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'Don't Worry, Be Happy,' Experts Say.

At ICSC's Spring Convention in May, the presence of new dot.coms and the growing impact of technology on what was once a strictly brick-and-mortar industry was unmistakable. In Las Vegas, SCW's editorial staff interviewed many of the emerging high-tech players in retail real estate. The interviews were interesting, but keeping all the funky names straight - and remembering exactly how one company differed from the next - was a challenge.

"Now, was that CapitalThinking we just interviewed, or CapitalEngine?" I remember asking a colleague. "And that over there, what is that?"

In all our interviews, we made sure to bring up the topic of technology, and each time we did the response was enthusiastic. Whether they were from Regency Realty Corp., Jones Lang LaSalle or Simon Property Group, the commercial real estate executives we interviewed were unanimously upbeat about the potential of the Internet.

The us-versus-them attitude, so prevalent a couple of years ago, seems to have largely disappeared in 2000. None of the executives we talked to expressed concern about the future of the industry, or talked bitterly of the looming threat of online sales. Instead, shopping center firms now seem eager to talk about how technology has helped them improve their approaches to leasing, mall marketing, property management and other aspects of the business. They hail e-commerce as a way to drive traffic to both their websites and their malls.

Don't Worry, Be Happy Marcus & Millichap recently released a report titled, "Don't Worry, Be Happy." It concludes that the Internet will prove an ideal tool for retail real estate, particularly in the areas of property branding, leasing and marketing, accessing data, and communication with employees and tenants.

As far as e-commerce goes, Marcus & Millichap predicts that online sales will eventually reduce overall sales per square foot, but that the Internet also will financially strengthen retailers that use both channels effectively. Other research supports the notion that established retailers have an advantage over pure online players. In the apparel category of online retail, for example, the top players are: Lands' End, L.L. Bean, Gap, J. Crew, Eddie Bauer, Victoria's Secret, J.C. Penney, and Spiegel, according to Forrester Research.

"Catalog and retail companies dominate the top online apparel sites," notes Tom Rhinelander, a senior analyst with the Cambridge, Mass.-based market research firm. "No (exclusively online) player has managed to knock these old-school companies off their pedestals."

Although optimistic, Marcus & Millichap also offers the industry some pragmatic advice. The report recommends avoiding tenants that are running neck-and-neck with popular e-commerce sites; steering clear of greeting card stores and travel agencies; and embracing fast food and local service stores such as dry cleaners.

Here are some other suggestions taken from the report:

* Good: Broadline department stores with an Internet presence. Bad: Percentage clauses.

* Good: Narrowline retailers with strong brand identities and an Internet presence. Bad: Returns and allowances.

* Good: Neighborhood and community centers with grocery anchors. Bad: Factory outlet malls and category killers as power centers.

* Good: Dominant malls in economically expanding areas. Bad: "B" and "C" malls.

Powerful stats The Marcus & Millichap report appears to be on target in suggesting that the industry should feel optimistic about its future. Consider this statistic from ICSC: In 1999, more than 190.5 million adults shopped at various U.S. shopping centers each month, accounting for more than $1.15 trillion in retail sales. That same year, shopping centers employed approximately 10.5 million people and generated $47.5 billion in state sales taxes. By comparison, ICSC reports that various market research firms estimate total online sales for 1999 at no more than $24 billion.

Clearly, since the initial rise of e-commerce, the shopping center industry's somewhat suspicious attitude regarding online sales has changed. Embracing the Internet, trying to find ways to harness its potential, is seen as the only realistic way to go, with those who vow to fight the Internet being regarded as throwbacks.

Despite this new infusion of spirit, the two channels undoubtedly will compete against each other in some areas. Webvan, the online grocer that offers home delivery, recently entered the Atlanta market, and I've been startled by the number of Webvan trucks I've seen zooming through my neighborhood. I can't help but think, "If I owned a grocery store chain, this would make me uneasy." It seems to me that the safest approach for the shopping center industry is to adopt a moderate approach - neither too pessimistic, nor too optimistic. Rather, the emphasis should be on staying alert and adapting to new technology trends as quickly and intelligently as possible. In the meantime, "Don't Worry, Be Happy."

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