Among the most popular means of expansion is franchising with established international operators. The expectation is that this approach helps reduce the risk of operating in previously unchartered waters. The biggest beneficiary recently has been M.H. Alshaya Co., who operates over 1,700 stores in 16 markets across the Middle East, North Africa, Turkey, Cyprus, Russia, and Poland. M.H. Alshaya Co. is the retail business of the Alshaya Group, which was founded in Kuwait in 1890.
One of M.H. Alshaya Co.’s recent coups was a multi-year franchise agreement with Williams-Sonoma, Inc. to launch their portfolio of brands in the Middle East. The first four stores are expected to open in Dubai and Kuwait in 2010 and will include the Pottery Barn and Pottery Barn Kids brands.
Collective Brands Inc. is also partnered with M.H. Alshaya Co. to franchise in the Middle East, but recently announced an expanded agreement to Russia where Collective Brands Inc. hopes to open 90 Payless ShoeSource stores in five years and up to 300 over the long run. Russia, in particular Moscow, seems to be gaining traction as a destination for U.S. brands.
Another risk-mitigation strategy is co-branding. Cold Stone Creamery recently pursued such a strategy when entering Denmark. The company partnered Michelsen Chokolade, the leading chocolate manufacturer and retailer of Denmark. The first two co-branded units opened in June 2009 in Copenhagan. Eleven more co-branded stores are in the works over the next year.
By Stephen Stephanou, Principal of Madison Retail Group
I recently returned from a trip to Paris and came away with a distinct sense that London is now the shopping destination for Europeans.
There were major trade shows in Paris the weekend that I was there so there were not only English, but German, Italian and Spanish being heard in addition to French. But the traffic and number of vendors at the shows was down this year. Charming hotel rooms could still be had - when in previous years, a late inquiry for a room for the weekend would be met with a somewhat cynical “non”. And as one Londoner put it, the shopping trip for those on the Continent now seems to be London - quote ” the cheapest place to buy a Rolex”. With the pound off its pinnacle, droves of shoppers are flying over on cheap fares or taking a long weekend via the Eurostar.
On the positive side, I did come across a brand new retailer with one store on the rue du Bac on the Left Bank (brochure here). The specialty is father and son clothes, only one store and not even a website yet. It had very nicely made casual clothes - denim and shirts and sweaters, sort of the J. Crew men’s store genre. It was also nicely located in the 6th arrondissement, a second home to many specialty stores that have locations on both the Right and Left Banks.
Another note, Polo is opening its third store in Paris on the Boulevard St. Germain. It is a stone’s throw from the local and affluent out of towners’ haunts like Brasserie Lipp, Les Deux Magots, and Cafe Flore. But the number of shoppers did seem down - and sales are presumably down as well.
By Whitney Livingston, Regional Director of Marketing
Bayfair Center in San Leandro recently announced Ben Wanzo and his TeachBar retail concept as the winner of its “Retail Star” competition. TeachBar will be a dynamic meeting place where people receive education and training while indulging in great tea products. Combining the community aspects of Starbucks with the seminar space of the Apple Store, it will become a destination within the center.
As the winner of Retail Star, Wanzo received $25,000 in start-up capital, free retail space for a year and up to $200,000 for build-out. TeachBar is scheduled to open in November and Wanzo already has a slate of classes ready to go for area high school students.
The competition attracted dozens of entrants and several of the finalists are being approached about traditional leasing opportunities at the center.
We are actively tracking public and non-public news about U.S. retailers to gauge their relative risk of bankruptcy or other major restructuring that could impact commercial real estate owner and operators. Below is a summary document highlighting recent commentary on each retailer and labeling them as either low, medium or high risk. As recent reports suggest, we expect additional bankruptcy filings in the months to come.
As we noted last month, early signs were becoming evident that the economy may have hit bottom. In the most recent numbers, this outlook still looks reasonable. In the last month, home prices declines have slowed further. While the Index dropped slightly, the data do not yet reflect any Spring sales activity. We would expect that even with foreclosures still being brought to market, we should see, at worst, minimal pricing declines going forward. More importantly, though, consumer confidence has registered solid gains over the last two months. While the level is still too low, it is the first sign that consumer sentiment may have turned the corner. In addition, over the last month, the TED Spread has declined close to its historic level. This factor suggests that we may have seen the bottom. The continued job erosion, however, is the greatest risk to our recovery. These losses remain too high and suggest that if we have hit bottom, the road to recovery will be a long, slow one.
