WSJ What’s News - Why Many Local Stores Are Struggling to Pay Their Rent

Episode Date: October 22, 2024

P.M. Edition for Oct. 22. WSJ real estate reporter Kate King talks about the pressures local storefront owners are facing. The Journal’s Ryan Dezember discusses whether a home renovation resurgence is on the horizon. Plus, federal prosecutors charge former Abercrombie & Fitch CEO Mike Jeffries with running an international sex trafficking ring. Tracie Hunte hosts. Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

People are the lifeblood of every organization, but they're also the greatest source of risk. That's why Mimecast has pioneered the connected human risk management platform to help your business protect collaboration, educate employees, and detect insider risk. Learn more at mimecast.com. Mike Jeffries, the former CEO of Abercrombie & Fitch is facing charges of sex trafficking and why locally owned stores are losing retail space to big national chains. Locally owned stores really just need to prove to their landlords that they're invaluable and that they bring a lot of advantages to the shopping centers where they're located,

even if they can't pay the same high rent as a national tenant. Plus, is a home renovation resurgence on the horizon? It's Tuesday, October 22nd. I'm Tracy Hunt for the Wall Street Journal. This is a PM edition of What's News, the top headlines and business stories that move the world today. Federal prosecutors today said that Mike Jeffries, the former CEO of Abercrombie & Fitch, ran an international sex trafficking ring while he was the company's chief executive.

The 80-year-old Jeffries and his longtime romantic partner Matthew Smith, who faces similar charges, were arrested today. Breon Peace, the U.S. attorney for the Eastern District of New York, told reporters that from 2008 to 2015, Jeffries pressured young male models into attending sex parties around the world. While Jeffries was the CEO of one of the most recognizable clothing retailers in the world, he was using his power, his wealth, and his influence to traffic men for his own sexual pleasure and that of his romantic partner, Matthew Smith. A lawyer for Jeffries said his client would respond to the allegations, quote, in the

courthouse, not the media. James Jacobson, an employee for the couple, was also arrested and charged with 16 criminal counts, including sex trafficking and interstate prostitution. A lawyer for Smith said he would respond to the indictment in court. An attorney for Jacobson declined to comment. Abercrombie said in 2023 that it had hired an outside law firm to conduct an independent investigation

into the allegations and that the company was appalled and disgusted by them. The company today declined to comment. In U.S. markets, stock indexes were close to flat today. The tech-heavy Nasdaq composite climbed 0.2 percent, while the Dow and the S&P 500 declined less than 0.1 percent. More homeowners are borrowing against the rising value of their properties, suggesting that the worst of the remodeling slump has passed as

interest rates are expected to lower. Harvard University's Joint Center for Housing Studies said last week that repair and renovation spending would approach the record annual rate of 4877 billion dollars reached a year ago before the high rates took a toll. Joining us now is WSJ reporter Ryan Dezembre. Ryan, what do we see happening in the market? For much of the country, we're sort of heading into, you know, autumn and winter when a lot of work slows down, particularly things like decks. So it's sort of a seasonally slow time anyway. But companies like Sherwin- Sherwin Williams just today and their earnings call

Was talking about next year and the strength heading into that that they expect and that's due to sort of lower rates when people's homes rise in value they feel rich and They feel like putting money back into the home is a good investment So as soon as the borrowing costs for that come down sufficiently, expect a lot more remodeling activity. And what kind of remodeling or updating might people be doing? Yeah, there's still people going out and painting a room or replacing a faucet in their bathroom. Things that you can do pretty much by yourself and in a day or two. What's really been deferred contractors and

consumers and these companies are telling us is that it's these big projects, the Dream Deck, the new swimming pool, the new kitchen, those things are being really set aside. People have plans, they want to do them, but they're waiting for rates to come down so that they're a lot cheaper to finance. What are the other signs that this resurgence is around the corner? One sign that activity is picking up is we saw an uptick in a type of loan called a cash out refi and that's usually when a borrower will replace their mortgage with a new mortgage often for a greater amount and they'll take that difference and they don't always use it to remodel but they often do and

so we saw an uptick in those loans, not a huge bump up, but an increase and an increase at a time when that sort of lending is normally going down. So that gives a lot of building products, companies and their investors reason to hope. Ryan Dezembre is a reporter for The Wall Street Journal. Coming up, why more than half of independent retailers say they couldn't pay their rent in full last month. That's after the break. People are the lifeblood of every organization, but they're also the greatest source of risk.

That's why Mimecast has pioneered the connected human risk management platform to help your business protect collaboration, educate employees, and detect insider risk. Learn more at Mimecast.com. A rise in retail space rental prices is pushing out locally owned storefronts. According to a survey by the business networking platform, Alignable, nearly 6 in 10 small businesses said their rent had increased over the past six months and more than half of independent retailers Couldn't pay their September rent in full Kate King covers real estate for the Wall Street Journal and she joins us now Kate what are some of the factors working against mom-and-pop shops right now?

