Is this the Beginning of the Big Retail Shrink-down?
January is typically the month when retailers announce store closings. According to the International Council of Shopping Centers, 44% of annual store closings announced since 2010 have occurred in the first quarter. But this year’s closings may be indicative of a new trend, sparked by more and more shoppers turning to the Web.
In the 2013 holiday shopping season just ended, online spending increased 12% over dollar amounts for 2012. According to ShopperTrak, the combination of a shortened holiday shopping calendar and freezing weather across much of the U.S. resulted in a nearly 15% decline in foot traffic to brick and mortar stores as people turned to online shopping.
“Stores are making a long-term bet on technology,” said Belus Capital Advisors analyst Brian Sozzi. “It simply doesn’t make strategic sense to enter a new 15-year lease as consumers are likely to continue curtailing physical visits to the mall.”
Sozzi said that after a profitable but below-expectations holiday shopping season, the retail industry will face its second big round of store closures across the U.S., only a few years after what he called the “fire sale holiday season of 2008.” During the recession, the number of shopping center vacancies rose to 11% and has since recovered only 2.1%.
But it is not just the number of stores that is shrinking, it is also their size, said David Birnbrey, chairman of retail real estate advisors The Shopping Center Group. As fewer shoppers buy items at the physical store, retailers do not require the same inventory levels to be available in an attached storage room.
By placing more of their stock in fulfillment centers, retailers can shrink their stores to cut back on commercial real estate expenses. Although retail rents are still well below where they were prior to the recession, they have begun to stabilize and are expected to show a slight uptick in 2014.
One big change in store closings is that retailers are shying away from indoor malls, instead favoring outlet centers, outdoor malls, or stand-alone stores. Although new retail construction completions are at an all-time low, the supply of new outlet centers has picked up in recent quarters.
Rick Caruso, founder and CEO of Caruso Affiliated, said at the recent National Retail Federation (NRF) convention that without a major reinvention, traditional malls will soon become extinct. He added that he is unaware of any indoor mall being built since 2006. “Any time you stop building a product, that’s usually the best indication that the customer doesn’t want it anymore,” he said.
Turning brick-and-mortar shopping into a more inviting experience was one of the main topics discussed at the NRF convention this month, with retailers brainstorming ways to integrate targeted mobile coupons and high-tech gadgets to lure back shoppers who may have been lost to the Web.
30-seconds, $84,000 – Super Bowl Ad Economics 101
In a world where television viewers routinely zap commercials, advertisers crave big-event television, live events that viewers watch in real time. And the power of those big events to draw advertisers is now on display with this year’s Super Bowl.
Advertising industry analysts are estimating a $4 million price tag for the average 30-second commercial at this year’s Super Bowl. That is a pretty astounding number, but it probably will not be in 2040, given the exponential growth in ad rates for the big game. Back in the 1980s, marketers gasped when the $500,000 mark for Super Bowl spots was crossed. Today, that would buy you just three seconds of airtime.
If prices follow the historic growth pattern, we should expect to see $6 million in the 2020s, $8 million in the 2030s, and $10 million by 2040. By comparison, a Super Bowl commercial cost $1.6 million in 1999—indicating a growth rate of 150% in just 15 years.
What is it about the Super Bowl? Why does this single broadcast consistently command ever-increasing prices from advertisers? Some answers are:
1) Viewers typically do not change the channel when a commercial break comes on compared to any other type of programming. The audience levels for the commercials are actually higher than for the on-field play itself. And the Super Bowl commands a big audience. Last year’s match-up attracted 109 million viewers.
2) Super Bowl commercials tend to have staying power due to all the pre-game and post-game discussions about them.
3) The commercial cost per thousand viewers (CPMs) is still competitive and in-line with normal TV programming.
Super Bowl viewership has risen since the first game, more than tripling since 1967. However, the growth in ad sales has far outpaced the growth in viewers. This has caused CPMs to rise steadily.
The fragmentation of TV viewership has made live sports a big draw for ad buyers who want to reach an audience that will stick around to watch the commercials. This trend has helped demand for Super Bowl advertising slots. But compared to other live major-sporting events, Super Bowl ad pricing continues to show strong growth—much stronger than the modest gains for the World Series and college basketball’s final weekend. So do not be surprised by $10 million ad rates when Super Bowl LXXIV rolls around.
Sources:
1. http://www.cnbc.com/id/101353168
2. http://www.nytimes.com/2014/01/24/business/media/super-bowl-ads-to-help-start-busy-season.html
3. http://www.businessweek.com/articles/2014-01-20/super-bowl-ad-insanity-explained-in-six-charts
The Good News Is . . .
