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					                                                                                                                                                 October 1, 2007




All Shapes & Sizes
Retailers Are Leaving Format Templates at the Curb to Make Room for More Outlets
By Eugene Gilligan




S
       UBWAY Restaurants and electronics are becoming much more creative and are presence by building stores in different sizes.
       retail giant Best Buy Co. sell vastly willing to relax some of their formats to                               “It’s nimble and is rightsizing its stores to
       different products, but they also have meet the site demands,” he said.                                   the market, to an area’s population,” Green
one thing in common: a taste for expansion.               Such flexibility makes perfect sense, said said, noting that Best Buy is increasing the
And despite fears over the credit crunch (see Jeff Green, president of retail real estate number of new stores that are 20,000 square
“Will the Crunch Squeeze Retailers?” below),                                                                     feet or smaller, deviating from its standard


                                                                                                   IVAN FRIEDMAN
                                                                                                              RCS Real Estate Advisors
retailers are pushing ahead with plans for                                                                       45,000-square-foot footprint. The move also
new stores.                                                                                                      makes sense for merchandising, as many Best
    Doctor’s Associates Inc. now operates                                                                        Buy products—like iPods and cell phones—
28,198 SUBWAY stores in 87 countries,                                                                            are small and becoming smaller, he noted.
according to Subway Real Estate Corp.                                                                                Best Buy is not alone in its shrinkable
president John Devine, and 30,000 stores                                                                         philosophy. Circuit City Stores Inc. unveiled
are planned to be open by 2010. “The key to                                                                      a 20,000-square-foot format that will enable
success is that we have a varying footprint,” he                                                                 200 to 300 new stores in the next two years;
said, noting that the eatery opens                                                                                            the company had been opening
40 stores a week. “We can fit into                                                                                            about 10 stores annually. The
space that is 300 square feet to           Will the Crunch Squeeze Retailers?                                                 Home Depot is testing formats
                                                Does the credit crunch have the potential to derail retailers’ expansion
2,000 square feet.”                                                                                                           from 26,000 to 45,000 square
                                           plans? Many see at least some potential for a negative effect even as capital
    SUBWAY has 6,577 stores                weaves its way through the market. “I don’t doubt that retailers will be able      feet, considerably smaller than
in what it classifies as “non-             to receive financing to execute their expansion plans,” said Edens & Avant         its usual 105,000-square-foot
traditional” developments: 1,424           CEO Terry Brown. “I am concerned that the subprime lending problem could           stamp. And Wal-Mart Stores
of them are in Wal-Marts; 66 in            affect consumer confidence and trigger a consumer-led recession.”                  Inc. announced in late August
                                                Although Brown has not yet seen an impact, retailers like The Home
airports; 3,514 in convenience             Depot and Lowe’s may feel an effect, said Deborah Jackson, executive
                                                                                                                              that it was actively looking at
stores, truck stops and highway            managing director for Weiser Realty Advisors L.L.C. “Is a homeowner going          new formats; most observers bet
rest areas; and 128 in hospitals.          to put an addition on their house when they have trouble making their              that means a smaller version.
    Sean Whiskeman, managing               mortgage payment?” Weiser asked.                                                       “This is so overdue,” Green
                                                “It’s not visible, but I am getting the feeling that some retailers are
director of leasing and marketing                                                                                             said. “These retailers have a need
                                           getting agitated,” said Jeff Green, president of Jeff Green Partners. “Some
for Westrust Ventures L.L.C., a            retailers are being forced to grow—and Wall Street wants them to grow—while        to increase their store count, and
developer of lifestyle shopping            retail sales may start to decline.”                                                downsizing is a way to do it. In
centers, said that even big-box                                                                                               addition, sites to develop these
retailers, which in the past were                                                                                             big boxes are getting scarcer,
rigidly tied to their store formats, are now advisory firm Jeff Green Partners. He pointed while time-pressed shoppers may migrate to
willing to relax those standards in order to to Best Buy as a retailer particularly adept at convenient, small-store formats.”
increase the number of outlets (see “Fewer penetrating new markets and increasing its                                Indeed, serving busy shoppers is an
Square Feet: More Flexibility”). “Retailers presence in markets in which it already has a increasing focus for retailers, which now aim
