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The 2005 ICSC Spring Convention Blog

RetailtrafficI've arrived in Las Vegas, where I'll be blogging the 2005 ICSC Spring Convention. We're working with Retail Traffic Magazine, a unit of Primedia (remember About?) on an SMS service that will return the location if you text 'ICSC' plus the name of the exhibitor to '10958'. Stock symbols work as well. 

News from the convention is starting to pour in. GlobeStreet reports that Urban Retail Properties - a longtime powerhouse specializing in luxury retail and so-called fortress malls - has bought out its former owners General Growth Properties, Simon Property Group and Westfield Group for an undisclosed amount. With the sizzling luxury retail marketplace, look to Urban Retail to quickly regain the luster it had before it was acquired by Netherlands-based shopping center company Rodamco, then later sold for $5.3 billion dollars. In the process a governance problem was created where Urban competed for business with its owners, even in new areas like central business districts, strip centers and mixed-use projects.

General Growth Properties is launching 'America's Premier Shopping Places' at forty of its properties, predominantly tourism-oriented properties it picked up in last year's acquisition of The Rouse Company. This appears to be different from the 'GGPremium' program launched at upscale properties such as the Fashion Show in Las Vegas. GGP VP of Marketing Susan Houck designed the program to connect the travel industry and tourists to top shopping destinations through a single source, similar to Rouse's Premier Marketplaces program. (Cathy Kruzik assisted with the program.)

Link: GGP's America's Shopping Places

Bigger than Time Warner Center? Inside the LA Grand Avenue

Development_palladiumJust as Related Urban Development redefined New York architecture with the Time Warner Center, comes the SCT Newswire announcement that it is developing a 10-acre site at Grand Avenue in Los Angeles into an enormous mixed-use complex featuring retail, office space residential units and hotels.

With yesterday's vote to elect Antonio Villaraigosa as the first Latino mayor since 1892, expect a resurgence of interest in downtown Los Angeles as Villaraigosa enacts his REIT-friendly agenda of streamlining permit processes and offering tax breaks to companies that move to the city. Look to Villaraigosa to explore ways to help subsidize highway infrastructure upgrades, whose city hosts some of the most congested highways and spectacular highway accidents imaginable. The Related organization and nine Related executives had donated a total of $18,000 to Villaraigosa's campaign.

This is a big leg up for Related, whose recent work in California had previously been limited to the development of multifamily housing.

Link: Grand Avenue Committee

Apple v TigerDirect, Pt II

AppleFLORIDA, USA - TigerDirect has lost yet another round to Apple Computer, now that Apple is free to use "Tiger" for its Mac OS X 10.4. Previously, TigerDirect's Perception Digital MP3 player has been lost in the market, when compared to the Apple iPod.

What's next - naming Mac OS X 10.5 "Amazon"?

While sources like AppleInsider and SiliconValley.com pooh-pooh Tiger's claims, those writing the articles have probably never felt the business end of Apple's famed legal team, who have laid claim to a remarkably broad number of uses for the term "Apple", including Applecorps - you know, the recording arm for that obscure band named The Beatles.

The Beatles released most of their later albums on the Apple Records label, with its unique labeling--a green-skinned Apple on the A-side and the halved apple for the B-side. A deal was struck in 1981 to avoid conflict ... but who could have guessed Apple's subsequent foray into digital music?

Mastercard Raises Luxury Stakes

Hiltonmc_1As the middle market becomes saturated with Fannie Mae-fueled debit cards, credit cards have joined hotels and city magazines in their pursuit of the upscale consumer.

With this campaign, MasterCard is targeting consumers that make at least $100,000, who charge seven or eight times the annual $3,400 or so that the average customer spends with his card. The Nilson Report estimates these premium cards represent almost $270 billion, or 20 percent, of American credit card spending, from a base of only 1.5 percent of the total number of consumer credit cards issued.

The New York Times reports the card is going after the "Lifestyles of the Rich and Famous" set - and signals a new round of going after high end partners like Emirates Holidays or MLB's "Ultimate Baseball Experiences".

