Observations & Conversations
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The news from the Commerce Department citing retail sales declined four times more than expected last month doesn’t motivate retailers to open more stores. |
| Seems as though
every conversation I have lately the first five minutes is spent discussing
war, the next five on how February retail sales sucked and, with some
long-winded souls, it goes on for forty-five minutes on how tough it is to
do deals right now. Well, with news from the Commerce Department citing
retail sales declined four times more than expected last month, with
building materials dropping 7.5% (the biggest drop on record) clothing and
accessories dropping by 3.6% and furniture sales seeing a 1.6% decline,
these statistics don’t motivate retailers to open more stores. Analysts are
saying the economy would be helped with an interest rate cut and a tax-cut
stimulus. To steal a line from the Mrs. America Pageant, I think world peace
is the only stimulus we need. Hopefully, Spring will help rejuvenate retail
sales for at least a short period. One conversation I had was with a fellow whose company builds middle-market hotels with four or five retail outparcels, so of course food concepts are a major interest to him. We were talking about what went wrong with McDonald's and Burger King. Then the discussion got sidetracked on Speigel/Eddie Bauer, The Gap, The Wiz, Kmart, Ahold and a whole host of other retailers that are being hammered. Later in the day, I was comparing notes with a friend on what retailers are doing to stay profitable besides cooking the books. We both decided we wish we were paid big bucks to make stupid decisions that some of these retail gurus saw as the road to enlightenment and money in the bank. Here's some of the winners of the stupid move awards: McDonald's and Burger King are killing each other with a ninety-nine-cent price war stateside, however McDonald's is trying to resurrect their image of peddling fat in the UK by selling bags of sliced fruit with a Big Mac. The business model of let's sell it below cost to annihilate our competitor and shoot ourselves in the foot at the same time doesn't work. Spiegel/Eddie Bauer is on its heels and we decided that Eddie Bauer has a great product, but they just forgot to advertise like a retailer should. They are stuck in thinking that the company is a cataloger first and a retailer second. Think about it, when is the last time you saw an Eddie Bauer ad in a local newspaper, a post card or flier to visit their store, or heard a radio ad or saw a television spot. The Gap must have performed lobotomies on their merchandising execs a few years ago when they decided to abandon their customer and turned the Gap into a leather warehouse. Then they put some lingerie on the floor, introduced cosmetics and shoved the jeans, their mainstay, to the back of the store. But I have to admit their ad campaigns have been great. The Wiz had bad timing in a cutthroat market. They couldn't grow fast enough to play with the big boys on the East Coast and it's parent company never seemed too committed to being a retailer. Kmart is just a fiasco from the word go. A few years ago, their big thing was to put grocery items at the front of the store so people would do more convenience daily shopping. They forgot that the milk expires before you can get through the checkout line. Then they decided to redo their signage with just Big K. The only benefit was to the sign salesman. Recently, Kmart announced that they are upgrading their clothing lines. I wonder how much their price points will increase? When I was on the phone, a form letter from the president of Ahold got dropped on my desk stating that no irregularities in the $500 million in overstated earnings were found in their US retail operations, and stateside there will be no personnel changes. However the president, CEO and CFO of the parent company resigned and they plan to continue opening stores. I'm sorry, but no matter how big a company is, somebody had to work hard at overstating $500 million in earnings over a three-year period. We also talked about retailers who three years ago were demanding huge TI expenditures. Then, landlords were happy to give it. Now, landlords don't want to touch a lot of these retailers with a ten-foot pole. One landlord told me how Old Navy was in the game plan for one of his sites two years ago and they walked away from his project and just a few days ago they approached him about resurrecting the deal. Now he's not sure if he wants to pursue them, since he's uncertain about the retailer's future. We also talked about how Kohl's and Wal*Mart are taking over and some of the things they do right. Mervyn’s must be aware of Kohl’s invasion too because they’re kicking off a $15 million ad campaign to counter attack Kohl’s entrance to southern California with its recent opening of 28 stores in the market. Ted just finalized a deal with Kohl's not too long ago and they must be a decent company to work with, since I didn't hear ranting from Ted about the struggles of the deal. I'm not a Kohl's shopper, but I give them credit since every time I open my local newspaper they have a 4-color pamphlet. I read that Kohl’s spends $300 million annualy on national advertising, about three times that of Mervyn’s. I remember in the old days when I was cutting my teeth in Leasing #101 and my mission was to lease distressed centers. Often, the leases were structured with little to no rent for the first few years, if the retailer spent a certain percentage of gross sales on advertising with the center's name and location in the ad. I'm not saying that landlords should give away the farm for a tenant that advertises, but that not enough landlords even inquire about what the retailer is going to do to draw in customers. Or they just don't bother looking at the big picture beyond how much rent is dictated by the lease. A side note, I was cold calling to sell ad space and a developer of millions of sq.ft. said he was "anti ads" and don't take the "no" personally, that he just doesn't believe in advertising. To each his own, but I wonder if he does deals with retailers of the same mindset? On a different note, I know Ted mentioned the passing of Barry Davis. He will be missed. Unfortunately, there aren't enough good guys and we now have one less. I've never saw Barry without a smile and we always had a great time discussing the latest antics of his daughter and my son from when they were babies through the teenage years. I know my sentiments are shared with lots of you. He was a truly great person. Until next month, Ann O’Neal Publisher |
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