting into retail. In an eyebrow-raising move that made headlines both inside and outside the industry, Warren Buffett recently sold all of his shares in Wal-Mart, dropping a cool $900 million in stock.
 
Despite the accelerated pace of closures and growing concern in some circles, the structural issues driving these big changes have not really changed. It’s not exactly breaking news that department stores are struggling, and have been for quite some time. The biggest issue on my mind remains a lack of any real point of differentiation–particularly at a time when online and discount operators have continued to carve out an increasingly large slice of the retail pie. 
 
Sears, which sold its Craftsman brand and is looking to sell its Kenmore brand, and which continues to see year-over-year comp store declines of around 10%, has been the poster child for these challenges. There are even some rumors floating that Sears won’t be around by the end of the year. I’m skeptical that that’s the case. Sears has so much valuable real estate it is in no immediate danger of going under and could go on like this for a very long time, even with a retail operation that is losing money and bleeding market share. The big question is, when will Chairman and CEO Ed Lampert decide that he doesn’t want to subsidize the retail stores anymore? For years now I’ve determined that with little to no value on the retail operating company side, Sears could leverage the substantial value in its real estate assets and become a real estate holding company – and a very strong one. In addition to closures, Sears is already consolidating some of the spaces in its existing stores, moving from two floors to a single-floor format in cities like Cleveland, Phoenix and Los Angeles. 
 
While big names have struggled to evolve, the continued growth of online retail remains the digital elephant in the room. It’s interesting to note that online sales were strong over the holidays, and while that strength isn’t necessarily a direct cause of closings, it certainly highlights the impact of a trend that has been building for some time now. Hence, my comment about a tipping point. I think it’s also important that online shopping is not just for young consumers anymore. Older shoppers are becoming increasingly comfortable with technology, and the phenomenon is expanding in a way that clearly transcends age. At the same time, younger folk are spending less time at malls and with traditional retailers – especially department stores. This store format just hasn’t been able to figure out how to combine retail shopping with the experiential element that younger shoppers prize.
 
The bottom line is that this is unlikely to be an anomaly or a blip on the radar screen. These closings are the result of a significant structural shift in the industry, and it’s something that has been building for some time now. We aren’t done seeing store closures, either. Expect to see more closing announcements from both the brands listed above and from around the industry. If I’m right, and this is the beginning of a true tipping point, the pace of change will continue to accelerate in the year ahead. For industry analysts and observers such as myself, the scale of what is clearly a seismic shift means that there isn’t much point to forecasting beyond 2017. The retail landscape will almost certainly look very different at this point next year. Buckle your seatbelts, because we are just getting started.
 
 

How Does Big Retail Fallout Affect The Valley?

Mark Brodie/WJZZ Phoenix - Over the past couple of weeks, we’ve heard about Macy’s closing 68 of a planned 100 stores across the country and The Limited closing all 250 of its stores.

With some big retailers downsizing, we wanted to get a sense of the landscape for the Valley.

To do that, I’m joined by Jeff Green, president of Phoenix-based retail consulting firm Jeff Green Partners.

With larger national chains closing some or all of their stores, Green discusses how that might that affect this region.

Listen to the radio segment here.

‘Challenging Retail Environment’ Prompts Macy’s, Sears to Shutter Stores

John Nelson & Katie Sloan/Midwest Real Estate News - Macy’s Inc. (NYSE: M) and Sears Holdings Corp. (NASDAQ: SHLD) both announced on Wednesday plans to close a large number of department stores in an effort to improve their long-term operating performance. Macy’s will close 68 stores and Sears will close 150 non-profitable stores comprising 109 Kmart and 41 Sears locations.

“We are taking strong, decisive actions today to stabilize the company and improve our financial flexibility in what remains a challenging retail environment,” says Edward Lampert, chairman and CEO of Sears Holdings. “We are committed to improving short-term operating performance in order to achieve our long-term transformation.” 

Jeff Green, president of Jeff Green Partners, a retail consultancy based in Phoenix that works with retailers and shopping center owners, suspects that the footprint of these department stores has contributed to the recent woes of Macy’s and Sears.

