retail sector overview - san diego regional economic · pdf file ·...

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Retail Sector Overview

Jerry Engen, Senior Vice President

San Diego Development

Westfield, LLC

06.13.2012

• US employers added only 69,000 jobs in May, well below expectations.

• Government reports on jobs and housing in recent weeks have renewed concerns that the economic recovery is facing a spring slowdown for the third straight year – meaningful growth not expected until 2014.

• With the weak job market, signs of rising inventories and concerns about the European financial situation has U.S. retailers bracing for a bland Q2 2012.

• Growth in e-commerce is applying even more pressure on big-box retailers like Best Buy, Target and Barnes and Noble. Combined with an increase in buying via mobile devices, companies are having to find new ways of reaching and retaining customers.

• E-commerce sales predicted to hit $224.2 billion this year – a 15% increase over 2011.• Apparel and accessories category will lead e-commerce sales growth through 2016 – predicting 20% sales gains.• Buy 2016, apparel and accessories e-commerce sales will total $73 billion worth of online purchases – 20% of all online

retail sales.

Westfield Retail Overview/ 06.13.12 / 2

Economic Statistics

Sources: CBRE; Bureau of Labor Statistics; JLL Retail Outlook Q1; Marcus & Millichap; Reuters; U.S. Census Bureau News

2012 Annual Forecasted Sales

National 3.5%

San Diego 4.0%

Retail Unemployment Rate

National 8.7%

San Diego 9.1%

Jobs

Sales

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Economic Statistics

Sources: Colliers; JLL Retail Outlook Q1; Marcus & Millichap; Reuters

• Rents deteriorated substantially after the recession, but should begin to pick up modestly by the end of the year.

• As recovery progresses we should start to see a shift in rental rate growth to those markets with the strongest demographics including San Diego.

• San Diego will have the second lowest retail vacancy rate nationally, 4.2%, trailing No. 1 San Francisco at 3.1%. The national rate is projected 9.2%.

• Vacancy rates are approximately 50 basis points below their peak but still 60 basis points higher than their 10-year average, so it is still a tenants’ market and should continue to be through 2013.

• While vacancy levels in San Diego remain elevated, healthy absorption during the latter part of 2011 helped decrease the vacancy rate 50 basis points year-over-year.

Q1 2012 Total Vacancy and Average Rent

National 7.0% / $15.15 per square foot

San Diego 5.1% / $24.45 per square foot (up 1.2% from last year

Vacancy & Rental Rates

Q1 2012 Total Net Absorption

National 12,300,000 square feet

San Diego 104,960 square feet


Economic Statistics


Consumer Confidence

• Consumer confidence has regained much of the ground it lost last year and income and spending have also been heading upward; however, May hit the lowest level in four months.

• One factor that makes this spending temporary, is the drop in saving combined with the weather-driven spending, points to weaker spending growth in the months to come.

• Malls, power centers and outlets, which serve national retailers, are benefiting from an increase in consumer confidence – but neighborhood, community and strip centers in general continue to struggle to capture buyers.

PeakingMarket

FallingMarket

RisingMarket

BottomingMarket

Bottoming Market

All shown are tenant-favorable and are most likely to remain that way for the next quarter or two. The “bottoming market” is evidence by slowing rent declines and very little new construction

Atlanta, Chicago, Palm Beach, Washington, D.C.

Boston, Miami, Houston

Los Angeles

New York City, San Francisco

Orlando, Fort Lauderdale, Tampa

SAN DIEGO

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Consumer Trends


• Bifurcation of Wealth / Income – Wealthy got wealthier during the recession, “Loss of Middle Class” because they’re being included in “everyone else”

• Middle class lost 23% of its wealth during the Great Recession

• From May 2009 - May 2011 – daily consumer spending rose by 16% for those earning more than $90K/yr. vs. FLAT spending for everyone else

• Bifurcation of Consumption – Luxury vs. Value

• Wealthy spending on luxury goods � from Hermes to LVMH and jewelry has seen positive gains since beginning of 2010

• “Everyone else” looking for value without sacrificing brand/quality � 73% say “fewer, higher quality things” is preferred over “quantity, low quality”

• Technology – As the enabler to all trends � immediate gratification, information and access 24/7

• 47% of Americans are spending more time researching items before buying

• 54% of all purchases originated from an internet search


Major Retail Trends


• Best Malls / Flagships / ”A” Malls – Focus on closing ancillary/low performing locations; preferring flagship/destination malls that have high traffic and visibility and have proven sales performance, is a proven shopping destination and has a strong retail line-up already.