A recent Wall Street Journal feature story highlighted the trials and tribulations of many of country’s most desirable urban areas. Termed in the article “youth magnet cities,” these places such as Portland, Austin and Seattle have become popular destinations for recent college graduates because their unique and hip vibe. While difficult to quantify, these areas had ample employment opportunities, combined with a high quality of life, a strong university base and natural beauty. Today, the economic downturn is threatening their continued desirability.
Using Portland as a case study, the Journal points out that unemployment is now at a level that has made it difficult for many new residents to find adequate employment. In the past, college grads often moved to the area with no job in hand, but were assured that a high-paying job was just an interview away. Today, at an unemployment rate of 11.8%, good jobs are hard to find and under-employment in either a part-time or low paying job is a reality for many.
Although unemployment in Austin and Seattle has not hit this level, job losses and a lack of new hiring is also being felt in these desirable cities. In our most recent issue of PLACES magazine we profiled Seattle’s high-tech suburb – Bellevue. The economic growth transforming this community is unprecedented. Growing from a small bedroom community a decade ago, Bellevue is now a major regional employment center, with numerous projects on the drawing boards that will expand the local business, residential, and retail offerings.
Many projects conceived at the height of the market are now underway – like The Bravern retail/ mixed-use development. The challenge today is for these projects to accommodate today’s economic turmoil and weather what may be longer-run impacts as our economy re-builds and re-focuses. For Bellevue, these risks are especially pronounced. While its principal driver – Microsoft – has fueled the growth, the new economy could change the scale and character of jobs going forward. In the case of ambitious projects that have assumed a continually increasing pool of high-paid, younger workers, like The Bravern, future realities may require the foresight and flexibility to meet new market conditions.
While reviewing today’s issue of Private Equity Insider, I noticed an item about TIAA-CREF seeking to hire someone to “help assign values to its private equity fund investments.” The item continued, “The new hire would also assist in determining the values of investments within a distressed-debt fund of funds TIAA runs, with a focus on complying with the Financial Accounting Standards Board’s FAS 157.”
The new issue of PLACES coming out next week include a Q&A with PricewaterhouseCoopers and Cushman & Wakefield on the impact of FAS 157 and of the macroeconomic conditions on property valuation and financial reporting. Below is a digital version.
[From the upcoming print issue of PLACES - subscribe here]
By Jonathan Shartar, Investment Associate
Consumer spending is down and retailer bankruptcies dominate the headlines, yet budding retail entrepreneurs may find the business landscape more hospitable than most may assume.
Retail has never been for the faint of heart. Just ask Tom Stemberg, founder of the Staples franchise and a serial retail entrepreneur. In an interview with PLACES, he cautioned aspiring retailers “Don’t quit your day job.”
He’s right, retail is not for everyone, but those undeterred by such expert warnings are exactly the type of people who are most likely to thrive…
[From the upcoming print issue of PLACES - subscribe here]
By Walter Bialas, Vice President of Research
Las Vegas is battling the economic recession on two fronts — a local housing market in disarray and the first-ever yearly decline in tourism. Both call into question whether widespread speculative development in Las Vegas will ever be the jackpot it had been…
Recent news accounts suggest the economy has turned the corner – among the positive signs are that the DOW has lost some of its volatility and that it is up for the first time in a while. A few of the major banks have also reported solid 1st quarter profits. In fact, yesterday Fed Chairman Bernanke said he believed the recession was “losing steam” and that “firmer household spending, a bottoming housing market, and an end to inventory liquidation” could be seen later this year.
Clearly, the continued job erosion is dragging consumer confidence down and talks of more bankruptcies like Chrysler from a macro standpoint and Filene’s from a retailing perspective continue to weigh on the economy. Bernanke also commented that “the recovery will probably be slower than usual, and warned that the unemployment rate may stay high “for a time” as businesses remain cautious about new hiring”.
Our examination of the current leading indicators suggests that we may have hit bottom or are very close to the bottom. While home prices are still in decline these figures are a lagging indicator. In contrast, unemployment claims have started to slow and consumer confidence has begun to move up. Likewise, the stalled TED Spread we reported on last month has begun to inch lower. Combined, these early readings suggest that the worst may be behind us. Because the recovery is in a very early stage, we will need to continue to monitor the direction of these indicators over the coming months to gauge overall improvement.
PLACES is a publication of Madison Marquette, a national retail real estate investor, developer and operator. Based in Washington, D.C., the company maintains regional offices in New York, San Francisco, Philadelphia, Los Angeles, Ft. Lauderdale, San Diego, Charlotte and Seattle.
Last Spring we profiled U.S. retailers who are expanding aggressively overseas. Since then, this trend has only gained momentum.