“Department stores, by sheer definition, are oversized for this changing retail environment and may be a critical factor, though only one factor, in deciding which stores to close,” says Green. “It is interesting to see just how large some of the older stores on the Macy’s store closure list are. For example, two suburban stores to be closed in Detroit are an average of 400,000 square feet, whereas the newer Macy’s stores are no larger than 140,000 square feet. Even 140,000-square-foot stores are oversized for the changing nature of retail going forward.”

Macy’s to Shutter 10 Percent of Portfolio

Cincinnati-based Macy’s Inc. announced the closure of 68 stores and layoff of 10,000 employees. These closures are part of the approximately 100 closing announced in August 2016.

These closures comprise roughly 10 percent of Macy’s locations, and will be implemented by mid-2017. The company also announced plans to eliminate layers of management to reduce costs, which will result in the layoff of roughly 6,200 employees. An additional 3,900 workers will be displaced by store closures.

“It is essential that we maintain a healthy portfolio of the right stores in the right places,” says Terry Lundgren, Macy’s outgoing chairman and CEO. “Our plan to close approximately 100 stores over the next few years is an important part of our strategy to help us right-size our physical footprint as we expand our digital reach.”

Of the 68 stores, three closed in mid-year 2016, including the stores at Laurel Plaza in North Hollywood, Calif., Ala Moana Jewel Gallery in Honolulu and Valley Fair in West Valley City, Utah. The remaining stores will be closed in the early spring, with two closing this summer.

Three other locations were sold, or are to be sold, and are being leased back by Macy’s. These include two San Francisco stores — Stonestown Galleria and Union Square Men’s — and a store in Tyson’s Galleria in McLean, Va.

Macy’s intends to close approximately 30 additional stores over the next few years as leases or operating covenants expire or sale transactions are completed.

As a result of closing 63 Macy’s stores in early 2017, along with the three closed mid-year 2016, the company’s 2017 sales are expected to be negatively impacted by approximately $575 million. This reflects the company’s ability to retain sales at nearby stores and on macys.com through targeted marketing and merchandising efforts.

Associates displaced by store closings may be offered positions in nearby stores where possible. Eligible full-time and part-time associates who are affected by the store closings will be offered severance benefits. The company estimates that 3,900 associates will be displaced as a result of these closures.

Four new Macy’s and Bloomingdale’s stores are currently planned and/or under construction, as previously announced. These include new Macy’s stores in Los Angeles and Murray, Utah, as well as new Bloomingdale’s stores in San Jose, Calif., and Norwalk, Conn. 

Macy’s Inc. also plans to open new Macy’s and Bloomingdale’s stores in Abu Dhabi, and one Bloomingdale’s store is planned to open in Kuwait, all under license agreements with Al Tayer Group. The company also plans to continue its expansion of Macy’s Backstage (within Macy’s stores) and Bluemercury (freestanding and within Macy’s stores).

All told, the store closures and layoffs are expected to generate annual expense savings of approximately $550 million. Macy’s plans to invest an additional $250 million into digital and store-related growth strategies, the company’s Bluemercury and Macy’s Backstage concepts and growth in China.

Macy’s stock closed on Wednesday, Jan. 4 at $35.84 per share, up slightly from $35.79 per share last year. For a list of store closures, please click here.

Sears to Close Stores, Sell Craftsman Brand

Suburban Chicago-based Sears Holdings is looking to transform itself from a store-based, asset-intensive business model into a membership-focused, asset-light business model. Sears will invest its efforts in building up its Shop Your Way membership platform, which is a membership network with tens of millions of active participants, according to Lampert.

The 150 Kmart and Sears stores collectively generated about $1.2 billion in sales over the past 12 months, but they generated an adjusted EBITDA loss of approximately $60 million over that same period, according to Sears. 

