Thomas J. DeSimone, a partner at W/S Development Associates, at a NAIOP event on retail last week.
Mounting job losses, shrinking nest eggs and declining home values are forcing consumers to spend less and retailers are bracing for a gloomy Christmas.
“The holidays are a critical time for tenants, and Christmas sales will be a barometer not only for what happens in the next year but in terms of tenant confidence,” said Thomas J. DeSimone, a partner at W/S Development Associates. “I’ve seen reports predicting sales ranging from growth of 1.7 percent by a trade group to declines of as much as 15 percent.”
DeSimone spoke to a packed crowd late last month at an event held by the Boston chapter of the National Association of Industrial and Office Properties at the Westin Copley Place. If September sales are any indication, the last quarter of 2008 could be a disappointing time for retailers.
Chain stores’ sales grew by 1 percent in September, he noted.
“That number doesn’t sound too bad, and we’ll settle for that in October,” said DeSimone. “But that 1 percent was the lowest since September of 2001, when sales only grew .09 percent.”
Among the worst performers were luxury retailers that suffered more than anyone else, he said. Specialty apparel shops saw sales plummet 3.5 percent, and department stores were down 10 percent in September, he added.
The news was not all bad. The best performing retailers in today’s sluggish economy are so-called value retailers. Discount stores and wholesale clubs saw sales rise by 7.5 percent in September while drug stores sales increased by 4 percent.
‘A Different Consumer Out There’
Additionally, while prior recessions saw fewer customers in restaurants, this time there are differences, he said. Today, sales at the mid-priced restaurants including TGI Fridays, Panera Bread and Au Bon Pain have been strong, he added.
“Customers may not be going to places that offer $30 entrées, but they are going to the lower priced restaurants,” he said. “And people are not giving up on areas that make them feel good. Health clubs, spas and hair salons seem to be doing better than they would have done 20 years ago in this kind of economy. We have a different consumer out there.”
DeSimone put the best face on store closings. For the first half of the year, 2,900 stores closed nationwide. In 2001, more than 7,000 stores were shuttered, he said.
“We have seen a number of bankruptcies such as Linens n’ Things and Bombay, but out of that will come opportunities,” he said. “Competitors including Bed Bath & Beyond and HomeGoods see this as an opportunity, and mall owners see it as a way to re-tenant and attract a more viable merchant Â… That said, retail shopping center development in the U.S. in not a growth industry.”
The end of 2008 is shaping up to be the most difficult holiday season in memory for U.S. retailers, according to a report by Standard & Poor’s Ratings Services. Faced with a torrent of challenges, including a slumping housing market, rising unemployment, falling consumer spending, declining consumer confidence, stock market volatility and uncertainty in the financial markets, the domestic retail industry is reeling, the survey said.
“We are all asking the same questions: How low will it go? When will it turn? And where will the opportunities be? We’ve never had this much uncertainty,” DeSimone said.
