As I listened to Bob, I couldn’t help but think of a heavyweight boxer from the 1970’s, Chuck Wepner. Fighting with a ton of heart, he was the inspiration for Sylvester Stallone’s first Rocky screenplay. Mr. Wepner would take punch after punch, earning himself the nickname, The Bayonne Bleeder, but seemingly recover and fight another round.
As Bob tells it: “When I started at KeyPoint Partners, we were starting to see cracks in the viability of regional malls. In fact, the last traditional enclosed mall, as we know them today, opened in 2006. Lifestyle centers had taken a toll on the mall concept and had become the preferred mode of growth for specialty retailers.
I guess I have to tip my cap to those prognosticators who warned us about the de-malling of America. When the Great Recession struck in 2008, it pounded away at large format retailers such as Circuit City, Borders, Linens ‘N Things, Comp USA, and Office Max. At about the same time, we were nearing the end of the pure lifestyle center life cycle, as affluent market opportunities for those projects ran dry and developers realized the need to shift gears to a hybrid concept, mixing some big boxes with a smattering of lifestyle retailers in order to target a broader base of shoppers.
But lurking in the background all this time, a monsoon was brewing in the form of Amazon. Back in the late 90s and early 2000s, there was a measurable level of online purchasing but it was targeted to only a few merchandise categories. Books and music stores were the first to be impacted. Electronics stores closely followed. But overall the online retail segment contributed minimally to total retail sales at the time. The perception was that there wasn’t much to worry about and that, for the most part, online sales had little effect on apparel retailing. In the aftermath of the Great Recession, however, everything changed. Let’s face it; we never really saw the potential impact coming until it was too late for many.
This all leads us to 2020, the year of Covid-19 and unprecedented upheaval in the industry. We are faced with so many questions and so few answers. No one can say with any degree of confidence how all this plays out. We’ve been living in a world of double digit vacancy for more than a decade - and then lightning struck. How much unoccupied space will be left in its aftermath?”
Like Chuck Wepner, retail has fought on, at times bloodied and a bit bruised. But it’s important to remember that retail is evolutionary. After the rise of lifestyle centers and category killers, malls and power centers, and even smaller centers, all found ways to co-exist and vacancy rates eventually recovered. Also, after the recession of 2008, which left lasting impacts on the industry, we saw the rise of new entrepreneurs entering retail and the expansion of franchise businesses.
With stores just starting to open after our Covid-19 experience, it is too soon to know the lasting impact on retail. Certainly the Decelerating section of this newletter far exceeds the Accelerating section at the moment but we’re beginning to see some signs of opportunistic investment (see our Accelerating News section for a few names). Companies such as Ingka Centres, the mall arm of IKEA, which has 45 centers around the world, is looking to open another 45 in several large cities across existing markets and the United States, some near its IKEA stores. The company is in talks to buy properties such as old post offices, department stores, or existing malls to convert. We also see some of our clients accumulating cash should they see value opportunities in the near future. This is a pinch of confidence in the future of retail.
We wish Bob Sheehan all the best as he moves forward. As we all move forward through COVID recovery and onward, we’ll continue to observe the evolution of retail, and to share our observations with you in these pages. Thanks for your continued readership and support.
Mark Becker, Partner/CFO