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2017 is becoming the standard for butt ugly in the retail sector
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Not the first time we've talked about this subject but 2017 is becoming the standard for butt ugly in the retail sector:


  • 2017 is on a record-setting pace for retail bankruptcy and store closings.
  • Chapter 11 bankruptcy is now turning into liquidation much more frequently due to law changes.
  • Half of the retailers who have filed for Chapter 11 protection were owned at least in part by private equity.

http://www.cnbc.com/2017/05/05/its-more-than-amazon-why-retail-is-in-distress-now.html


With many of the anchor stores under duress what do you see happening to the concept of the "mall"? The mall retail cost per sq. foot has been prohibitive for the mom and pop stores in the past, is downsizing going to give the independents a foot in the door or is the entire mall concept about to blow up?

"The political lesson of Watergate is this: Never again must America allow an arrogant, elite guard of political adolescents to by-pass the regular party organization and dictate the terms of a national election." Gerald R. Ford

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Re: 2017 is becoming the standard for butt ugly in the retail sector [jkca1] [ In reply to ]
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I think it gets worse before it gets better. On-line will continue to get better (cheaper, faster, quicker, wider assortment) and that will continue to put pressure on the retailers.

I see a reset in retail rents that bring the cost of having a storefront down as a potential impact, which would hit the REITs and other real estate plays. That could lead to a renaissance in smaller, service-oriented retailers that can compete against the on-line offerings through niche categories and over-delivering on their service proposition.

drn92
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Re: 2017 is becoming the standard for butt ugly in the retail sector [jkca1] [ In reply to ]
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I also think it's going to get worse. Retail is really over built around here. Consumer debt is building fast. I think credit card debt passed where is was in 2007? Put auto and school loans on top of that and housing cost increases and at some point all of this cheap money is going to have to start ringing warning bells.

I was thinking about what it would take to switch up a mall into senior living. Seems like it would be a great environment for seniors to have space to wander.

I'm wondering what the future looks like for restaurants. They seem to be doing fine overall but there are just so many of them.
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Re: 2017 is becoming the standard for butt ugly in the retail sector [jkca1] [ In reply to ]
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Retail is becoming much like the baseball parks of old. Unless there was something else to do besides watch a game, people weren't anxious to go. Look at the newer baseball parks and all of the different offerings.

In many areas they are using outdoor areas to have parks and other attractions in the same areas as shopping. I think this will continue as a way to attract consumers. I believe the big box aspect of the shopping mall is on its way out.

_____
TEAM HD
Each day is what you make of it so make it the best day possible.
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Re: 2017 is becoming the standard for butt ugly in the retail sector [jkca1] [ In reply to ]
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I've been with a large retail grocery chain for 25 years. Our company seems to be flourishing even now in this market. Just started a few division and scheduled to open 30-40 new locations this year. Competition is getting tough but we still seem to be raking in the money. People gotta eat!
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Re: 2017 is becoming the standard for butt ugly in the retail sector [SkipG] [ In reply to ]
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I see grocery (perishable items) as something that the online retailers have not yet cracked. I have a great grocery store right down the road and like to pick out my own meats, fruits, and veggies. I do not trust that someone from Amazon will do the same (or even the online section of our local grocery). Since I am there, it is easy to get other items at the same time that have a bit more shelf life (cereal, sauces, etc.)

Retail consumer goods on the other hand ... Amazon and Internet retailers make life really easy to purchase shoes, socks, electronics, etc. from the comfort of my couch.

drn92
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Re: 2017 is becoming the standard for butt ugly in the retail sector [SkipG] [ In reply to ]
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SkipG wrote:
I've been with a large retail grocery chain for 25 years. Our company seems to be flourishing even now in this market. Just started a few division and scheduled to open 30-40 new locations this year. Competition is getting tough but we still seem to be raking in the money. People gotta eat!

