The consolidation among big-box retailers has been the talk of the shopping center industry for probably 18 months now. However, one business buying out a similar business as a means of gaining market share is not an uncommon business practice. And it's not a universally, bad business practice.
As big-box retailers (or any two retailers) merge operations, the result can be -- in some markets -- a win-win for the developer and consumer. When one plus one equals one, the developer gets a better capitalized tenant and the consumer usually gets a better "merchant."
Consolidation is only a bad thing for shopping center owners when it comes to those markets where too many, similar big-box retailers compete for the same dollar. (How many of those markets would you say exist today?)
To all of the developers of power centers and investors in power centers, Christopher Vroom of Alex. Brown recently offered some guidance in selecting stable, merger-resistant tenants. In a presentation at the ICSC Florida Conference in August, he told attendees that retailing winners have three key characteristics: * innovative and risk-taking with regard to merchandising, format evolution and operations * proven business models (returns in excess of the cost of capital) * excellent management, implementing a strategic vision
Then, Vroom named names.
For innovation in format, accolades went to Home Depot EXPO, Staples' Express, Borders Books & Music, Restoration Hardware and Zany Brainy.
For enduring excellence, recognition went to PetsMart, Lowe's, The Home Depot, Costco, Wal-Mart, The Sports Authority, Circuit City, Auto Zone, Office Depot and Staples. Vroom predicted that these 10 retailers will account for 70 percent of the entire U.S. retail sales gain between 1997 and 2000.
If Vroom and Alex. Brown are right, the industry will be left with a dozen or so big-box tenants by the end of the century. While the prediction likely was meant as a call to arms for developers, retailers should take heed. The gauntlet has been thrown.
To all the retailers that were not mentioned by Alex. Brown, I say:
Do not go quietly. Be innovative. Take appropriate risks. Stay in the black. Hire the best people you can. See you in 2000.
DO NOT DELAY: The entry period for our SADI awards is drawing to a close. The awards recognize superior achievements in the design and imaging of stores and shopping centers, and anyone responsible for those designs may enter.
All entries are due Oct. 31, which is significantly earlier than previous contests. The entry rules will be sent to you if you call 1-800-288-8606 or call our Fax On Demand service at 1-800-601-3858.