Churning Retail Market Tightens
by JEFF MOORE
It’s hard to get a grip on what is going on in the Orange County retail sector right now. Statistics show that consumer confidence is down. In addition, retail sales were significantly down in September and some well-known retail chains have declared bankruptcy, including Krause’s Furniture, Home Life Furniture, House2Home, and Crown Books. On the other hand, some retailers are expanding aggressively in Orange County, including Wal-Mart, Lowe’s, Costco, Target, Kohl’s, Bed Bath & Beyond, and Starbucks Coffee.
How do we account for these mixed signals? To find the answer, we need to go back to the basics of Business 101. It is survival of the fittest and the theory that the strong will survive. These survivors are not necessarily always the biggest, however; they typically are the ones with the most focused business plan, quality management and customer service, perceived customer value and superior locations. Even in uncertain times, and in fact, in times of declining consumer expenditures, these companies can strengthen their market position knowing that when the economy turns around they will be better off.
So, while House2Home, Home Life, and Krause’s recently announced the closing of their Orange County stores, Kohl’s department stores is planning to open five to 10 Orange County stores in 2003 (among 35 in Southern California) and Starbucks seems to be trying to open locations on every corner in the county.
In all, there was more than 3.8 million square feet of retail space either completed or under construction during the third quarter. Projects like the new retail phase of Irvine Spectrum (to include a Robinsons-May store), Amerige Heights Town Center in Fullerton (Target, Ross, Old Navy, Linens ‘N Things, Barnes & Noble, Albertsons), Plaza El Paseo in Rancho Santa Margarita (Kohl’s, Bed Bath & Beyond) and La Habra Westridge (Wal-Mart, Sam’s, Lowe’s, Kohl’s), among others, suggest that retail is still strong in Orange County.
In fact, Orange County’s retail vacancy rate was lower at the end of the third quarter than it was in the second quarter and a year earlier (8.2% vs. 8.3% in both cases) and the average retail lease rate was up ($1.72 per square foot per month, vs. $1.71 in the second quarter and $1.67 in the third quarter of 2000).
Further good news for retail was October’s strong retail sales rebound and reported strong third quarter profits announced by several major U.S. retailers, including Wal-Mart, Home Depot, and JC Penney.
There is no doubt that existing world events and news of a slower economy are creating some uncertainty in the minds of consumers; however, the Orange County retail market seems to have a mind of its own.
Jeff Moore is senior vice president of retail properties in the Anaheim Office of CB Richard Ellis.
