Economic Update – Retailers, Retail RE Investors Still Looking to China

A subset of the overall job loss numbers in March included the evaporation of 48,000 retail positions, according to the U.S. Department of Labor. That number, though large, is down considerably from the recent peak of retail job-cutting, which was 91,000 jobs in November of last year. The Labor Department tracks employment in 12 different kinds of retail operations, and of those exactly one category had any kind of employment growth last month–namely general merchandisers, which includes discounters. That category saw a net gain of 13,800 jobs in March. Aside from the discount sector, where are retailers looking for growth in such harrowing times as these? Some are still moving into China to satisfy their need for growth. Growth isn’t quite what it used to be in that country, but the Chinese economy is still growing, unlike that of much of the rest of the world. Last week, for example, Yakutia Co. APL Diamond–a major Russian exporter of diamonds–opened a retail office to sell diamonds in Beijing. Also last week, New York-based fashion house Coach Inc. completed its acquisition of the Coach-branded retail businesses in China formerly held by Hong Kong-based distributor ImagineX Group. Investors are still interested in Chinese retail properties as well, according to David Hand, investment head for China for Jones Lang LaSalle, a position he assumed in January. “Retail property represents one of the most obvious ways to engage directly with one of the fastest-growing sectors of the Chinese economy,­ the retail sales market,” he told CPN. “The market continues to power ahead at double-digit levels despite the global and domestic economic slowdown.” The slowdown has had an impact on retail property in China, albeit a generally positive one for potential investors. “Property prices have adjusted downwards as a result of the current situation, and so some value opportunities are currently available to acquire existing assets or retail development land,” Hand said. The rise of Chinese consumerism is also unlikely to stop, Hand added, because it represents a fundament change in Chinese society that a drop of a few percentage points in Chinese GDP isn’t going to affect in the long run, or even the medium run. “The shift away from an agrarian economy to an industrial- and service-based economy creates markets and customers for consumer goods that have previously never existed in China,” he noted. “Younger generations of Chinese have been exposed to this consumerism and the expectation of a more open, international and wealthy future, and they won’t change their spending habits significantly despite the tightening macro-economic environment.” A report by the U.S. Office of Thrift Supervision and the Office of the Comptroller of the Currency issued on Friday revealed that the more a mortgage borrower’s payment is lowered as a result of mortgage modification, the more likely the owner is to stay current with the payments. That might seem like an obvious conclusion, but it’s a notion that the mortgage industry doesn’t particularly like, as reflected by the fact that during 4Q08 fewer than half of all mortgage modifications (about 42 percent) actually involved reducing the payment. More commonly such modifications included lowering the interest rate or extending the length of the mortgage, which sometimes actually raised the monthly payment. Why lower mortgage payments might make such a difference in keeping current with a mortgage isn’t much of a mystery. Growing unemployment, and the resulting loss of income to households, means that an increasing number of homeowners are simply unable to afford their former monthly payments. That problem is expected to get worse for a while, as unemployment increases toward 10 percent, and with even more people underemployed or permanently out of the workforce. On Friday, the U.S. Department of Labor reported that unemployment rose to 8.5 percent, as employers cut another 663,000 jobs in March. Wall Street seems inured to job losses by now. On Friday, the Dow Jones Industrial Average, which has been on an upward trend (with a few hiccups) for about a month now, ended up 39.51 points, or 0.5 percent, while the S&P 500 was up 0.97 percent and the Nasdaq gained 1.2 percent.