Step 3, Demand Analysis for Goodwives Shopping Center, FNCE 5534

Step 3, Demand Analysis for Goodwives Shopping Center, FNCE 5534

Example of student project that was graded A+ in 2013. Students following this example should consider professor Clapp’s comments. There are many good aspects of this paper, but every year the projects get better.

version February 19, 2014

Students, this is the Word document, with Prof. Clapp’s comments embedded.

Step 3 is mostly about the Excel workbook. Therefore, click on the course outline to find a document that provides comments on the Excel workbook.

Steps 3 Overall objectives:

This section performs market analysis for The Goodwives Shopping Center, an open air neighborhood shopping center. The appraisal is undertaken for purchase analysis and evaluation of collateral for a mortgage loan. You should delete this point. It is too general to add anything

Thesis for Demand at Goodwives SC

By looking at the analysis provided in this portion of the document and past research, a thesis for demand can be formed in regards to Goodwives Shopping Center.

· Over the past decade, the immediate area around Goodwives has had minimal growth.

o Demand may continue to grow slowly through 2016, but flat growth to slight negative growth is expected.

o Most CoStar estimates of local consumption appear to be realistic based on Median HH Incomes. Nice work using outside data to check CoStar accuracy.

o CoStar’s estimate of Food Away From Home representing 8% of total consumer spending within 1-mile vs. a 10% US Average seems low based on the affluence of the area Good critical thinking

· Incomes in the area are slowly recovering but are still below the income levels from before the recession.

o This is largely due to the fact that much of the income in this area is derived from financial institutions in the area and New York City where pay has been reduced.

· The SS has easy accessibility from I-95, Rt. 1 and is within easy walking distance of Darien’s Metro-North train station.

· Other near-by shopping centers are located in Norwalk or southern Darien towards Stamford leaving Goodwives with a cen tral location.

· Stop and Shop is the main anchor store in the plaza and does a great job attracting the “Food At Home” shopping category.

o The area is surrounded by smaller specialty stores such as a produce store and farmers market.

o Whole Foods is located nearby, but is not surrounded by the types of complimentary stores like Stop and Shop is in Goodwives SC.

· The four sit-down restaurants in the shopping center mean that much of the demand is driven by “Food Away From Home”. Need more detail on the kind of dining offered at Goodwives. How does it compare to NYC restaurants?

· In addition to the grocery store and sit down dining options there is an ice cream shop and a cheese shop which means a large percentage of total demand is driven by food.

· The Shopping Center could use some exposure to electronics such as a radio shack or a boutique sports apparel store to drive demand from different, under-served categories. You should qualify this because you do comparison of demand to supply at a later point in the paper.

1 In the Ling-Archer text, these are the questions: “who are the consumers?” and “where are they now?”

· The following points seem to belong in a different part of the paper.

· The basic unit of demand is a household

· A household is defined as people living in a housing unit (for example, one person living in an apartment is a single person household)

· Roommates form a household

· Married couples form a family household

· Single adults may have children living with them in either family or nonfamily households

Demographic Trends (Inferred Analysis)

Population

· Step -1 of our analysis indicated that Fairfield County population grew by 5.7 % in the last decade

· See the tabs in team3_step3.xls to see details of the following demand side analysis

· Tab 3.2(1 and 2). CoStar estimates that population in the 3 to 5 mile TA is growing at 0.2% to 0.9%/yr, while the 1 mile ring is showing negative growth of .70%.

· Tab 3.2(1&2) line 18 – 20 shows the census data that indicates that Darien’s population has grown at about .6% year to year.

· This indicates that the 1 mile, 3 mile rings are growing (or shrinking) at not only less than the county and state average but is even less when compared to town of Darien. The 5 mile range has a better growth rate than Darien as a whole and closer to the county average

· These comparisons suggest that population in the 3-mile ring is growing about three times slower than county rate but at the same rate (approx.) of the state. On the other hand, the 5-mile ring population is growing at nearly twice as much as the state, but still less than the county’s rate.

· The town is growing, but outside of the 1-mile radius where a neighborhood shopping center would expect to draw a great deal of their revenue from.

Note: Costar still mentions 2011 data as estimates.

Household

· Line 28 – 30 in 3.2(1&2) indicate that the household growth in the 1,3,5 mile TA is pretty consistent in population growth.

· So the question is whether the Costar data is dependable? We think the data is dependable considering the extrapolation between costar and census data. Good Excel analysis.

· The costar data in the 3 – 5 mile radius of the TA is more consistent with the census data of Darien. This makes sense because according to Wikipedia, Darien has its popular neighborhoods (Noroton Heights and Tokeneke (closer to the water)) at about 3 – 5 miles south west and south east of the TA respectively.

Household Income

· Step 3.2 (1 and 2), lines 35 and following: median household income in the PTA.

· The town’s household income has reduced whereas the state income generally has seen an uptick between 2010 to 2011. This can be attributed to the financial crisis and its impact on Fairfield County.

· Darien and neighboring towns has population that works on the Wall Street or has some affiliation to Wall Street. The financial crisis impacted the industry as a whole and we can see the dip in household income.

· The turnaround in income projections may seem plausible for Darien as a town because the deep recession is ending and there is an uptick in the stock market and hence improving incomes in the TA.

· We can check if the household income estimates by costar are correct or not by going against the average value of home (Fanning page 231) See below for calculations.

