Brick-And-Mortar Retail Doing Solid Business, Mall Landlords Say

A Marshalls Plc Store Ahead Of Consumer Comfort Figures
A pedestrian carries a Marshalls Plc shopping bag in San Francisco, California, U.S., on Tuesday, March 3, 2015. The Bloomberg Consumer Comfort Index, a survey which is measures attitudes about the economy, is scheduled to be released on March 5. Photographer: David Paul Morris/Bloomberg

According to U.S. mall landlords, the rumors of the death of brick-and-mortar retail are greatly exaggerated.

“There is no question there is a lot of change,” Taubman Centers Chief Operating Officer Bill Taubman said in an interview at the International Council of Shopping Centers annual convention, which was held in Las Vegas this past week. “But retail has always been about evolution. Someone is always bemoaning the change in the market and how it’s impacting things.”

Bleak earnings forecasts from department-store companies, including Macy’s (M) andNordstrom (JWN), along with bankruptcy filings by firms such as Sports Authority and teen-clothing chain Aeropostale, have rattled investors in retail landlords. A Bloomberg index of regional mall landlords, which includes the shares of Taubman Centers (TCO) and Simon Property Group (SPG), has dropped almost 8% recently, double the decline in the broader Bloomberg Real Estate Investment Trust Index.

Retailers are being hurt by the rise of Internet shopping, changes in consumer tastes and declining visits to big-city shopping districts by tourists deterred by the strong dollar. Retail rents on Madison Avenue in Manhattan have fallen to $1,644 a square foot on average, down 3% from last year, according to a report this month by the Real Estate Board of New York.

Traveler Spending

Sales have suffered this year at malls that rely on shoppers from Europe and Latin America, said Taubman, whose properties include high-end destinations such as the Mall at Short Hills in New Jersey and Beverly Center in Los Angeles. Spending by travelers from China hasn’t dropped off much, he said.

Despite the turmoil, demand for space has held up, Kimco Realty (KIM) Chief Executive Officer Conor Flynn said during a panel discussion at the Las Vegas convention. New Hyde Park, N.Y.-based Kimco is adding more grocery stores to anchor its shopping centers, a reliable source of business, he said.

The market will get more clarity on retailers’ demand for space when Sports Authority auctions off its stores, Flynn said. Once the largest U.S. sporting-goods retailer, the company filed for bankruptcy in March after saddling itself with $643 million of debt.

“We are watching shadow supply,” Flynn said. “We don’t want a shock to the system where there is a ton of square-footage coming online at the same time.”

A Normal Course Of Business

Plenty of retailers are thriving, said Matt Lougee, a senior vice president at DDR (DDR), a company that owns shopping centers across the U.S. Lougee cited TJX (TJX), the owner of discounters T.J. Maxx and Marshalls that last week boosted its earnings forecast, as an example of a company that is benefiting from the shift away from full-price apparel. The perception that lost revenue is all going online isn’t accurate, he said.

“Those dollars are going somewhere,” Lougee said in an interview in Las Vegas. “They went to a different channel, not necessarily the Internet.”

Property owners in the retail business will always have to contend with filling empty stores as part of the normal course of business, Vereit (VER) Chief Executive Officer Glenn Rufrano said on a panel in Las Vegas.

“Retailers will always lose space, not because they are retailers, but because they are bad merchants,” he said.

Specialty Retail Report by Bloomberg News

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