TrafficCourt

There were two stories in the past three days looking at grocery stores and prices. Reuters has a piece up about how grocers are on the defensive because of dollar stores. Such chains are expanding rapidly and capitalizing on consumers’ frugality in the face of the difficult economic conditions. Meanwhile, the Wall Street Journal today had a piece about the positives of low grocery prices. That story’s position is that deflation in food prices has made supermarkets more competitive with discounters and warehouse clubs.

So I’m confused. Are supermarkets doing better or worse?

Here are some other news and notes on retail and retail real estate from around the Web today.

• Another WSJ piece looked at the record quarter turned in by REITs. After several quarters of steep declines, REITs turned it around in the last three months. In the end, the quarter proved to be the best in the industry’s history.
• There were two interesting RetailWire threads today. One looked at the Sears new buyer protection program, which we blogged yesterday. The other thread examined whether in-store shops are a problem for department stores.
• Retail Chatr asks,”How Long Until We See A Steady Stream of Distressed Real Estate Assets For Sale and How Hammered Will Non-Distressed Properties Get?”
• Calculated Risk posted its monthly Economic Summary in Graphs.

I found this comment–in response to our “Retail Landlords Grant Temporary Deferments, Come Up with Barter System to Set Off Rent Declines” news analysis to be very interesting. I have put it here to see if there are additional thoughts on this topic.

Only a greedy, stupid lender would force a Landlord to hold rents, when a Landlord deems it necessary to help a tenant, and the Landlord that agrees to such language in a lending document must be weak to begin with. Who knows the business of shopping centers better than the people who have to lease them? An accountant only knows how to add up the numbers, and has no clue what needs to be done to keep a shopping center full with the right kind of tenant mix. Sure there’s a market out there if you want your center to have H & R Block on the mall, or some Temp operating because Gap couldn’t catch a break from the Landlord, but what is better for the mall is to have that Gap store operating. I’m not promoting a total collapse of a rent roll, but reasonable treatment should be the norm, and not something that anyone needs to boast about or hide. That is how this industry became an industry, and that is the way it will get back to profitability.

The whole industry went haywire 10 - 15 years ago when the accountants and the SEC took the business from the real estate/leasing teams, who were the entrepreneurs that made centers work in the first place. The “Trend” began when companies going “Public” had to figure out how to sell their companies for more than they were actually worth, which is pretty close to the definition of Greed. All this to guarantee that every dime of rent that was promised was paid. Now all you have is REITS and public companies that do business based on getting more rent every time they have a chance, which leads to market values (rent costs) that are not realistic. A good Leasing rep knows when a tenant needs help, and should always be free to make something work for, or with, the landlord and the tenant’s long term best interest in mind. If the tenant is strong enough to make it in the mall in the first place, then some day this tenant will return the favor when the LL needs it.

Sometimes trends lead us in the wrong direction, and the REITs, and SEC, have all fallen into this trap of hardball negotiations. When the trend finally reverses itself, landlords who bend a little, without breaking, will come out on top. Those who succumb to the greed, and are blind to those needing help, will be gone. Likewise, lenders who break a tenant or a landlord to keep their balance sheet clean should be hung out to dry, which is what is happening to them right now also.

Originally posted as a comment by Jim Donofrio on Retail Traffic using Disqus.

McDonald’s is adding some pricier Angus burgers to its menus nationwide. It’s had these in test markets–including New York and Los Angeles. Now it’s taking them nationwide.

Given that many retailers don’t supply employees with health care, it’s no big surprise that the National Retail Federation is against any legislation that would require companies to supply insurance to employees. It would raise costs at companies that are already under a lot of strain. The federation, however, has found itself at odds with the biggest retailer in the country. Wal-Mart has come out in support of the drive to make companies provide insurance. It’s the lead story in today’s Wall Street Journal.

Of course, Wal-Mart has a very clear motive for backing this legislation that has nothing to do with it caring about improving the health care situation for Americans, of which something like 50 million have no health insurance. Wal-Mart may support this effort because it will affect its competitors more than it will affect Wal-Mart, which already offers some coverage to employees. It could see this as a way of driving up the costs at companies that are trying to compete with it.

NRF’s position on health care can be viewed in this letter, dated January 2008. Its federation doesn’t believe companies should be mandated to provide insurance. It also is against the idea of a value-added tax to fund health care reform. Both of those tactics would hurt its members. The first would raise costs for retailers directly. The second could hurt sales by cutting back on how much consumers spend. Instead, the NRF recommends that the U.S. “consider requiring individuals to obtain insurance coverage.” Essentially, it wants the burden to fall on individuals rather than companies.

