On the Holiday Shopping Season

Was out & about Tuesday evening looking to do some holiday shopping. Went to the IKEA store up by the University area to go look at new computer desks and office furniture and it was, well, subdued. 23 days to get Christmas shopping done and there were very few shoppers in the store. And IKEA is not a high cost, high touch furniture retailer.

We then went to SouthPark mall. SouthPark has been the premier shopping mall in Charlotte, and the expansion they underwent a few years back brought in a lot of high-dollar stores like Burberry, Louis Vuitton, and Michael Kors in addition to Nordstrom, and Macy’s. There was discussion back then about bringing those retailers into the downtown business district (which is strangely called Uptown), but they decided to expand the mall out in the suburbs instead and killed any chance of really making the downtown area a truly livable area of the city. But that’s another gripe for another time.

Point is, as we were driving around, taking a good, long look at the acres and acres of empty parking lots there at the mall, it really gave me a sense of how bad this holiday season might be. 7:30 on a Tuesday night, 3 weeks before Christmas, and I could practically park right in front of each and every anchor tenant store at the mall? With no traffic problems? That’s not good. I know people could be procrastinating, or maybe they already took care of their shopping for the year. If they’re procrastinating, it speaks to a last minute surge. If they already did a lot of their shopping, then that means retail sales, GDP, etc. have already had their best months of the year. Which is sad and scary all at once because that would infer the busiest time of the year for holiday shopping will be a total bust.

As for Simon, it points to a lot of risk for the quarter. Because if the tenants are having problems making sales, Simon does too because tenants may try and move their storefront out of the building to get cheaper rates. Lower occupancy means possible concessions to keep tenants where they are.  Which then translates to lower NOI for the building and ultimately a lower valuation of the finished product. And as we’ve already seen in some of my previous posts here and here, this will have a negative impact on SPG’s valuation of the mall.

So you have a retail impact which everyone will be all over covering, but the secondary add-on effects of badly performing real estate will be at least as bad as the other events that have plagued the credit crunch already.

The outlook for ’10 is in jeopardy…

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Filed under finance, macro, Markets, Way Forward

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