Lidl is coming this summer.
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Re: 2017 is becoming the standard for butt ugly in the retail sector [drn92] [ In reply to ]
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drn92 wrote:
I see grocery (perishable items) as something that the online retailers have not yet cracked. I have a great grocery store right down the road and like to pick out my own meats, fruits, and veggies. I do not trust that someone from Amazon will do the same (or even the online section of our local grocery). Since I am there, it is easy to get other items at the same time that have a bit more shelf life (cereal, sauces, etc.)

Retail consumer goods on the other hand ... Amazon and Internet retailers make life really easy to purchase shoes, socks, electronics, etc. from the comfort of my couch.

drn92

Your experience and opinion is exactly why groceries have been the slowest category to gain any traction online. However, that time is over. By 2025 and probably sooner, 20% - 25% of groceries will be purchased online.

Both Walmart and Amazon have publicly stated that they want to own 50% of the online grocery market. Both of them basically have unlimited capital to achieve that objective. What that means is that there will be further consolidation in the grocery space and those companies that don't offer the service, either themselves or through a third party provider (Instacart, Shipt, etc) will ultimately be acquired or just go out of business...as they see 20% of their revenue disappear.

Experiential retail will absolutely help (think sushi bars or coffee shops in the middle of the store) but it will only go so far as those people who are either time pressed, tech savvy or in need of convenience shift to online.

It's not a matter of "if" it's a matter of how quickly. Based on our conversations with pretty much every retailer in the grocery space Walmart inc and Amazon will absolutely be the winners in the space. There is definitely room for others...but not much. We think 3-4 others entities that will also see hyper growth and gobble up share.

Lidl and the expansion of Aldi will also wreak havoc on the industry...

We are in for an interesting and challenging ride.
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Re: 2017 is becoming the standard for butt ugly in the retail sector [windywave] [ In reply to ]
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windywave wrote:
SkipG wrote:
I've been with a large retail grocery chain for 25 years. Our company seems to be flourishing even now in this market. Just started a few division and scheduled to open 30-40 new locations this year. Competition is getting tough but we still seem to be raking in the money. People gotta eat!

Lidl is coming this summer.
yeah, one is supposed to open up a few miles down the road. We'll see how it much of an impact they have soon enough.
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Re: 2017 is becoming the standard for butt ugly in the retail sector [triguy101] [ In reply to ]
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triguy101 wrote:
drn92 wrote:
I see grocery (perishable items) as something that the online retailers have not yet cracked. I have a great grocery store right down the road and like to pick out my own meats, fruits, and veggies. I do not trust that someone from Amazon will do the same (or even the online section of our local grocery). Since I am there, it is easy to get other items at the same time that have a bit more shelf life (cereal, sauces, etc.)

Retail consumer goods on the other hand ... Amazon and Internet retailers make life really easy to purchase shoes, socks, electronics, etc. from the comfort of my couch.

drn92

Your experience and opinion is exactly why groceries have been the slowest category to gain any traction online. However, that time is over. By 2025 and probably sooner, 20% - 25% of groceries will be purchased online.

Both Walmart and Amazon have publicly stated that they want to own 50% of the online grocery market. Both of them basically have unlimited capital to achieve that objective. What that means is that there will be further consolidation in the grocery space and those companies that don't offer the service, either themselves or through a third party provider (Instacart, Shipt, etc) will ultimately be acquired or just go out of business...as they see 20% of their revenue disappear.

Experiential retail will absolutely help (think sushi bars or coffee shops in the middle of the store) but it will only go so far as those people who are either time pressed, tech savvy or in need of convenience shift to online.

It's not a matter of "if" it's a matter of how quickly. Based on our conversations with pretty much every retailer in the grocery space Walmart inc and Amazon will absolutely be the winners in the space. There is definitely room for others...but not much. We think 3-4 others entities that will also see hyper growth and gobble up share.

Lidl and the expansion of Aldi will also wreak havoc on the industry...

We are in for an interesting and challenging ride.

Agreed, we are definitely in the early stages of a wild ride.

For me, I do not see a day when I will order perishables on-line (unless I am physically unable to go to the store). I am open to the idea, but just like to pick and choose my produce.