The NRF also supports implementation of health information technology–digitizing medical records–as a way of saving costs. It supports tax credits for individuals or small businesses to make coverage more affordable. There are other bullet points in the letter as well.

At any rate, NRF’s Neil Trautwein appeared this morning on CNBC to argue against the Obama plan. Trautwein never directly answers the question about who should pay for expanding coverage in this segment–not coming out in support of government-sponsored or employee-sponsored health care. The NRF letter seems to come down on the side of what’s being done in Massachusetts–with residents being mandated to buy insurance.

William Rudin, president of Rudin Management, discusses the future of the commercial real estate market with CNBC.

The National Restaurant Association’s Restaurant Industry Outlook Softened in May as Restaurant Performance Index Posted First Decline in Five Months.

Calculated Risk noted this marks the 21st straight month of traffic declines at restaurants. The blog also produced a chart of the index going back to 2002, which you can view below.

(Click for larger image)

Here are some other news and notes on retail and retail real estate from around the Web today.

• Bloomberg recapped a new CBRE report on retail rents on the world’s most expensive streets. The verdict? “Store rents tumbled in the world’s most expensive locations in the first quarter and will continue to decline through the middle of 2010.”
  

  New York City kept its top rank from a year earlier as the most expensive retail market even as asking rents on Manhattan’s Fifth Avenue fell 10 percent to $1,800 a square foot per year, the Los Angeles-based commercial broker said in a report today. Rents in Hong Kong’s most desirable shopping area ranked second at $975 a square foot and Moscow was third at $790. Paris and Tokyo followed at $776 and $771, respectively.

  “Everything cratered in the fourth quarter and that carried over into the first,” Ray Torto, global chief economist for CB Richard Ellis, said in an interview. “This is not a landlord market.”

• U.S. chain stores posted their best week since the beginning of the year, according to ICSC and Goldman Sachs. Sales rose 1.6 percent week over week.
• Consumer confidence fell in June following two months of gains.
• CNBC previewed the unveiling of further details of the Treasury Department’s PPIP program, which will take place tomorrow. There will be at least nine participants, including a joint venture between GE Capital and private investor Angelo Gordon & Co.
• REIT.com notes that new legislation signed into law by President Barack Obama on June 23 authorizes the administrators of the Thrift Savings Plan (TSP), the federal government’s defined contribution retirement program, to expand participants’ investment options, potentially including distinct REIT funds.
• Reuters provided an update on the CMBS market in the wake of S&P’s coming downgrades of some AAA-bonds.
• Our weekly newsletter story looks at the current state of concessions.
• Sears is offering buyers of appliances a guarantee in the event that they lose their jobs.

Bloomberg has not one but two videos about Sears’ new Buyer Protection Program. The Associated Press also reported on the program. The program sounds a lot like what some car companies are doing by providing consumers with a backstop in the event that they lose their jobs within a certain time frame of making a purchase. Hyundai especially has been able to maintain its sales better than competitors in part because of its Assurance Plan.

The free program, which starts Monday and runs through Aug. 1, covers appliance purchases of more than $399 made on a Sears card by cardholders who lose their job. Cardholders must have held a full-time job for at least 60 days when the appliance was purchased.

If a customer loses his or her job, the program will credit 1/12th of the purchase price to the account for each month the cardholder is out of work. If the person is still out of work one year after the purchase, he or she will receive an account credit for what’s left of the purchase amount and get to keep the appliance without any further payment obligations.

One constant piece of commentary I heard at ICSC’s RECon show in May was that retail property owners are trying whatever strategies they can think of in attempts to boost traffic at their centers. They are increasing the number of events. They are looking at traditional marketing media like local radio and television stations and newspapers. The more experimental owners are trying email blasts, Tweets, texts or setting up Facebook pages for individual shopping centers.

In that “Try Anything and See What Works” vein, Foothills Mall in Tucson, Ariz. is conducting a one day experiment by displaying live models in retail store windows.

Marketing Director Mary Stahl says Saturday’s test seems to be working. “We’re all trying to find ideas and ways to drive traffic into the mall and you have to think out side the box right now.”

Styles for Less store manager Belinda Pacheco hopes to see more mall promotions like this. “It brings people in. It shows we’re trying to do different things to try and get their attention.”

Stahl say it’s an expansion on an idea from retail stores in Chicago who report a 30% increase in foot traffic. “Our main objective is to let people know that it’s a wise move to come to this mall and spend their money. They’re going to get the best value.”

The tactic is sure to get some attention. It already has, clearly. The question, however, is whether doing things like this brings in people that are actually going to spend money at a property or whether it just draws people that have nothing better to do than gawk at models. I don’t see, for example, how having live models in a mall gets the message across that shoppers “are going to get the best value” by shopping at the property.

