Tuesday, October 19, 2010

Retail sales track 2009, but some cities doing better than others

Sales tax distributions for October indicate that the volume of retail sales in Marin County continues to track that achieved in 2009. Total distributions reported by the State Board of Equalization this month were $1.9m, a slight 1.8% drop from October 2009.

This month, we take a look back to see how much retail sales have fallen over the course of the recession, and how far they have to rise to reach pre-recession levels.

The chart below shows the change in sales tax distributions since June 2008, using a 12-month rolling average index to remove monthly variability. Overall, the County is pulling in just 85% of the sales tax it was generating in 2008. However, there are some notable differences between cities:
  • Fairfax lives up to its reputation as being somewhat disconnected from the rest of the county, having maintained higher levels of sales tax revenues over the last two years, albeit with a decline over recent months at a time when other towns are recovering.
  • Corte Madera was hit quite hard at the beginning of the recession, but has shown the strongest recovery this year, and is my bet for being the first city to break back through 100 on the index. Novato has followed a similar path and is not far behind.
  • Sausalito, Larkspur and San Anselmo were more resilient at the start of the recession, possibly because of their reliance on eateries and local services, but were hit hard in 2009 as residents were hit with job losses and house price declines.
  • San Rafael and Mill Valley are each still below 80% of their pre-recession retail sales. San Rafael accounts for approximately 1/3 of Marin retail sales but has been hit with 1/2 of the county's sales decline. Mill Valley's acute decline is likely connected to its population base, which includes larger numbers of workers in finance, business and other sectors hit with job losses.
  • That leaves Tiburon in last place. Despite being the County's wealthiest town, its retail sector has imploded in the last few years, with sales now at just 66% of their 2008 level. A small retail sector, with a heavy reliance on tourist spending, is likely the reason behind the poor performance.

Monday, October 18, 2010

Marin Gateway is gonna be BIG

The Gateway shopping center in Marin City has been acquired by a joint venture of Developers Diversified and The BIG group. According to a press release, the JV will pay $36 million for the property, comprising $7m in cash and an existing loan of $29m. The center was offered for sale in April by the Bay Area Council.

The BIG Group is based in Israel, where it has developed and owns a series of power centers. And yes, they are quite big, with very big totem signs to announce the fact (photo shows the BIG center at Krayot). BIG already owns several US shopping centers through a joint venture with Kimco, though this is the first transaction for the DDR JV.

The Marin IJ put out a bizarre front page story today suggesting that the Marin City Community Services was hoping to buy the shopping center. Good luck with that.

Friday, October 8, 2010

Positive signs in retail sales

This week saw the release of stronger than expected September retail sales results. There was also a dip in the mall vacancy rate - the first improvement in occupancy for three years. The rash of good news brought forth cautious optimism from several commentators that the retail sector is on the cusp of a period of sustained growth.

In Marin, our own radar on retail performance also surprised us with a strong September result. The 1% retail sales tax distribution to Marin cities for September was the highest since 2007, beating by a fraction both September 2009 and September 2008. This year's figure (the purple line on the chart below) was widely predicted (by me) to fall below 2009 due to the cash for clunkers stimulus that bumped up 2009 retail sales.
It will be interesting to see next month if the momentum can be maintained as we head into the holiday season.

Monday, October 4, 2010

The impact of Target in San Rafael

The proposed Target store at San Rafael was in the news last week as the San Rafael Chamber of Commerce postponed making a decision on whether or not to support the development.

This is a familiar big-box retail situation that has played out across the United States. Typically, the City often favors the development because it creates jobs and provides fiscal benefits from sales taxes. Other retailers and their representatives denounce the effect that the proposal will have on locally-owned independent businesses and the historic downtown and neighborhood stores. And the proponents claim that they will be providing a service that will compete mainly with other big box stores and will allow people to shop locally instead of having to drive to the big box stores and malls in other towns further away.

The Chamber plans to research other communities where Target stores have located. There are many examples where unlimited development of strip malls has killed downtown retail areas, but fewer where the impact of one store is clear cut. Target and Wal-Mart have plenty of experience in making their case in these situations.

A 135,000 sq.ft Target store like the one proposed in San Rafael would probably generate $40m-$50m in annual retail sales. The size of the retail spending market in central and southern Marin in the categories of goods that Target sells is approximately $1 Billion. Often, retail developers will cite growth in retail spending as demonstrating a need for new development. This isn’t the case in Marin, where population growth is less than one percent annually, and retail sales have been in decline as a result of the recession and the longer term growth of internet sales. The new Target’s $40m-$50m annual revenue would instead come from existing spending, which means on average the new store would capture 4%-5% of existing stores’ sales. This average figure represents a fairly minor sales decline that could be considered as being within the normal scope of competitive business. However, the distribution of impact will not be even, but will depend on (1) geography: the closer, the higher the impact, and (2) comparability: customers are more likely to switch from similar stores selling similar products; therefore niche, gourmet and specialty stores are less likely to notice an impact, but department stores and big box mass-market stores would take a larger hit.

Among the retailers in downtown San Rafael, many of the fashion boutiques and niche stores selling gifts and accessories wouldn’t compete directly with Target. The stores selling more generic items, like toys, sports goods, household goods, books, electronics and cds are in more danger of taking a sales hit from Target. And all businesses, including the eateries and health & beauty services that don’t directly compete with Target, will suffer if the new store reduces shopper traffic along Fourth Street.