It’s no secret that apparel chains are struggling, and as a result, are cutting their expansion: Chico’s is reducing its growth plans to 10% in 2008, down from the 12% to 15% expansion in past years. PacSun is closing 74 demo units, Talbots is eliminating its mens and kids chains, Ann Taylor is shutting 117 units and Liz Claiborne discontinued its Sigrid Olsen chain.

This could leave developers of lifestyle centers, so dependent on clothing shops, in a quandary. Could the struggles in the apparel business affect lifestyle center leasing and development? Developers disagree.

“The business is bifurcated,” said Daniel Hurwitz, president and COO of Cleveland-based Developers Diversified Realty, at Deutsche Bank’s 2008 Real Estate Conference, held in New York City in January. “We are seeing some resistance to the lifestyle arena from certain tenants.”

No more so than other formats, others say.

“There is a slowdown in general because of the economy, but there isn’t a disproportionate slowdown in lifestyle centers,” said Terry McEwen, president of Poag & McEwen Lifestyle Centers, Memphis. Retail sales are up about 3%, McEwen noted, so the results are “not disastrous. The companies that know how to open stores will prevail and actually position themselves to do well in the future.”

Mall construction, in fact, faces a greater slowdown, giving lifestyle centers an opportunity to pick up the stores that are expanding, albeit more slowly. And some chains continue to grow and even launch new formats:

Even so, retailers are carefully scrutinizing their landlords, and doing deals with those they trust, said Craig Wesemeyer, vp and director of leasing for Atlanta-based Cousins Properties. This situation would favor the larger, better-established lifestyle-center developers. Expansion is not completely dead, he notes, as retailers still have growth commitments. American Eagle and Coach, among others, continue to expand. Still, caution is the watchword.

“Everyone is asking if they need to do a store in this environment,” Wesemeyer said. “People are gravitating to what they know. The new development will take a little longer.”

Those who are not expanding are either foolish or have other reasons, McEwen said.

“When a retailer has a bad quarter, a lot will stop expansion. That’s silly,” McEwen said. “When you do a deal, the store won’t open for a year or two. Leases run for 10 years [or longer]. You know the economy is not going to be bad for the next 12 to 32 years. It’s silly to cut back your expansion for a bad quarter.”

Instead, he said, stores cut back because of more fundamental problems – a problematic brand, or problems with Wall Street. Smart retailers, he said, “will outposition the competition.”

In addition, developers can look to local tenants to fill in some of the gap, and take advantage of lower land costs to find opportunities for future building – as long as they have cash.

“This is a great market for people like Cousins and those with the wherewithal,” to continue to grow, Wesemeyer said. “We can close on land, and the terms by which we can do these deals continue to get better.”

“This correction we’re going into is probably a good thing,” McEwen said. “It’s been 17 years of good times, and in the last few years so much capital has been chasing projects.”The result, he said, is that some marginal projects have been built. Slightly declining demand will result in more realism, and a stronger industry.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


NOT FOR REPRINT

© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Dig Deeper

 

GlobeSt Net Lease Spring 2024Event

This conference brings together the industry's most influential & knowledgeable real estate executives from the net lease sector.

Get More Information
 

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2023 ALM Global, LLC. All Rights Reserved.