Emptying Out the Malls

Two interesting articles on the affects of the housing market deterioration and the HELOC clamp-down. The first is from The Record called Restaurants Hungry for Customers. The second is from the Wall Street Journal called Retailers Struggles Mean Lean Times at the Mall.

The restaurant article discusses how many are almost empty during the week but the weekends have not really slowed that much. In addition to the weekday slowdown, people are ordering less when they do go out - skipping drinks, appetizers and deserts to cut down their food bills. This puts the owners into a bind - as food prices are creeping up people are ordering less which is really cutting into the profits margin. There are also stories about people taking out more to reduce their expenses. Of course it is not surprising the owner of a high-end restaurants claims that there is no change. From the article -

A national survey by the NPD Group shows that a third of consumers said they went to restaurants less in February, and a quarter went to less-expensive restaurants, ordered less-costly entrees, eliminated appetizers or desserts or asked for tap water as their beverage.

People are cutting back on the number of times they go out, where they go and what they order. In order to compensate for this loss, restaurants are going to have to lay off employees and the employees that do remain will be making less. This will just reinforce to the cycle.

This is happening now in New Jersey which does not have the housing problems that are facing California, Florida, Nevada and Arizona. One can only imagine the ghost towns out in other parts of the country. One can see you-tube videos and imagine of empty malls and shopping centers in the rest of the country. While we do have some problems here, nothing like the rest of the country.

Though I have seen this coming - for buying beer or wine why pay a 400% or more mark-up. People will start frequenting the BYOB restaurants were they can have the same luxury of a drink with their meal for a fraction of the cost. When times get tough these are the extras that are easier to let go. Personally, I have never seen the financial sense in buying a glass/bottle of wine or beer at a restaurant. Although I do it on occasion, I see it as throwing away money the same as going to A.C.

The restaurant owners are putting a brave face on the situation with remarks like -

"During the week, it has definitely quieted down," Cascio said. "Instead of people dining out three times a week, they'll go out two times. There's never been a better time to get a good table than now."

Of course the high end restaurant claims there is no change to their business. There seems to be this illusion that if you make more money you are so much smarter about how you spend it. Like mentioned in these posts here and here, where just because one is in a job that pays high does not make the person that much smarter - debt is debt. Living above your means is living above your means whether you make $50,000 or $1,000,000 per year.

Now onto the WSJ article about mall retailers that are closing down.

Weak consumer spending is pushing struggling retailers close to or over the edge, and that is starting to hurt shopping-mall owners.

The latest retail casualty is Linens 'n Things Inc., a 500-store home-accessory chain, which is considering filing for bankruptcy-court protection as soon as this week. The chain, which went private in a leveraged buyout two years ago, is running short of cash, and its vendors have stopped shipping products, said two people familiar with the company.

For shopping-mall owners, it is a rude awakening from the boom times of the past few years, when consumers borrowed to furnish new homes. While vacancies should remain low, the slowdown means weaker rent growth for all mall owners and serious pain for the most heavily indebted landlords.

... The list of weak retailers is growing by the day, including furniture seller Domain Inc., high-end jeweler Fortunoff Inc. and electronics merchant Sharper Image Corp., all of which have sought bankruptcy protection since January.

Mall mainstay Foot Locker Inc. closed 274 stores last year and anticipates 140 more closures this year. Jeweler Zale Corp. is closing 100 stores in the wake of disastrous holiday sales. Wilsons the Leather Experts Inc. is closing 158 of its 260 mall stores this year, and teen retailer Pacific Sunwear of California Inc. is closing its 153-store Demo chain.

... In fact, conditions are likely to get worse. The International Council of Shopping Centers, a trade group, predicts nearly 5,800 store closures this year, outpacing last year's 4,600 and approaching the recent high of 6,300 in 2004. Several anchor tenants -- Wal-Mart Stores Inc., J.C. Penney Co. and Office Depot Inc. among them -- have slashed expansion plans and have delayed store openings.

When did the world need so many linen and bath retailers. There are so many 23 Linens and Things in NJ and 35 Bed Bath and Beyonds - plus all of the other retail stores that also sell the same things like Macys, JC Penneys, Target, Walmart, KMart, Costcos, BJs, Marburns and Ikea just to name a few. This that is close to over-saturation in good times.

Note the combination of stores closing and lack of expansion for existing stores - less retail. We do have some Jersey retail areas that are completely empty - like the Preakness Mall in Wayne. The mall is like a ghost town. One end is completely empty - like the West Coast pictures I have seen. Block after block - residential, retail and commercial are all vacant - pretty scary.