COVER STORY, OCTOBER 2009

ATLANTA RETAIL ROUNDTABLE

Recently Southeast Real Estate Business hosted its annual Southeast Retail Roundtable at the offices of Arnall Golden Gregory at Atlantic Station in Midtown Atlanta. Many thanks to AGG for hosting us once again. The attendees at the 2009 Southeast Retail Roundtable were Christopher Decoufle, CB Richard Ellis; Hazel Dennis, Fickling & Co.; Steve Gunning, SRS Real Estate Partners; Alan McKeon, Alexander Babbage; Robert Mimms and Brad Shoemaker, Mimms Enterprises; Bill Read, Developers Diversified Realty Corp.; Abe Schear, AGG; Reece Stead, Stead Retail Group; and Marc Weinberg, Shopping Center Group.

SREB: Chris [Decoufle], give us an update on the investment market here.

Christopher Decoufle: We’re working on about $400 million in deals which we think have an opportunity to trade, but in the current climate, even if you have a willing buyer and seller, it can be challenging.

SREB: Are buyers looking for any specific type of shopping centers? Is there any specific type of property that’s still king?

Chris Decoufle (left) and Stead.

Decoufle: As you might expect, it’s the grocery-anchored center with a No. 1 or No. 2 grocer, excellent sales and shop space rates that are reasonable and sustainable. The Publix with sales of $500 a square foot that has 20,000 or 25,000 square feet of shops is going to fair much better right now and be very much pursued over a Winn-Dixie in Jacksonville with 40,000 square feet of shops. We’re seeing it very difficult to keep 40,000 square feet of shops filled up, 30,000 square feet of shops filled up.

SREB: How does the Southeast compare to other parts of the country?

Decoufle: The Southeast is positioned very well. It’s still a sunbelt area; it’s still considered to have excellent fundamentals. With the exception of Florida, there’s a feeling that the residential market is not as overcooked in the Southeast as some of the western states. There’s a feeling that the Southeast will rebound a little quicker than some of the other areas of the country.

Schear: The conversation has changed in the past few months. Some months ago, we talked about distressed assets. Now I think we’re spending a lot of time talking about distressed sellers. There’s a lot of debt that needs to be refinanced. There’s a lot of capital on the sidelines. International investors are very interested in getting into this market, they just want to get into the market at the right price. We just closed a deal a couple weeks ago where an Israeli investor came in and purchased some properties outside of Atlanta. In those situations, there’s a lot of cash you’ve got to put down. There are a lot of people internationally who are looking to invest. That’s going to be a really big story in the next year or two. They’re looking to buy from distressed sellers and are really focusing on whose loans are going to roll forward  and what’s going to happen with those assets. They’re looking to buy a lot of properties from the banks as well because the banks don’t want to foreclose right now.

Marc Weinberg: You’re saying that there’s only distressed properties that are readily available now, there’s not the really good properties or you’re not seeing as many of them as you’d like to see. Where you start seeing better properties really come available?

Decoufle: The gravity point is $3.6 trillion in commercial real estate debt in the United States. Half of that has been put on in the last 4 or 5 years. It’s through finance companies like banks. Just by its definition, that short-term debt probably has 3-year expirations, maybe 5. If it was put on in the last 3 years, it’s probably underwater, or it’s a very high LTV. One issue in the notion of distressed sellers is that everyone thought that the banks are going to have all this product. Well, it’s certainly coming, but the motivations are very, very complicated. It’s not coming in the way that many would like it to come or expect it to come. So what you’re seeing first is folks that are taking a step back as primary institutions are saying, “I’m looking at my balance sheet, I’ve had to mark all my assets to market, my LTV of my venture, it was 60 percent, now it’s 85 percent. Now I have a balance sheet issue. My stakeholders, whoever they may be, are going to grade me better if I reduce my debt exposure through asset sales.” We’re in an environment where at the end of the day, folks will not be graded poorly by making those decisions right now in this time. You may get graded poorly if you miss this window.