“The decision to close stores is a difficult but necessary step as we take actions to strengthen the company’s operations and fund its transformation,” says Lampert. “Many of these stores have struggled with their financial performance for years and we have kept them open to maintain local jobs and in the hopes that they would turn around. But in order to meet our objective of returning to profitability, we have to make tough decisions and will continue to do so, which will give our better performing stores a chance at success.”

In addition to the store closures, Sears has entered into an agreement with Stanley Black & Decker to sell its Craftsman brand for $775 million. The transaction includes the use of a perpetual license for the Craftsman brand, royalty fee for 15 years and a 15-year royalty stream on all third-party Craftsman sales to new customers. Stanley Black & Decker will pay Sears $525 million at closing and $250 million in three years.

Sears has also increased its liquidity by nearly $1 billion through both a newly entered $500 million real estate backed loan, secured by real estate properties valued at over $800 million; and a previously announced standby letter of credit facility of up to $500 million from affiliates of ESL Investments Inc., issued by Citibank.

Sears stock price closed on Wednesday at $10.36 per share, down from $19.02 per share last year. For the full list of store closures, click here.

Ax falls on 68 Macy's stores; Lehigh Valley Mall location spared

Jon Harris/The Morning Call  -  Struggling department store chain Macy's will close six stores in Pennsylvania this year, but its Lehigh Valley Mall location won't be one of them.

The retailer on Wednesday announced 68 store closings across the country, including the Macy's at the Plymouth Meeting Mall in Montgomery County and the Macy's at the Neshaminy Mall in Bucks County.

The other affected Macy's stores in Pennsylvania are in Mercer, Beaver, Lycoming and Washington counties. The six Macy's locations slated to close in Pennsylvania employ a total of 438 associates, who will be offered severance benefits or, where possible, relocation to nearby stores.

Lehigh Valley Mall, co-owned by Simon Property Group and Pennsylvania Real Estate Investment Trust, has a leasable area of 1.18 million square feet and is anchored by Macy's, Boscov's and J.C. Penney.

"If you look at the mall, it performs extremely well," said Green, owner of Jeff Green Partners in Phoenix. "You've got to assume that the Macy's also performs well."

Macy's spokeswoman Holly Thomas said the chain can't comment on sales by individual store.

The Macy's stores slated to close across the country are part of the chain's previously announced plan to close about 100 stores as it struggles to redefine itself amid changing shopping patterns. The company said Wednesday it intends to "opportunistically close" about 30 additional stores over the next few years as leases or operating covenants expire or sale transactions are completed.

The store closings are expected to hurt Macy's 2017 sales by about $575 million, and the company estimated 3,900 employees will be displaced.

"It is essential that we maintain a healthy portfolio of the right stores in the right places," Macy's Chairman and CEO Terry Lundgren said in a news release. "Our plan to close approximately 100 stores over the next few years is an important part of our strategy to help us right-size our physical footprint as we expand our digital reach.

"We are closing locations that are unproductive or are no longer robust shopping destinations due to changes in the local retail shopping landscape, as well as monetizing locations with highly valued real estate."

Macy's has been pressured by investors, such as Starboard Value, to get money out of its real estate, especially during a sustained sales slump, as traditional brick-and-mortar retailers struggle to compete with online behemoths like Amazon.

Starboard estimates Macy's real estate assets are worth $21 billion, more than the enterprise value of its retail operations.

And those brick-and-mortar retail operations registered a disappointing season of holiday sales, Macy's also announced Wednesday.

The chain said sales at its established stores declined by 2.1 percent in November and December when compared with the same period last year.

In a statement, Lundgren said the company expected sales would be stronger and pointed to changing customer behavior as one of the reasons for the decline.

"We believe that our performance during the holiday season reflects the broader challenges facing much of the retail industry," Lundgren said, noting that while Macy's active and cold-weather merchandise performed well, its sales of handbags and watches showed continued weakness.

Macy's now expects full-year adjusted earnings per share of between $2.95 and $3.10, down from its previous guidance of $3.15 to $3.40.

As of 5:50 p.m. Wednesday, shares of Macy's declined about 10 percent to $32.20 in after-hours trading.