Well mom-and-pop shops have a lot of competition when they're looking to open or expand their businesses. Retail availability is near all-time lows in the United States. That's for a few reasons. After the financial crisis that started in 2008, there has been a declining rate of retail construction in the United States. People just stopped building malls and open-air shopping centers and other types of retail in the volume that they were before the recession. And then since the pandemic, we've really seen a resurgence of retail, which had kind of been in the doldrums for several years leading up to the

pandemic. So now retailers have figured out their balance sheets, they're expanding, they want to open more stores, and there is limited space. So this means that landlords for the first time in a long time have the upper hand and they often are tempted to go with the tenant who can pay the most rent. And that's more often than not these big national chains. So that puts mom and pop shops really at a disadvantage in lease negotiations. Kate, you actually spoke to some landlords about this. What did they say? They're a little bit conflicted. On

the one hand, especially if they're big landlords who are publicly traded, they need to look out for their investors. So they need to fill their shopping centers with credit-backed, financially stable tenants who are gonna pay the rent on time and hopefully not go out of business. So that means it's good for them to sign leases with national chains. But at the same time, landlords, even big landlords will say, we see the value of local shops and restaurants. We know that the local bar that does trivia night will get a loyal following, bring people

into the shopping center, and then those people will often go next door to maybe the taco shop or, you know, to the grocery store and generate more business for the shopping center overall. So national landlords and landlords overall like local businesses, but at the same time they need to make sure they have tenants who are paying the rent. And retail is notoriously a difficult business, especially for restaurants, which can go out of business, you know, often within the first year of operation. Kate King is a reporter for The Wall Street Journal.

Thank you so much, Kate. Thank you. Cases of a new M-Pox strain have been recorded in nine countries in recent months, including Thailand, Sweden, and a few days ago, Germany. The Democratic Republic of Congo in Africa is at the center of an epidemic that is disproportionately infecting and sometimes killing children.

The World Health Organization has declared a public health emergency of international concern. Wall Street Journal Foreign Correspond correspondent Ian Lovett. For most, healthy adults and pox is not a particularly dangerous virus. But when children get sick, it can be much more serious. And in more than 1,000 cases so far in Congo this year, it has proved fatal. It's not clear to epidemiologists

why the virus is now hitting children when in the past it mostly infected adults often through sexual contact. They think it's possible that a mutation has let it spread more easily through casual non-sexual contact but the conditions in Eastern Congo are also probably making things worse. It's an area that has had armed conflicts for three decades now. There are millions of people living in very poor conditions in one-room houses or tents with beds shared between multiple children.

So it's just an environment where it's harder to stop a disease from spreading and where when kids get it, it's likely to be more serious for them than it would be in some other parts of the world. The Federal Bureau of Investigation confirmed today that it is investigating a leak of top-secret US intelligence documents that show Israeli military preparations for an expected strike on Iran. The two leaked reports were prepared last week and included classified information supplied

by the National Geospatial Intelligence Agency, which analyzes satellite imagery, and the National Security Agency, which conducts communications intercepts. They also include the types of aircraft and munitions its military could use in an attack, which the documents say could come without additional warning. Screenshots of the documents began circulating Friday on the Telegram messaging app. Neither document indicates Israel's potential targets. And finally, it's Halloween season. And for the brave entrepreneurs who run haunted houses, October is a make or break month.

Over the past few decades, haunted attractions have become a go-to destination for people who celebrate Halloween, with the Halloween and Costume Association saying they are a $500 million industry. But according to the haunted house review company ScareFactor, most of the haunted attractions in the U.S. don't make it past their third year. WSJ contributor Heidi Mitchell reported on the balance sheets involved in the ghost and ghouls business. The expenses are high. One guy I talked to, he spent 1.5 million, other people have spent 2 million.

You have to hire actors and makeup artists and write a script and build sets and hire lighting designers. And then there's all kinds of code. You have to abide by like non-flammable paints and everything's just an added cost to when you think about building a house, this is just a lot more of a cost to build a haunted house. And they don't make a ton of money. I mean, only like 2% of them have more than 50,000 people coming a year. Still, according to Scare Factor, the US is home to 2,100 for-profit haunted attractions.

That is around double the number in the 1990s, plus an estimated 1000 not-for-profit ones, which include pop-ups in cornfields. And that's what's news for Tuesday afternoon. Today's show was produced by Anthony Bansi and Pierre Bienneme with supervising producer Michael Kosmitis. I'm Tracy Hunt for The Wall Street Journal.

We'll be back with a new show tomorrow morning. Thanks for listening. People are the lifeblood of every organization, but they're also the greatest source of risk. That's why Mimecast has pioneered the connected human risk management platform to help your business protect collaboration, educate employees, and detect insider risk. Learn more at mimecast.com.