Musical Chairs At The Mall
by Peter G. Miller
If you own a shopping mall, or if you visit one with any regularity, you can see that the world of retailing is in transition. Familiar store names are disappearing with the speed of old electronics during holiday close-outs. - In an $11 billion deal, Kmart wants to merge with Sears to create Sears Holdings, a merger which when completed will create the nation's third-largest retailer with 2,350 department stores plus 1,100 specialty retail outlets.
- Federated Department Stores and May Department stores also want an $11 billion merger. If the deal goes through, one company would operate more than 950 department stores plus 700 bridal and formalwear outlets. Some of the stores involved include Macy's, Bloomingdale's, Filene's, Foley's, Hecht's, Kaufmann's, Lord & Taylor, Marshall Field's and Strawbridge's.
- Meanwhile, Winn-Dixie -- a chain with 920 stores -- has entered a Chapter 11 bankruptcy, meaning stores will continue to operate as the firm seeks to re-group financially.
Such changes in the marketplace will hopefully create more competitive, profitable retailers, entities better able to challenge Wal-Mart, Nordstrom, Target, Kohl's, Costco, and everything in between so that consumers will have more choices and better prices. But there will be other results as well. It makes no sense for a single mall to have two or three, or four competing department stores under the same roof, when each is owned by the same company. Department store mergers and acquisitions mean there will be fewer distinct brands and thus, less need for local advertising. As stores close and organizations are combined, local unemployment levels will take a hit which means fewer homebuyers, among other things. Suppliers -- such as clothing manufacturers -- will increasingly face an "oligopsony," a market with few buyers and many sellers, thus giving greater clout to shelf-owning mega-retailers. No less important, the act of merging and acquiring by itself, does not assure anticipated rewards. Think of WorldCom and MCI, TimeWarner and AOL, Time Inc. and Warner Communications, Quaker Oats and Snapple, or Hewlett-Packard and Compaq. From a real estate perspective, if you own a mall and have tons of excess space because anchors have merged it's not likely that lease rates will rise. With less traffic, smaller mall tenants may also see lower sales per square foot -- thus producing lower rents for the mall owner. Shopping mall anchors represent enormous amounts of square footage that must be leased or sold, and they represent something else: A reason for people to go to a mall in the first place. But to make malls interesting -- to make them "destinations" -- you need retail diversity, not just another mega location with the same set of stores selling the same goods. Unfortunately, product diversity is the opposite of retail efficiency, the reason to carry three brands of cereal rather than 30 and the reason to populate malls with chains rather than unique local businesses. What's now happening in retail has been paralleled during the past two decades in banking. Regional banks bought local banks, and then regional banks bought other regional banks to form national companies. Local bank branches were shuttered nationwide to make overlapping networks more efficient. But then an odd thing happened: It turns out the public likes bank branches filled with actual humans. The result is that we now have fewer banks and we also have more branches -- figures from the Federal Deposit Insurance Corporation show that while the number of national banks fell 29 percent between 1994 and 2003, the number of branches increased 15 percent. In effect, the idea of maximizing profits by closing branch offices turned out to be both seemingly logical and entirely wrong. Here's a prediction: As department stores abandon mall locations, their huge spaces will be divided for use by smaller retailers and even into stalls for small local merchants. Later on, in a few years, mega-retailers will begin selling off local department store chains to produce both cash and greater efficiency -- the very benefits that are supposed to result from today's mergers. |
