In November, Americans will vote in the presidential election. With the US still fighting to beat the recession, and many retailers set to close, Noella Pio Kivlehan canvassed opinion among US analysts and agents to find out what the sentiment is across the pond
For the past few weeks, the American media has been buzzing with news of the upcoming presidential election. Come November, US citizens could be voting in their 45th president, if Barack Obama fails to get re-elected.
Obama’s chances are said to be 50/50 as the country struggles to get back on track after the recession, which hit as he took office. Set to oppose him is either Rick Santorum (above, right) or Mitt Romney (above, centre), who are locked in a close contest for the Republican nomination.
Despite the economy seeing modest improvements in the second half of 2011, the mood this year is one of caution as most companies look to improve balance sheets and strengthen core portfolios.
“Although the outlook for the US market is uncertain as we enter 2012, the economy is showing signs of resilience,” says Glenn Rufrano, global CEO and president of Cushman & Wakefield.
“Among the issues we face are the impact of the eurozone crisis and the presidential election. Consumers’ spending patterns will, on average, reflect the modest 2% to 3% growth expected for the year.”
Rufrano adds: “We are hopeful that consumer confidence continues to improve with the strengthening economy and that middle-market customers begin to spend more in 2012.”
So what are the presidential candidates promising?
Jerry Mason, executive managing director of Savills, New York, outlines the points made by Obama and Romney, who is considered to be the Republican nominee front-runner.
Obama (Democrat) plans to: extend the payroll tax credit – 160m Americans will net around $40 per pay check or $2,000 per year, boosting spending power by $32bn; create jobs by increasing spending on the nation’s infrastructure and giving tax credits to manufacturing companies that in-source jobs domestically; and introduce a “buffet tax” – a minimum 30% tax rate for people grossing $1m or more in income, which will reduce the middle class tax burden and increase disposable income.
Romney (Republican) proposes a 59-point job and economic plan, in which he will initiate five bills and five executive orders on day one of his presidency. Romney wants to promote economic growth through policies aimed at cutting the tax burden on businesses that both hire and spend capital domestically.
He plans to: introduce an American Competitiveness Act, aiming to cut the corporate income tax rate to 25%, helping to stimulate the economy by creating jobs and encouraging foreign investment; introduce an Open Markets Act to implement free trade agreements with Columbia, Panama and South Korea; reject the Employee Free Choice Act (a bill that would make it easier for unions to organise); increase the amount of capital expenditure that a business can write off, inducing companies to spend money and focus on expansion; and ensure that firms that invest in inner-city enterprise zones pay no capital gains tax and receive additional tax credits for hiring poor residents in those areas.
What are the hopes and fears for the US market in 2012?
Abby Rosenbaum, retail economist at CBRE, New York, says: “The retail recovery will remain in place but will not gain much momentum as availability rates are expected to be down slightly by the end of the year, compared with 2011. We expect to see rents begin to grow by the second half of 2012, but they will have a lot of ground to make up.”
The eurozone crisis is of great concern to Greg Maloney, CEO and president, Jones Lang LaSalle retail, Chicago.
He hopes that the fundamentals in Europe will continue to improve and that companies start hiring again in earnest. He says: “Expanding retailers should seize the opportunity to acquire big-box space in prime locations.”
But he worries that the crisis will continue or worsen, damaging the European economy and causing global stock markets to fall.
Maloney adds that the practice of showrooming – where consumers browse a wide array of products in stores then find them online for less money – will put added pressure on big boxes, especially electronics stores. He says: “The result will be decreased footprints, lower sales and a rise in closures.”
Which retailers should we be keeping an eye on in terms of growth and expansion?
The overall growth leaders are likely to be discount retailers such as Dollar General, Ross Dress for Less and Big Lots, believes Savills’ Mason. “These retailers can fill large footprints and generate strong sales volumes in a recessionary environment,” he says.
Other notable movers, adds Mason, are:
? Nordstrom, which continues to aggressively expand its lower-price concept, Nordstrom Rack; Nordstrom opened 18 new Rack stores in 2011 and is looking to add 15 more in 2012.
? JC Penney, which appointed Ron Johnson, former head of retail at Apple, as CEO late in 2011. Johnson is likely to focus on rebranding in 2012. JCP will look to build on the success of trendy in-store concepts such as Sephora and Martha Stewart.
? Starbucks, which is re-entering a growth phase, plans to open 400 new North American outlets in 2012 (200 of which will be in the US).
? Apple, which is looking to open at least 40 new stores in 2012. The giant computer company is beginning to tap into non-traditional retail locations, such as college/university campuses, and major transit hubs, such as Grand Central Terminal in New York.
Lee & Associates’ managing principal Peter Braus says: “I don’t think too many domestic non-food brands will expand aggressively. Capital is tight and everyone is very cautious. Food concepts will expand, however. Starbucks still has room for growth and newer brands like Chipotle are taking advantage of Americans’ taste for something other than traditional fast food.”
Who are the main investors?
Matt Winn, head of retail services, Cushman & Wakefield, US, says: “The sovereign wealth funds and well-capitalised public real estate companies have used market corrections to look for trophy assets in the major gateway cities.”
Is Simon Property Group still king among shopping centre owners?
“Simon is a powerful player in that arena,” says Winn. “Its portfolio includes both full-price and outlet [discount] offerings, giving it tremendous leverage with tenants.”
“Simon is still the number one regional mall owner, with General Growth Property number two,” explains Mason. “Simon owns approximately 160 regional malls, totalling around 160m sq ft of GLA. It has joint venture interests in 19 additional US malls, totalling 20m sq ft of GLA. Its regional malls average a 93.9% occupancy rate, with sales of $517 per sq ft.
“GGP owns approximately 120 regional malls, totalling 120m sq ft of GLA, and has jv interests in around 30 additional US malls, totalling 35m sq ft of GLA. The average occupancy rate in its regional malls is 91.6%, with sales of $453 per sq ft.”
Mason adds: “The majority of recent and planned retail development is in the grocery-anchored and outlet centre category. CBL & Associates and Tanger Outlets are among the most active developers scheduled to break ground in 2012.”
One of the biggest casualties of the US recession is the book chain Borders. It has closed 400 stores with an average footprint of 25,000 sq ft, creating around 10m sq ft of vacancy.
Who is filling vacancies created by the liquidation of Borders?
Mason says: “A number of smaller, private book stores are looking to take advantage of the void, and they are mainly seeking mall locations.”
He adds: “Books-A-Million is the best candidate to backfill most of Borders’ vacancies and currently it is the largest occupier of former Borders space.
“It is likely that Books-A-Million will continue to pursue desirable Borders locations as it has plans to add 30 new stores over the next 18 months.”
Could we see more retailers failing?
Yes, is the concise answer from most commentators. Savills’ Mason says the retail market is “still purging tired concepts and inefficient business models”. He highlights:
? Talbots (women’s apparel): it is accepting bids to be purchased and, if a deal cannot be reached, is likely to file for bankruptcy protection.
? Sears Holdings Corp (department store): it recently announced plans to close 100 to 120 of its 2,200 full-line stores in 2012.
? GAP (men’s/women’s fashion): late in 2011 it announced plans to close 189 stores in the US and to downsize many Old Navy locations. More closures could follow as the company shifts its focus overseas.
Peter Braus, managing principal, Lee & Associates, New York, agrees with Mason: “I can see Sears and Kmart going down the tubes if their prospects don’t improve,” he says. “Also, apparel tenants who don’t have a sustainable advantage will go under. Most people want ultra high-end (Gucci Group) or fast fashion (Forever 21, Uniqlo); ‘tweeners’ will suffer.”