Property Management: Mixing It Up

Samantha Goldberg/Commercial Property Executive - With the 2016 holiday season in full swing, retailers and retail owners across the country are hoping to capitalize on the increased traffic. U.S. holiday sales are expected to rise a solid 3.6 percent this year to $655.8 billion, according to the National Retail Federation, an estimate that bodes well for the retail industry. A strong performance would reflect the sector’s steady recovery from the Great Recession.

Yet some retailers will remain at risk, notwithstanding robust holiday sales. Disruptive forces, led by e-commerce and changing shopper preferences, are forcing retail real estate players to adopt a new property management playbook. Retail owners and managers are taking a fresh look at their strategies for using space, re-evaluating tenant rosters, recruiting higher-performing brands to their centers and overhauling vintage properties.

Mall Makeovers

Although change is a fact of life for all retail property categories, enclosed malls may face the most complex set of management challenges and most intriguing opportunities. The rise of e-commerce is undoubtedly contributing, although it’s worth noting that Internet sales are still a relatively small part of retail volume—just 8.1 percent as of the second quarter of 2016, according to the U.S. Census Bureau. Some observers contend that a shift in consumer tastes, especially in apparel, poses the biggest challenge to regional malls. That, in turn, is contributing to the decline of the traditional model for regional mall anchors. “The department store industry has been losing market share for decades,” notes Nick Egelanian, president of SiteWorks Retail Real Estate Services, an Annapolis, Md.-based consulting firm.

By the 1970s, department stores were starting to lose their status as one-stop shops for everything from clothing and appliances to stationery. “One by one, all of the categories that used to be exclusive to department stores became commodity retail outlets,” Egelanian said.

Meanwhile, department stores spawned off-price retailers like Marshalls and T.J. Maxx and “fast-fashion” chains like H&M and Forever 21. Such brands have expanded rapidly since the recession as consumers continue to seek out stores that consistently deliver new styles quickly and at low prices.

This trend is also analogous to the nation’s much-discussed gaps among income levels. “There’s a clear bifurcation between the highest-end and lowest-end brands. The part that’s really getting hurt is the middle,” Egelanian said. “If you’re a mall-based retailer…there’s almost no place left for you in this new world of aggressive discounting and throwaway clothes.”

In response, many mid-range retailers are closing underperforming locations, shrinking store footprints and devoting more resources to boosting online sales. That can leave owners in the lurch.

“Shopping-center owners are struggling to keep the retailers they have, and the retailers are having to now operate multi-distribution channels so that they aren’t focusing all their effort on brick and mortar,” said Jeff Green, president & CEO of Phoenix-based consulting firm Jeff Green Partners.

This trend has been accelerating recently. Macy’s closed 40 full-line stories this year and plans to shutter another 100 or so next year. Other middle-market retailers like Aeropostale, J.C. Penney, The Gap and Abercrombie & Fitch have been closing stores or plan to do so in the next few years. At the same time, many off-price retailers are heading in the opposite direction. Brands like T.J. Maxx, Marshalls, Ross Dress for Less and Nordstrom Rack have been adding close to 300 stores annually among them, Egelanian said.

Mall operators, particularly owners of Class B or Class C centers anchored by multiple department stores, are under pressure to figure out what to do with the empty spaces.

“These boxes represent not only traffic drivers but space, so the enclosed mall category is going to be under the most pressure over the next decade to rethink what is the regional shopping center and how should that product be reconsidered to deliver the right mix of space and utilization to consumers,” said Gene Spiegelman, vice chairman of retail services at Cushman & Wakefield.

Strategic Solutions

Many mall owners are seeing opportunities in buying back former department store space and repurposing it as a multi-tenant location that includes service-related retail or food-and-beverage concepts—the types of retail that don’t directly compete with e-commerce, Spiegelman said.

Food and entertainment now account for 22.1 percent of leased mall space nationally, up from 19.2 percent in 2012, according to CoStar Group data.

