It was a year of mixing things up, of internationalism and Apple's continued revival. But it also witnessed troubles for video store chains and the withdrawal of low-carb fare from restaurant offerings. In all, the year 2005 rocked for some, but rolled for others.
Owners really began to shake things up in 2005 as mixed-use projects arrived in a big way. They also continued to embrace redevelopment as a tool to drive profits rather than relying largely on mergers and acquisitions.
Meanwhile, the move overseas continued unabated, with activity in China particularly, ramping up. The year also saw a revival in experimentation with new concepts as some of the biggest specialty retailer names in the business created new brands.
But it wasn't all good news. The impact of hurricanes Katrina and Rita will be felt for years to come, both through the project of rebuilding the Gulf States, and because of the further strain the reconstruction efforts will put on the already sky-high prices of materials.
The year also brought about the demise of the Atkins craze as low-carb options began disappearing from menus. (There was even a backlash as high-fat items popped up in their stead.) And it saw eminent domain become a household phrase.
In the pages ahead we've tried to capture a cross section of this year's important and quirky stories. Enjoy.
Retail real estate owners have joined retailers in a push to tap the world's fastest growing economy. Simon Property Group is teaming with Wal-Mart Stores Inc. to build as many as a dozen shopping centers in China. Taubman Centers and Developers Diversified are also openly searching for deals. With 160 cities with a population of at least 1 million residents (and rapidly rising disposable incomes), the market provides almost endless possibilities for growth.
Mama's Got A Brand New Brand
Speciality retailers galore are testing new concepts and setting the stage for major rollouts, which should make leasing directors hungry for new tenants happy. Gap Inc. has loudly pushed Forth & Towne, opening stores in Chicago and New York, but it is also working on an accessory concept called, simply, Love. Other new chains are American Eagle's MARTIN + OSA, Build-a-Bear's Friend be Mine, Urban Outfitters' Free People, Chico's Soma and Abercrombie & Fitch's Ruehl. In addition, major Japanese apparel chain UNIQLO is prepping for a major U.S. push.
Jolly Green Giant
Lost amid the daily deluge of negative news about Wal-Mart was CEO Lee Scott's pledge to reduce emission of greenhouse gasses at existing facilities by 20 percent in seven years. Scott said the firm, which is experimenting with green stores in Texas and Colorado, would double the fuel efficiency of its trucks and minimize packaging to cut down on waste.
Taking a page from olden days, before suburbs enticed masses and retailers to flock from cities, Americans enjoyed the ease of living, working and shopping in small, walkable areas. And they're doing it again, as developers from Simon to Equity One plan mixed-use complexes.
Apple's iPods have become nearly ubiquitous and the recent addition of video is sure to make it a bigger hit. That's translated into increased computer sales for the company. According to one analyst, 1 million PC users switched to Macs this year.
Vornado Realty Trust has become the new EF Hutton. When it makes a move, people listen (and often copy them). The REIT has invested directly in real estate, but also bought stakes in Toys ‘R’ Us, Sears and McDonald's, sparking others to follow suit. Vornado itself has become a hot stock, trading for nearly $90 a share.
What's Old is New Again
The acquisition market is cooling down, so developers are taking long, hard looks at their portfolios of existing centers to find redevelopment and expansion opportunities as a way to drive NOI and FFO growth. Moreover, as department store ranks continue to dwindle, owners will have a chance to reclaim that space and retenant it with smaller shops and therefore demand higher rents.
Pooches and kitties are awash in trinkets and baubles. According to the World Wide Pet Industry Association, pet lovers spend $35.9 billion a year on pet supplies — double the amount spent 10 years ago. Luxury brand Louis Vuitton, Yves Saint Laurent, Burberry and Gucci now all carry pet lines.
Let Them Eat Cake
Warehouse giants aren't just for bulk-buying cheap wares anymore. Sam's Club put out a holiday catalog that resembled Neiman Marcus's dreamy wish book. For sale: an 82 carat diamond necklace (left) for a mere $263,574, and a $198,000 custom 1969 Camero. And the goods are actually selling. One woman already paid $30,000 for a trip for eight to a Jimmy Buffett concert in Las Vegas.
Hungry for Restaurants
Owners are convinced that restaurants drive traffic (and keep shoppers for long stretches). Stalwarts like Cheesecake Factory and PF Chang's remain popular. But owners are looking for variety. Restaurant chains are tinkering with ideas trying to come up with the Next Big Thing. There will be more experimentation in 2006, including a number of French chains.
It looked like a melee at a European soccer match at H&M stores on Nov. 11 as women clobbered each other to grab everything from $149 embroidered jackets to $19.90 T-shirts from the limited edition Stella McCartney collection. The very next day, some of the sale items that flew off shelves were selling for many times the original price on eBay.
Mills Grinds to a Halt
Mills postponed earnings calls twice in 2005 and had some accounting issues to boot, trying the patience of investors (who bailed) and analysts (who have reamed company management). Although the firm remains a major innovator with projects like Meadowlands Xanadu in the pipeline and a healthy international business, it will have to prove its worth in 2006 to lure back investors. At the end of November, its stock was languishing near $40 per share — just above its 52-week low. With its real estate assets alone worth about $64 a share, according to analysts, the company could be a target for takeover in 2006 if it doesn't get its house in order.
It seemed it couldn't get worse than 2004 when four hurricanes pounded Florida. But 2005 was even more horrific, seeing a record number of storms. Katrina and Rita alone caused unfathomable damage.
Despite talking about safety (and spending time lobbying Congress for a terrorism insurance extension), the industry seems ill-equipped to deal with terrorism. Gunmen with assault rifles shot eight people combined in New York and Seattle, giving a possible glimpse of worse to come.
Traditional video store chains are taking a beating thanks to the emergence of DVD-by-mail rental. Wal-Mart, Blockbuster and Netflix are engaged in a brutal price war on their mail businesses. Blockbuster is hemorrhaging cash, reporting a net loss of $491.4 million in the third quarter. Netflix, meanwhile, has been able to eke out small profits.
No More Yesterdays
This will be the final Christmas for many esteemed regional department store chains including Marshall Field's and Kaufmann's. The question is whether the traditions that went along with those institutions will die with the names or if customers that have been going to those stores for years will warm to the Macy's brand.
In 2004, restaurants and fast-food chains raced to get low-carb fare on their menus. This year, many quietly removed those items. Atkins Nutritionals Inc., even filed for bankruptcy protection in August. Meanwhile, some companies reveled in returning high-fat, high-calorie items to their menus, such as Burger King's line of Enormous Omelet Sandwiches, which have 730 calories and 47 grams of fat.
Wal-Mart's domination of the grocery sector continues to take its toll on second-tier grocers. Winn-Dixie announced 326 more store closings this year as it continues on the path to extinction.
Not Mall There
Although development pipelines are bursting for many companies, few traditional regional malls are part of the mix. Of 37 major projects that opened in 2004 and 2005, only three were traditional regional malls. The outlook is similar for 2006. Look instead for lifestyle centers and mixed-use.
Unhappy with the Kelo v. New Haven ruling, many are racing to bar use of eminent domain for commercial development. Congress is also considering passing a bill to deny federal funds to projects that benefited from eminent domain.
Unrelenting demand for construction materials has developers racing to get projects in the ground now, lest they pay higher prices down the road. Steel is up more than 40 percent since 2003. Cement, gypsum and wood are up big as well.