Mind the Gap

Mind the GapThe question is a common one for many institutions – For the real estate allocation, should we use publicly traded REITs or private real estate?  The usual answer is to mix them.  Yet recent research highlighted by Institutional Investor magazine notes that public “REITs have beaten private funds by almost 5 percent a year over the past three decades.”  For the 30 years ended December 31, 2011, listed REITs returned 11.95 percent annually while private funds returned 6.97 percent. 

That’s a huge performance gap. Continue reading

Buyer Beware

Josh Brown had a good and interesting post Friday dealing specifically with the impact of paperless offices and more generally with his search for broad, secular trends.  One such trend he specifically mentions is the “digital distribution secular trend.”  I agree with Josh on that (duh).   

This isn’t a revelation, obviously.  Companies that couldn’t or can’t leverage the internet properly have been in trouble for a good while.  Think Best Buy and Border’s, for example. 

Ask yourself what percentage of your holiday shopping you have done and are doing online this year as opposed to prior years.  Ask yourself how often you go to the mall generally.  Ask yourself what you need an actual physical store for.

Apple has made its retail stores into happening places where consumers can see what’s new and cool.  They are service and training centers too.  That’s smart.  Big ticket shoppers may want to see what they’re getting (and maybe take a test drive). For some unknown reason, some people just like to go out and shop.  But if the return policy is good, on-line works just fine for most consumer goods. 

All of which gets me to the point I wish to make — the problem is even broader and deeper than that. 

According to McKinsey research, over the past 25 years, the amount of formal retail space in the United States has grown four times faster than the overall population.  Moreover, the U.S. market has 20 percent more retail space per capita than Canada and more than twice the retail space per capita of Australia, France, or Germany. On that basis alone, retail industries of the “bricks and mortar” sort have to be the object of careful scrutiny.  Factor in the digital distribution secular trend, the aging of the U.S. population (older people buy less stuff), and the idea of ongoing slower growth overall and retail generally looks like a particularly risky play whenever there is more than a digital operation.

Here in the United States, we have way too many stores and way too much retail space.  Buyer beware.