Off-price retailers also offer an attractive option to increase traffic and boost sales. T.J. Maxx and Marshalls produce roughly $304 in sales per square foot, on average, well ahead of $101 for J.C. Penney and $158 at Macy’s, according to eMarketer.

Owners with access to capital for major investments, which are often public companies, can take it a step further by creating lifestyle centers and adding a variety of experiences to entice customers, observed Holly Rose, executive vice president & director of national retail leasing at JLL. Favored strategies include bringing in components such as office space, a grocery store or a hotel. “You want to make it that destination place for everyday life, and the more reasons a consumer has to go to a shopping center, the better everyone is going to do,” she said.

Although owners and operators will frequently try these strategies during the next few years, not all of those malls will survive, Spiegelman predicted.

During the past six years, the inventory of major malls in the U.S. has decreased by about 200, and 125 or so have either been refreshed with new tenant mixes or redeveloped, according to a third-quarter 2016 shopping center report from Cushman & Wakefield.

Egelanian expects that the number of major malls will drop below 200 during the next 10 to 15 years, as thousands of new outlet and discount stores open. One bright spot is that “many of the B malls have been on good pieces of real estate,” Green said. That gives them long-term value, “whether it’s as a regional mall or (as) part of a mixed-use development with a strong retail component.”

Lower-quality malls that can’t attract a dynamic tenant mix and are serving less affluent or less densely populated communities are the most likely to close, Spiegelman explained. “Some malls are just going to suffer from lack of demand at any price,” he said, despite their owners’ efforts to hold on to retailers by increasing incentives or lowering rents.

“In many cases, the landlord will have to re-negotiate terms (on) which to keep them,” Green put in. Replacing a store can be a real challenge, so landlords will be “more creative about what they accept,” he added.

While traditional deals require retailers to commit to a five- or 10-year, fixed-rent lease, many retailers are now pushing for percentage rent, which means the landlord makes more money if the retailer is successful, Green explained. This structure makes it difficult to project revenue from rents, so owners find percentage leases less desirable than traditional leases. Retailers at these centers employing the percentage-rent structure have considerable leverage into negotiations, he said.

With online purchases growing as a share of retail sales volume, landlords and tenants are also grappling with the question of whether and how to incorporate online sales in rent agreements, Rose noted.

Class A Clout

In the competitive retail environment, Class A malls are prevailing because “they have the advantage of location, a high-quality and diverse tenant mix and more interesting shopping opportunities,” Spiegelman said.

The top 215 Class A regional, super-regional and lifestyle centers in the U.S. had a vacancy rate of just 1.5 percent, according to JLL’s second-quarter retail outlook. Nevertheless, they still have to “continually reinvest and reinvent to keep themselves relevant,” the report noted.

With that principle in mind, Simon Property Group is completing a $250 million renovation of the Galleria in Houston that features new luxury retail concepts, fine dining options like Nobu and a 200,000-square-foot flagship Saks Fifth Avenue adjacent to the brand’s former location. That space will become a multi-level extension with new retailers and restaurants, all opening in 2017. Also scheduled for next year is the start of construction on a luxury hotel and condo tower on the site of a demolished Macy’s.

Along with financial resources to reinvent properties, Class A mall owners also have the clout to negotiate fixed-rent leases because “there are so many (retailers) that want to get into the Class A mall … the demand is greater than the supply,” Green noted.

Efficiency Areas

Even though other retail property categories are generally less affected than major malls by today’s dramatic changes, owners of neighborhood and power centers are also adjusting their property management strategies.

A dichotomy between haves and have-nots is at play in the grocery-anchored/ neighborhood center category, with properties owned by REITs or other public companies faring best, Egelanian said. “Everything other than that is probably a lower-quality (property), where there are vacancies (and) weaker stores. And in today’s retail world, where you don’t have a lot of growth, those properties could be
in trouble.”

For many owners of neighborhood centers, streamlined operations is the top priority, Egelanian noted. “It’s incumbent upon these owners to weed out the least profitable stores and work on efficiency—achieving a low cost of operating and (having)
simple buildings that don’t have a lot of frills.”

The necessity retail that is these centers’ stock in trade also affords a reliable customer base and occupancy. Customers are looking for everyday products at good prices and want to get in and out of stores quickly.

“They’re serving the very local community with those day-to-day convenience items. Consumers ultimately need that personal visit,” Spiegelman said.

It also helps that neighborhood centers’ lineups—typically featuring drugstore or grocery anchors and service-related or restaurant tenants—make the category “the most e-commerce resistant of all shopping center types,” Cushman & Wakefield noted in its recent report.

Power centers have also been undergoing a transformation, Spiegelman said. “When the big boxes started to fail in the middle of the recession, the owners of power centers who had these big boxes had to figure out what to do.”

The power center sector has been nicked this year by the closure of 450 Sports Authority stores and by Office Depot’s announced intention to shutter some 300  stores over the next three years. But despite these setbacks, demand for well-located space offers opportunities to backfill vacant boxes with high-quality stores, Green noted.

“It’s surprising how fast some of these boxes have been picked up,” Green added. Specialty retailers like Whole Foods and Total Wine are expanding and looking for second-generation space. Desirable concepts like Ulta Beauty and off-price retailers like the ample footprints available at power centers.

Regarding the landlord-tenant dynamic, Egelanian suggests that demand for off-price retailers gives them leverage when they negotiate pricing with owners. For his part, Spiegelman believes that “no one has it easy. It’s a constant conversation of supply-demand pricing.”

And as Green pointed out, “rents are more focused on the five- or 10-year, fixed-rent deal; it’s a much more balanced relationship.”

Ultimately, a center’s success depends on the quality of the retailers, no matter the shopping center type. But owners are constantly experimenting to determine the right tenant mix for each property as the retail environment changes, Spiegelman said.

“It’s a lot of trial and error, and you have to be willing to make some brave adjustments and changes to survive.”

How Macy's and Sear's may invite other retailers to take their spaces

Suzette Parmley/The Philadelphia Inquirer - Empty nesters often downsize into space better suited to their new needs.

So do failing department stores that sit empty due to new competition and the rise of digital shopping.

Last month, Macy's Inc. announced it was forming a strategic alliance with Brookfield Asset Management to increase the value of its real estate portfolio. That portfolio is getting trimmed as falling traffic means fewer bricks-and- mortar stores.

Macy's - like Sears - is suddenly taking on more the role of landlord than department store. Both are looking to profit by inviting other retailers - and even new-concept department stores - into their old spaces.

"It's part of a long-term shift as the department store struggles to be more relevant," said Eric Rothman, portfolio manager at CenterSquare Investment Management in Plymouth Meeting. "They need to close stores in unprofitable locations, and a big part of their value is the real estate. They can sell, re-lease, or reinvigorate these properties to free up capital" with the aid of real estate firms.

Soon after Christmas, the parent of Macy's and Bloomingdale's is expected to identify the 100 Macy's stores that will close in early 2017 - on top of 38 that closed earlier this year - including the Macy's in the venerable Suburban Square center in Ardmore.

The Macy's stores at Plymouth Meeting and Moorestown Malls were identified earlier this year by top brokers as being on the endangered list after they were tapped by mall owner Pennsylvania Real Estate Investment Trust (PREIT) to begin the search for replacement tenants.

A PREIT spokeswoman said last week that the situation remains fluid, and that one of the two Macy's could remain open.

Macy's knows that much of its inventory sits on prime real estate and that it has to better manage its remaining stores.

Enter Brookfield, which has experience in managing assets in retail, office, multifamily, industrial, and hospitality.

Under the partnership, Brookfield has exclusive rights for up to 24 months to create a "predevelopment plan" for each of about 50 Macy's stores. The retailer can add stores and land to the deal.

"Partnering with Brookfield "is the best way to unlock the potential of those assets," said Terry J. Lundgren, Macy's Inc. chairman and CEO.

Jeff Green, who consults retailers on long-term strategy, said: "Macy's has begun to realize that, like Sears, the value of their company is in their owned real estate." So Macy's needs to "unlock" some value "by either subleasing portions of their store, or, more likely, selling the box and dirt it sits on to real estate investors."