SREB: Rob [Mimms], you guys are on the acquisition track. Are you still looking for centers? Where do you see opportunities in the Southeast?

Robert Mimms (left) and Hazel Dennis.

Rob Mimms: We continue to look in Georgia, specifically Metro Atlanta and North Georgia, as well as Tennessee, North Carolina and South Carolina. We haven’t been quite as focused in Alabama and Florida, although we have acquired properties in the Tampa area as well as Fort Myers and Southwest Florida. As far as opportunities,  for us it’s going to be predominately an all-cash type of transaction. That’s where we’ve seen the best deals. One of the positives is that we were blessed with the reputation of being able to close and having the ability to close quickly, so a lot of times when a seller is looking at, should I go with Investor A versus Investor B, they may lean toward the investor that’s going to be all cash with a quick close. We may see some opportunities coming from the banks or possibly through note purchases. Those are areas where we continue to investigate and look at opportunities — maintaining quality relationships with banks and making sure that we’re in the pipeline from the lenders’ standpoint — so it may be that we can do a one-stop shop where they take over a property, we can work that loan with that lender and also acquire a property that they may have foreclosed on. I don’t think we’re going to see as many properties foreclosed on in the next year or two as perhaps people would expect.

SREB: Have you changed what you’re looking for? Have you changed anything about that to take advantage of some of the opportunity that’s in the market?

Mimms: It’s definitely going to be easier to close on some of these smaller transactions, some of these $3 million to $5 million transactions, as opposed to the $10 million, $15 million, $20 million transactions. To the extent that there’s loans out there, probably the best shots are still going to be with the banks. Of course, the values have been absolutely hammered, probably 20 percent less than what we’ve seen before, then the LTV expectations are somewhere in that 50 percent to 60 percent, maybe 65 percent range. It does change the dynamic pretty dramatically.

SREB: How has leasing changed in the current market?

Bill Read (left) and Marc Weinberg.

Read: We’ve all leased in recessions before, but this one had a higher perceived dip at first, and there was probably more of a knee-jerk reaction at first. You find a lot of companies trying to right their ship, whether it’s a developer or a retailer, by cutting their inventories and cutting staff when maybe that’s not the right thing they need to be doing. Maybe they just need to be looking at their operations internally and externally and to make sure they’re selling what the customer wants. Time has shown over and over again that when people have less money to spend, they’re looking for more value, whether it’s a high-end jeweler that needs to adjust their price points to what that consumer can now afford to pay versus a discount retailer making sure they have what the consumer wants to buy. Our deal velocity’s been pretty good. As a company, DDR had a record quarter of leasing during the second quarter, almost 900,000 square feet. Deal velocity really hasn’t gone down. The deals are harder; they’re tougher. On a blended rate, new deals for our company, across the board, between renewals and new leases, are down about 4.7 percent as far as the rental spread from the previous lease to the new lease. There comes a point where you have to say maintaining my occupancy, maintaining the customers coming to the shopping center is a value at this time. It’s easier to do a 2-year lease right now than it is to do a 5-year lease. They may not have the staying power to stay in business for 5 years, but they certainly have the staying power to open and do it for 2 years.

SREB: Has your success in leasing been nationals, regionals or moms and pops?

Read: Typically, for the Atlanta retail leasing office, it’s a 50/50 ratio. In the Atlanta office, we cover Georgia, Alabama and Mississippi, and I think it’s pretty reflective of that ratio throughout the Southeast. Certainly, a lot of our centers are well leased, so you’re looking at maybe the 10 percent of space that hasn’t been leased in a few years, and that’s probably not a space a national’s going to take. We have a lot of different category groups in the southern region, and a lot of it’s usually a younger demographic within a 3-mile radius. The centers are probably averaging about 7 years old. Not all of them fit that, but on average that’s the age of our portfolio with a higher demographic. We’re working harder for the deals; they’re taking longer to get done. We’re spending more time on our LOIs than we ever have, so that by the time we get the lease, hopefully the lease can go faster.