Our local grocery store has an on-line option now (they renovated part of their store to provide a "service" area where customers can quickly stop in and pick up their orders. They have staff walking through the store with blue bins picking product for orders. I have noticed the number of order pickets going up (making the store more crowded!).

Amazon's expansion into same day delivery will help, but the sheer number of WM stores across the country will give them an advantage.

drn92
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Re: 2017 is becoming the standard for butt ugly in the retail sector [SkipG] [ In reply to ]
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SkipG wrote:
windywave wrote:
SkipG wrote:
I've been with a large retail grocery chain for 25 years. Our company seems to be flourishing even now in this market. Just started a few division and scheduled to open 30-40 new locations this year. Competition is getting tough but we still seem to be raking in the money. People gotta eat!


Lidl is coming this summer.
yeah, one is supposed to open up a few miles down the road. We'll see how it much of an impact they have soon enough.

I did some shopping in Lidls in Ireland last summer and I don't think it would ever be my main grocery store. Really random assortment of stuff in there. however, I do most of my shopping at Trader Joe's expect for some name brand stuff I can't get there (Cokes, etc.), so maybe I'd change my tune if one was down the street from me.

Whenever I walk into a Safeway (our main 'traditional' grocery store chain) I walk out enraged at their shitty customer service. They deserve to die.
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Re: 2017 is becoming the standard for butt ugly in the retail sector [jkca1] [ In reply to ]
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I work for a online retailer in Seattle.
All I can say, people are changing habits fast.
It is fun to take part in it.


Member of Valhalla Racing Team
XC-skiing coach at Momentum Northwest
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Re: 2017 is becoming the standard for butt ugly in the retail sector [Erin C.] [ In reply to ]
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Erin C. wrote:
SkipG wrote:
windywave wrote:
SkipG wrote:
I've been with a large retail grocery chain for 25 years. Our company seems to be flourishing even now in this market. Just started a few division and scheduled to open 30-40 new locations this year. Competition is getting tough but we still seem to be raking in the money. People gotta eat!


Lidl is coming this summer.
yeah, one is supposed to open up a few miles down the road. We'll see how it much of an impact they have soon enough.

I did some shopping in Lidls in Ireland last summer and I don't think it would ever be my main grocery store. Really random assortment of stuff in there. however, I do most of my shopping at Trader Joe's expect for some name brand stuff I can't get there (Cokes, etc.), so maybe I'd change my tune if one was down the street from me.

Whenever I walk into a Safeway (our main 'traditional' grocery store chain) I walk out enraged at their shitty customer service. They deserve to die.

Enraged is exactly the right word for how I feel every time I'm at my local Stop & Shop - it's atrocious. It would be a better experience if they had no staff there other than stockers filling the shelves.
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Re: 2017 is becoming the standard for butt ugly in the retail sector [Erin C.] [ In reply to ]
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Erin C. wrote:
SkipG wrote:
windywave wrote:
SkipG wrote:
I've been with a large retail grocery chain for 25 years. Our company seems to be flourishing even now in this market. Just started a few division and scheduled to open 30-40 new locations this year. Competition is getting tough but we still seem to be raking in the money. People gotta eat!


Lidl is coming this summer.
yeah, one is supposed to open up a few miles down the road. We'll see how it much of an impact they have soon enough.

I did some shopping in Lidls in Ireland last summer and I don't think it would ever be my main grocery store. Really random assortment of stuff in there. however, I do most of my shopping at Trader Joe's expect for some name brand stuff I can't get there (Cokes, etc.), so maybe I'd change my tune if one was down the street from me.

