The Retail Industry in 2002
For many in the retail industry, 2001 and 2002 are best described by the first line of Dickens' Tale of Two Cities, "It was the best of times, it was the worst of times . ." Since September 11, 2001, nothing has been the same for anyone, especially for store owners, developers, land owners and brokers in the retail industry.
Immediately after September 11, retail sales dropped significantly and, as expected, expansion and new store development was put on hold nationally by almost all retailers regardless of site, geographic area or product or price type. Existing service and neighborhood retail centers continued to be the heart and soul of the market while innovative, upscale projects suffered from the wait-and-see approach. Many retailers delayed expansion plans while others closed unprofitable units. With venture capital money much more restricted, many private restaurant and other privately owned chains stopped all expansion plans. Many deals that are now proceeding were restructured so that the landlord/owner provided the capital for improvements.
The high-end retail market, already beginning to soften, weakened even more. A depressed stock market discouraged high-end sales. At the other end of the price spectrum, some big box retailers such as Wal-Mart and Target continued to grow and flourish, while their competitors with lesser service, inferior locations and competition from a more sophisticated marketing strategy, declined at a rapid rate.<>Retail bankruptcies began to increase after a weak holiday season followed by an uncharacteristically warm winter. K-Mart and Jacobson's both filed for bankruptcy protection during the last quarter of 2001 or the first quarter of 2002. Many retailers and owners/developers in Washington, D.C., and New York suffered the worst from the public's pervasive fear to return to crowded public places that could be targets for future terrorist activity.
Perhaps the most disturbing yet comforting aspect of the entire post 9-11 world is that everyone in the retail industry is reassessing the legal risks and documentation being negotiated and drafted. We have been asked to re-evaluate previously "standard clauses" to determine how leases will be interpreted in light of recent events. New insurance products are being evaluated and priced. Security has become one of the most critical components of operating costs. Lenders are requiring changes to standard loan documents to address post 9-11 realities. Last year, it was car-jacking; this year it is access and security.
This special retail issue of Property Writes seeks to address some of the current issues relating to retail development. Articles in this edition include a variety of interesting and informative topics, including a spotlight on CVS, which is defying all predictions and expanding nationally in several key new markets. We hope you enjoy this annual retail edition of Property Writes and welcome your thoughts, ideas and reactions.