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Expansion Plans Run Into Space Limitations

When it comes to U.S. retail expansion, discounts and caffeine rule. And there’s no longer a one-size-fits-all “box” — big or small, online or offline — when it comes to retailers and restaurant chains looking to expand at a time when good locations are tough to find, especially in places such as San Diego County.

Steve Avoyer

“San Diego city and county have generally been very good for retailers,” said Steve Avoyer, president and co-founder of San Diego-based Flocke & Avoyer Commercial Real Estate. “The problem right now is that there’s really not much product out there in terms of good spaces.”

Avoyer was among dozens of people from the local region — including brokers, developers, shopping center owners, and operators of stores and restaurants — who attended the International Council of Shopping Center’s recent annual spring convention and deal-making conference, held May 22-25 at the Las Vegas Convention Center.

The gathering, among the largest retail industry confabs, has seen its attendance rise to nearly 40,000 in recent years, although it has yet to return to its pre-recession tallies that peaked at more than 50,000.

Flocke & Avoyer handles leasing and sales for more than 100 retail centers in San Diego County, and Avoyer said one of the big issues on the minds of attendees at this year’s Las Vegas gathering was the fate of 450 U.S. stores being closed by the bankrupt Sports Authority.

Michael Foss, CEO of the Colorado-based sporting goods chain, announced in late May that all of its locations, including nine in the local market, would be shut down by the end of August. Three of the local stores — in Escondido, La Mesa and Rancho San Diego near El Cajon — had already been targeted for closure when the struggling Sports Authority announced its bankruptcy filing earlier this year.

Avoyer said the Sports Authority situation remains fluid, and the fate of its U.S. store leases likely won’t be decided until later this year by the bankruptcy court. Many of those could be sold off to other retailers, while others could revert to shopping center landlords.

What lies in the balance, Avoyer said, are the expansion plans of several national chains, many of which have long been seeking to grow their presence in high-barrier markets including San Diego. Those include discount clothing chains like TJ Maxx, Ross Dress for Less and Burlington Coat Factory, do-it-yourself retailers such as Orchard Supply Hardware, and a slew of discount and specialty grocers that could take all or part of a well-located former Sports Authority.

Sports Authority’s biggest national specialty competitor — Dick’s Sporting Goods of Pennsylvania — also has long been known to be eyeing expansion sites in the local market.

Outside of the Sports Authority situation, Avoyer said it was evident at the Las Vegas conference that numerous coffee chains are seeking to boost their presence in San Diego and elsewhere on the West Coast. That roster includes San Francisco’s Philz Coffee, Berkeley-based Peet’s Coffee & Tea, Los Angeles-based Coffee Bean & Tea Leaf and Massachusetts-headquartered Dunkin’ Donuts — the latter of which has ratcheted up its local franchising efforts during the past two years.

Even the already globally ubiquitous Seattle-based chain Starbucks Coffee is scoping out more store sites in San Diego County. “Starbucks has been very good at finding spaces that don’t cannibalize its existing locations,” Avoyer said.

Mike Moser

Mike Moser, a broker with San Diego-based Retail Insite Commercial Real Estate who also attended the Vegas conference, said he expects several health-oriented, mid-priced fast-casual restaurant chains will be looking to boost their local footprint in coming months. Those include Tender Greens, Urban Plates and Mendocino Farms.

Also, retail’s home furnishings and home design segments could be adding new stores if they can find the right locations in San Diego County and elsewhere. “This category is heavily influenced by our housing market, and when it grows and is healthy, then people are buying,” Moser said.

Examples of companies recently expanding in the furnishings sector include Restoration Hardware, West Elm, Living Spaces and Home Goods. Also, San Diego-based Pirch recently opened a new upscale furnishings store in New York’s SoHo neighborhood, bringing its U.S. total to nine locations, as it also announced plans to expand to two or three new markets per year.

Another San Diego-headquartered stalwart, Jerome’s Furniture, recently opened a new location in Orange County’s Fountain Valley, bringing its Southern California total to 12 stores and one distribution center.

Mark Caston

Mark Caston, senior vice president in the San Diego office of Voit Real Estate Services, said his take-aways from the Vegas gathering included a general sense of nationwide optimism among the various retail industry players, especially compared with the outlook on display four or five years ago.

If many store and restaurant operators have yet to crack the San Diego County market, it’s not for lack of trying. Caston said some of the chains that have recently announced ambitious expansions, including several of the dollar-store players, need certain locations at the right rent-price points to make their business model work.

San Diego is a challenge for those companies, at a time when new retail construction is scarce, vacancy rates continue to drop, and rents rise in high-demand markets such as Mission Valley and University Towne Center. Those same qualities, however, are making shopping centers attractive to real estate investment trusts and other types of investors willing and able to pay premium prices, locally and nationally.

Another conference theme is that boundaries are blurring or disappearing in the offline and online operations of successful retailers.

Amazon is in the process of opening physical stores, including one planned for Westfield UTC this summer, and brick-and-mortar retailers are better using physical stores as fulfillment and pickup hubs for their online orders.

In terms of their traditional formats, retailers are being forced to think outside the box — going small instead of big, or vice versa — as they seek to reach target customers in places like the urban infill neighborhoods preferred by younger shoppers armed with mobile apps.

“There are now really no boxes,” Caston said of the industry’s direction.

U.S. Shopping: By the Numbers

These were among figures reported recently by the International Council of Shopping Centers, based on an April survey of more than 1,000 adult Americans by the research firm ORC International.

75 — Percentage of adults (approximately 184 million people) who visited a regional mall at least once in the past three months.

84 — Percentage of those ages 35-44 who visited a mall in the past three months, slightly ahead of the percentage for the 18-34 group (83 percent).

4.8 — Average number of times those ages 18-34 visited a mall in the past three months, the highest number among all age groups. The lowest number of trips was made by the 55-64 age group, at 3.1.

$241.20 — Amount spent on average in the past month at malls for goods and services, including $156.80 for retail items, $52.20 on dining and drinking at restaurants and bars, and $32.20 on other services and entertainment.

$268.10 — Amount spent on average at malls by those ages 18-34 in the past month, or $4.10 ahead of the amount spent by those 65 and older. Those ages 55-64 had the highest average spend per visit, at $140.53, compared with $103.12 per visit for the youngest shoppers.

66 — Percentage of Americans who use mobile devices during their in-store shopping. The percentage is 87 percent for the 18-34 group, and 37 percent for the 65-and-older group.

Source: International Council of Shopping Centers

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