by Seth Cargiuolo
Chief Knowledge Officer
The Saint Consulting Group
Today, Retail Traffic reports on the pain & suffering to be caused by Borders’ liquidation – specifically, the difficulty landlords are going to have filling the empty boxes, some of which will be their centers’ anchors.
What’s going to make backfilling these stores particularly difficult is the two-level configuration of many of the larger, prime properties. Topping out at 40-50k square feet, with an average of 24.5K square feet across the portfolio, these are too small for your average supermarket, and yet too big for many of the smaller market concepts coming out (e.g., Fresh & Easy, Marketside, etc.) and unattractively configured for the smaller “full size” grocery markets (like Trader Joe’s). These stores are right in Best Buy’s wheelhouse, but in April, Best Buy announced they were pulling back on their big-box strategy to focus more on services and online sales.
RT‘s reporting indicates there is some interest from likely sources such as Books-A-Million and fashion retailer H&M and indeed from some grocers and Best Buy. We shall see, though – I think it’s going to be a rough road for the strip & power center owners who are going to need to fill these spaces. For one thing, as RT indicates, potential lessors are going to be driving very hard bargains for these spaces.
Another wrinkle will be lease restrictions. I was having a conversation with Dave Lewand on Google+ this morning after he shared the article with me (you can see the public part of the post here, although some of the discussion may not be visible to all viewers). In any event, Dave mentioned that lease restrictions (or use prohibitions) could make an ugly situation even uglier. A center with a strong women’s apparel retail component may have a restriction in place to prevent an H&M-like retailer from taking the box; a center with a Game Stop, Radio Shack, or similar store may have a restriction on large CEG retailers from taking the box.
In any event, the race to fill the holes is on. Stay tuned, this could get very interesting!
UPDATE – 7/21/11: It looks like, as RT‘s reporting indicated, that Books-A-Million is making their move. It’s been reported that they’ve made a bid for 35 stores, with an emphasis on the larger super-store format. The deal has a long way to go, though, as this story (from Bloomberg) details.