Wednesday, 16 August 2017 10:06

Retail Comeback, Or Just A Few Bright Spots?

Good news for retail came out of the Census Bureau yesterday. July turned out to be not just better than expected but also the month with the biggest rebound in retail sales all year, rising 0.6% for the month and 4.2% since July 2016. What’s more, revised data for May and June show a brighter picture than preliminary estimates had indicated, eliminating what had appeared to be a decline in retail sales.

"Finally, retail sales showed some life," Robert Frick, a corporate economist at Navy Federal Credit Union, was quoted as saying yesterday.

So should the commercial real estate industry feel cheered by the news? Well, yes and no.

For those who have a stake in retail properties, there is still reason for caution.

A breakdown of the retail data shows that the July uptick is driven largely by motor vehicle sales (up 1.2%) and e-commerce (up 1.3% for the month – quite possibly boosted by Amazon Prime Day, which took place July 11 – and up 11.5% from a year earlier). Although the success of e-commerce can benefit players in the industrial segment of the commercial real estate industry, given the significance of warehouses and distribution centers for e-tailers, it may not be such comforting news for those with a stake in traditional retail properties.

Somewhat obscured by the big picture, some brick-and-mortar categories did not do as well as overall retail sales might indicate. Sales at electronics and appliance stores, for instance, were down 0.5% from June to July and 0.9% from July 2016.

Other categories showed mixed findings, such as department stores, which were, a bit surprisingly, up 1% for the month (but down 1.3% for the year). Similarly, sporting goods, hobby, book and music stores were up 0.3% for the month but down 4.2% for the year. (read more)

By: Ely Razin
www.forbes.com

A new survey conducted for NRF shows small retailers have nearly caught up with large merchants in making the switch to chip-and-signature credit cards — even though virtually half say the cards would be more secure if easy-to-forge signatures were replaced with a secret personal identification number.

The survey found that 60 percent of small bricks-and-mortar retailers had installed chip card readers by this spring and another 10 percent expected to have done so by July, bringing the total so far to 70 percent. The number is expected to reach 81 percent by the end of the year. (Online retailers aren’t affected because the chip doesn’t work unless the card is physically present.)

That compares with 86 percent of mid-size and large retailers surveyed last year who said they would have chip readers in place by the end of 2016, with 99 percent planning to do so by the end of this year.

With each chip reader averaging $2,000 when installation and other costs are factored in, small retailers have generally lagged behind larger retail companies with deeper pockets in the changeover from traditional magnetic stripe cards.

Small retailers have made the switch despite concerns the new cards don’t provide all the security they are capable of: Of the 750 surveyed for NRF by research firm GfK, 49 percent said their businesses would be more secure if credit cards required a PIN, which is standard in most parts of the world where chip cards are used. Only 16 percent disagreed, with the remainder neutral.

Nonetheless, 63 percent said their businesses could not afford to risk increased liability for fraudulent transactions, which retailers have faced since a change in card industry rules took effect in October 2015. In the past, banks paid fraud costs when a card turned out to be counterfeit; the cost has now been shifted to retailers if the card has a chip but the retailer doesn’t have a chip reader.

Not all affected small retailers are making the move: The survey found 19 percent have no plans to adopt chip cards, with 55 percent of them saying it is because their businesses are not at high risk for credit card fraud.

The survey results are not surprising. NRF has said for years that chip-and-signature cards are far less secure than chip-and-PIN. The chip makes it more difficult to create a counterfeit card, but counterfeits are still possible and the chip does nothing to prevent lost or stolen cards from being used. As we’ve often said, a chip without a PIN is like locking the front door but leaving the back door wide open. A PIN alone could stop most credit card fraud without the need for a chip — or the expensive new equipment needed to read a chip.

Virtually all U.S. banks have refused to include PINs on their credit cards, choosing to keep transactions on lucrative signature processing networks run by Visa and Mastercard rather than open them up to the dozen or more competing networks that can process PIN transactions.

