Growing up in the family-operated retail drugstore business, I was
fascinated by the emergence of “category killers” in the ’80s and ’90s
and followed their growth very closely. As I drive by their stores today
and see their ongoing liquidations and leases being auctioned, I am
reminded of a book I read in 2005 titled
Category Killers: The Retail Revolution and
Its Impact on Consumer Culture. Given the
current environment, I felt that now was
a good time to
In 2005, the
“category killers”, or “big box” retailers, were all the
rage and their growth seemed unstoppable. The book chronicled the growth
of these chains, crediting the sector’s
birth to 1923, when Charles Lazarus
converted his father’s bike shop into what would become Toys R Us.
What Toys R Us did for toys, Lowe’s and Home Depot did for
hardware; Circuit City and Best Buy for electronics; Borders and
Barnes & Noble for books; Staples, Office Max, and Office Depot
for office supplies; and Bed Bath & Beyond and Linens ‘n Things
for home goods. Thanks to the proliferance of these chains over
the past few decades, consumers have become accustomed to having an unprecedented variety of choices.
The chains I mentioned are among several retailers highlighted in the book. While many big-box chains have ceased to
exist and others are on life-support, a few do remain in business,
although one can’t help but wonder whether that will be the case
several years from now.
“Category Killers” highlighted how mass-market retailers were
beginning to take a large bite out of the category killers. This is also
where the 80/20 rule, or Pareto Principle, becomes particularly rel-
evant. This commonly accepted tenet states that 20% of a store’s
items will make up 80% of its sales. With mass-market retailers such
as Walmart and Target generally stocking the most popular items
available in most of the major big-
box stores, there’s little reason to
make trips to the category killers’
stores. Add to that the availability of
practically every consumer product
online via Amazon and its cohorts,
and shoppers have little need to
even leave their homes.
The only constant in retail has
always been change, so the fact that
changes are occurring is not sur-
prising. The pace of the changes,
however, is impressive.
With REITs today divesting a
large amount of shopping centers
anchored by these big box stores,
shopping center investors need to
give a lot of thought to what the
future holds for those chains that
remain. While the high yields rela-
tive to grocery-anchored shopping centers may look attractive,
shopping center investors should greatly consider whether the
risks associated with these assets is worth the potential rewards.
A version of this column previously appeared on GlobeSt.com.
Gabriel Navarro is a principal with MMG Equity Partners in Miami. He
may be contacted at firstname.lastname@example.org. The views expressed
here are the author’s own and not those of ALM Real Estate Media.
Category Killers Are Officially Dead
By Gabriel Navarro
open floorplan with 100% bench-style seating (i.e., no enclosed
offices) and common areas for collaboration. Project budgets tend
to be light on hard costs due to minimal dividing walls and private
offices. However, progressive spaces typically have higher technology expenses due to more connected conference and collaboration areas. These are popular with tenants such as technology
companies, start-ups and progressive corporate offices.
The majority of current offices in the US are built in a moderate
style, where the average cost to build is $158.23 per square foot.
These plans have about 10% of the space dedicated to enclosed
offices, with the rest comprised on an open floorplan housing
reasonably sized workstations. The design also includes a healthy
mix of conference rooms and two to four multi-use spaces
throughout. Project budgets are comparably average on hard
costs due to the moderate use of dividing walls, but benefit from
the savings on the open floorplan component. Semi-modern
office users, as well as corporate offices transitioning to more
efficient models, tend to utilize this approach.
Traditional office styles, which cost $177.06 per square foot on
average, have a private office-heavy floorplan with 30% enclosed
offices and 70% open floorplan with large workstations and no
bench seating. The design includes several traditional conference
rooms and one collaboration space. Tenants can expect to main-
tain privacy but miss out on increased efficiency opportunities.
Project budgets tend to have the highest build-out expenses attrib-
utable to costly private office furniture and high-walled worksta-
tions. However, tenant factors are comparatively small due the
reduced need for common areas. These are popular with law firms
and traditional financial companies.
Beyond the style of the office, there are a handful of added
dynamics that can impact space design and overall cost. Space qual-
ity and complexity takes into account the physical design elements
of an office and accounts for the quality of selected finishes and
improvements, complexity of space upgrades and design work, and
amount of technology additions.
Specific to the office fit-out conversation, rising materials
costs (3% year-over-year) and construction labor rates ( 3.4%
year-over-year) continue to impact project budgets. An uptick in
labor wages is expected to endure through 2018 as the shortage
of skilled construction workers persists. The current unemployment rate is 4.5% and job growth in the industry remains flat.
Demand for construction and building materials will also
remain strong as the industry pivots toward adaptive reuse, renovation and fit-out projects in 2018.—Lisa Brown ◆
With many REITs
today divesting a
large amount of
anchored by these
investors need to
think about what
the future holds
for those chains