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State of the Industry
Michael P. Kercheval
President & CEO
International Council of Shopping Centers
ESSENTIAL CONSUMER SPENDING NOW, PENT-UP DEMAND LATER
• U.S. economic recession is 15 months long so far—Expectation is that bottom
will be reached by around mid year.
• Underlying Shift: Consumer spending shifted to essentials and “value” has
been in for the last two years.
• Motor vehicle is an important “signpost” for the recovery. Keep an eye on
this sector, which is a microcosm of the economic problems.
• 2009 still considered a “transition year” for the economy, but retail real estate
lags.
INDUSTRY METRICS
• Retail real estate recovery tied to financial crisis easing and improved
economy (1½-2 years).
FISCAL POLICY HELP
• Two-years to recover fully.
Contraction Expected to Be Longest Since Great Depression, But
Depth Consistent with Recent Deep Recessions
The Duration and Depth of the Recession
Employment Continues to Contract Sharply
“Today’s Headlines”
US Jobless Rate Highest Since Dec '83
US Lost 681K Jobs In Dec '08; Most Since Oct 1949
Labor Dept: US Has Lost 4.4M Jobs Since Recession Began
US BLS: JOBS DROP IN PAST 4 MOS BIGGEST SINCE '75
US FEB NONFARM PAYROLLS -651K; UNEMP RATE 8.1% V 7.6%
IN JAN
Changing Composition of the Job Loss—Retail Job Share 14% of
Total Job Loss Since Recession Began—Down from About 25%.
Cumulative Job Loss
Total = 4.38 million. jobs
Retail = 609 thousand
Shopping Center = 429 thousand
A Dramatic Change in the Consumers’
Spending Profile
Consumer spending shifted to essentials...Three
reasons: (1) Rising gasoline prices initially (but
that has since then that reversed), (2) Weakening
big ticket purchases (initially housing-related and
now motor vehicles as well) and (3) Recession has
slashed discretionary spending, such as on
restaurants and apparel.
Consumers Strengthen Their
Savings Position
Period
Average Saving Rate
Average Inflation Rate
1960-69
8.3%
2.3%
1970-79
9.6
7.1
1980-89
9.0
5.6
1990-99
5.2
3.0
2000-08
1.6
2.9
------------------------------------------------------------------------------------------Dec 2008
3.9%
-0.1%
Jan 2009
5.0
-0.2
The “Spending Worry”
• Concern: Consumers intentionally raise their savings
rate to some long-term average.
• If that saving rate is consistent with 1990-2008
average, then that would be 3.5%--lower than where it
is today.
• If reversion is to 1970-2008 average, then that would
mean 4.7%--about where it is today.
Leading Indicator of Motor
Vehicle Demand
ICSC Leading Indicator of Motor Vehicle Sales
vs. Motor Vehicle Sales
110
20
Index, 1990=100
16
100
14
95
12
90
85
Leading Indicator May Have a “Long”
(More Than One Year) Lead this Cycle.
78
80
82
84
86
88
90
Leading Indicator (Left Scale)
92
94
96
98
00
02
10
04
06
Motor Vehicle Sales (Right Scale)
Source: International Council of Shopping Centers.
Where Vehicle Demand Goes, So Too Goes the Economy
08
8
Millions of Units (3-Month Average)
18
105
International Council of Shopping Centers U.S. Retail Chain Store Sales Index
Year/Year Percentage Change
Total Comparable Store Sales
Total Less Wal-Mart
Total Less Drug Store Sales
Fiscal Year Fiscal Year Fiscal Year
2006
2007
2008
Average
Average
Average
Monthly % Monthly % Monthly %
Chg
Chg
Chg
Feb 09
Jan 09
Dec 08
Nov 08
Oct 08
Sep 08
Aug 08
Jul 08
Jun 08
3.6
2.1
0.9
-0.1
-1.6
-2.0
-2.7
-0.9
1.0
1.7
2.5
4.2
4.8
3.0
2.6
1.5
-1.3
0.7
-4.3
0.1
-4.8
-1.9
-4.6
-2.4
-7.7
-2.9
-4.2
-1.4
-1.0
0.7
-0.1
2.0
1.3
2.5
1.9
4.5
1.1
4.5
6.7
-2.0
0.2
6.3
-7.7
-6.9
-8.3
-7.9
-9.8
-19.2
-14.0
-12.3
-17.7
-10.7
-6.8
-17.4
-10.4
-13.3
-10.5
-11.0
-10.9
-19.2
-7.6
-9.8
-10.9
-4.9
-5.8
-5.6
-5.5
-5.7
-5.1
-4.6
-4.1
-10.9
2.5
7.5
4.6
--11.5
1.3
4.9
5.5
--7.9
1.6
2.2
4.8
--5.2
3.1
-1.6
-0.9
5.0
-0.1
1.1
0.6
-1.7
3.7
-0.2
0.4
3.4
-3.3
1.6
-0.6
-1.0
-0.6
-2.4
2.3
-3.1
0.5
2.3
1.6
1.2
0.3
0.9
3.8
7.4
5.2
4.4
1.7
0.1
8.9
5.4
6.2
2.3
2.8
9.5
5.2
7.4
5.1
2.2
9.0
6.0
8.7
Ma
Specialized Groupings (Comparable Store Sales)
Apparel Chain Stores
Department Stores
Luxury Stores
Discount Stores
Drug Stores
Wholesale Clubs
Wholesale Clubs Ex Fuel Sales
Total Store Sales
Note: The "concentration ratio" is defined as the absolute value for the dollar weighted ($W) change divided by the equally weighted (EW) change.
