of End Retail Property Chapter Questions and Answers 1. What is a simple method to project future retail sales growth? Can you suggest some refinements to this simple model? Answer: The easiest way to forecast sales is by extending past trends. That is if sales have increased by 3% a year for 5 years, merely extend this trend. More sophisticated methods will consider population and households trends, personal income trends and compare these to retail sales. Roughly speaking sales should increase by the sum of population growth plus personal income growth. Refinements consider the local market conditions, new supply, different tax rates among local areas and on-line sales from outside the area, as well as general economic trends such as unemployment and stock market trends. 2. GLA continues to increase faster then the population rate. What are some explanations for the increased space per capita? Answer: As our standard of living increases based on earning more real income the sales per capita increases. We simply consume more goods or more expensive goods. As sales per capita increase the space per capita increases as a result of more retail suppliers. Another explanation is based on the fact that retail concepts become old and tired and new venues take their place but it takes time for old concepts to fade away and so a wave of new formats will tend to increase the space per capita. 3. What is meant by capital pushed supply in terms of retail property? Answer: Rather than considering demand and supply in the local market the retailer simply assumes they can take market share away from others. Capital raised through stock issuance is based on the promise to open new stores at a certain pace regardless of local market conditions. 4. What type of retail property appears to be over supplied as of the year 2003? As of 2003 there were too many big box value stores and while some like Target, Kohl, Home Depot and Wal-Mart were doing well many others like Kmart were languishing. 5. Describe the typical size of a community center, regional mall and super-regional mall? How far do they draw customers? Who are the typical tenants? Answer: Community or Neighborhood Center: Anchored by grocery and drug stores, these centers are typically over 30,000 square feet in size but less than 100,000. There is seldom any common or enclosed area so they are called "open malls". Household drawing power may reach 5 to 10 miles, less in dense urban cities. Regional Malls: Anchored by department stores, typically over 400,000 square feet in size and drawing a market up to 25 miles in radius but usually less than 15 miles.
Super Regional Malls: Enclosed malls over 800,000 square feet are referred to as Super Regional malls. Most new shopping center developments including 3 to 8 department stores or big box specialty tenants will be in this larger newer format. The market drawing power is typically 25 to 35 miles or more in some cases. 6. What is the difference between a power center and a factory outlet mall? How do the tenants differ? Answer: A power center includes category killer tenants who carry many brands with theme one like toys or office supplies or computers. Factory outlet tenants carry only one brand. 7. What is a lifestyle center? What market are they after? Lifestyle centers are replications of neighborhood style open air retail districts with restaurants as anchors and various retailers, often upscale, and few or no department stores. They are after busy upscale shoppers with little time. 8. Define Base rent? Percentage rent? Anchor? Answer: Base rent is the fixed rental charge that does not change during the term of the lease. Percentage rent is only charged if sales exceed a break point. An anchor is a tenant that draws in customers. 9. Why do anchor tenants pay less rent then specialty stores? Answer: Anchors draw in customers and therefore help the other tenants achieve higher sales. As such they pay lower rent and seldom any percentage rent. 10. How has the automobile and highway affected the size, location of grocery store and the growth of malls? Answer: Grocery stores, like most retailers, have expanded in size. Malls also have become larger. With larger land requirements new retail formats are being expanded at the periphery of the city in the suburban areas and even further out. 11. Why are local tenants so hard to find in a regional mall? Answer: Economies of scale, brand name recognition and the benefits of geographic diversification provide advantages for larger national and international retailers. It is difficult for local retailers to compete on price or advertising without these economies of scale. 12. How has consolidation in the retail sector affected lease rates?
Answer: Lease rate margins have declined for landlords as the retailers have greater negotiating leverage. 13. Why is a known brand important in the retail industry? Answer: Known brands are able to exploit customer loyalty and achieve repeat and more consistent sales. 14. What are some advantages of the physical "bricks" retail store? How can retail stores be used to help e-commerce sales off the web? Answer: Physical stores can increase sales by cross marketing products and allowing personal inspection and comparison. Physical stores can be used to help collect data on customers and to use this for marketing purposes and to encourage repeat sales on line. 15. What are some possible strategies for regional mall owners to keep consumers coming into the physical environment? Answer: Try and increase the retailers that allow for customer interaction such as toy making, measurements for customized clothes, as well as education and entertainment type tenants. 16. What types of products and services are most susceptible to e-commerce? Answer: Those where quality is known and repeat orders common. Products that can be delivered on line such as software, music, movies, books, magazines. 17. How might leases change in the future to capture both in-store sales and web directed sales? Answer: There may be charges for data collection services or based on the traffic flow through a tenants entrance with the assumption that exposure to the tenant helps sales and provides data even if the sales do not occur on site.