Consider this: retailers like to be close to other successful retailers. As big retail like Home Depot or Bed-Bath & Beyond consolidate the number of outlets to the most successful ones, the centers they depart will likely see the smaller retailers depart as well. This will cause a downward spiral in rental revenues so if one of these centers is highly leveraged, it may be in big trouble, as will the lenders on that center.

It is not inevitable, but owners and their financiers will need to be creative and nimble to find new users, and maybe new uses for these centers. Maybe they are converted to call centers, self storage facilities, residential or mixed use buildings, community centers or other such (since they take all shapes and sizes, the highest and best alternative uses will be different in each case).

The more owners and their banks can anticipate this cycle and either prevent it or prepare for it, the less hard this correction will be. In larger centers, communities may need to be involved to avoid blight and to put these centers to new and creative uses as they are, or totally recast and reposition them into other productive functions.

The firm that I worked for did not operate in the retail sector. We did not believe that retail was a quality sector. Retail is a sector that is largely affected by consumer sentiment and the economy, both in it’s online and offline forms. When people cut back spending, discretionary items go. Many tenants in retail spaces sell items that would be classified as discretionary.

Look at all the big name retailers that have gone out of business lately: Mervyn’s, Linens N Things, Circuit City. Sears is in trouble. An argument can be made that all these retailers had flawed business models. Regardless of that, these companies going out of business created huge vacancies in retail properties. Losing these tenants means those buildings can’t generate revenue as well.

I support Corey’s line of thinking about the changes in retailing. I would also add to that the fact that people won’t be spending as much in the years to come. Much wealth has been wiped out in the last 2 years. It will take at least a generation to repair the psychological damage from this downturn. Consumers still need to get their balance sheets in order.

Your stance reminds me of what all of the financial “experts” were saying right before the real estate bubble burst when they were denying the fact that we were about to enter a recession.

Have you read “Purple Cow” by Seth Godin? Or his newest book “Tribes?” I recommend both of them. Particularly Seth’s book, “Purple Cow.” This book really hits on this topic and drives home the reality of where we are and where we’re headed.
Corey

The future in commercial real estate will always be about whatever transactions or interactions people must, or prefer, to do in person. The list of those will continuously change, but there will be some of those for a long time to come. It is not about “will there be” but about “which will be” the interactions in play. So, for investors or developers in real estate, the key is not whether to invest, but how.

Until now, a large part of the success of any commercial real-estate developer or investor (not speculator) has been the usual factors: a good buying price and conditions, reasonable loan-to-value ratios, positive cash flow, market research to determine uses and targets, and careful proactive attention to the tenant mix, tenant creditworthiness, and good relations with the tenants.

I don’t see much of that changing in the next 10-15 years. Some tenants will leave, but others will enter. Some tenants will downgrade, and others will grow. Land/office/retail space that is well-sited, well-managed, and has good tenants will still consistently outperform its competitors and command premium pricing. And that premium pricing will still provide attractive returns to patient capital.

This is a 5 year follow up to the original, which I’ve seen “Inside Wal-Mart”.

For you & others interested: http://www.cnbc.com/id/18803817/

Pudge

I had an interesting experience buying a laptop recently. Even though it is easy enough to buy on internet and you don’t have to pay sales tax, but there are times you want to try it out. You want to try out the keyboards and check the actual operational speeds etc. I got a pretty good deal on a lenovo , but when i got i realized i don’t like the business style keyboard there and had to get rid of it. and then i went to staples to actually check out the new hp pavillion, before buying it and realized that it was too shiny and metallic.

So the items where you need to have the feel will still be retail items. Though once you have the look and feel, you can buy them online, if that is cheaper and you don’t mind waiting for few extra days. So that makes sense for apple and dell to open stores as people want to feel those devices before buying them. But then retail stores would have to give other incentives, like matching prices to internet, to make the final sale.

From Mumbai to Delhi, I have never seen so many people. Every corner I went around, I thought there would be a calm side street like in New York, but it was yet another jammed scene with every twist and turn. Each block was its own little city… so at the end of my 2 week trip, I had one final client meeting just hours before my flight. I had only e-mailed this guy a few times and wasn’t sure about the value of the time we would be together, so it was a final add-on to the trip- and it ended up being the most interesting and informative. He was the liaison to an Canadian-based auctioneer for all kinds of products, but had helped get eBay up and running in India also.

He told me a few case studies about micro vs. macro selling. One example that best describes this idea… a north American shampoo company launched their product in India and wasn’t selling many big bottles. It was a good deal, but people weren’t buying the large bottle – even after a price drop. So they repackaged the shampoo into ketchup sized packets and sell way more than bigger packaging (through volume). Strange for us to think that way- go smaller to get more in sales.

In the USA, we always want more (20% more, buy one-get one free, etc). So it seems that we are selling retail items in bigger quantities to make people think they are getting more (Costco/Walmart). This does help move volume, but at the same time there is an interesting trend in food sales to make packaging bigger, yet give the customer less volume through perception – concave bottoms on jars, bulky packaging with less inside. But there are new markets to hit… find distributors in new areas and partner up with people already distributing products similar to yours to piggyback retail space. You might share some profits, but you reach more of an audience with less effort.

As the economy slowly turns around… maybe retailers will have to get creative and try to sell more volume with a smaller margin to make things affordable to more people. Difficult to do when you are balancing brand integrity and distribution channels (online, 3rd party distributors or self contained retail centers), but then again, retail centers in malls seem to have more and more comparison shoppers for online purchasers anyways. It’s almost as if it’s a live showroom for a virtual marketplace.

But… in the end, people want to do little things to feel good during this difficult time. We are a nation of consumers and it’s I’m sure it’s been difficult for many people to curb their impulse purchasing habits… so a small Hershey bar, McDonald’s cheeseburger, bottle of nail polish, new shirt are all now examples of mini-splurges during tight economic times. Combine effective marketing/advertising to convince people that they really deserve something little to make themselves happy might be a lot easier to make money in retail right now compared to up-selling larger homes, expensive cars or luxury vacations.

You wrote: “Fewer buyers are walking the trade show floors” This is very true. Last year in September the trade show we exhibited at in Chicago was well attended and there was market momentum. By November the show we did brought in about 50% fewer attendees. The momentum was very measured.

We exhibited at Print 19 in Chicago for 6 days last week. It is the largest show for the Printing Industry in the world in2009. Attendance was down more than 50%. For some exhibitors this show was a disaster because of poor sales and their cost of exhibiting. One machine manufacturer from the UK said he would never exhibit at this show again. His costs of bring in his equipment from the UK was a big loss because he did not sell any machines. How and why did he miscalculate?

Your instincts are correct about your blog. You need to get out in the market and get feedback. When I go to the shows I get the rejection and the positives I need to keep in a viable direction.

Bill
http://www.stopstatic.com