Low point to date, November 2008 (-2.7% for comp, -3.1% for
total).
• Pattern of lessened decline since November.
• Luxury demand most negative segment.
• Discounters and wholesale clubs (less fuel) posted strongest gain
in February since June for discounters and September for
wholesale clubs.
Apparel-Specialty Sales vs. Industry
10
5
Apparel
0
-5
Industry
-10
-15
Month/Year
Source: ICSC Research.
Jan 09
Jan 08
Jul 08
Jul 07
Jan 07
Jul 06
Jan 06
Jul 05
Jan 05
Jul 04
Jan 04
Jul
Jan 03
Jul
Jan 02
Jul
Jan 01
Jul
-20
Jan '00
% Change (Year/Year)
Comparable-Store Sales Performance
Discount Store Sales vs. Industry
10
Discount Store
5
Industry
0
-5
Jan '00
Jul
Jan 01
Jul
Jan 02
Jul
Jan 03
Jul
Jan 04
Jul 04
Jan 05
Jul 05
Jan 06
Jul 06
Jan 07
Jul 07
Jan 08
Jul 08
Jan 09
% Change (Year/Year)
Comparable-Store Sales Performance
Month/Year
Source: ICSC Research.
Consumers Continue to Shift to
Value Retailers for Staples and
Other Supplies
Wholesale Club Sales vs. Industry
15
10
Wholesale Club
5
Industry
0
-5
Jan '00
Jul
Jan 01
Jul
Jan 02
Jul
Jan 03
Jul
Jan 04
Jul 04
Jan 05
Jul 05
Jan 06
Jul 06
Jan 07
Jul 07
Jan 08
Jul 08
Jan 09
% Change (Year/Year)
Comparable-Store Sales Performance
Month/Year
Source: ICSC Research.
Gasoline Prices Played Havoc With Club Sales—Ex.
Fuel Performance Robust..5.0% year-over-year growth
in Feb. 2009…Average Pace Since April 2008 = 4.2%
year-over-year
Apparel-Specialty Sales vs. Industry
10
5
Apparel
0
-5
Industry
-10
-15
Month/Year
Source: ICSC Research.
Jan 09
Jan 08
Jul 08
Jul 07
Jan 07
Jul 06
Jan 06
Jul 05
Jan 05
Jul 04
Jan 04
Jul
Jan 03
Jul
Jan 02
Jul
Jan 01
Jul
-20
Jan '00
% Change (Year/Year)
Comparable-Store Sales Performance
Housing Market
First into the recession, first out of the
recession?
Housing Market
• Applications to purchase a home or refinance a
loan soared 32% in the week ending March 20.
• Refinancing surged 42% and the purchase
index gained 4.2%.
• Sales of new homes also rose 4.7% last month
after six months of declines.
Recession Impacts Stores’
Survival Ability
- 13 -
36
36
32
32
Number of Chains
Retail Bankruptcies By Year
28
28
24
24
20
20
16
16
12
12
8
8
4
4
90
92
94
96
98
00
02
04
06
08
Source: Bankruptcy.com
10 bankruptcies tracked so far in 2009
U.S. Retail Store Closings
2007-08 Es timate and Forecast
10
155
5
150
145
0
140
-5
135
130
-10
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Year
Number of Stores (Left Scale)
Percent Change (Right Scale)
Source: U.S. Bureau of Labor Statistics; ICSC Research.
Percent Change
Thousands of Establisments
160
Retail Real Estate Vacancy Rate
11
10.9% in
1994 Q1
10
Vacancy Rate (%)
9
8
8.0% in
2008 Q4
7
6
5
4
3
84
86
88
90
92
94
96
98
00
02
04
06
08
Source: NCREIF Database (All Retail, Less Standalone)
10
Why are we in a solid position, despite
all of the negative economic news?
First - Excesses that led to industry
problems in the past have been
reined in. We are not suffering from
overbuilding, as was the case in the
1990s.
New retail and shopping center space in
the pipeline
•Annual growth rate of new shopping
center and retail space is on the order of 23%. Overall, the industry can absorb a
slowdown.
• According to the Wall Street Journal: The
amount of new offices and retail space built
during the latest business cycle was much
less than before the commercial real estate
glut of the early 1990s.
Second – Outstanding demographic outlook for
retailers and shopping centers over the long
term.
– U.S. population expected to grow from 300 million
to almost 440 million by 2050.
Third - Shopping centers are no longer
as dependent on a limited pool of
mainstream anchor stores.
Industry Definitions Used to Be
Clear:
•
•
•
•
•
Super-regional centers
Regional centers
Power centers
Community centers
Neighborhood centers
Centers Are More Dynamic and
Diversified
Outlook and Risks
• ICSC forecasts a 4.9% decline in real GDP in first
quarter of 2009 followed by lesser declines in
second and third quarters and grow by 1.0% by
the fourth quarter.
• Employment should not decline as much in 2009
but little to no grow in 2010.
• Consumer spending will grow in 2nd quarter. ICSC
predicts that shopping center sales will increase by
$7 billion or 0.3% in 2009 and by an extra $82
billion or 3.5% in 2010.
ICSC Industry Stress Test
• A loss of $114 billion in shopping center
sales between 2009 and 2010 (worst case)
would mean an increase of 0.3% in the
vacancy rate and an additional loss of
309,000 jobs in the industry.
• An increase of $279 billion in sales between
2009 and 2010 (best case) would mean a
decrease of 0.6% in the vacancy rate and a
491,000 job gain.
Half Filled or Half Empty?