With a number of big box chains closing unproductive locations and other chains liquidating amid the downturn, landlords took a new shine to lower-priced formats in 2009.
In California, sliding rents and vacancies helped many stores land locations in the region they couldn't tap a few years ago, according to an article in the Los Angeles Times. A study by Rizika found almost 100 empty big-box retail stores in Los Angeles County, equaling to 4.5 million square feet. Most came from the liquidations of Circuit City, Mervyns and Linens 'n Things.
PetSmart and Staples are introducing smaller stores to enable them to fit into more affordable urban locations, according to Rizika. At the same time, bargain women's clothier Forever 21 moved into some former Mervyns locations that are larger than its typical stores. Kohl's as well as Nordstrom Rack also moved into former Mervyns' locations.
Retail property expert Michael Wiener told the L.A. Times that while upscale stores such as Nordstrom are still highly sought by landlords, the less-pricey Kohl's, Target and even dollar stores such as 99 Cents Only are becoming more attractive targets.
"Deep discounters have proliferated and will move into more attractive locations," Mr. Wiener said. "All of a sudden they are the darlings and can have the pick of the litter."
A similar reshaping is happening in New York City, where rents have fallen almost 50 percent on Madison Ave., according to an article in Crain's New York. J.C. Penney opened its first store in the city with a location next to Macy's on Herald Square, while Costco opened in Harlem. Nordstrom Rack signed a lease for a location in Union Square, replacing a Virgin Records store.
On 34th Street between Fifth and Seventh avenues, rents declined around 30 percent to near $400 a square foot, brokers told Crain's. The more affordable rents helped Aéropostale open its first street-level store in the city on the block. Esprit and Geox also secured more affordable leases on the strip.
Mr. Wiener predicted that as many as 8,000 locations will close nationwide as consumer spending remains tepid, retailers slow expansion, and bank loans come due for property owners.
More optimistically, mall landlord Sandy Sigal told the L.A. Times that while "last year was panic and desperation" for tenants, with some seeking relief from rent payments, the panic has eased and retailers have become "more realistic." He added, "Tenants are getting better at learning how to survive in this market."
Discussion Questions: How are the low rents and vacancies reshaping the retail landscape? Which channels (strip mall, regional mall, neighborhood mall, etc.) will likely see the most reinvention due to current economic realities?