Tuesday, November 27, 2012

Shopping malls cater to shifting demographics

As malls loose renters thier business models will change. Aivars Lode

(Reuters) - Macerich Co (MAC.N) isn't usually in thebusiness of hosting religious processions in its mall parking lots.
But when it allowed a Good Friday event featuring a costumed Jesus, prisoners and Roman guards at a Phoenix mall last year, hundreds of shoppers turned out from the heavily Hispanic community, where re-enactments of the Stations of the Cross are a major occasion.
The response proved to Macerich that its program to attract the surrounding population to its malls was working.
A small but growing number of real estate owners and developers are tapping into the same demographic change U.S. politicians have begun to recognize.
Two ethnic groups - Hispanics and Asian-Americans - are expected to see their population and buying power soar in the coming years. And several demographic experts project that non-Hispanic whites will be a minority nationally by 2040 or 2050.
If mall and shopping center owners fail to adapt to the changing demographic make-up of the country, they risk seeing their properties become mausoleums of a less-diverse American past.
"It's a bunch of guys trying to build for a (white) world that's no longer growing. But there are those individuals out there that are seeing the growth in different ways. They're picking it apart and making some big money off of it," said James Chung, president of strategy and research firm Reach Advisors.
Many developers focusing on ethnic shoppers have come to the rescue of dying malls and shopping centers throughout the United States.
In California, Primestor Development is transforming the 850,000-square-foot Baldwin Hill Crenshaw Plaza in Los Angeles into an Hispanic-focused mall, plowing in up to $40 million for renovations. Further south in Irvine, Diamond Development Group has created Diamond Jamboree, with small service-oriented tenants, such as doctors' offices, anchored by an Asian food market. In Atlanta, a vacant 220,000-square-foot furniture store has been converted into Global Mall, the largest U.S. mall targeting consumers whose roots are in southern India.
Macerich is in the forefront of large, publicly traded mall owners courting the growing numbers of ethnic shoppers. Two years ago it teamed up with Legaspi Co, a consultant and operator of Hispanic-oriented malls, to help Desert Sky Mall. Occupancy at the Phoenix mall had fallen to 77 percent from over 90 percent as the demographic make-up of its trade area shifted.
Several changes were made, including converting a vacant Mervyns store into a mercado - Spanish for market - with scores of small shops and stands. Occupancy at the mall is now back up to 90 percent.
With the success of Desert Sky, Macerich and Legaspi Co President José de Jesús Legaspi created Vanguardia, a program that includes marketing and renovations to transform malls before their occupancy suffers.
"We aren't about to let good real estate go that way," Macerich Executive Vice President Eric Salo said.
José de Jesús Legaspi started more than 30 years ago helping retailers reach Hispanic shoppers. His company operates or has a stake in four malls and is eyeing a 700,000-square-foot mall in Oklahoma City.
Transforming struggling malls has a lot to do with marketing, including using bilingual staff, sending out direct mail in both English and Spanish, and hosting events like Mexican Independence Day.
When building its Asian-focused, grocery-anchored shopping centers, Diamond Development followed the engineering workforce, which includes a heavy concentration of Asians. It found thatrestaurants were in demand, and leases had to include clauses prohibiting restaurants from copying each other's specialties.
But it takes more than adding a dim sum restaurant or chimichangas to the food court to attract the growing U.S. Hispanic and Asian populations.
Primestor, which has built or redeveloped more than 80 Hispanic-focused malls, shopping centers and strip malls, uses research from Pew Hispanic Center and the U.S. Census, and conducts town hall meetings to discover the types of retailers an area lacks and to gauge demand.
"We're not in the build-it-and-they-will-come mentality," said Arturo Sneider, Primestor's chief executive. "We're in the build-it-improve-it-because-they're-already-here mentality."
Developers of malls and shopping centers aimed at Hispanic Americans say they often change the facilities' physical appearance, transforming dull, fortress-like malls into festive, colorful shopping centers. Because Latino families tend to be larger, developers broaden the corridors and make common areas bigger; because such families tend to be younger, there is more demand for shoe and clothing stores - for growing children.
Third-generation Hispanic Americans add another consideration. Like the American mainstream, they want the latest consumer electronics and tend to like restaurants, such as Chipotle Mexican Grill, that are popular with their mainstream peers, Sneider said.
But what works for some ethnic groups doesn't necessarily work for others. Seoul Plaza, a Korean marketplace billed as a "mall within a mall" in Baltimore's Security Square Mall, did not fare well in competition with other Asian markets in the area. Many stores closed, and the plaza has been up for sale since 2010.
In targeting Asian-American shoppers, merchants selling soft goods such as clothing and toystend to find the going tough, said Steve Zuckerman, project manager at Diamond Development.
"The reason for that is there's really no such thing as a Chinese necktie," Zuckerman said. "A Chinese guy, if he wants to save money, he's going to go to Ross, Walmart. If he wants to spend money, he'll go to Bloomingdale's or Nordstrom."
The Macerich-Legaspi Vanguardia program has been implemented at six of Macerich's 59 malls, and aspects of it have been employed to some degree at a few others.
"There's been enough financial success here that we're going to continue to invest in this," Macerich's Salo said. "It's good business."

