Before the Blackout Took Over ICSC
SAN DIEGO-Before the massive blackout left millions across Southern California in the dark last Thursday, including ICSC’s Western Division conference held at the San Diego Convention Center, the tone during panels that day was reasonably bright. Eric Flamholtz, president of Management Systems Consulting Corp., spoke to attendees during his luncheon keynote, about the retail industry’s comeback, and how “now is the time to rebuild your business.” And Michael Kercheval, president and CEO of ICSC, pointed out that ICSC, in some measures, is paralleling the retail industry. “ICSC has seen a pick-up of activity and member attendance, so that is a positive sign,” Kercheval said.
Flamholtz, a professor of management at UCLA’s Anderson School, has advised some of the companies that made it out of the last crash with only minor bruises, including Starbucks, Simon Properties and Westfield for example. He told the estimated 3,500 attendees that it was “no accident” that they survived. “There is no magic pill to make a company successful during a recession,” he said. “There are fundamental things that have to be done ahead of time.”
According to Flamholtz, “the periodic financial tsunamis are not a matter of if, but a matter of when, so you have to prepare for them,” he said. Those three companies in particular, he said, “correctly laid the foundation for their success by spending several years getting stronger in their capabilities as opposed to just focusing on the deal.”
Flamholtz said that each of those companies spent a great deal of time and a great deal of money laying their business foundation and infrastructure. “A big question you need to ask yourself is: are you prepared for the next tsunami?” During the economic meltdown in the early 1990s for example, Simon Properties spent months putting together a list to eliminate bad properties, worked on their organizational structure and developed leadership and management development programs. “They worked on culture management,” said Flamholtz. “Today, they are one of the strongest shopping center developers in the world because of the changes they made.”
Starbucks didn’t want to revitalize the company like Simon Properties, said Flamholtz, “they wanted to take it to a multi-billion-dollar level.” He explained that “When Starbucks was still relatively small, it saw a potential threat from someone like McDonalds realizing their game.” So in preparation, they instituted a planning process, team building, and spent a lot of time and a lot of money to build the infrastructure and intellectual capital of their organization, he explained. “By not just focusing on its product, but its business as a whole, it has survived very well,” he said. “You win with infrastructure in the long run, not with the product.”
In the conference’s general session titled “Changes …Turn and Face the Space” and moderated by Tery Migliacio, VP of leasing for CIM Group, a group of industry experts explained how they “tuned their instruments to make their deals sing.” John Visconsi, a consultant for Kimco Realty Corp., said that back in 2008 with Kimco, about 30% to 40% of its properties were listed with brokers. Today, that number is around 90%. “Brokers are doing most of the prospecting,” he said “It has been very effective for us to use brokers over the last few years.”
Phil Hicks, president of David, Hicks & Lambert Brokerage in Greenwood Village, CO, said that his company goes out of town to look at what is happening in other cities for prospecting. “Instead of simply cold calling, we go and try to visit tenants and have face to face meetings,” he said.
When the panel shifted gears to the tenant’s specific needs, Tony Bernardini, VP of real estate for Smart & Final, said that his company is trying to stick mostly to neighborhood centers. “We have experimented a little with larger power centers,” he said, “but it hasn’t been very effective for us.” Jeff Fink, a VP of real estate with Jo-Ann Stores, said that Jo-Ann takes advantage of its ability to be flexible in a market that rewards flexibility. For Jim Lampassi, VP of real estate at PetCo, the site criterion hasn’t changed: all about convenience. “The one category we aren’t in is regional malls,” he said. “We just don’t see that as pick up a bag of dog food errand kind of play.”
For the selection process, Mark Salma, director of real estate for Ralphs Grocery Co., said that demographic research is always important, “but the good news is that we are able to service a broad range of customers because we have different brands,” he said. “It is good for us to have varying brands.” Fink says that Jo-Ann mixes the science with the opportunity. “We are very opportunistic driven,” he said. “I have no prejudice between Manhattan and Wyoming.” Bernardini said that Smart & Final uses demographics in all cases and although occasionally it will rule out a site due to it, it is used more on how it markets and merchandises a store.
One major finding in the group was the importance in food as part of a shopping center. Visconsi is putting more restaurants and fast foods in Kimco’s sites and Hicks says that in many cases, restaurants make the project. “We are starting to see the sit-downs come back,” said Hicks.
The other hot categories besides food, according to Visconsi, are grocery stores. “We have found a diversity and mix of tenants to work with—like spas, Goodwill, Dollar Tree and a lot of fast food, for example—but grocery stores are always good to have as anchors.”
Bernardini and Fink don’t favor any particular co-tenants, while Lampassi pointed out that it’s not the worst idea to play in a place next to Walmart because of the amount of traffic that comes by. “If people are shopping for food almost three times a week, how can you not want to be near it?” Salma said that another grocery store in its shopping center is not the ideal situation, but drug stores are great co-tenants. However, “a primary issue is for us to have the exclusive on food sales,” he said.
For an irreverent look at the ups and downs of the retail industry, check out Counter Culture authored by GlobeSt.com Editor, Ian Ritter.
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