• Home sector is a prime example: i.e, Restoration Hardware closed majority of stores to then open 1 flagship location per city married with a comprehensive, well-conceived, high quality product catalog; West Elm and Crate & Barrel practice similar strategies.

• Apple has been pursuing a flagship strategy in the US and Asia.

• A&F offers exclusive merchandise in flagship locations.

• Uniqlo and Top Shop, both foreign brands, only open flagship locations in the US.

• Retailers Opening More Outlet Locations – (in answer to the consumer demand for value) than full price locations.

• American Eagle planned 90% of new stores in outlets with sales growing 20-30% in outlets v. flat in full price.

• Saks has (61 outlets v 46 full price stores). Bloomingdale’s, Ann Taylor, Chico’s and WHBM planned openings (50% outlets). Express, Johnston & Murphy, Lids, Janie & Jack, Sunglass Hut, NY&CO, Signet Jewelers, Banana Republic, The Gap all have active outlet strategies.

• Outlets offer higher margins and cost of doing business is less expensive than Mall locations.

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Major Retail Trends


Department Store and Big Box

• Department stores have been a bit of an anomaly to all of the trends in that Macy’s and Dillard’s, considered mid-tier department stores, have experienced very successful consistent months of positive sales and margin growth

• Macy’s implemented My Macy’s initiative over three years ago to better cater to the ‘local’ markets and this is now proving itself with positive sales momentum

• Mid-priced specialty retailers like Gap, teen sector, missy women’s sector has not performed � spending shifted to these department stores

• Low-priced department stores like JCPenney and Kohl’s have experienced inconsistent sales due to their pricing strategies (specifically JCPenney) and the fact that their core shopper is income limited and been affected by the recession


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Westfield Retail Overview/ 06.13 / 9

Westfield Developments

Westfield UTC

• $180M Revitalization, addition of dining terrace, new shops, full service restaurants• Transforming food court in casual, but elegant, climate controlled dining terrace • Updating more than 70 existing store facades• New play area, family lounge and total renovation of Palm Plaza into a retail-resort experience centerpiece• Fresh entertainment and dining choices including San Diego’s first Arc Light Cinemas, a 14-screen, 1,800-seat

luxury theater, Seasons 52, TenderGreens and Eureka! Burger• Expanded 24-Hour Fitness Super Sport Club • 2,400 new jobs, including 1,000 construction jobs • Overall Economic Impact of more than $175M


Westfield UTC Dining Court

BEFORE

AFTER

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Westfield UTC Dining Court


Westfield Developments

Westfield North County

• $55M Renovation• Two new full service restaurants• Dining court and restroom renovation• Painting interior and installing new lighting, flooring and soft seating; renovating children’s play area• Remodeling and updating all eight entrances to center and painting the exterior• Resurfacing of the entire parking lot• 150,000 three-level Target• 318 Construction jobs and 557 permanent jobs• Overall Economic Impact of $85M

BEFORE AFTER

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Westfield North County Dining Court

BEFORE

AFTER


Future Westfield Developments

Westfield Carlsbad

• Estimated $100+ million transformation• Center last enhanced in 1979

• Center transformation will add exciting new retail including:

• State of the art all digital 2,400 seat Regal Cinema• 24 Hour Fitness Super Sport Club with two outdoor pools• Five new sit-down restaurants• New Food Court• Great new national and hip local retail

BEFORE AFTER

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Westfield Horton – Urban Plaza

• New world-class urban facility• Westfield responsible to program park for 25 years• Provide San Diegans with a new, one-acre urban plaza perfectly suited for family events, civic gatherings and

holiday celebrations• Create new destination for tourists and conventioneers that spend valuable tax dollars in San Diego that are

used to help fund regional public services, such as fire and police• Westfield will demolish the former Robinsons-May building this fall and will deliver the site to the Agency, as well

as perform public improvements in the area

BEFORE AFTER



Westfield Horton – Remodel

• Estimated $150M transformation• Center has never been enhanced; only conversion of Rob-May and

Mervyn’s to tenancies• Center transformation will add exciting new retail including:

• State of art all digital cinema• New signature restaurants• New Dining Terrace• Great new national and hip local retail

BEFORE AFTER

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Westfield Horton Remodel

BEFORE

AFTER

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