Beyond the PIN issue, chip cards do nothing to keep card data from being stolen from computer systems. The chip transmits an encrypted code that confirms that the card is not counterfeit, but the actual account number and other card data are still transmitted in the clear.

Despite those shortcomings, the change in fraud liability rules effectively coerces many retailers into adopting chip cards: A coffee shop can afford to lose the cost of a doughnut if a customer uses a counterfeit card, but a jeweler selling rings that cost thousands of dollars can’t take the chance.

Overall, U.S. businesses are being forced to spend $30 billion to switch to chip cards that fall far short of the advances in security that are needed. That’s money that could be better spent on encryption, tokenization and other technologies that actually keep card data from being stolen in the first place. If the card data can be made secure, the physical cards become much less of an issue.

Retailers have been demanding truly secure credit cards for years. It’s time for banks to deliver. read more

By Mallory Duncan
www.nrf.com

The retail world will change more in the next twenty years than in all of the history of modern day retailing. This is driven by the seismic shift in consumers’ shopping habits: they’re filling smaller baskets during each trip to the store; different categories drive consumers to different types of stores; and the ability to shop online for groceries is more prevalent than ever before, with the advent of services like Amazon Fresh and retailers boosting their digital fulfillment efforts.

On the retail front, channels are converging. What was once your traditional drug store may now be viewed as a convenience destination. Up against the likes of Blue Apron and Amazon’s filing for a meal kit patent, traditional supermarkets are crafting their own ways to compete in the meal kit game. Big box mass merchandisers are now competing with discount and dollar stores.

As the U.S. grocery industry continues to navigate the complexities of emerging channels like discount grocery retailers, it’s worth noting how these dynamics played out in Europe and assess if their success across the pond is a precursor to what we might see stateside. Across the pond, nearly three-fourths of market share was consolidated into the region’s top four retailers. And what’s more, over the last eight years, the top four’s share eroded from 73% to 67%, while the newer discount retailers that encroached on the market nearly doubled their share.

However, the European market where the likes of Aldi and Lidl dominated and reigned success is a very different world than the U.S., which is facing a different set of challenges.

Discount grocery retailers are typically smaller format than traditional supermarkets, though their U.S. counterparts are twice the size of their European stores which estimate 10,000 square feet. Still smaller than traditional stores, that means a limited assortment of products on the shelves. Despite this limited shelf space, discount grocery retail stores are growing. Between 2011 and 2016, store counts increased 17.6% across the U.S. Though not apples to apples, the growth of discount retailers in Europe could serve as a precursor to what we might see in the U.S. in the near future. Some may be wondering whether this channel could potentially rise to capture a significant percentage of the U.S. grocery marketplace, putting pressure on other retail channels on how to compete.

The growing presence of discount grocery retailers is sure to create (or add onto) the domino effect that is causing traditional grocery retailers to rethink their growth strategies to remain relevant. As the industry continues to navigate these effects, there are five key questions that retailers should be asking themselves today to prepare for tomorrow:

Retail Channel Dynamics: Where Are Consumers Shopping?
Gone are the days when consumers shopped for all of their groceries at their neighborhood supermarket. Today’s on-the-go consumer can now pick up deli prepared meals at the drugstore or purchase all natural beverages and snacks at convenience stores, something that was once limited to niche natural specialty stores.

According to Nielsen Homescan panel data, grocery shopping trips grew the most at discount grocery retailers (2.9%) compared to other brick and mortar channels in the last year. However, basket sizes at discounters slightly declined 0.3%.

This decline in spend per trip could be the result of many factors, one of which is consumers’ on-the-go lifestyles and the growth of sprawling urban areas where households may not have as much physical space to store packaged items. Retailers must focus on what drives consumption—including product variety, package sizes and store formats—in order to remain competitive.

Pricing Pressures: Combating Price with Value-Adds
Downward pricing pressures are lowering the growth ceilings for all retailers, driven in part by the looming threat of discount grocery and online retailers. That being said, value is about more than just the lowest price. According to a Nielsen 2016 retail growth strategies study, consumers rate high-quality produce (57%), convenient location (56%) and product availability (54%) as more influential in store-selection decisions than the lowest price.