SREB: Are some of the retailers that you are putting into vacant space getting better locations than they might have gotten in the past?

Read: Absolutely. If you look at the power centers that we have in town, the power center was still a good location, it was still across from a very good mall. Maybe the entire market went down a little bit, so you might have gotten a box back available in a Class A center, and the merchant pool that is available today for that box is not as strong as it used to be. If it’s an infill location like the Perimeter Mall area where there’s not a lot of new development, there are only going to be one or two boxes available; the retailer might not have many choices. If you go to some of the more mature markets in town, you’re going to find that the anchor box has three or four opportunities, and they just have to pick which option they want. The retailer and the developer both have to decide whether they’re going to make the deal now. As a company, we’ve elected to pull the trigger on a number of deals because they were good retailers; the credit was better than what we had before, but the deal was tougher, economically. You can do that, and sometimes you have the luxury of saying it’s not going to hurt us if we wait a year to get a better rate. You’re constantly having those discussions internally about whether it’s the right time to lease a particular box.

Schear: Two things the landlords have done that’s really good to adapt to this market, which is very different than the recession we had 10 or 15 years ago, is that on co-tenancy, where it used to be so many anchors, now the tenants have gone to name tenants. Landlords have gotten much better about being able to substitute both names and substitute sizes, so you don’t have to have the entire space leased to a substitute; that’s gotten a lot of landlords in trouble. On kickouts, which is certainly the tenant’s most popular thing in the last few years, you’re seeing a lot of landlords come in and say the kickouts have to be mutual. The landlord wants to be able to take the space back. Five years ago, the tenant could get a kickout. Now the landlords are saying, “I’m going to give you a kickout, but I’m going to keep the right to throw you out, too, because there may be opportunities to change the tenant.”

Read: Co-tenancy is under a lot of pressure right now. It’s not only the landlord that’s having an issue with it; the retailer is used to it as a checklist for a real estate committee. Going forward from basically 6 months ago, it’s going to be very hard for new projects to be built where the bank is going to underwrite co-tenancy the way it used to be. It may be the new developer and the people that are going to be first coming out of this economic downturn that are going to be the first ones to test the waters with the retailer as far as changing co-tenancy. We’re certainly having the discussion. If the retailer’s discussion is that their sales went down, they have a valid point of saying something that was driving traffic has changed, and therefore maybe there’s a particular type of use I’d like you to backfill it with then we can have that discussion. There are a number of merchants we have that have received co-tenancy that have not been hurt. And the argument from most retailers is, “I would have comped 6 percent, and I’m not comping 6 percent.” I don’t know if the landlord’s at fault for that. We’re in a new economy, and you have to adjust your product lines to make sure you’re going to have what people want to buy.

SREB: Do you think that because these real estate reps aren’t doing new deals, they almost have a mandate to go through every one of their stores to see where they have a valid or semi-valid reason to cut rent?

Read: Absolutely. It’s happening across the board, bar none. You see it in every single form that you could possibly imagine; you see it on renewals, you see it on co-tenancy. What the leasing reps are having to do these days is spend time looking at co-tenancy clauses along with their legal departments, and a lot of times they find out that people are not in co-tenancy. It may be aggressive reading of a lease on some people’s part. If there’s a renewal coming up, we try to find a win-win situation for everybody. There are a number of retailers that made it obvious that they were getting rent reductions and therefore everybody else should. If you really look at some of the facts behind it, I don’t think people are getting as many rent reductions as they may say they are.

Steve Gunning: It will be interesting to see what happens with co-tenancy over the next couple of years. Battle lines are being drawn now in that you have a lot of existing space and tenants are asking for co-tenancy and landlords are begrudgingly giving it. They’re drawing battle lines and trying to water it down, turning to not necessarily a named co-tenant; the replacement could be a regional or national of similar size. The war will erupt when new development starts again because the lenders are going to play a much heavier hand on whether they allow or don’t allow co-tenancy at all. This is being teed up as an issue for new development coming up whenever that occurs, whether its 2011 or 2012.