Whenever I walk into a Safeway (our main 'traditional' grocery store chain) I walk out enraged at their shitty customer service. They deserve to die.
The hardest thing about retail is finding good people to staff the stores and keeping them. There is a lot more that goes into running a grocery store than most people realize. No excuse to have shitty customer service but the people that complain about special products and things that are out of stock sometimes Just piss me off. Can't tell you how hard it is to stock a store doing over a million in sales a week and try to keep out of stocks at a minimum. Very hard to predict what 20,000 customers will buy any given week. I get an earful daily...just a tough business to be in really.
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Re: 2017 is becoming the standard for butt ugly in the retail sector [SkipG] [ In reply to ]
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SkipG wrote:
The hardest thing about retail is finding good people to staff the stores and keeping them.

I have to believe a lot of this is due to the lower pay and shitty inconsistent hours. I worked retail when I was younger and not being able to set anything up due to such a fluctuating schedule made me quickly get out of that industry.

_____
TEAM HD
Each day is what you make of it so make it the best day possible.
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Re: 2017 is becoming the standard for butt ugly in the retail sector [TheRef65] [ In reply to ]
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TheRef65 wrote:
SkipG wrote:
The hardest thing about retail is finding good people to staff the stores and keeping them.

I have to believe a lot of this is due to the lower pay and shitty inconsistent hours. I worked retail when I was younger and not being able to set anything up due to such a fluctuating schedule made me quickly get out of that industry.
The hours are consistently shitty yes, it is retail...evenings, weekends holidays are our busy times. Serving the public is a hard business. As for pay, there are close to 100 job classes throughout the store with a minimum and maximum pay for each job class. The starting pay for an entry level position at my location is $10/hr to bag groceries. Not bad pay for a high school kid. Meat cutters can make well over $20/hr for the higher paying positions. Each department has a manager Meat, Deli, Bakery, Produce, Grocery and customer service, all managers make over $60k and store managers makes over $100k. Our company is very competitive with pay compared to the rest of the industry and it is still hard to keep good help. Retail is just a hard thankless job.
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Re: 2017 is becoming the standard for butt ugly in the retail sector [SkipG] [ In reply to ]
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SkipG wrote:
TheRef65 wrote:
SkipG wrote:
The hardest thing about retail is finding good people to staff the stores and keeping them.

I have to believe a lot of this is due to the lower pay and shitty inconsistent hours. I worked retail when I was younger and not being able to set anything up due to such a fluctuating schedule made me quickly get out of that industry.
The hours are consistently shitty yes, it is retail...evenings, weekends holidays are our busy times. Serving the public is a hard business. As for pay, there are close to 100 job classes throughout the store with a minimum and maximum pay for each job class. The starting pay for an entry level position at my location is $10/hr to bag groceries. Not bad pay for a high school kid. Meat cutters can make well over $20/hr for the higher paying positions. Each department has a manager Meat, Deli, Bakery, Produce, Grocery and customer service, all managers make over $60k and store managers makes over $100k. Our company is very competitive with pay compared to the rest of the industry and it is still hard to keep good help. Retail is just a hard thankless job.

When i say bad hours, I mean inconsistent. One week you work 4 on Tuesday in the afternoon then 4 Wednesday in the morning and then maybe 6 in the evening on Friday. The next week it's completely different and the schedule only goes out 2 weeks.

_____
TEAM HD
Each day is what you make of it so make it the best day possible.
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Re: 2017 is becoming the standard for butt ugly in the retail sector [TheRef65] [ In reply to ]
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TheRef65 wrote:
SkipG wrote:
TheRef65 wrote:
SkipG wrote:
The hardest thing about retail is finding good people to staff the stores and keeping them.

I have to believe a lot of this is due to the lower pay and shitty inconsistent hours. I worked retail when I was younger and not being able to set anything up due to such a fluctuating schedule made me quickly get out of that industry.
The hours are consistently shitty yes, it is retail...evenings, weekends holidays are our busy times. Serving the public is a hard business. As for pay, there are close to 100 job classes throughout the store with a minimum and maximum pay for each job class. The starting pay for an entry level position at my location is $10/hr to bag groceries. Not bad pay for a high school kid. Meat cutters can make well over $20/hr for the higher paying positions. Each department has a manager Meat, Deli, Bakery, Produce, Grocery and customer service, all managers make over $60k and store managers makes over $100k. Our company is very competitive with pay compared to the rest of the industry and it is still hard to keep good help. Retail is just a hard thankless job.

