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HOT TOPIC: How will Wards' demise affect the industry?

Chicago - Montgomery Ward's decision to close all 250 of its stores may have been a gloomy way to ring in the New Year, but retail analysts and owners alike say the news isn't necessarily bad for the industry.

Santa Monica, Calif.-based Macerich Co. is one of several REITs that owns malls with Wards anchors. Six out of Macerich's 44 malls contain Wards stores, but COO David Contis says the store closings won't have much impact on the company's bottom line.

"They weren't a great operator," says Contis. "Wherever they are, even in our portfolio, they do significantly less business than any of the other anchors. They don't even make the top 1% of our income."

He says the Wards store closings will give Macerich the opportunity to fill the space with better operators. "There's probably an opportunity there. Like anything else, the strong get stronger and the weak fall away," he says, adding that it's too early to discuss the company's plans for the vacant space.

Some shopping center owners will take advantage of the Wards closings to charge higher rents to new tenants. Wards paid extremely low "grandfathered" lease rates at many of its locations. Ward's lease rates averaged about $1 to $2 per sq. ft. Although most of the stores were in second-tier centers, owners will be able to charge higher rents than Wards paid.

Out of all the major REITs, Indianapolis-based Simon Property Group has the most Wards-anchored shopping centers. Twenty-five of the company's 176 malls contain Wards anchors, translating to 14.2% of its malls. Michael P. McCarty, senior vice president of research for Simon, estimates that the company collects $4 million in rent per year from Wards stores. However, McCarty says Simon should be able to replace those revenues easily.

"The fact that Wards is going to close all these stores could be characterized as almost a non-event for the shopping centers," says McCarty. He notes that Simon had little difficulty filling the 11 stores vacated by Montomery Ward during its wave of closings in 1998.

"In nine out of the 11 cases we replaced Wards within six months of them closing, at significantly higher revenues," says McCarty. "We have demonstrated not just our ability, but any competent landlord's ability, to recycle the Wards space into more productive uses within a relatively short period of time."

Malls in small- and medium-sized markets will be impacted the most by the Wards closings, says Howard Makler, chairman of Huntington, Calif.-based Excess Disposition Inc. "It really depends where the center is located, and whether or not there are other national department stores that have been trying to get into those markets," he says.

In the short-term, neighboring stores in Wards-anchored centers also will be affected, says Frederick Marx of Farmington, Mich.-based Marx Layne Public Relations. "When the lights go out - after the close-out sale - the small, ancillary stores will be impacted because there won't be as many people coming through the door because you've got a closed store at the end of the hall," he says."

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