SREB: What are you seeing in terms of the tenants you’re representing? Are they asking for different things in the deals?

Gunning: For a lot of the tenants, it’s more economic driven right now. They’re trying to lease up a lot of existing space out there, so the challenge becomes how do you take a former Toys “R” Us in Florence, Alabama, and chop it up properly for a couple of smaller tenants to make it work? Tenants are still requesting TI dollars; landlords are giving a tremendous amount of pushback to that right now. They’ll still give it to the right credit tenant, but they’re very reluctant to. From that standpoint, it looks an awful lot like 1990, where money dried up and TI dollars were almost non existent and free rent became the order of the day. Tenants are certainly requesting kickouts and are certainly still requesting co-tenancy.

Schear: As spaces get cut up, the size of what’s an anchor is getting smaller. A good landlord is going to say an anchor is so many continuous square feet and what you’re going to have isn’t a retailer, you’re going to have a rehab center, you’re going to have a call center, you’re going to have what has traditionally been non-retail. What you’re going to have in a lot of these shopping centers is a lot of non-retail, and there absolutely will be litigation over whether a non-retail tenant can take the entire space as an anchor. Here in Atlantic Station, we’ve got a 15,000-square-foot rehab center. Nobody knows that it’s there; it’s a great tenant. I think every single retailer in this room would lease to a 15,000-square-foot rehab center in the right space in their shopping center. The landlords are absolutely driving the definition of an anchor to get as small as they possibly can and to forget to use the word retail.

Weinberg: Go look at Perimeter Town Center; the second and third floor of those office buildings are all medical uses. As long as they’re planned right, like that one is with the parking and everything else, it’s fine. It’s when you backfill them, and the parking is not really as suitable, that’s when you’re going to have problems. On the mutual termination issue, we’ve seen that for a long time for restaurant deals, where it’s a mutual termination of revenue levels that a restaurant has to hit because the landlord wants to be sure that they are still getting the same quality tenant, same quality of customer coming, that the restaurateur is still a good operator. If they don’t hit those revenue numbers, then the landlord has a right to terminate them. The fourth party that should be at this table is the banks. They’re going to be the people who are involved in all the leasing activity going forward. They’re scrutinizing every tenant’s financials now; they’re scrutinizing every lease now. Their risk management has gotten so much more intense over the past year or year and a half.

Read: To that point, you’re finding that even the small, 2,000-square-foot merchant wants a subordination, non-disturbance and attornment agreement (SNDA). It’s a very difficult issue because, one, it’s breaking a culture that was consistent for shopping centers for a long, long time. Two, you’re getting in a position where most loan covenants generally don’t provide that you have to provide the bank an SNDA for merchants under a certain size. Some portfolios of 10,000 square feet and sometimes of 20,000 square feet — the banks historically did not want to be involved in all the paperwork, and now that they’ve lost many of their lower and middle levels of management, those type of requests are going up to very high levels at banks. Things that used to take 2 weeks to a month are taking significantly longer for something where the lease is probably already done, the financials are already approved and you’re talking about a piece of paper that you just can’t get signed these days.

Schear: I would take the other side of that. Tenants are getting SNDAs today and particularly as landlords don’t have the same amount of inducement money. The more the tenant’s putting in as a percentage of the deal, regardless of size, the more likely it is they’ll get an SNDA.

Read: Do you think that applies to someone that has five stores or someone that has 100 stores?

Schear: The SNDA issue is an old issue at this point. Most lenders are signing SNDAs so long as they don’t have to negotiate them very hard. What we have been confronted with a lot is the tenant will say, “We’ll go forward, we’re not going to wait for the lease to be executed for the SNDA. We just don’t have to pay rent until we get one; we’ll escrow, we’ll do anything you want, but we’re not paying rent until we get an SNDA.” Most smaller banks today are signing them, and I think most big banks are signing them.

