Juicy nuggets of information, advice and, of course, gossip floated around the International Council of Shopping Centers conference in New York last week.
In both the specialty and department store businesses, analysts suggested that more mergers and acquisitions, leveraged buyouts and privatization are on the way in 2007. Companies that the analysts identified as possible acquisition targets in the specialty and hardlines retailing sector include: Jos. A. Bank Clothiers, Ross Stores, Pacific Sunwear and BJ’s Wholesale Club.
“These going-private transactions might be good [for mall owners] because it will make retailers more focused on growth,” said Christine Augustine, an analyst with Bear, Stearns & Co., during the “Wall Street on Retail” panel at the conference.
Specialty retailers can find other gains by siphoning off The Gap’s business, especially companies like American Eagle, Express, Victoria’s Secret and Abercrombie & Fitch. “Ninety percent of my companies benefit from The Gap giving up market share,” said Brian Tunick, an analyst with J.P. Morgan Chase & Co.
Abercrombie & Fitch stands to benefit immensely, noted Tunick. He predicted the retailer’s stock will rise north of $80 per share in the next six months to a year. It is currently trading at around $65. Augustine pointed toward Federated Department Stores, whose share price she expects will top $50, and J.C. Penney, which she believes will rise above $80 per share, as her top stock picks. Gregory Melich, an analyst with Morgan Stanley, favors J.C. Penney, Target and Lowe’s for 2007.
Retailers such as Home Depot, Wal-Mart and Best Buy were noted for their flexible store formats, while analysts and executives lauded specialty concepts Soma, Forth & Towne, Jimmy’Z, One Thousand Steps, Martin + Osa and Cusp for bringing fresh insight into the retail mix. Coach, Apple and Tiffany were credited for offering aspirational products to consumers.
“Coach’s operating margins are at 38 percent,” said Tunick. “That’s three times as much as other apparel manufacturers.”
As for the mall owners, they are trying to be equally flexible. John Bucksbaum, chief executive officer of General Growth Properties and ICSC chairman, noted that seven trends will dominate retail and retail development in 2007, and most of them include changing how retail owners do business, including radically changing the mall. The key trends are: the evolution of the shopping center format, mixed-use development, malls growing more upscale, the globalization of the retail real estate industry, more “flexible” retailers, supermarket innovation and green development.
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“There are more opportunities available to us today as developers and retailers than there were when we were young,” said Bucksbaum. “But development requires a much sharper and multidisciplinary skill set than it has before.”