When i say bad hours, I mean inconsistent. One week you work 4 on Tuesday in the afternoon then 4 Wednesday in the morning and then maybe 6 in the evening on Friday. The next week it's completely different and the schedule only goes out 2 weeks.
yeah for part time associates, hours are a little sporadic, for full time associates hours are a little more consistent.
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Re: 2017 is becoming the standard for butt ugly in the retail sector [triguy101] [ In reply to ]
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triguy101 wrote:
Lidl and the expansion of Aldi will also wreak havoc on the industry...
Aldi has been in Australia for a few years now and has made some pretty big inroads into our current grocery market duopoly
Prices are quite low, but you have to sacrifice a much lower number of lines, many of which are house brands for that lower pricing.

My wife actually works part time at one of the large retailers, and we do maybe 50% of our weekly shop at Aldi.
Quality is excellent (on food at least, some of the special lines they bring is, quality can be hit and miss) and they source much of their lines from local suppliers which is a big draw-card for us
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Re: 2017 is becoming the standard for butt ugly in the retail sector [jkca1] [ In reply to ]
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I work in commercial RE. You are correct: 2017 is a year of reckoning. You're going to see very bifurcated outcomes: big box lease rates and occupancy rates will take a big hit... big enough that I suspect some REITs could get into trouble financially. Malls will see very diverse outcomes as well. Some will just be left to rot, some will continue to do well, some will be redeveloped, and some will be like quicksand in that fresh capital will come in with the intent of redeveloping only to fail quickly. Inline retail space will be more influenced by local supply/demand factors.

Circling back to the elephants in the room, big box retail and malls, I think a very legitimate case can be made that there will be some sort of financial fallout this year from these sectors.

Oh yeah, we waaaay over-built apartments too (at least here in the south east). I suspect to see fallout from that sector as well.

Disclaimer: I often promise photos fully intending to provide them and then get distracted. Sorry in advance :)
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Re: 2017 is becoming the standard for butt ugly in the retail sector [Moonrocket] [ In reply to ]
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Moonrocket wrote:
I also think it's going to get worse. Retail is really over built around here. Consumer debt is building fast. I think credit card debt passed where is was in 2007? Put auto and school loans on top of that and housing cost increases and at some point all of this cheap money is going to have to start ringing warning bells.
I was thinking about what it would take to switch up a mall into senior living. Seems like it would be a great environment for seniors to have space to wander.

I'm wondering what the future looks like for restaurants. They seem to be doing fine overall but there are just so many of them.

I'll go one at a time:
  • Yes, retail is overbuilt in general. We probably need to see 10-20% of built square footage disappear or be repurposed.
  • It's a compelling idea and we actually looked at potential redevelopment along those lines up in Oviedo FL. A busted out mall was for sale (not yet in bankruptcy iirc but it was inevitable) and we were thinking of keeping some of the common areas, and scraping the big box space and building multi-unit residential inside of said areas. Between Revit and some sophisticated spreadsheets we have a pretty good idea of what we can pay for a given property. For that property, the ceiling was $15/sf for the project to be viable. I don't know what the property ultimately sold for (some group is redeveloping it... and I'm pretty sure they'll fail too in the next 3-4 years) but I do know it was 5-8x what we were willing to pay (in other words, some still think the big box retail space has value as it currently sits).
  • The restaurant business is terribly saturated. In today's market you can have a restaurant in a great location, with great food, great reviews, etc. and still lose your ass. Across the industry, IIRC, same store sales comps were down ~1.1% last month and that was considered a "victory". The pain has been real in the restaurant industry for over a year but most people don't seem to notice because.... for some reason.... investors continue to think that they know what the "next big thing" will be and they invest accordingly while telling themselves when they go to sleep "people have to eat."


