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Store Building Takes a Breather

Big-box retail chains have put the brakes on real estate leasing and construction, managers of several companies said at a Wednesday event in Dallas. Some experts think this slowdown could be a positive move if it gives retailers a chance to rethink their capital strategies.

The Dallas Morning News reports that commodity costs have risen 20 to 25 percent this year alone, changing construction economics, even as falling retail sales lead stores to think twice about expansion plans. Home Depot will close 15 stores for the first time in its history, and last week cancelled two proposed stores because they didn't meet more stringent internal investment requirements. "We need a cooling-down period," said Hunter Stansbury, senior real estate manager for Home Depot Inc., at a luncheon sponsored by the International Council of Shopping Centers.

Shopping center planMaria Halkias reports:

Irving-based Michaels Stores plans to open 45 stores this year, the same number it has built in each of the last 10 years, said Karen Slayton, real estate manager for the largest U.S. arts and crafts retailer. But the company will back out of a project if it's the only one left, she said. "We're all expecting you to bring deals to us for 2010," she said.

Viral Patel, real estate negotiator for Plano-based J.C. Penney, said the company is going back over previously approved projects and delaying them "if the growth isn't going to be there." ... All deals are going through a stringent screening, including asking other retailers if they are committed to projects, Mr. Patel said.

At the RetailWire discussion forum, Mike Tesler of Retail Concepts says:
Developers need more for their spaces because of rising costs and market projections they did three to five years ago. Retailers live in the now and they want to pay less for space because it is not producing as much per square foot as in the past. Consequently, the gap between what is needed by the developers for their new spaces and what it is worth to the retailer is way beyond the norm and that gap is producing a lot of "no deals" and "broken deals."
Here's the upside: Lee Peterson of WD Partners suggests on RetailWire that the confluence of an economic slowdown and major changes in consumer behavior give smart retailers the opportunity to think strategically instead of rushing into new markets. "It's really a perfect time to step back and say, 'Let's slow down, think about this and decide what we're going to be when this is over.' In other words, let's hike up the innovation budget and move on to the next generation of retail."
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