ICSC RECon 2012 reaffirms positive momentum in the shopping center business
The feedback from Kimco’s retailer and investor meetings at the ICSC RECon 2012 conference show there’s been steady progress in the underlying fundamentals of the shopping center business. With the exception of a few categories, such as office supply and electronics, the vast majority of today’s national and regional retailers have healthy expansion plans.
A few examples include Ross’ announcement to grow the chain from 1,000 stores to 2,000 stores, Nordstrom Rack seeking to grow from 105 stores to 250 stores in five years, and Walmart’s plans to open 135 supercenters and 85 neighborhood markets over the next 12 months.
With virtually no new development, many larger open-air shopping center REITS are reporting very high occupancy rates for their spaces of 10,000 square feet or better, as junior anchors such as T.J. Maxx, HomeGoods, hhgregg, Jo-Ann Fabric and Craft, and Michaels have absorbed the majority of the better-located boxes left behind by Linens N Things, Circuit City, and others.
Interestingly, there was little dialogue at this year’s show about the Internet and e-commerce — especially compared to last year when the subject dominated many conversations. The attitude today is savvy retailers will embrace the benefits of integrating their brick and mortar businesses with social media and e-commerce. At the same time, they will apply the benefits of understanding their customer’s wants toward better inventory controls and merchandising, resulting in more profits at the store level.
Retailers are, however, focused on per-square-foot productivity, and many are finding they can produce as much or even greater sales out of smaller footprints. Tenants such as Office Depot, OfficeMax, Kohl’s, Best Buy, and Burlington Coat Factory have all reduced their prototypical size, some by as much as 30 percent to 40 percent. This will create some challenges and value-add opportunities for retail owners, depending upon the strength of the location, the existing rent versus market rent, and the dimensions of the existing space.
Most industry professionals predict the remainder of 2012 will look much like the first half of the year, with performance in the retail sector expected to be uneven. Retailers that offer brand equity or value should do quite well, including those such as Costco, Macy’s, Nordstrom, Ross, and T.J. Maxx. Meanwhile, many industry professionals estimate that retailers targeting the lower to middle income levels — such as Kohl’s, JCPenney, and Bon-Ton — will post the weakest results.
Provided Europe does not implode, look for a continuation of slow but steady increases in rents, occupancy, and net operating income.