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Retail Expert Advises Companies To “Abandon The Malls”

29 October 2009 No Comment

Interesting article from Yahoo! Finance this morning regarding the move from brick and mortar retail stores to online retail.  This definitely plays along with the theme that I talk about a lot regarding retail and commercial real estate.  Basically, we have way too much retail in this country and the consumer is not going back to previous levels.  The result is closing of many retail stores and a disaster for commercial real estate management companies due to lack of leasing revenues.

Check out the following quote from the article:

First and foremost, many of these companies have a good portion of lease renewals coming up. I don’t want to see them re-signing leases. I want to see them completely exit these markets where the economics of the market no longer make sense. Pacific Sunwear (PSUN), I believe, has over 300 lease renewals up over the next two years. I don’t want to even see them entertain to stay in certain underperforming malls where anchor tenants have left. The stores in question are in bad locations economically, so even if you get lower rents, who is to say it’s low enough? So that is rooted in what I call the new realities in retail, where consumers increase savings, meaning what dollars allocated to spend are funneled to a select few who were there for their customer base in 2008 and 2009 in terms of price and merchandise quality.

Also, here is an interesting quote regarding online retail versus traditional retail:

Online is where retail is heading. It’s cost-effective and more consumer engaging. Today you can go on Gap’s Web page and pull up 20 pages of sale items. Even in good economic times, the sales will be there. Chances are a consumer has went into the store, they know what the product feels and fits like, so why not just order online if you’re going to save 25% to 50%?

If these ideas come to fruition, it’s bad for retail companies that have built way too many stores, but it’s even worse for highly leveraged commercial REITs such as Simon Property Group (SPG) – a stock that I’ve been short for some time.

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