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Consumer Crossroads
Outlets on the Outskirts
From the Comptroller: The Path to Self-sufficiency
Comptroller's Technology Awards Presented
Going Public

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Strangers on the Range
Scholarship Hunting
Those Were the Days, or Were They?

Texas stats -- Fiscal and economic data

Consumer Crossroads
Shopping malls change with the times
to win back customers

Shopping malls reached their zenith nationally and in Texas in the late 1980s. Since then, malls have lost some of the consumer traffic they once attracted. But don't write them off as passe. Malls are changing to bring back their target customers--value-conscious Baby Boomers and their children, the members of the Baby Boomlet.

The national highway system, which spurred the growth of suburbs, also fostered the shopping mall phenomenon. Typically located near a highway, malls evolved into clusters of hundreds of stores surrounded by thousands of parking spaces.

The Urban Land Institute defines a mall, in part, as "a covered shopping center characterized by inward-facing shops facing an enclosed walkway instead of the surrounding parking lot." A "major" mall contains at least 250,000 square feet of gross leasable area (GLA).

Highland Park Shopping Village in Dallas, considered the nation's first planned shopping community, opened in 1931. The center's design turned storefronts away from the street toward an inner courtyard. The 1949 opening of Wynnewood Village in Dallas marked Texas' first major mall; today, it holds 671,000 square feet of GLA.

Only four major malls opened in Texas during the 1950s. Construction increased during the 1960s with 20 new malls opening, then shot up in the 1970s (47 openings) and 1980s (45 openings). From 1990 to 1996, however, only 16 new major malls opened in Texas. By the early 1990s, the Texas shopping center market was virtually saturated, and structural changes in retail development were giving rise to new forms of shopping centers.

Mall crawl: Texas is home to 136 major malls, including 10 in Bexar County, 16 in Dallas County, 25 in Harris County, 12 in Tarrant County and six in Travis County. The Directory of Major Malls lists 2,594 major malls in the U.S.

The nation's largest mall developer, the Simon DeBartolo Group of Indianapolis, is involved with more than 160 malls, including properties in Brownsville, El Paso, Midland and Tyler. The L&B Group of Dallas, also among the largest mall owners, is involved with malls totaling more than 5 million square feet throughout the U.S.; only one of these properties--Rivercenter in San Antonio--is in Texas.

With 99.4 million square feet of GLA in major malls, Texas ranks third behind California and Florida. Relative to its population, however, Texas' supply of mall space is not particularly large. Texas averages 5.1 square feet of major mall space per capita, below the U.S. average of 5.7 square feet per capita.

Harris County, with 21.8 million square feet of GLA, offers the most mall shopping opportunities in Texas. When Dallas and Tarrant counties are combined, however, the mall shopping area in the Metroplex exceeds that in Harris County.

A market area's potential support for retail business is the principal driver of mall construction. Developers consider such demographics as the population of the metropolitan statistical area and of the mall's "primary" market, proximity of the primary market to the mall, average household income in the area and distance from the nearest competing mall.

Where and how much retail construction will be needed varies widely across Texas, according to a 1995 report by the Real Estate Center at Texas A&M University. Population and income growth, the continued structural change in retailing, the stock of existing retail space and stability in the Mexican peso will influence future investment decisions concerning mall construction.

Competitive pressures: Mall building nationwide peaked in 1988, when 1,642 malls were started, according to the International Council of Shopping Centers. New construction has slowed considerably since then, with only 583 malls begun in 1996. An estimated 3.5 million Americans now work in malls.

Factors that have hurt mall traffic, industry analysts say, include overbuilding, the "cookie-cutter" sameness of mall buildings and store mix and the maturing of Baby Boomers into value-conscious shoppers. Also, factory outlets, "power centers" and discount warehouses have drawn consumers away from malls. According to MAS Marketing, a Chicago-based market research firm, nationwide sales per square foot of mall space dropped from $197 in 1978 to $163 in 1993.