This raises two key questions, Green said: Is Macy's still a retail company? And what will be the ultimate size and use of its "box"?

He said executives could shrink traditional Macy's selling spaces, or chunk them off and open its off-price Backstage format somewhere in the four-wall box. At the Macy's store at Oxford Valley Mall in Langhorne, Backstage now sits in the rear of the store's upper level.

Sears, another faded mall anchor, has also been in paring mode for the last few years. In July 2015, it created New York-based Seritage Growth Properties, an independent real estate investment trust (REIT) to better manage its remaining assets.

Seritage's growth strategy is based on taking space away from Sears. The trust bailed out Sears Holdings by buying 266 Sears and Kmart stores for $2.7 billion. Seritage gets 78 percent of its rent from Sears Holdings, which occupies all but 11 of the stores.

Sears pays Seritage rent of $4.31 per square foot on average, which is far below market rate.

Seritage aims to capture higher rates by slicing up Sears anchor stores into smaller spaces and re-leasing them.

Third-party tenants within malls pay an average of $11.23 per square foot, and newly signed third-party tenants pay $18.95.

Seritage has the right to "recapture," at no cost, up to 50 percent of the space now occupied by Sears in 224 properties. And it can recapture all of the space at 21 locations for a termination fee.

The former Sears at King of Prussia is now a Primark and Dick's Sporting Goods, while the Sears Auto Center will reopen soon as the sports-bar chain Yard House and Outback Steakhouse restaurants.

Mall owners like PREIT and developers call this "repurposing" the space.

Forming the REIT "is consistent with our plans to focus on our best stores, reward our best members, and pursue our best categories," said Sears Holdings spokesman Howard Riefs.

Playing a big role in Macy's transition is PREIT, which has been "replacing many Sears department stores throughout its portfolio with popular retailers across various segments," PREIT CEO Joseph Coradino said.

He cited Viewmont Mall, north of Scranton, where an old Sears will soon be replaced by a Dick's Sporting Goods/Field & Stream combo store that's under construction.

In 2012, Coradino said, PREIT malls had 27 Sears stores, and today, the firm has 11. He said that he expects PREIT to get back up to five Macy's stores from throughout its portfolio among the 100 anticipated to close nationally, and that demand for their spaces was "robust."

"Certainly, there's the possibility of new-to-market department stores," he said. "There's off-price retailers - of the luxury as well as more traditional variety - popular, big-box, and large-format stores, grocers, as well as lifestyle, dining, and entertainment offerings."

The sky's the limit, but what these stores won't be is a Macy's or Sears.

Macy's to sell Union Square Men's Store to Morgan Stanley for $250 million

Riley McDermid/San Francisco Business Times - Macy's will sell its Men’s Store in San Francisco’s Union Square for $250 million, the company said on an earnings call Thursday, as part of a broader effort to shutter 100 stores and reduce its brick-and-mortar presence.

"Macy’s will lease the Men’s store property for two to three years as it completes the reconfiguration of the main store," the company said in its investor relations statement.

"The company expects the transaction to close in January 2017 and expects to recognize a gain of approximately $235 million in January 2018. The company continues to explore options for its downtown Minneapolis, State Street (Chicago) and Herald Square (New York City) stores."

The retailer announced earlier this summer that it was in negotiations to sell the 263,640-square-foot San Francisco men’s store “for redevelopment.” The price of $950 a square foot is in line with Union Square prices.

Macy's declined to name the buyer but two sources confirmed it is Morgan Stanley (NYSE: MS).

“The Macy’s Men’s Store is a fantastic piece of property,” Jeff Green of Jeff GreenPartners, a retail real estate consulting firm, told the Business Times in August.

“The fact that more and more shopping is done online has affected the overall size required for Macy’s,” Green said. “Not only are there too many stores in the chain, the stores themselves are too oversized for this changing retail environment.”