The Forrester Take on Online Marketing, 2005

ForresterCharlene Li of Forrester has published some of the findings from her long-awaited report on the state of online marketing. She makes three key arguments here, which I'll discuss in the context of marketplace economics:

  1. This is not the return of "The Bubble." Charlene argues marketers are having to make tough decisions about their budgets. As Neiman Marcus is retooled and Federated reconfigures its department store lineup, malls have spent three years or more preparing for a world without variable CAM. All marketers - malls, mainstream media, and retailers alike - increasingly demand accountability wherever they spend their capital, economic or otherwise.
  2. It's more than just about search. Charlene points out what Google and Yahoo! are doing about tying CPM- and CPC-based products into the same ad ordering system. Analyzing what people are searching for gives you valuable market insight into what consumers are thinking. If you manage properties in multiple geographies, you're uniquely positioned to understand how the definition of luxury differs from Chicago to Cincinnati.
  3. Marketers will shift channels away from traditional channels to fund online marketing. Arguments that mainstream media like newspapers or broadcast TV are doomed are just plain silly. They won't have the same market power to move masses of people, but they're going to be part of the media mix for the forseeable future. What will change, however, is how they structure deals to add value to their business partners.

The mall industry argues that malls are media, and it's true. I've written how Vogue and Women's Wear Daily have built added value for their advertisers. Similarly, malls increasingly provide private entraces for retailers as enticements. We've partnered with Retail Traffic magazine on a text-messaging service.

Simon Accelerates Asset Intensification

Simon_3ICSC reports Simon is implementing asset intensification at all of its new developments, starting with the South Park Mall in Charlotte, NC. For Simon, they are looking at ways of leveraging their dominant market positions to create additional real estate value.

Asset intensification is a term that had been used to describe the practice of retailers to reinvigorate their growth by getting more out of existing real estate. By rethinking their market approach, retailers redefined the shopping experience by making major overhauls to their product development capabilities and marketing.

Retail consultancy Retail Forward ranked the top 10 retailers practicing asset intensification, whom they dub "Growth Miners", retailers whose median compound annual growth rate was over double that of their peers:

1 Advance Auto Parts, Inc.
2 Chico’s FAS, Inc.
3 Harold’s Stores, Inc.
4 Hot Topic, Inc.
5 Coach, Inc.
6 Christopher & Banks Corp.
7 Sharper Image Corporation
8 Bed Bath & Beyond Inc.
9 Ultimate Electronics
10 Pacific Sunwear of California, Inc.

Retail Traffic magazine reports on other Simon initiatives including the addition of a hotel and/or residential units to the recently opened St. Johns Town Center in Jacksonville, FL, the Domain shopping center in Austin, Texas, and 100,000 square feet of office space at Firewheel Town Center in Dallas, scheduled to open later this year. As these new forms of real estate are completed, look to Simon to follow the example of hotels in finding additional ways to encourage cross-traffic between retailers and local residents and office workers.

Why Some Search Engines Are Failing

EphronJohn Battelle notes that search engines like Looksmart, Findwhat, and Mamma.com are all trending down. What happened to the conventional wisdom that search advertising is the most accountable form of media?

I think search is going through the same (painful) process that cable TV programers went through years ago. Up until the late 1990s, the value of cable TV advertising always suffered in comparison to broadcast. While there were many arguments why this was the case, I believe the ultimate reason was TV measurement had been gamed from the start to favor broadcast.

Erwin Ephron relates how his late ex-partner Dick Raboy had a sign on his office wall. It read, “The Golden Rule. He who has the gold makes the rules.” This certainly applies to the ratings where he who has the biggest audience determines what we get to know. Likewise, I think search advertising is currently gamed to favor Google and Yahoo!

Simply put, Google has become synonymous with search. As a result, advertisers trust Google as a proxy for search which makes adoption less likely for any new search variant. Similarly, they really don't understand the nuances of new technologies like IPTV. Don't confuse their willingness to test with what it takes to earn their ad dollars, year in, year out.

Technology marketers in this vague new world need to make a decision. They can subscribe to their own Field of Dreams, hoping that when they build a cool new advertising vehicle, whether it be TiVo or IPTV, audiences will flock to it. Or, they can take the time to describe how they actually drive traffic, using metrics that researchers trust.