Malls face increasing competition for consumer dollars. By the end of the 1980s, "name brand" merchandise had become too expensive for many consumers. Enter the factory outlet mall, offering name brands at prices 30-70% below the prices found at conventional malls.

Competition intensified with the rapid growth of discount retailers such as Wal-Mart and Target and electronic specialty stores such as Best Buy and Circuit City.

Developers began building power centers to lure customers from conventional malls. Power centers are open-air stores aligned in a strip with freestanding "anchor" stores. In fact, power centers were the first to combine three or more anchors in a single center. Many power centers include movie theaters and restaurants.

With abundant parking in front of their stores, power centers seem to respond to consumers' desire to spend less time shopping. MAS Marketing noted that from 1980 to 1990, the average time shoppers spent at the mall declined by half. Part of the decline may be due to increased shopping at home through catalogs, television or the Internet.

With so many choices, shoppers can afford to be selective and look for the best value. Some industry analysts believe that up to 20% of all regional malls could close by 2000. Shopping is hardly in decline, though. Conventional malls are seeking the right mix of stores, amusements, hours and services to keep customers coming back.

Reinventing the mall: Many existing malls are expanding or renovating in an effort to reinvent themselves. In 1991, renovations and expansions occurred at eight major malls in Texas; by 1996, nearly twice that many had begun improvements. Many are adding new anchors or trendy shops to change the store mix. Some are adding movie theaters to create additional foot traffic.

Retail entertainment centers are the latest trend in mall design. According to U.S. News & World Report, "retailers that offer neither the high-end experience nor rock-bottom pricing are likely to continue to suffer." The "high-end" establishments cited by the magazine offer atmosphere and entertainment.

Early malls tended to have similar designs and store layouts, but that has changed with the emergence of high-end specialty malls. The new look responds to the family orientation of the market, according to Sherry Decovich, marketing manager of Deerbrook Mall in Humble, near Houston. Mall managers want to make shopping a positive family experience.

Deerbrook claims to be the first mall in Texas to develop a children's entertainment area inside. The Dinosaur Court--a 2,000-square-foot play area that features a 26-foot dinosaur, several dinosaur slides, crawl-through logs and eggs, flying dinosaurs and more--opened in July 1997. Benches around the area provide a resting place for parents to watch their children.

The Enchanted Woodlands play area, featuring the nation's only talking tree manufactured for a shopping center, opened in The Woodlands Mall near Houston in September 1997. "Oakley" tells children four stories about nature. Children can wander through the "forest," crawl through a tent and logs, climb tree stumps, dance on sunflowers or hop aboard a raft in a winding stream.

The creator of these two playscapes, as well as 25 others in the U.S., is NBGS International, a New Braunfels company that designs and manufactures waterparks and indoor soft play facilities. The 450-employee firm has designed play areas for such clients as Disney/MGM Studios and Carnival Cruise Lines. NBGS began designing entertainment areas for shopping malls about three years ago. Each soft play area is designed and built especially for its mall.

Some malls have turned to giant theaters, amusement arcades and theme restaurants to attract customers. Six Flags Mall in Arlington has added a nine-screen Cinemark movie theater, and Rivercenter in San Antonio features an IMAX theater with a six-story screen and six-track stereo sound.

The concept of family entertainment in the mall, though, is not all that new. When Houston's Galleria opened in 1970, it featured an ice skating rink in addition to shops and restaurants. In the late 1970s and early 1980s, the Galleria was touted as the last word in shopping malls, according to William Severini Kowinski, author of The Malling of America.

Consumers are spending less time and money at malls than they did in the glory days of the 1980s, but attention paid by malls to "shopper fatigue" has begun to reverse that trend. A study reported in American Demographics found that in 1996, consumers were more likely than in 1990 to buy something when they went to a mall.