Disclaimer: I often promise photos fully intending to provide them and then get distracted. Sorry in advance :)
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Re: 2017 is becoming the standard for butt ugly in the retail sector [drn92] [ In reply to ]
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drn92 wrote:
I think it gets worse before it gets better. On-line will continue to get better (cheaper, faster, quicker, wider assortment) and that will continue to put pressure on the retailers.

I see a reset in retail rents that bring the cost of having a storefront down as a potential impact, which would hit the REITs and other real estate plays. That could lead to a renaissance in smaller, service-oriented retailers that can compete against the on-line offerings through niche categories and over-delivering on their service proposition.

drn92

There will unquestionably be adjustment to the downside but that process will be bumpier than most expect. Many REITs have a higher cost basis than you'd expect and if a property/company enters into bankruptcy it could be a long time before there's any sort of adjustment. Banks SUCK at managing property that's in receivership. Also, land prices are sticky. Here in FL plenty of cattle farmers have heard about friends getting $500,000 for a pad from a Wawa developer so they assume that a corner of their farm at the intersection of State Road X and Highway Y is worth at least that much and they'll continue to believe that for some time because they *want* to believe that's what it's worth. So long as they can afford to hold on to that land, prices will remain sticky. You won't see meaningful adjustment until some sort of financial distress forces people to sell. You can copy/paste that scenario to any odd lot that has potential to be commercial property in your own town.

Disclaimer: I often promise photos fully intending to provide them and then get distracted. Sorry in advance :)
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Re: 2017 is becoming the standard for butt ugly in the retail sector [triguy101] [ In reply to ]
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Quote:
Lidl and the expansion of Aldi will also wreak havoc on the industry...

I agree with you. I will say that in FL they're really struggling to find workable sites. Publix has done a damn good job of gobbling up corners and/or encumbering land to block out competition. If they're smart they'll be patient and take some abandoned big box space (even though virtually none of it fits their store model so I doubt that they will).

Disclaimer: I often promise photos fully intending to provide them and then get distracted. Sorry in advance :)
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Re: 2017 is becoming the standard for butt ugly in the retail sector [GreenPlease] [ In reply to ]
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GreenPlease wrote:
Oh yeah, we waaaay over-built apartments too (at least here in the south east). I suspect to see fallout from that sector as well.

That's very location specific. The northeast is very under-built for apartments, as is the SF Bay area.

I should take and post some pictures of the construction going on in Boston, but it's all housing and commercial towers. Many have street level retail, but not all.

Nationwide, Architecture firm billings are up, but barely up in the west, just 0.2% over the baseline. The midwest is 5% over baseline. But the AIA thinks that retail is the 2nd softest market, after amusement/recreation.
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Re: 2017 is becoming the standard for butt ugly in the retail sector [drn92] [ In reply to ]
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I'm absolutely w/ you... For completely standardized/packaged 'factory' items like toothpaste, ketchup, or a box of cereal, it's not really any different than ordering a box of Clif bars along with your last shipment of bike tubes & tires, but I'm much more picky about things like produce and meat. I guess some people are casual enough that a tomato is a tomato is a tomato or a steak is a steak, but I'm definitely not one of them. When I want a steak, I will absolutely look over the available offerings at the butcher counter to find one that is the best combo of size/weight, cut, peripheral fat trimming, marbling, etc. Maybe one day it's a NY and the next it's a rib eye, even though I didn't necessarily have my heart set on a NY vs rib eye when I walked into the store.

There's also the packaging/landfill cost.... I always cringe when I see how much styrofoam and extra bags or whatever the home meal delivery services use to ship more delicate perishables. That alone is enough to put me off from ordering fresh items in the mail. If anything, we've gone the opposite direction several of the past summers and bought a local farm share where we get a weekly box of veggies that are dropped off at a handful of centralized locations around town, and then you go pick them up by transferring them from the farm's reusable plastic bin to your own tote bag or whatever equivalent. (Although, in this case you do trade off the ability to pick which individual beets or onions, etc, you want out of the lot, or how much; you just get whatever your fractional share is of whatever got harvested that week.)
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