DISCUSSION TOPIC: Is Now a Good Time for Retailers to Build?
The economy is slumping and retailers, at least some, are still opening new store locations. Does that make sense and what will the push to open new units mean for retailers once the current downturn is history?
Nordstrom is among those opening new locations even as consumers curtail spending. The company plans to open eight locations this year including a new unit opening in Clinton Township, Mich. today.
Discussion questions: Is now a good time for retailers to be looking to build new stores? Do economic slumps, particularly those that have hit the real estate market, represent an opportunity for retailers? Does the process for site selection change during economic slumps?
Retail has in general become an over-leveraged business, increasingly owned by private equity and other financial interests. This model requires an ever-increasing store base fed by strong economic growth. As long as the sales increase, private equity can flip their holdings every 3 years or so at increased multiples. Other financial owners can leverage the value of their holdings into additional growth or to purchase additional assets.
It all falls apart, however, during a persistent downtrend such as the one we’re experiencing now. The lesson we learn from Nordstrom’s continued expansion strategy is that when a retailer can stay focused on driving financial success through excellent service to their core consumer vs. artificial leveraging, cash flow will always exist to take advantage of real estate expansion opportunities during economic downturns.
Mike Osorio, your Dare to be Contagious! TM strategist
Go to the full discussion at RetailWire.com:
Thank you for visiting my blog! Please subscribe using the RSS button and comment on my postings. Comments are the life-blood of any blog and I appreciate yours!