Consumers are looking for good deals regardless of their economic circumstances. And indeed, for many consumers, deal seeking is the thrill of the chase. Sixty-eight percent of Americans say they enjoy taking the time to find bargains, and discount grocery retailers have hit the nail on the head to provide the bargains they are seeking at price points that meet their wallets.

Investing in Store Brands: Private Label Driving Highest Growth in Discount
For many retailers, but particularly deep discount retailers, store brands (or private label) play a strategic role for winning over shoppers from other channels. Compared to other major retail channels, discount grocery retailers have more than twice the share of store brand dollars (51%), compared to only 15% store-brand dollar share in mass merchandise and 20% in supercenters. read more

Chris Morley, CONTRIBUTOR
www.forbes.com

WWhat retail apocalypse? That's what some of America's top commercial real estate CEOs are asking. In fact, they remain some of the retail industry's biggest cheerleaders.

While much of Wall Street is skeptical about retail's future — as evidenced by the less-than-stellar performance of the S&P 500 Retail ETF (XRT), compared to the broader market — there are still some believers around.

A slew of retail real estate investment trusts, or REITs, has reported quarterly earnings in recent days. The list includes Simon Property Group, General Growth Properties, Taubman and Macerich, shopping center landlord Kimco, and Sears spinoff Seritage Growth Properties.

Their results have offered a checkup on the health of retail's real estate. And, for the most part, much of these companies' results were positive.

"For the players that own the best assets, things are pretty good," said Floris van Dijkum, an analyst with Boenning & Scattergood. Other retail REITs Acadia Realty, Federal Realty and Regency Centers, which notably only owns grocery-anchored properties, are also reported "decent" results, he said.

"Continued results [from the retail REITs], like what we've just seen, will eventually get people to wake up," he told CNBC. "You have to be somewhat patient."

Many REIT CEOs are saying they've been patient for long enough. They are ready for the narrative to change.

'It will get better'
"Obviously, retail is under more pressure than it has been in the past," Simon CEO David Simon said on a conference call last week. "I do think that our environment is going to get better."

Notably, Simon raised its full-year earnings forecast to $6.20 to $6.28 per diluted share, up 4 cents from a prior estimate the REIT had issued in April. The REIT's stock rallied on the news, though shares of Simon have fallen more than 25 percent over the past 12 months.

Dijkum said Simon's earnings this quarter were "best in class."

"Despite high short interest in the mall sector," this is a company that isn't going to give in to pressure, Dijkum said.

"I think the retail community has been overly negative about the mall product," CEO Simon said on the earnings call. "I don't know why they do it, but we're just going to get up off the mat [and] keep doing what we do. ... This isn't sugar coating."

The retail REIT said that although there are more retail bankruptcies spilling out this year, Simon isn't oblivious to the changes taking place within the industry. Simon is taking steps like reducing exposure to apparel brands and increasing allocation to food services and lifestyle brands to reduce its risk.

Another bonus for the company, e-retailers looking to go physical also appear to be flocking to Simon.

Companies like UNTUCKit, Warby Parker, Bonobos, Fabletics and thredUP, which all got their start online, are now signing deals with Simon, among other REITs.

"They have all realized that having a well-positioned fleet of stores is certainly necessary and optimal for them to grow their business," Simon COO Richard Sokolov said on last week's earnings conference call. "It's going to be a process."

"There is a limit to attracting eyeballs online that [e-retailers] can't get in the physical world," CEO Simon added.

The company is employing other strategies to work with retailers, like offering shorter leases to tenants who are hesitant to lock in a space long term. "It makes sense to do short-term deals if you feel the environment is going to get better," Sokolov said. Retailers looking to test a format in a physical pop-up shop is not a new strategy, but it's one that's just recently gaining even more attention and popularity within the sector. read more

By: Lauren Thomas | @laurenthomasx3
cnbc.com

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