The News: Survey Details Retailers’ Cost-Cutting Strategy
- Dec 23, 2008
Retailers’ strategy today involves far more than layoffs and store closings. Almost two-thirds of national retail chains are taking a comprehensive look at their real estate needs, according to a recent survey by Karabus Management, a Toronto-based affiliate of PricewaterhouseCoopers L.L.C. The decisions those retailers make will go a long way toward shaping development and leasing through 2009.Underscoring the broad-based nature of the trend, the survey of CFOs encompassed 35 retailers whose annual sales range widely, from $200 million to $20 billion. Specialty stores accounted for the bulk of chains surveyed; 83 percent of the participating retailers are in niches like clothing, jewelry and footwear. Department stores made up the remaining 17 percent of the survey respondents.Sixty percent told Karabus that they have already evaluated their real estate needs or are analyzing them now, and the study’s most compelling findings emerged from that solid majority. One-third of those retailers report that they are seeking rent relief from their landlords. Confirming accounts related by retail brokers around the country, some tenants also said that they are using possible non-renewal of their leases as a bargaining chip to negotiate more favorable terms.Even though massive store closings by leading chain retailers like Linens ‘n’ Things Inc., Circuit City Stores Inc. and Office Depot Inc. will presumably make hundreds of choice locations available nationwide, few retailers appear to be taking the bait so far. Only one-quarter of those retailers who are reviewing their real estate portfolios are also eyeing opportunities to grow market share through leasing new stores.In contrast, 80 percent of retailers examining their real estate needs are curtailing new openings, store remodeling projects or both. In other areas, retailers are raising the bar, the Karabus survey found. Three-fourths of respondents reported that a store must achieve a higher return on investment, often termed the hurdle rate, before company leaders can approve remodeling or relocation.As they size up the landscape for 2009, retailers are not singling out real estate for scrutiny; on the contrary, the Karabus study found that executives view all facets of a company as fair game. Virtually all of the 35 CFOs surveyed—95 percent—said that they are cutting their capital expenditure budgets by 10 to 25 percent in 2009. Three-fourths of retailers have taken steps to trim overhead this year, and 90 percent have cut inventory for the holiday season by 5 to 15 percent from last year. Those reductions will carry over to spring 2009 inventories, another sign that executives expect a long downturn.