SREB: Are you seeing a lot of tenants kick the tires in some markets? Are they looking around and trying to pick the best spaces?

Gunning: The approach has been that everybody has cut costs as much as they can, and they’ve improved their bottom lines, or at least they’ve stabilized their bottom lines. Now they’re looking around and they’re saying, “There are some good deals out here that are just tough to pass up.” A retailer that may have taken a C location before now can easily afford a B location because rents have come down. The guy that had a B location can now get into the A location for the same reason. There’s some good activity out there. A lot of those are retailers that back in 2007 nobody wanted to talk to, but now everybody does.

From left: Reece Stead, Brad Shoemaker, Abe Schear and Alan McKeon.

Reece Stead: Those are a lot of our clients. We just did a deal in Chicago that we started talking to the landlord in ’96, and he didn’t want to talk to us. We just finished the deal. We’re seeing a lot of the discount centers, the value centers, health clubs. We represent a couple of health clubs that have started to see that there are deals out there, and this is the best time to go out there. We’re seeing a lot more landlords — especially for the smaller tenants, where the TIs are not as big — we are seeing them be able to fund some of their fixturing and things of that nature. We’re finding more landlords are giving us the A spot if we are agreeing to lesser terms, 3-year, 5-year deals.

SREB: Hazel [Dennis], using Macon as an example, are you seeing activity there among tenants? Are they looking for better spaces in centers?

Hazel Dennis: Tenants were looking 2 to 3 years back for something but couldn’t get from the market they’re currently in to the market they wanted to be in at the price they wanted. A number of these were self-funded, but the ones that were dealing with the banks, one of the things that was helping us with our deal time and shortening it a little bit is that the bank is guaranteeing an interest rate for a shorter period of time; it’s put a little bit of pressure on the tenants to make up their minds. Before, they knew that they could get a good interest rate forever. It’s helping a little bit from an unexpected side of banks. We’re seeing tenants like Dollar General very active in the market.

SREB: As a tertiary market, does Macon have a lot of vacant space in and around the city?

Dennis: We do in the very aging part of retail, the 30-year-old centers; that’s where huge amounts of vacancy exist. It’s just that they’re past the mature stage in most cases, and Macon’s dynamics are shifting more. This shift has been slowed down by retailers sitting on the sidelines waiting for that process to pick up again. The vacancies are all along what used to be established retailer corridors, and the ends of those corridors that were iffy are all of a sudden going dark. Retail has shifted to the sure areas, which are along the interstate and those interchanges. There’s very much of a polarizing of the retail in certain strong areas, where it used to be more scattered.

SREB: Bill [Read], you have some centers in other markets in Georgia and Alabama, what are you seeing in terms of those centers?

Read: Birmingham’s done well for us. We have probably 1 million square feet between four properties in Birmingham. Like many markets, it’s still a bit over-retailed, and often the retailer has to figure out whether they want to be in a bigger center or whether they want to be in an unanchored strip. That’s a nice change that’s occurring; for a long time, many bigger centers were very full, and they didn’t provide new opportunity for demand, and when you run into that, demand’s going to create a solution. It’s either going to be an un-anchored strip center across the street from a successful center, or it’s gong to be a new growth market — a lot of times these unanchored strip centers can fill a demand or a supply issue. Now that overall occupancy’s dropped a little bit because of the economic times, some of the retailers are having an opportunity to get into centers that are bigger and better, just like they were talking about as far as going from a C center to a B or an A center. When you get into some of the smaller markets, you’re not on the radar screen for some of the national anchors anymore, where if they have 10 stores in Atlanta, they’re better off putting  an eleventh store in an area where they couldn’t get into where they already have an advertising presence versus going into a new market where they’re not advertising and open two stores. Most of the smaller markets have held well for us, particularly in Mississippi. We really have had no change in our occupancy levels in most of our Mississippi shopping centers.

