How do you like them malls now?

Implications: The subject article chronicles the downward trend in retail sales and consumerism that was shown in the less than stellar Holiday season just past.  Other media have recently questioned the strength of the fashion sector as indicated by the recent closings in LRTW.

Analysis: There is a comment attached to one of the fashion commentaries in GlobeSt.com which is the complaint of a young woman in the 35 to 45 age sector that high utility costs and gas costs are stealing her clothing budget. No doubt she has millions of sisters suffering the same theft across the country. Elsewhere, Wal-Mart notes that gift cards are being cashed in for food rather than electronics. Still other articles note the pick-up at Ross, Marshalls and T.J. Maxx as families abandon Macy’s and J.C. Penney. I can tell you that if you want to see diversity in action today, visit the 99 Cent store chain in the West where kids, parents and grandparents of all colors and cultures and economic strata crowd the aisles as they bargain shop. Simon Properties and CBL brushed aside discussion of impending closings and vacancies in recent conference calls. The importance of those moments may be that there were any questions at all about that subject from a generally historically friendly press. As warm weather brings shoppers out in the spring, it will be interesting to see whether real sales of LRTW and other important mall sectors pick up. The alternative will be that shoppers are tapped and only the necessities will be in the bag. I feel that the consumer is tapped and tired at this point and there will be no recovery within the year. There’s always the unexpected boon to be reckoned with, but unless that stimulus comes quickly, 2008 looks like a pretty lackluster retail year coming to me. At best, mall rents will level out as tenant sales moderate and the threat is that lower rents will be necessary to stabilize the merchant also suffering from increased CAM charges. Mall capitalization will reflect the new reality in the debt markets where reduced funding schedules will bring lower loan amounts from higher debt coverages and loan constants. Lower bottom lines will be capped in tomorrow's 3rd party sales at higher levels resulting in lower pricing. As a result, if you bought your mall recently at yields in the 4% + level, you're in trouble if you have to sell that asset and there is no other business strategy prompting the sale. If you were the last in the line of institutional owner sales, you may have been the greater fool. There is no illustration of this phenomenon in the mall business yet, but a parallel may be the Macklowe purchases from Blackstone which are in such deep distress at this point.