The news of negotiations brought other warm reactions from other players in the Union Square real estate market and retail community in August, who were heartened that the area will soon have a new tenant.

"This a colossal building that’s been largely idle in the heart of Union Square," Julie Taylor, a retail broker with Colliers International, told the Business Times in August. "This is a move by Macy’s to monetize one of their most valuable assets."

Turkey or sales? How will Lehigh Valley stores handle Thanksgiving?

John Harris/The Morning Call - To close or not to close? That is the question for retailers this Thanksgiving.

Over the last couple of years, it wasn't much of a dilemma at all. Retailers started their Black Friday sales earlier and introduced us to a new shopping holiday that quickly became known as Gray Thursday. After all, brick-and-mortar stores couldn't waste a day against increasingly competitive online retailers — or could they?

This year, a growing list of retailers are deciding to close on Thanksgiving, giving their employees a day of turkey, stuffing and football rather than one filled with pushy shoppers, sales tags and cash registers.

Retail analyst Jeff Green, owner of Jeff Green Partners in Phoenix, said this the first year where a significant number of retailers are reconsidering whether to open on Thanksgiving, a shopping day that has brought "mixed success," and in the process frustrated employees who are forced to work.

"Making them work on Thanksgiving didn't make a lot of sense from a goodwill standpoint," Green said. "No. 2, they had to pay holiday pay, and No. 3, it wasn't penciling out as a profitable venture."

He also observed that many shoppers who venture out of a turkey-induced coma to shop on Thanksgiving go right for the doorbuster sale, check out and leave. "It showed me that it wasn't translating into cross-shopping," Green said.

One company trading in its cash registers for turkey — at least for one day — is office product giant Office Depot, which has a store in South Whitehall Township. The company's stores are slated to open at 6 a.m. Black Friday.

In addition, appliance and electronics retailer hhgregg, which has a location at the Lehigh Valley Mall, said all 220 of its brick-and-mortar stores will be closed on Thanksgiving, and open at 7 a.m. Black Friday.

They're not alone. Several retailers with a significant presence in the Lehigh Valley, including Staples, Barnes & Noble, Home Depot and Lowe's, also have decided to close on Thanksgiving, according to BFAds.net, a website dedicated to posting Black Friday news.

Even Mall of America, the nation's largest shopping mall in Bloomington, Minn., will be closed.

Some retailers and shopping centers will remain open, however.

For one, Lehigh Valley Mall will open at 6 p.m. on Thanksgiving and then close at 1 a.m. on Black Friday before reopening at 6 a.m. Les Morris, spokesman for Simon Property Group, which co-owns the mall, said the mall does not require its retailers to open but the majority choose to do so.

One of the mall's anchors is Macy's, the department store chain that Monday said it will open its full-line stores at 5 p.m. Thanksgiving Day.

Macy's spokeswoman Holly Thomas said most Macy's stores will remain open until 2 a.m. on Black Friday and then reopen at 6 a.m.

She added that Macy's surveyed its employees and the retailer is now "working diligently" to staff its stores with those who volunteered to work Thanksgiving. She noted any employee who works on Thanksgiving will get overtime pay.

Meanwhile, Boscov's, which has department stores at the Palmer Park Mall in Palmer Township and Lehigh Valley Mall, has not decided whether its stores will open Thanksgiving, CEO and Vice Chairman Jim Boscov said.

"We are looking to see what everybody else is doing — what the malls are doing, what the major department stores are doing — and then we'll make a determination," Boscov said.

While retailers that will close on Thanksgiving say the decision was made to benefit employees, Green said such decisions boil down to one word: competition.

"Retailers are like sheep," Green said.

When a couple retailers started opening on Thanksgiving, others followed suit, he said. Now, with more and more stores taking a pass on Thanksgiving sales, Green expects others to eventually follow the herd — sooner rather than later.

Other major retailers like Target, Best Buy and J.C. Penney are expected to announce their Thanksgiving weekend hours soon, The Associated Press reported.

"Next year, we're going to find most won't open (on Thanksgiving), or they'll open at midnight," Green said.