SREB: Have you seen a steady interest from drug chains and supermarkets looking for locations?

Read: It’s no secret that Food Lion’s coming into the Atlanta market. I haven’t seen much in the way of supermarket activity in Alabama outside of Publix. They seem to have some very select markets that they want to get into, and they seem to be penetrating those markets and have a steady growth plan — I don’t think it’s accelerating, but it’s slow and steady — and it will help them grow in that state Alabama certainly has room for a premiere grocer to grow. In Mississippi, I really can’t think of a new grocer that’s come in outside of Rouses, which is a smaller chain out of New Orleans going into Gulfport.

SREB: Are restaurants still pushing expansion in some places?

Steve Gunning of SRS Real Estate Partners.

Gunning: In certain cases, yes. You’re still seeing some restaurant growth more in the quick-serve market and more at a corporate level. At the franchise level, there is still a gulf between what a franchisee is capable of doing and what his lender is going to let him do. On the corporate side in the quick-serve category, you’re still seeing some good activity.

SREB: Marc [Weinberg], how do you see restaurant activity in this market?

Weinberg: There are landlords who believe in the concept of the restaurant. If the franchise has a good story to tell in terms of the previous success of the franchise, in terms of the uniqueness of it, that it brings something new to their center and it’s going to draw new traffic and customers, landlords are very willing to work with you. There are some markets in Atlanta that are very tight in terms of sizes that franchisees and smaller restaurants are looking for these days that are about 2,000 square feet to 4,000 square feet. I’d dare anybody to go out and find space in Perimeter, Midtown, Buckhead, Northpoint, these core markets that are the A locations, B-plus locations. They’re tight, and one of the reasons is that landlords have done a very good job of working with the tenants that they have to keep the devil they know versus the devil they don’t know. They’ve made some deals that they probably would have never made before.

SREB: Are there specific areas of Atlanta that your clients are asking to be in?

Weinberg: The phrase that guides me now is the follow the money phrase. That works in a lot of ways right now. It works in terms of the majority of the tenants that are out there expanding, from the lower-end quality of the retail world to banks that are expanding to where people have the money to spend. Everybody thinks the market will come back around first in the inner-city core markets, and that’s still why everybody wants to be in those markets. They don’t want to go pioneering right now; pioneering has taken on a whole different definition than it did 2 years ago. Two years ago, pioneering was Dawsonville, now pioneering is Old Milton, in a sense.

Dennis: All of the space that’s along Old Milton up along Roswell and Alpharetta that’s brand new, that’s sitting there — I’m wondering if your clients are going to want to first get into those areas before they venture out past 400.

Weinberg: It’s going to be a while. There are some operators that their model is building that neighborhood grocery-anchored center, and some of those are going there, but that’s not the majority of tenants that we’re working with right now.

Gunning: Good real estate is still good real estate. It always will be good real estate no matter what. It may be a soft market, but those core markets are still getting leased, and there’s still desirability for that type of real estate. As you head out to the suburban markets, before anybody’s going to venture out there and really get aggressive on this sort of space, they’re going to need to see a change in consumer spending, and then they might be a little more open to going into something like that. For their expansion right now, they’re looking at the core markets, the no-brainers.

Schear: In these tight markets, the taller the building is, the more the landlord is trying really hard to keep restaurants in their spaces. You’re seeing a lot of behind-the-scenes negotiations. The question is not, it’s hard to believe that restaurant is doing well enough to stay in that space, it’s really, it’s hard to believe the landlord is giving up that much to keep the landlord in that space. There’s a lot that’s not being written about about what the landlords are doing to keep them.

Weinberg: I have a huge respect for landlords who understand the collaborative partnership component of their business with the tenant. There are some landlords in this market who have proven that they really are that way, and it’s great to see that happen. The scenario we talked about is not in a traditional retail center; it’s really in an office building where that amenity is really what’s going to differentiate that office building from another office building.