Events and publicity stunts, to me, seem like a shot in the dark, especially in this economic climate. People that don’t have money to spend but are looking for something to do can be drawn in by mall events. It will boost traffic, but not necessarily do a thing to help retailers get better sales numbers. In the end, it seems like owners need a more sophisticated and targeted approach that delivers not just masses of people but specifically engages consumers looking to spend money. That, ultimately, is what tenants need. And the ability to deliver paying customers can become a selling point for a landlord that separates your center from the property down the road, which does not have this capability.

Here are some other news and notes on retail and retail real estate from around the Web today.

• The Financial Times Alphaville blog took a good look at the way S&P will alter its method for rating CMBS bonds. The changes could result in $235 billion in CMBS bonds losing their AAA status. Henry Blodget also noted the potential downgrades at the Business Insider.
• The Wall Street Journal’s Heard on the Street commentary highlighted the potential damage commercial real estate may yet wreak on bank balance sheets. It noted that some banks have accounted for no hits to their commercial real estate loan portfolios despite heaps of evidence of massive distress in the sector.
• Seeking Alpha asks whether Sears Holdings should consider becoming a REIT.
• ICSC published its latest Retail Real Estate Business Conditions report. Among other things, the report highlights the jump in the U.S. personal savings rate.
• One of our sister publications, Business Finance has a look at sale-leasebacks as a strategy for firms looking to monetize their real estate holdings.
• Our Chart of the Week looks at the latest Moodys/REAL commercial property index numbers for retail. The retail index fell to 1.43 in the first quarter—the lowest level since the fourth quarter of 2004. (A score of 1.00 represents where prices were as of the fourth quarter of 2000.) The index peaked at 1.68 in the third quarter of 2007. In the five quarters following the peak the index fell by an average of 0.02 points per month. The drop from the fourth quarter of 2008 to the first quarter of 2009, however, represented a 0.13 point drop in the index.
• Our online feature looks at private equity’s checkered record in buying out retailers.

Dow Jones Newswires has a look at the trend of pop-up shops in urban markets. “Retailers are embracing the concept for a broader reach in cities like New York and Chicago as shoppers look for bargains or special items. Landlords see the short-term deals as better than no deal at all, receiving some income from hard-to-fill dark stores as they hunt for permanent tenants.”

This is a trend we’ve tried to track in recent years, particularly the shops that have showed up in the New York area. For example, Teen Vogue operated The Haute Spot at the Mall at Short Hills in New Jersey in December. Target had four bodegas in New York city last fall. Toys ‘R’ Us operated a pop-up store in New York during the 2007 holiday shopping season. JC Penney had a shop in Times Square in spring 2006. We also ran a feature story on pop-up shops in February 2006.

Here are some other news and notes on retail and retail real estate from around the Web today.

Deal Junkie posted this earlier today. It’s an interview with Philip Blumberg of Blumberg Capital Partners at the 2009 Global Real Estate Summit in New York. He says banks are in part not lending and holding onto TARP money because they know they will have huge writedowns to deal with as a result of commercial real estate.

Here are some other news and notes on retail and retail real estate from around the Web today.

• According to the Boston Globe, a group of merchants at Faneuil Hall Marketplace has raised $20 million in an effort to take control of the center. They’ve set up a Web site called FriendsofFaneuilHall.org.
  

  Yesterday, the retailers said they have received pledges from local celebrities, athletes, and other business owners to buy the lease from General Growth Properties Inc. and run the property themselves. They estimate they need to raise at least $50 million to have a chance at winning control of the Marketplace and stabilizing its operations, after years of unsettling changes and an influx of national chains.

  “It’s really about having locals gain control of this much loved landmark, which is not an ordinary piece of real estate,’’ said Carol Troxell, who runs several food shops there and is a member of the group raising funds, the Friends of Faneuil Hall. “Its historical significance to Boston makes it deserving of a local group of people who understand the market and are willing to maintain the vision of the property.’’

• MBA’s NewsLink features an an interview with Joe Franzetti, managing director of debt advisory services at Cohen Financial, who talks about some of the pressures smaller banks will face as a result of too much exposure to commercial real estate.
• Reuters reported on the latest AIA Billings Index. The index for May held steady with April’s number. Calculated Risk has more on the index, including a long-term chart, which I’ve copied below. You can also view AIA’s release on the results here.

  (Click for larger version.)
  

• Victor Calanog says the worst is still to come for retail real estate in a piece for Scotsman Guide’s Commercial Edition.
• Lastly, Seeking Alpha has a look at the latest CMBS delinquency stats.