to provide one-stop shopping, said Deborah     opened 10 stores last year and whose parent                                       retailers for their developments. In an effort
Jackson, executive managing director for       company is Williams-Sonoma Inc., and CB2,                                         to draw in relevant shoppers, many retailers
Weiser Realty Advisors L.L.C.                  a Crate and Barrel division that targets the                                      today include in their leases co-tenancy
    Luxury retail brands, too, continue to     urban shopper with a lower price point.                                           clauses that mandate that a mall or lifestyle
proliferate, Jackson said. One reason may                                                                                        center must include, for example, a certain
be that a greater portion of the population    Make Room for New Concepts                                                        number of fashion retailers that appeal to the
is willing to pay for luxury items, such as        New retail brands can frequently find                                         tenant’s target demographic, Landers said.
the latest handbag pictured on a celebrity’s   premium locations in new malls or lifestyle                                           Terry Brown, CEO of shopping center
arm. “Ten years ago, I don’t know if you saw   centers, a much easier means of entry than                                        developer Edens & Avant, believes that
so many Burberry items as you see today,”      established shopping centers that are fully or                                    specialty retail grocers—many of which
Weiser said. “Many luxury goods today aren’t   almost fully leased, Landers said.                                                cater to health-conscious consumers—will
viewed as being under exclusive ownership          At The Shoppes at Chino Hills, a                                              form larger presences in neighborhood retail
of the rich.”                                  400,000-square-foot lifestyle center that is                                      developments. Edens & Avant’s portfolio
    European clothing chains H&M and           under construction in affluent Chino Hills,                                       houses three Fresh Markets, and another is
Zara, both of which are expanding in the       Calif., developer Opus West Corp. offered a                                       on the way.
United States, are in great demand from        prime retail position in the women’s apparel                                          Another specialty grocer, Trader Joe’s,
retail developers, said Matt Landers, senior   section to lululemon athletica, a workout-                                        is also winning fans among development
manager of real estate development for Opus    and yoga-gear retailer. Previous relationships                                    companies. Some Southern California
West Corp. “If you have the opportunity to     between developers or owners and tenants                                          outlets, which typically run 10,000 square
bring in a new name … you add panache and      can facilitate such favorable arrangements.                                       feet, are reaching sales of $2,000 per square
excitement to your development,” he stated.                                                                                      foot per year, while supermarkets that are
“You’re going to generate foot traffic.”                 Fewer Square Feet: More Flexibility                                     four to five times as large average 25 percent
                                                                           Standard Footprint                New Format
    Retailers have an increasing ability to                                                                                      of that, said Philip Voorhees, senior vice
                                                Best Buy                         45,000                       20,000
target their ideal demographic by compiling                                                                                      president for CB Richard Ellis Inc.’s Newport
                                                Circuit City               30,000-35,000                      20,000
more detailed point-of-sale data from                                                                                            Beach office. In other words, Trader Joe’s
                                                Home Depot                      105,000                 26,000-45,000
stores and combining it with information        Source: Bloomberg News, CNNMoney.com and Minneapolis/St. Paul Business Journal
                                                                                                                                 can generate the same sales volume as the
from such sources as the Census Bureau                                                                                           big supermarket brands but in a smaller
to pinpoint where they want to locate new          “Everyone wants to have the next Gap,”                                        footprint.
stores, explained Cushman & Wakefield Inc.     said Ivan Friedman, president & CEO of                                                “Six or seven years ago, you might
executive director of retail services Gene     RCS Real Estate Advisors. “If you have a hot                                      want to own a neighborhood center that
Spiegelman. Many large retailers use this      concept, you can get the best location in a                                       was anchored by a Kroger or a Vons,”
data when launching new brands to reach        mall, as you’re going to generate the most                                        Voorhees added. “Now, you might want
segments that the parent brand has not         foot traffic. Older retailers, as they age, are                                   to see Trader Joe’s as the anchor of a
infiltrated. Spiegelman cited West Elm, a      going to get moved farther down the hall.”                                        traditional neighborhood center. Times are
moderately priced furnishings retailer that        Developers sometimes actively seek new                                        changing.”n

				
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