How future GDP could drop to 1% annual growth

No or low grow is something we have predicted for some years now along with what will become more important when there is no real growth. Aivars Lode

A new commentary from Research Affiliates offers another sobering forecast about future growth in the U.S.

By Christopher J. Brightman
November 27, 2012 6:01 am ET

For the 50 years from 1951 through 2000, U.S. GDP growth averaged 3.3% per year. We can attribute this historical growth to three primary components: 1.4% from population growth, 0.3% from a rising employment rate, and 1.6% from growth of output per person employed (productivity). In the coming 20 years, all three components of growth will be much lower.
Births and fertility rates are declining. Immigration has slowed to a trickle in response to harsh immigration policies and a dimmed growth outlook. For the next two decades, the U.S. population will grow by only 0.7% per year, half the rate of growth witnessed in the late 20th century.
The total employment rate will continue to decline as boomers move from their 50s into their 60s and 70s. Whereas a rising employment rate added 0.3% per year to GDP growth from 1950 through 2000, the demographic effect on the employment ratio will subtract 0.2% for the next two decades. The population will be growing by 0.7% per year, but the employable work force will be growing by only about 0.5% per year.
Productivity growth faces severe headwinds from both demography and fiscal contraction. If the productivity growth of our aging labor force is 0.5%, then future GDP growth will be centered around 1%.
Demography guarantees a sharp slowdown in GDP growth. 1% real growth is still growth. It's a joy to behold, if our expectations are anchored on zero, as was the case throughout human history before the industrial revolution. But, if our expectations are tied to the 3% growth from 1950 to 2000, the 1% growth seems abysmal.
Slower growth is not a serious problem; it's the expectations gap that poses economic and political dangers in the years ahead.
Demography is Destiny?
Demography is destiny. But, while it is the most immutable force shaping our future, it is not the only force that matters.
This 1% “new normal” for GDP growth is, of course, subject to considerable uncertainty. Our policy choices will have a dramatic influence on all three drivers of economic growth. Immigration reform, while politically difficult, could help slow the decline in population growth. We can increase the rate of employment by revising our transfer payment policies to provide ample incentives for employers to employ and for the labor force to seek employment. We can boost productivity by changing our tax policy to encourage savings and investment, rather than printing money to support debt-financed consumption.
It seems unlikely that we can reverse the decline in fertility rates observed across the developed world.4 Immigration can, however, move the needle on U.S. population growth by several tenths of a percentage point per year. The United States absorbed one million immigrants per year in the past when our total population was much smaller than today. The positive contributions of immigration to growth are well documented, as summarized by Professor Gordon Hanson (2012) at UC San Diego. While the economics are uncontroversial, the politics are not promising. Both the right and the left have their own separate reasons to resist changing our immigration policies.
The structure of our tax and transfer payment systems has a significant influence on employment rates. Our combination of regressive payroll taxes and phase-out of transfer payments results ineffective marginal tax rates above 40% — in some cases far above 40%—for the working poor (Kotlikoff and Rapson, 2006), while we tax carried interest in private equity deals at only 15%. As the authors observe: “The patterns by age and income of marginal net tax rates on earnings, marginal net tax rates on saving, and tax-arbitrage opportunities can be summarized with one word—bizarre.” Reform of our tax and transfer payment systems, to reward work instead of penalizing it, could add as many as 30 million jobs in a few short years (Arnott, 2011b).
The most important determinant of our productivity per person is the amount of capital we have available for investment, and wise use of that capital. Investing to improve productivity in all of its forms, from machine tools, to transportation infrastructure, to education, can all raise our productivity. Investing requires sav¬ings and we have been saving far too little. To increase productivity requires that we reorient our economy away from debt-financed consumption and toward saving-financed investment.
In this context, ending the mortgage interest deduction seems oddly absent from our political debate, perhaps because it would run counter to long-standing bipartisan policies promoting the American dream of home ownership and perhaps because it would simply be too unpopular. Nonetheless, the tax deductibility of interest on home mortgages (which was effectively reaffirmed when the Tax Reform Act of 1986 rescinded the deductibility of credit card interest) has been credibly identified as one of the factors that eventuated in the financial crisis (Szegö, 2011). Because borrowing against one's house is inexpensive on an after-tax basis, it was easy to rationalize converting the wealth effect of rising prices from a psychological phenomenon to actual cash on hand for consumer spending. Banks and families are still paying for the good times, and the overhang of properties in foreclosure ensures that the residential real estate market will not fully recover for years to come. Yet there is little discussion of changing the tax code with regard to debt collateralized by borrowers' homes.
Unless we change our policies to encourage immigration, employment, and investment, our new normal growth rate will be 1%. Government tax and spending plans, based upon the Rosy Scenario of extrapolating past growth rates, are likely to exacerbate our already unsustainable deficits and dangerous accumulation of debt.
Christopher J. Brightman is head of investment management at Research Affiliates.