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Drugstores to Lead Growth Through 2005

Total sales by leading retailers are expected to grow a total of 24 percent through 2005, led by 32 percent growth among drugstore retailers and 30 percent growth among household appliance retailers. Soaring prescription drug costs coupled with an aging population will drive the growth in the drugstore sector. Increasing sales of consumer electronics and white goods will benefit companies such as Best Buy, Circuit City and Wal-Mart. Meanwhile, apparel retailers will expand by only 11 percent.

A Sales Diminuendo

If CD sales and retail traffic continue to decline, the music may stop…at least at the malls. Wherehouse Music filed for bankruptcy protection and Best Buy recently announced plans to unload its Musicland chain, which lost $80 million in 2002. Pre-recorded music sales dropped 10 percent to $13 billion for the year and Wall Street analysts predict unchecked Internet downloading will only shrink the market further.

Gray Matters

Seniors are buying more than ever. Consumer spending among mature shoppers (ages 55 and up) grew a total of 4 percent per year to $1.14 billion between 1990 and 2000, according to the U.S. Bureau of Labor Statistics. And the growth continues. Census data indicates that population growth of Americans 65 and older should outpace that of all other age groups in the 2000 to 2005 period, averaging 3.94 percent per year vs. 1.34 percent for the overall population. Migrating seniors have traditionally headed for Arizona, Florida and Texas to spend their golden years. But drugstores take note, Utah, Alaska and Idaho will be senior stomping grounds by 2025.

Spreading the Tenant Risk

Landlords are learning not to put all their bets on one tenant. A fourth-quarter 2002 Merrill Lynch survey of nine public community center REITs revealed that Developers Diversified is at an advantage with its connection to growth leader Wal-Mart, which accounts for 4 percent of its annual base rents. But Kimco is in a more precarious position in its exposure to Kmart, which contributes 3.8 percent of its annual base rents.

Landlord Top Tenant No. 2 Tenant
Developers Diversified Wal-Mart (4%)* Kohl's (2.8%)*
Federal Realty Investment Trust Gap Inc. (2.45%) Safeway (2.24%)
Heritage Property Investment Trust Toys R Us (5.02%) Kroger (2.22%)
Kimco Realty Kmart (5%) Kohl's (2.90%)
New Plan Excel Realty Kroger (4.40%) Kmart (3.80%)
Pan Pacific Retail Properties Safeway (4.59%) Raley's (4.52%)
Weingarten Realty Kroger (3.54%) Safeway (2.71%)
*% of annual base rent
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