Thursday, April 22, 2010

Bellwether Warning to Shopping Centers: Simon Sales Down $9 Billion 7.9%

On February 5, 2010, David Simon announced Simon Property Group’s sales were down to $433 per square foot from $470, a $9 billion (7.9%) loss in sales in one year. This was their largest sales loss EVER in spite of their $93.5 million sales & marketing budget. They also reported overage rents dropped $15.3 million (15.3%) in the same period. Most shopping center REITS reported similar lower sales and overage stats. Many ask, “What’s happening ?!”

Some shopping centers’ sales are down as much as 25%. Owners are praying for a fast recovery of the economy, not the ‘dead cat bounce’ some predict.

QUESTION: Is this loss really the fault of the economy as everyone believes ? Will things get better when the economy recovers ? Or is there something else more insidious ?

CONSIDER: Retail sales are up 0.3%. (See Article) But most retailers are reporting in-store sales down by 5% to 15% as confirmed by Simon. So, what happened ?

EVIDENCE: When you look around in your shopping centers, you’ll notice your retailers promote their e-commerce websites in your stores. Their Internet sales are rising rapidly as their in-store shopping center sales continue to fall at your expense. (See Article) As in-store sales fall, so do your overage rents (confirmed by Simon); then your vacancy rate starts climbing. (See Critical Article and Article )   More proof: Forrester Research says 53% of Shopping will be Online by 2014. (See Article)  “This year, 162 million people in the US will research products online. Over 82% of online researchers, or 133 million people, will be online buyers.” (See Article).

HISTORY: Shopping Center owners in 2001 were saying: “online sales of 0.7% are not a factor, but if e-commerce ever reached over 10% it would then be a huge factor”. (See Article) Shockingly, core e-commerce retail sales (excluding auto, travel, etc) are now over 12.6% (see chart below). BUT HERE’S WHAT EVERYBODY IS FORGETTING: In 2001, when the 0.7% of sales left shopping centers for the Internet, owners didn’t care. But it stayed away. It never came back. Then the next year, another 0.7% disappeared, again unnoticed, nobody cared. Again, it too never came back.

Consumer habits were changing in favor of the Internet while shopping center owners continued to be oblivious to the subtle Internet growth transforming our society. (See Article) All of a sudden, this sales ‘disappearance’ became 12.6% – all gone, but they didn’t even notice it going. Many shopping center owners are still in the denial stage, saying; “it’s just the economy”. (Important Article Here) Generally, first there is denial, then panic when reality sets in.

TODAY: When the economy crashed, consumers ran to the Internet in increasing droves. The 0.7% yearly compounding increase in sales lost to the Internet all of a sudden became a tsunami erasing AN ADDITIONAL 7.9% in one year, as Simon reported. When you add the 10-year cumulative loss of 12.6% to the last 1-year loss of 7.9% = 21% of your core sales vanished ….all starting 10 years ago, when nobody cared. Those in denial will say things like “it has reached its peak, it won’t go higher”. But you know Internet e-commerce is only 10 years old – it’s just warming up. We can’t blame the economy; brighter days are still 12 to 18 months away (maybe more). Look back 10 years, put the blame there, and tell us what you now see for the future of shopping centers – short term & long term.


Macy’s: Internet sales are up 26% ; in-store sales are down 5.3% (Article)

Sears: Internet sales are up to $2.7 billion (Article) 6.13% of overall sales; overall sales are down $2.3 billion

JCPenney: Internet sales are up to $1.3 billion (Article) 6.7% of overall sales; overall sales are down $930 million

Borders Books: Internet sales are up 32.2%; 2.9% of their overall sales; in-store sales are down 14.4% (Article)

Williams-Sonoma: Internet sales are up 15% (Article) to 36.5% of overall sales; overall sales are down 7.7%

J. Crew: Internet sales are up 3.6%; overall sales are down 6.5% (Article)

Barnes & Noble: Internet sales are up 17% to 12.1% of overall sales; in-store sales are down 5.4% (Article)

Neiman Marcus: Internet sales are up 9.9% to 17.2% of overall sales; in-store sales are up only 1.9% (Article)

Best Buy: Internet sales are up to $ 2 billion dollars; 4% of their overall sales (Article)

Staples: Internet sales are up $2.1 billion to $7.7 billion; 37.5% of their overall sales (Article)

Urban Outfitters: Internet sales are 21.8% of overall sales; comparable-store sales increased only 4.0% (Article)


DANGER: To continue to ignore the evidence of the massive sales shift to the Internet is a perilous strategy.

GOOD NEWS ! We have a time-proven patented solution to recapture lost sales – and it’s 100% turnkey. Plus, it has a 6 month payback.

We’re seasoned experts ready to work with you to make it happen quickly.

I look forward to your call or email when you’re ready to reclaim your lost sales, tenants and profits….The Phoenix rising….

Gail W. Nichols - Vice Chair