Retail Sector Overview
Jerry Engen, Senior Vice President
San Diego Development
Westfield, LLC
06.13.2012
Economic Statistics
Jobs
Retail Unemployment Rate
National
8.7%
San Diego
9.1%
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US employers added only 69,000 jobs in May, well below expectations.
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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.
Sales
2012 Annual Forecasted Sales
National
3.5%
San Diego
4.0%
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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.
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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.
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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.
Sources: CBRE; Bureau of Labor Statistics; JLL Retail Outlook Q1; Marcus & Millichap; Reuters; U.S. Census Bureau News
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Economic Statistics
Vacancy & Rental Rates
Q1 2012 Total Vacancy and Average Rent
Q1 2012 Total Net Absorption
National
7.0% / $15.15 per square foot
National
San Diego
5.1% / $24.45 per square foot
San Diego
12,300,000 square feet
104,960 square feet
(up 1.2% from last year
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Rents deteriorated substantially after the recession, but should begin to pick up modestly by the end of the year.
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As recovery progresses we should start to see a shift in rental rate growth to those markets with the strongest
demographics including San Diego.
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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%.
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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.
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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.
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Sources: Colliers; JLL Retail Outlook Q1; Marcus & Millichap; Reuters
Economic Statistics
Bottoming Market
Peaking
Market
Falling
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.
Rising
Market
Bottoming
Market
Boston, Miami, Houston
Los Angeles
New York City, San Francisco
Orlando, Fort Lauderdale, Tampa
SAN DIEGO
Consumer Confidence
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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.
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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.
Sources: Colliers; JLL Retail Outlook Q1; Marcus & Millichap; Reuters
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Consumer Trends
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Bifurcation of Wealth / Income – Wealthy got wealthier during the recession, “Loss of Middle Class” because
they’re being included in “everyone else”
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Middle class lost 23% of its wealth during the Great Recession
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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
Sources: Colliers; JLL Retail Outlook Q1; Marcus & Millichap; Reuters
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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.
Sources: Colliers; JLL Retail Outlook Q1; Marcus & Millichap; Reuters
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Major Retail Trends
Department Store and Big Box
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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
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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
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Mid-priced specialty retailers like Gap, teen sector, missy women’s sector has not performed spending shifted
to these department stores
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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
Sources: Colliers; JLL Retail Outlook Q1; Marcus & Millichap; Reuters
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Westfield Developments
Westfield UTC
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$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 Retail Overview/ 06.13 / 9
Westfield UTC Dining Court
BEFORE
AFTER
Westfield Retail Overview/ 06.13.12 / 10
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Westfield UTC Dining Court
Westfield Retail Overview/ 06.13.12 / 11
Westfield Developments
Westfield North County
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$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
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Future Westfield Developments
Westfield Carlsbad
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Estimated $100+ million transformation
Center last enhanced in 1979
Center transformation will add exciting new retail including:
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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
Westfield Retail Overview/ 06.13.12 / 14
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Future Westfield Developments
Westfield Horton – Urban Plaza
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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 Retail Overview/ 06.13.12 / 15
Future Westfield Developments
Westfield Horton – Remodel
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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:
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State of art all digital cinema
New signature restaurants
New Dining Terrace
Great new national and hip local retail
BEFORE
AFTER
Westfield Retail Overview/ 06.13.12 / 16
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Westfield Horton Remodel
BEFORE
AFTER
Westfield Retail Overview/ 06.13.12 / 17
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