SREB: Alan [McKeon], your firm does consumer and shopping research. What trends are you finding?

Alan McKeon: On a national basis, we’re all waiting for the consumer to come back. We don’t see him coming back in the near term. Locally and nationally, developers and owners are focusing on developing loyalty with the core customer groups. It’s all about, I want to get the Americans who are still employed spending in my center or at my retailer or in my restaurant. The information systems that retailers have today are allowing them to do that. We’ve seen people really focus in on building loyalty and identifying core customer groups, and that’s going to continue to drive success.

SREB: How are you doing this?

McKeon: The Web has changed a lot in terms of allowing them to build e-mail databases. A lot of our clients have gone from having an e-mail database of maybe 4,000 people a year ago to 40,000 to 70,000 e-mails in a single shopping center directory. They are starting to use those tools to build bounce-back and loyalty programs, whether that, from a developer’s standpoint is, “Come to my shopping center, I’m supporting the retailers that are in there,” and thinking about the customer rather than just the shopping center has x today. It’s more, “Here’s a special offer, here’s value, here’s a new orientation, here’s a sale going on.” They’re segmenting up databases more effectively and communicating more at a one-to-one basis.

SREB: How frequent are these e-mails?

McKeon: Jones Lang LaSalle sends out Atlantic Station communications about once a week, as an example. You can overdo it, and some of them are learning where the over-penetration is. A lot of the department stores are over-communicating right now both from a direct-mail viewpoint and an e-mail viewpoint. They’re trying to find the sensitive point for the consumer; it’s about once a week to once a month depending on the offer.

Read: Historically the consumer has always spent, even when he didn’t have the money. People who haven’t lost their jobs aren’t spending as much as they used to. Do you see that as a fundamental change? Do you think they’re going to come back to their old shopping habits?

McKeon: There’s a lot of feeling of, “I’m on my own, and I’m not sure who’s going to take care of me, so I need to be thinking about my future more than I ever had in the past.” That doesn’t mean that they won’t spend money and they won’t spend close to their limits, but they’re not going to continually borrow, which is what happened over the past decade. For someone like Abercrombie & Fitch that has T-shirts for $100 — you’re not going to indulge your kids with a $100 T-shirt; you’re going to be teaching them that $40 is good for a T-shirt. You’ve seen a dialing down, and we’ll continue to see rather than conspicuous consumption — “Look at what I spent” — careful consumption — “I’ve got new clothes; I look good, but I got a deal on these.” We’ve seen people swing all the way down to dollar values. They’ll come back up to the middle ground, but they’re not going to go as high as the high-end luxury.

Decoufle: Is there any data that you’re seeing that suggests baby boomers appear to be aggressive spenders and want that very highest level of product? Is there any data that would suggest there’s an X or a Y Generation that is very different in how they spend?

McKeon: The Xs were very much, “look at me.” The Ys are more about how they feel. If its not part of their self-actualization, the Ys are more, “What’s my environment, what are people around me looking at.” We’re seeing swings toward consumer electronics purchasing away from clothing. We’re also seeing acquisition of time or materials for free. Look at all the things that are free on the Web today. We’ve got a culture we’re building in Ys that think things should be free. “If copyright is free, if music is free, if I don’t have to pay for anything, why am I going to spend $1,000 on a suit.”

Weinberg: Look at how Facebook is being used by retailers these days. There’s a restaurant here in town, I get a Facebook notification every 1 or 2 days about what’s going on in their restaurant. It’s free for him to do that.

McKeon: It’s all promotional in nature. The youth is looking at it and saying, “What’s the deal? I need a deal to go there.” That’s the microtargeting that Facebook allows. You look at how Facebook is segmented out — you get a lot of information about how old you are, what your interests are, what you look at, who you talk to. You don’t have to talk about targeting a broad demographic; you can target people that live within 4 miles of this restaurant who ate there four times last week.

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