For example, if enough search companies take the time to provide advertisers with a consistent model of how search works, rather than how their approach to search is so different, we might yet realize Roger McNamee's vision of many flavors of commercially viable search.

Quo vadis, indeed.

Link: Ephron on A New Ratings Model (registration required)

Just In Time for ICSC: Inside the Neiman Marcus Deal

Neimanmarcus_1Today Neiman Marcus Group announced that its board of directors has approved a sale of the company to an investment group consisting of Texas Pacific Group and Warburg Pincus. The price is $100 per share in cash, for a total of $5.1 billion. Each of the investors will own equal stakes in the company upon completion of the transaction.

"The play for us is a long-term play on the continued spending in the luxury segment. This is more a play on luxury than retail," Kewsong Lee, a Warburg Pincus partner, told The Wall Street Journal.
Texas Pacific representatives declined to comment.

People familiar with the private-equity groups' plans say the goal is to build between five and 15 new stores while expanding the company's Internet and catalog operations. The timing of this transaction precedes the major shopping center leasing conference in a few weeks, and will present owners of fortress malls with an alternative to Federated/May brinksmanship or the conversion of existing department store anchor space to Target's retail/grocer concepts, or worse.

By building out their Internet operations, especially its foreign language versions, Neiman Marcus will be able to combine their web server and shopping cart data to identify which emerging regions in China, India and Latin America have the greatest appetite for luxury goods, and therefore where to build and how to merchandise.

Cataloguing is also going through a renaissance with the popularity of luxury city magazines and custom publishing to niche audiences. Even Louis Vuitton has begun publishing local guides that cater to affluent, style-conscious travelers.

Texas Pacific already has retail experience after acquiring 85% of family-owned clothing retailer J.Crew in 1997, as well as less luxury-oriented brands like Pets.com and Burger King. After a major turnaround, J. Crew is expected to seek an initial public offering later this year.

Link: "Retailer Neiman Marcus Agrees to be Acquired" (WSJ subscription required)

Airports 3.0: How City Governments Fail Their Citizens

A380_2Now that the Airbus A380 has had its first test flight, Americans need to decide what role - if any - they want their airports to play in the global economy. Adding fine dining options will dress up airports in the short term - long term, there are bigger issues that need a steady hand.

Today, there are three times more general aviation flights than commercial flights. In the U.S. there are 400 scheduled air service airports and 5,000 general aviation airports. However, primarily due to a lack of funding, general aviation airports are closing at an alarming rate of one per week, while general aviation is steadily increasing.

This gap is the fault of city officials who cave in to the demands of some 655 rather selfish airport groups. These groups attempt to curtail the use of airports with curfews, weight limitations and so forth. This is coming primarily from a small group of unknowledgeable people who, very candidly, are selfishly concerned about their own interests, and not at all mindful of the enormous impact that airports have on their local communities. As a result of failing to take a principled stand, municipalities are fighting over table scraps while ignoring the big picture.

Most American airport directors, like their counterparts around the world, believe the future is smart growth: larger aircraft, and to primarily longer-haul international markets. Unfortunately, changing direction at airports is painfully slow. The typical change can take 10 years of unglamorous work like getting permission to reinforce taxiways, improve the retail experience and retrofit gates (registration required). Rather than cater to vocal lobbyists, European governments instead provided $15 billion in upfront loans to manufacturer Airbus SAS. Today, the European company has expanded its share of the world passenger aircraft market to over 50 percent, at Boeing's expense.

Airlines like Virgin Air are looking to the A380 to reinvent the air passenger experience. Frequent international flyer Alicia Plumley told me of entire Starbucks kiosks residing within these environmentally-friendly behemoths. To be a part of this noveaux world order that connects Old World economies like Paris and Frankfurt with emerging powerhouses like Dubai and China, American airports need stronger city support to continue to act as a credible gateway.

To the mayors of cities with second- and third-tier connecting hubs - c'est votre tour. Don't let your citizens and local businesses down.

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