Income calculation using housing prices

· Average house price in Darien according to census data is approximately $1,000,000

· $1,000,000 minus 20% down payment = $800,000.00 (Jumbo loans need 20 % down)

· Monthly mortgage from Bankrate.com gives $4053.48. We used an interest rate of 4 %

· 20% to taxes and insurance gives annual expenditure of $58370( using fanning)

· According to fanning 28% of gross income is spent on housing therefore –

· Annual income = $58370/.28 = $208,000

· This income seems slightly higher than costar and census estimates but considering the assumptions this number seems accurate

· Again we can conclude that the costar information seems reliable considering the supporting information from census and income derived from housing prices.

What Customers care about? See Tab 3.2(3 and 4).

· It is quite obvious that one can’t blindly trust the data provided by costar in terms of the 1 , 3 and 5 mile expenditures. At best these can have some scientific calculation and projection with surely some noise.

· However it is possible to draw some inferences and comparisons with the data provided by Bureau of labor statistics for the country as a whole. See lines 50, 78 and 92 in Expenditure by income.xls.

o We concluded in the previous section that the household income as given by costar for the 1 3 & 5 radius is fairly acceptable. Having said that we see that the total consumer spending is at about 50 – 55% of the annual income.

o According to CoStar, iIn the 5 mile radius , consumers spent $56,000 when they made $76 ,000 which is about 70% which does not seem plausible considering an average household spends approximately 30 % towards housing alone ( rent or mortgage).The data did not include expenditure on housing. We suspect consumer spending within the 5 mile radius is closer to $46,000-$48,000. Excellent.

o The 5 mile radius in costar reaches into Stamford where annual incomes are typically lower and a sizable portion of the population are low income earners.

o Considering the 1 & 3 mile radius, we can see that the income is high and a wealthy population.

§ In the 1,3,5 mile radius people have spent double than the national average on education which seems in line with the argument that the neighborhoods are highly educated and give importance to education. Perhaps parents send children to private schools.

§ Expenditure on food is lower (both away and home) when compared with the national average. This data does not fit the expectations that the wealthy population will spend more on food. Not correct. Food at home is a necessity, so expenditure declines with income. Perhaps going to fancy restaurants etc.

§ CoStar’s estimate of expenditures on apparel does not seem right, given the affluent nature of the town. The expectation would be that the households will be above the national average when it comes to spending on apparel.

Ratio methods

· Please take a look at two tabs 3.2(5) Household and sales and 3.2(5) per capita.

o These two tabs in the excel sheet provide calculations for step 3.2(5) in fanning

· Our team feels that there is leakage that is expenditures are leaking outside

o One thing to consider is that the residents of this neighborhood work outside of the TA, for example in new your city and Stamford.

o These affluent shoppers may consider shopping in New York or in Stamford where they perhaps work. We cannot definitively say this but we can make a good guess because in step 1 we were able to say that the TA did not support too many industries.

· Our calculations in the two tabs 3.2(5) Household and sales and 3.2(5) per capita and averaging out we estimate that we have a leakage of 0.7 (actually we were a tiny bit lower, see cell K29 in 3.2(5) per capita. Based on fanning page 241.

Step 3 Conclusion- Nice analysis in this section. It is a little odd to have so much analysis in the conclusion rather than in the detail preceding it.

· The focus on education and overall welfare of children leads us to estimate greater demand for the shopping center. The Learning center (a children’s educational toy store), Funcraft (A children’s Birthday celebration party location), Pink Lemon Blue Lime, (A high-end child’s clothing boutique) Shaolin Karate Studio, and Baskin Robbins are all expected to see demand because of discretionary spending on children. Based on the overall percentage of consumer spending we estimate that discretionary spending on children in this 1-mile area is anywhere between 4-5 times the national average in dollar terms. Based on our estimates that “Food at Home” should be in line with national averages and that “Food Away From Home” should be above national averages demand at the SS should be strong because of the numerous dining and take home food options. The Goodwives shopping center has a number of stores and dining options that work very well together. For instance parents could drop their child off at karate class, pick up the dry cleaning, do some grocery shopping, pick up the child, have a sit-down meal, get an ice cream and pick up a bottle of wine. Each task could be completed at a different store without ever leaving the shopping center. Any number of combinations could be created and we see a number of symbiotic relationships between tenants.

The mix of specific stores is more convincing than the CoStar expenditure estimates.

· In terms of leakages/surplus in the area, we estimate that there leakage parameter of 0.7 meaning that the area is underutilized. The average annual growth rate of Darien is below the national average and therefore we expect that few new businesses will enter the TA until supply is more in line with demand. The affluence of the town could be enough to render the undersupply number irrelevant. For example, if this were a town where average HH income was in-line with the national average, we would see a vast oversupply in retail clothing and dining options, but due to the affluence of the town the demand for these options is matched by supply.

Bag Count Exercise:

Site Visits

· Two separate site visits were conducted to check on how well the SS is meeting demand

o A “bag count” was performed on each of the site visits to see what percentages of shoppers were buying.

o A traffic count was performed to see how many people were shopping vs. capacity

· Bag Counts – Conducted Tuesday 3/5/13 @ 5:30 pm and Saturday 3/9/13 @ 11:00 am

o Specific Criteria and Rationale: See Attachment #1

o First bag count conducted Tuesday 3/5/13 @ 5:30 pm

§ Traffic was average – in one hour 6 sets of bag counts were able to be completed, results were as follows:

· 6/10, 7/10, 7/10, 4/10, 7/10, 5/10 = Average of 6/10

o Second bag count conducted Saturday 3/9/13

§ Traffic was high, but many customers were eating or at shops which were excluded from the bag count (see attachment #1) only 5 sets of bag counts were able to be completed, results were as follows: