Putting in the hours. a JLL retail research point of view. Do store hours affect our view of retail rent value?

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1 June 2016 a JLL retail research point of view Putting in the hours What is an hour worth? For a retailer, an extra hour open on a slow day can mean wasted expenses without any additional sales. On a busy day, opening too late or closing too early could mean lost sales. Determining store hours is both art and science, dictated in part by tradition and custom but also formulated with the intention of being those hours in which sales will be large enough to outpace the operating expenses incurred during open hours. Hours of operation can vary across cities and shopping districts, driven by the demographics and habits of those who tend to shop there. For example, stores in office districts with few nighttime residents will tend to close early. We wondered how much average store hours might vary across U.S. shopping districts. Furthermore, we wondered if there was a significant variation in store hours, could it give us any insights into the relative costs of retail real estate in those markets. Trust our retailntelligence. JLL Retail Research 1

2 Putting in the hours A huge disparity in store hours For this investigation we looked at locations of a select group of mainstream and luxury apparel retailers with locations in some premier U.S. shopping districts. First, we compiled average number of hours open per week. Shopping district Average hours open per week Las Vegas Strip (Las Vegas) Times Square (New York) th Ave. (New York) State Street (Chicago) Union Square (San Francisco) SoHo (New York) Magnificent Mile (Chicago) Madison Ave./57th St. (New York) Fillmore (San Francisco) The Forum Shops at Caesars, Photo Credit: Jeff Bergman Gold Coast (Chicago) Back Bay (Boston) Beverly Hills (Los Angeles) Newbury (Boston) West Hollywood (Los Angeles) Wall Street (New York) All districts Photo Credit: Luciano Mortula Clearly, there are some distinctions in open hours. The Las Vegas Strip, with its 24/7 atmosphere and carefree tourist shoppers ranked at the top of the list with an average 93 store hours open per week within our retailer sample set. Wall Street, which draws mostly daytime shoppers from its pool of local office workers, came in at the bottom of our list with an average of 41 hours. The extreme difference in open hours is striking. Wall Street stores on average are open less than half the hours per week of their counterparts on the Las Vegas Strip. Trust our retailntelligence. JLL Retail Research 2

3 Putting in the hours Exclusive hours for exclusive goods We found a clear correlation between hours open and affordability of product. The lower the price points, the longer the stores were open. When we looked at stores in all of our sample shopping districts by price point, we found that low-end and discount retailers had the most store hours per week and luxury retailers had the least. Price category Average hours open per week Low/Discount Middle High Luxury Lite Luxury All For the retail districts we analyzed, two general target groups emerged: the tourists and the luxury shoppers. Obviously these two groups are not mutually exclusive, but for the sake of our analysis, we chose to treat luxury tourist shoppers as strictly luxury shoppers. Those retail corridors that target the luxury shopper like Beverly Hills, logically contain a high concentration of luxury designer retail tenants, while the corridors that target tourists such as Times Square tend to have a wider variety of tenants, from low-end and discount price points to luxury and luxury lite. Exclusivity is a key component in marketing to the luxury shopper. The fact that luxury retailers store hours are significantly shorter than those of their lower-priced counter parts is a part of that exclusivity. In our sample set, luxury designer Chanel had an average of only 51 store hours per week, while fast fashion retailer H&M averaged 86 store hours. Limited hours contribute to an air of exclusivity, while the generous store hours for lower priced stores creates more opportunity for sales and accessibility to the everyday shopper and tourist. Trust our retailntelligence. JLL Retail Research 3

4 Putting in the hours Store hours and our perception of value The main purpose of a store is to market and sell products. When a store s doors are locked, its ability to do either of those is limited. A closed store doesn t have much value. Because a store is generally open during hours that the store proprietors (or in some cases, mall owners) expect to generate value, we can make the assumption that more open hours at a location are more hours that are perceived as valuable. This being the case, we wondered if our view of average rents across shopping districts would change if we took into consideration average open hours. We looked for disparities between rental rates per square foot and rental rates per hour. Were there any markets where rents might be considered a special bargain once store hours were taken into consideration? Rent per s.f. per hour $0.80 $0.60 $0.40 $0.20 $0.00 $2,500 $2,000 $1,500 $1,000 $500 $0 Rent per s.f. Avg. rent per s.f. per hour (per week) Avg. Rent/SF When we calculated rents per hour we found that in most cases our perception of rent value didn t change. That is, markets with high rents per square foot also had high rents per hour open. But there were notable exceptions. Las Vegas hosted 42.3 million visitors last year, according to the Las Vegas Convention and Visitors Authority. Catering to the tourist shopper on The Strip, the stores we reviewed there had the longest open hours per week of any we looked at. Yet asking rents there are still in the top five most expensive in our study. However, when rents are divided by the many hours open per week, rental rates drop in comparison and the perceived value grows. The Forum Shops, for example, remains open 93 hours a week, that s more hours than the average. Trust our retailntelligence. JLL Retail Research 4

5 Putting in the hours New York City is home to several premier retail districts. For our study, we selected a group of national and global retailers with locations in Times Square, 5th Avenue, SoHo or Madison Avenue/57th Street. Several retailers in our study have locations in as many as three of these districts. Retail rents in New York are among the highest in the world, but the districts have distinctly different rankings in terms of hours open. New York shopping district Average hours open per week Times Square th Ave SoHo Madison Ave./57th St Wall Street In Times Square, 5th Avenue and SoHo, where more approachable retailers locate and tourists congregate, open hours are quite long. In Times Square, the most extreme of the lot, stores are open an average of hours per week, which is hours more than the overall average. Although stores across New York s shopping districts pay top rents, the expanded store hours on 5th Avenue and in Times Square make the prices more of a bargain when compared to the high rents and shorter operating hours on Madison Ave. and 57th St. As such, these three retail destinations have some of the highest rents per square foot in Manhattan, while Madison Ave. and 57th St. of the Plaza District have the highest rent per square foot per hour. Trust our retailntelligence. JLL Retail Research 5

6 Putting in the hours A new tool in our research toolkit? We found that in some limited cases, viewing retail real estate through the lens of rent per hour can reveal some hidden discrepancies in value. However for the vast majority of retailers outside of luxury districts and tourist destinations, open hours are quite homogeneous. That makes this tool of limited use for retailers and real estate professionals. But for that special situation where two high street districts are under the microscope, rent per hour may be a useful new tool in one s toolkit. Methodology We assessed 18 luxury and mainstream retailers in 15 premier shopping corridors in six primary U.S markets. We used each store s weekly operating hours to tally the total open hours per week. Rental rates for each district were compiled using market rents provided by JLL professionals active in the district. In some cases we used average weighted asking rents of comparable retail properties within the immediate area. Thank you A special thanks to the JLL professionals who contributed insights to this report: Michael Hirschfeld (New York Leasing), David Monahan (New York Capital Markets), Houman Mahboubi (LA Leasing) and Peter Caruso (Chicago Leasing.) Trust our retailntelligence. JLL Retail Research 6

7 Trust our retailntelligence. For more information, please contact: James D. Cook Director of Retail Research, JLL Arielle Einhorn Research Analyst, JLL Retail About JLL JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.0 billion and gross revenue of $4.5 billion, JLL has more than 200 corporate offices, operates in 75 countries and has a global workforce of approximately 53,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.0 billion square feet, or million square meters, and completed $99.0 billion in sales, acquisitions and finance transactions in Its investment management business, LaSalle Investment Management, has $50.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit About JLL Research Jones Lang LaSalle s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today s commercial Real estate dynamics and identify tomorrow s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. About JLL Retail JLL s retail experts partners with retailers, investors and owner/operators with an extensive team of dedicated experts around the world. They understand the inherent complexities and variability associated with both the retail industry and increasingly complex capital markets. Its specialists are recognized for their independent and expert advice to clients, backed by industry-leading research that delivers maximum value. With leading in-depth knowledge of the local, regional and global market dynamics, JLL aims to truly partner with its clients for the entire lifecycle of an asset or lease. Its experts deliver clients maximum value that support and shape their investment, site selection and brand strategies. JLL is the largest third party retail property manager in the United States with more than 1,000 centers, totaling 125 million square feet under management. The firm has more than 140 retail brokerage experts spanning more than 30 major markets, representing more than 900 retail clients. In 2015, JLL s Retail Group completed transaction management and portfolio optimization on 1,500+ leases, negotiated 500+ leases for retailers and 1,000+ leases for landlords and completed more than $2.7 billion of investment sales, dispositions and financing for investors. For more news, videos and research from JLL s Retail Group please visit: Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof. jllretail.com