• The National Association of Realtors said on Thursday that sales of previously owned homes rose 1.0% last month, to an annual rate of 4.87 million units. While the number fell somewhat short of the 4.94 million units analysts had expected, total sales for 2013 were the strongest in seven years. A steady rise in household formation from multi-decade lows has propped up demand and encouraged builders to undertake new development projects despite higher mortgage interest rates.
• Starbucks, Corp., the nation’s largest roaster, marketer and retailer of specialty coffee, reported earnings of $0.71 per share, a 24.6% increase over year-ago earnings of $0.57. The company’s earnings topped the consensus estimate of analysts by $0.02. The company reported that revenues were $4.2 billion, up 11.6%. Management attributed the company’s strong performance to strong holiday sales and increased store traffic.
• Suntory of Japan announced that it will buy Beam, Inc. for $13.6 billion, transforming it into the world’s third-largest distiller. Beam, which makes the popular Jim Beam brand of bourbon, has long been considered an attractive target for acquisition. Rivals like Brown-Forman, the maker of Jack Daniel’s, are controlled by families, and have shown little interest in potential takeovers. From its roots to 1795, when a Kentuckian named Jacob Beam first sold corn whiskey, the distiller had grown to become one of the country’s biggest producers of spirits.
Sources:
1. http://www.cnbc.com/id/101358564
2. http://www.cnbc.com/id/18080780/
3. http://dealbook.nytimes.com/2014/01/13/suntory-of-japan-to-buy-maker-of-jim-beam-for-13-6-billion/
Planning Tips
Tips for Navigating Social Security Changes for 2014
The New Year will usher in some simple but significant changes to Social Security and Medicare benefits for the more than 57 million Americans who receive them. Below are some of the changes you can expect this year.
Cost of living adjustment – The cost-of-living adjustment will be modest, thanks to a low inflation rate. Expect a 1.5% rise in monthly Social Security checks, which will lift the average check by only $19 to $1,294. That is a little below the 1.7% increase retirees received in 2013 but better than no increase, which is what happened in 2010 and 2011.
Higher tax caps – You will have to make more money in 2014 than you did in 2013 to reach the maximum amount subject to Social Security taxes. That cap will rise about 3%, to $117,000 from $113,700. The Social Security Administration estimates that of the roughly 165 million workers who pay into the system in 2014, some 10 million, or 6%, will pay higher taxes because of the increase.
Retirement-earnings limits rise – The earnings limits for retired workers receiving benefits who are younger than their full retirement age (FRA), and those who are approaching FRA, are edging higher. Those below FRA will have $1 deducted from benefits for every $2 earned over $15,480. The newborns of 1948, who reach FRA in 2014, will see $1 subtracted from benefits for each $3 earned over $41,400 until their birthday month. After you reach FRA, you may make as much as you like without any reduction in benefits.
Medicare Part A deductible is higher – For inpatient hospitalization, if you do not get premium-free Part A, expect to pay $32 more before you reach the new $1,216 deductible. Beneficiaries also will be expected to pay $304 a day in copays for days 61 to 90 (up $8), and $608 a day for stays beyond 90 days (up $16).
Maximum Social Security benefit has increased – For workers retiring at full retirement age, the maximum Social Security payment will increase from $2,533 a month to $2,642 a month. To receive that sum, however, you will have to have met or exceeded the maximum taxable earnings level for 35 years of your working life.
New Social Security Disability Income (SSDI) eligibility – For disability purposes, an applicant for SSDI must be making less than $1,070 per month to qualify for benefits (or $1,800 if blind). Social Security Disability Insurance (SSDI) recipients who attempt to return to work through a trial work program will have one month count as a trial month if they make more than $770 per month.
New Supplemental Security Income (SSI) eligibility – The new federal income limit for SSI is $721 per month, but complex rules govern what income is included and what income is not. And some states allow SSI applicants to have more income. In short, income over $721 is likely to reduce or end one’s SSI benefits, though you may be able to make more money and still qualify for some SSI. But once you reach $1,527 in income, you can no longer qualify for any SSI.
Sources:
1. http://www.nolo.com/legal-update/social-security-ssi-benefit-amounts-other-figures-change-2014.html
2. http://www.ssa.gov/pressoffice/factsheets/colafacts2014.html
3. http://online.wsj.com/news/articles/SB10001424052702304475004579276252737934172
4. http://www.dailyfinance.com/2014/01/04/social-security-changes-in-2014-what-you-need-to-k/
5. http://money.usnews.com/money/retirement/articles/2013/12/16/retirement-benefit-changes-for-2014
6. http://www.aarp.org/work/social-security/info-01-2014/2014-social-security-changes.html
