As consumers alter their buying patterns, developers across the country are blowing up shopping centers and redrawing their mall maps to give more real estate to restaurants, nail salons and gadget stores and less square footage to clothing outposts.
Increased competition from online e-commerce sites has forced developers to retool their shopping emporiums to be more in step with the times and grab some of the 3.1 percent growth in retail sales predicted for 2016.
Even though e-commerce represents only 13 percent to 14 percent of retail sales, it continues to march along at a very fast pace. “Over the last 15 years, e-commerce has taken 30 percent of the growth in sales,” said David Shulman, senior economist with the UCLA Anderson Forecast. “But people still want to be out, be seen and touch things. Malls are out to sell an experience, which is why you are seeing more restaurants and other things at malls.”
The fast pace of commercial redevelopment is front and center in Los Angeles, where major malls such as the Westfield Century City, the Beverly Center and the Westside Pavilion have announced billion-dollar plans to retool their shopping centers and open them up to create more of a Main Street experience.
Westfield Inc.’s $800 million makeover of its Century City mall includes the first West Coast branch of Eataly, an Italian food emporium co-owned by celebrity chef Mario Batali; a new Nordstrom; an upgraded Bloomingdale’s; a new Macy’s building; and more open-plaza areas. About one-quarter of the high-end shopping center will be devoted to eateries.
Using the same retail model, the Beverly Center in March announced it was undertaking a $500 million remodel of its decades-old mall that will add more restaurants and open up the structure with skylights.
Retail sales have been tough this year—particularly for department stores, which saw flat sales in February compared to the previous year.
Macy’s same-store sales fell by 3 percent in 2015. Kohl’s reported same-store sales growth of only 0.7 percent for the same year.
“People still remain somewhat cautious,” said Jack Kleinhenz, the chief economist for the National Retail Federation. “While it was a while ago since the Great Recession took place, people have adjusted their purchasing habits.”
Shoppers today are buying more building materials and furniture to spiff up their houses or get them ready to sell than purchasing clothing. “Building materials and garden supplies were way up in February because of good weather and people investing in their homes,” Kleinhenz said.
Sporting goods sales were also doing well, up 6.5 percent in February over the previous year. “More people are wearing leisure apparel and buying more of that at a sporting-goods store than a department store. Leisure apparel has been very strong in the last year and a half,” Kleinhenz noted.
With so much inventory floating around, department stores and retail chains seem to be holding a sale every two weeks or introducing special 20 percent off discount coupons to lure buyers in. “Fifty-five percent of the people I interview said they are delaying their purchases compared to 28 percent last year,” said Britt Beemer, a retail analyst and founder of America’s Research Group, which polls 1,200 consumers a week to take the pulse of their retail-spending attitude. “Consumers are going out and gobbling up all those bargains and then hibernating.”
Consumer confidence in the country is all over the map—varying by region. States such as Texas, Louisiana and Oklahoma as well as California’s Central Valley, which are reliant on the oil industry, are seeing consumers pull in their credit cards.
The Midwest is looking very solid as strong crop prices have helped boost take-home pay.
In California, shoppers still were sitting on the fence. A recent survey by the A. Gary Anderson Center for Economic Research at Chapman University in Orange, Calif., showed that during the first quarter of this year, consumers were losing some of their optimism. Despite a relatively strong job market, things such as stock-market corrections, low housing affordability and higher rents negatively affected consumers’ attitudes.
Beemer noted that consumers were tired of treading water. “They are not better off, and they are getting tired of it,” he said.
Figures recently released by the U.S. Department of Commerce show March retail sales were up 0.1 percent from February if you took out sales of cars, building materials and gasoline. While that isn’t spectacular, it is movement forward.
“The economy keeps plugging away. It is not at a great growth rate, but we will take it,” said Robert Kleinhenz, executive director of research at Beacon Economics in Los Angeles. (He is the brother of Jack Kleinhenz.)
Job growth continues at a faster pace in California than in the rest of the country. The state’s employment roles in February increased 2.8 percent over the previous year while the rest of the nation’s job market was up 2 percent during the same period. Employers are expected to add to their payrolls for the rest of this year.
With rising jobs come rising real estate prices in Southern California. Overall average asking lease rates for retail in the Greater Los Angeles market grew by 6 cents during the first quarter of 2016, ending at $2.37 per square foot, according to CBRE Research. That is up 21 cents from the same period last year, with rates expected to continue growing through 2017.
Retail vacancies in the Greater Los Angeles area were at 5.3 percent in the first quarter of this year—almost the same as last year.
In February, housing prices in Los Angeles County were up 6.1 percent over the previous year, with the median price reaching $445,000, below the $550,000 peak seen in late 2006 and early 2007.
In Orange County, the median house price in February soared to $712,000, nudging up against the all-time high of $720,000, Robert Kleinhenz said.
New housing permits in California are on the upswing. In 2015, there were about 97,000 new housing permits issued in the state for single- and multi-family residences. This year, it is expected to reach 110,000. The long-run average is for 125,000 permits a year.
“The wild card is demographics,” Robert Kleinhenz said. “The older half of the millennials [born between the early 1980s to the early 2000s] should be—at this point—forming households—be they renters or homeowners,” he said. “That decision has been delayed by virtue of the recession and the long shadow it has cast. Somewhere along the line, the millennials will start showing up in the housing market.”
By Deborah Belgum | Thursday, April 14, 2016 California Apparel News