There is a lot of buzz on the web this week about the possibility of Apple being seen as an anchor for malls and lifestyle centers as opposed to as an inline tenant. The Wall Street Journal was the first to raise the issue, noting that Apple brings in revenues and shopper traffic that are actually more robust than those of traditional department store anchors, like Macy’s or Sears.
The Journal notes:
In Apple’s fiscal year through September, it had sales of $34.1 million per retail store. Macy’s much larger stores generated $29 million on average in sales last year, and J.C. Penney, just $16.1 million, estimates Michael Exstein of Credit Suisse.
The story’s premise hinges on two pieces of data—both of which seem to come straight from Apple. The story is pitched as if the Journal has dug around and discovered Apple’s secret sauce. But it almost reads as if Apple may have planted the idea itself, as a way of getting the discussion going.
Here’s the key paragraph:
More people now visit Apple’s 326 stores in a single quarter than the 60 million who visited Walt Disney Co.’s four biggest theme parks last year, according to data from Apple and the Themed Entertainment Association. Apple’s annual retail sales per square foot have soared to $4,406—excluding online sales, according to investment bank Needham & Co. Add in online sales, which include iTunes, and the number jumps to $5,914. That’s far higher than the sales per square foot and online sales of jeweler Tiffany & Co. ($3,070), luxury retailer Coach Inc. ($1,776), and electronics retailer Best Buy Co. ($880), according to estimates.
That figure jibes with some talk at last week’s NAREIT convention. Specifically, according to Edward Glickman, president and CEO of regional mall REIT PREIT, Apple’s sales per square foot tend to be 30 times higher than those of its competitors.
Meanwhile, according to comments made by Glimcher Realty Trust Chairman & CEO Michael Glimcher during last week’s NAREIT conference, adding an Apple store to Glimcher’s Polaris Center property in Columbus, Ohio will boost the overall mall’s sales-per-square-foot average by $50.
Of course, the importance of that figure is that a mall’s average sales-per-square-foot is one of the factors that determines how much rent a landlord can charge. So adding an Apple store can be a huge coup in terms of eventually driving rents upwards.
To put the $4,406 sales-per-square-foot figure into additional perspective, the sales per square foot average at regional malls peaked in 2007, when the monthly average was $415.71 per square foot, according to ICSC. Last year the figure was $386.43 per square foot and through March of this yearthe number is $400 per square foot.
Drilling down a bit, sales at entertainment and electronics retailers average $1,275 per square foot as a group. Clearly Apple is driving that number. And it’s also clear that Apple vastly outperforms its peers. Overall, Apple’s figure is 10 times the average for most mall tenants and about four times the average for all entertainment and electronics retailers.
Lastly, nobody can argue that the brand does an excellent job of running its stores, complete with first rate customer service and marketing buzz surrounding new product launches.
So you look at all that, and the case that Apple should be treated as an anchor seems pretty compelling. Yet as the blog Passions of a Zealot points out, as an inline tenant Apple pays many times the amount of rent that a department store would. Some people question whether the brand shouldn’t be elevated to anchor status because of the traffic it draws, complete with more favorable rental rates.
But there are other points to consider.
Mall anchors don’t just serve as a point of attraction for customers. By signing extra long-term leases for huge amounts of space they help property owners secure financing from lenders, according to this story from CNBC. Plus, department stores spend a lot of money on marketing and advertising out of their own pocket, which helps bring more shoppers to the mall.
Traditional anchors such as Macy’s [M 27.00 -0.29 (-1.06%) ] and J.C. Penney [JCP 34.11 -0.01 (-0.03%) ] do a large amount of local advertising, which helps to publicize the mall for its operators. They also sponsor community events.
“When is the last time you saw Apple do that?” asked Craig Johnson, president of Customer Growth Partners.
Regardless of whether Apple can successfully convince its landlords that it should be viewed as an anchor in its own right, the brand is certainly seen as a trailblazer by the retail community.
Earlier this week, department store chain JC Penney announced it was hiring Ron Johnson, Apple’s head of retail stores, as its chief executive. JC Penney likely hopes Johnson will help the chain grow its online business, while at the same time drawing customers to its brick-and-mortar stores, according to The New York Times.
Johnson may have his work cut out for him, however, given how different JC Penney’s position in the market is from that of Apple:
“Apple sells best-in-class product and faces basically little to no competition,” said Michelle Clark, an analyst with Morgan Stanley. “J. C. Penney, on the other hand, operates in an intensely competitive industry and sells merchandise that is undifferentiated versus peers and in fact has been lagging peers.”
CoStar’s First Look at Q2 Numbers Shows Continued Recovery
by David Bodamer July 6th, 2011
With the second quarter in the books, early indications are that the retail sector continued its recovery.
CoStar’s first look report said that the retail real estate market has now experienced eight straight quarters of positive net absorption resulting in a cumulative 99 million square feet absorption.
The overall vacancy rate remained steady at 7.1 percent.
Click for larger image.
National Highlights
low amount of new retail square footage completed, 7.4M square feet
in the second quarter totaled 26.8M square feet. This compares to more than 145M square feet
of retail space under construction in the second quarter of 2008.
the first quarter. While record low new supply has stabilized the retail vacancy rate rental rates
won’t increase until retail demand increases which would require significant increases in hiring
and wage growth.
Click for larger image.
Property Type Highlights
rates declining $.94 from the first quarter rental rate.
in the first quarter to 8.9% in the second quarter.
Lifestyle centers and malls has declined from more than a 56% rental rate premium for Lifestyle
centers in the first quarter of 2008 to less than a 30% premium today. This is due largely to two
factors. First, aggressive building of lifestyle centers during the last decade continues to haunt
Lifestyle centers as they are forced to trade occupancy for reduced retailer quality and reduced
rents. Conversely, malls significantly reduced their rate of new construction in the last
decade building less than 40% of the mall square footage built in the 1970’s.
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