Mendelson: Economy Only Expediting Retail Shakeout

NEW YORK CITY-Executive managing director at Insignia/ESG Brad Mendelson says the changes in the landscape of the retail sector “don’t have much to do with the downturn. There’s a tremendous duplication of businesses out there. The economy is only expediting what would have happened anyway.” He says that while suburban retail areas will suffer in the coming months of adjustment or correction, markets such as Manhattan will remain mostly untouched by the shakeout.

“All those big-box stand-alones and mall anchors–that space will have to be refocused,” says Mendelson. “Mall construction going forward will have to be without the anchor model. Leases for mall space that stipulate stores don’t have to pay rent when there are no anchors in place will be another reason for change when owners see how tough things will become. Entertainment centers focused on movie theaters will also face serious problems. It will take creative reuse of space.

“There’s a lot going on out there in retail,” he adds. He points to chains such as Office Depot, Staples and Comp USA and asks, “How many places do you need to buy computers?” He explains, “There’s no profit margin in them. The direct sellers are reaching people over the Internet and all these stores buy their computers from the same manufacturers, so how can they compete in terms of pricing or what they’re offering?”