Contributing to this article:
Sandra Martinez and Fran Sawyer

Outlets on the Outskirts

Factory stores originated in the mid- to late 1800s as back rooms where a single manufacturer sold irregular, damaged or outdated merchandise--first to employees, then to customers.

Today's factory outlet malls house hundreds of stores and rival conventional shopping malls in the amenities they offer to shoppers.

Generally, outlet stores carry merchandise delivered directly from the manufacturer; less than 15% is irregular, marked as such and further discounted. Prices at outlet stores average 30-70% below prices at conventional department or specialty stores.

According to Outlet Bound, an on-line directory, Texas has 18 outlet malls with more on the way.

Many outlet malls are located far from their department store counterparts because manufacturers want to avoid competition between their factory stores and the large retail stores that carry their merchandise. Outlet malls are often sited between metropolitan markets on major highways or near tourist attractions or vacation spots. Vacationers are a particular target because they usually have money to spend and may not mind taking a day off from sightseeing to shop--especially if they can find a good deal.

These factors have made Interstate 35 throughout Texas a prime location for outlet malls. The I-35 corridor between San Antonio and Austin features three such malls--one in New Braunfels and two in San Marcos. A fourth mall, carrying antiques, has opened near one of the San Marcos outlets, with plans to include 75 to 100 antique dealers. Farther north on I-35, Hillsboro and Gainesville are also home to outlet malls.

Another hybrid of the factory outlet mall--a regional "value-oriented" megamall--opened in Grapevine in October 1997. More than 300 retailers and 1.5 million square feet make Grapevine Mills one of the largest shopping centers in the Dallas-Fort Worth area. The Virginia-based Mills Corp., developer of these massive malls, also plans a 1.6 million-square-foot mall in Katy, near Houston.

From the Comptroller:
The Path to Self-Sufficiency

Over the past 18 months, I have been gratified by the statewide response to my Family Pathfinders program, in which volunteers from religious and civic groups work with welfare recipients to help them find jobs and become self-sufficient.

As of March, more than 245 organizations in 92 Texas communities were active in Family Pathfinders. These groups, matched with more than 327 families on public assistance, had mobilized and trained more than 2,000 volunteers. Workers with VISTA, the national service program, were organizing local Pathfinders programs in seven Texas metro areas.

Pathfinders volunteers can point to many success stories already--and they have come up with some innovative ways to help families help themselves.

For example, St. Philip's College in San Antonio plans to award $10,500 in scholarships to local families who take part in Pathfinders. The San Antonio Livestock Exposition will fund at least three two-year scholarships paying tuition and fees for full-time students. These funds will help educate the parents or children of the Pathfinders families to compete in the 21st century job market.

In Smiley, a town of 500 people between San Antonio and Victoria, a church team opened a "survival skills" school to prepare welfare mothers for their move to the work force. The five-week course is offered in most large Texas cities as part of the federal/state JOBS program.

Beginning in June 1998, positions will be available in a number of Texas communities for VISTA volunteers to help recruit Family Pathfinders sponsors. In exchange for their year-long, full-time community service commitment, VISTA workers receive a subsistence allowance and an educational grant.

Our goal of moving 1,000 Texas families from welfare to the work force by 2000 will require a continuing commitment by civic clubs, churches and businesses across the state.

For an application form or more information on Family Pathfinders, call toll-free 1-800-355-PATH or contact the nearest Comptroller field office.

- John Sharp
Texas Comptroller of Public Accounts

Comptroller's Technology Awards Presented

At the recent Government Technology Conference in Austin, Deputy Comptroller Dovie Ellis presented the Comptroller's first LoGo Tech Awards to local governments for using technology to improve services to Texas taxpayers. The winners were Dallas' 311 phone line, Potter County's video arraignment and pleas system and Creating Connections, a distance learning consortium.

Dallas became the first city in the U.S. to offer three-digit telephone access to all city services when it started its 311 system in December 1997. City officials estimate that before the system came on line, about seven of every 10 calls to the city's 911 system involved nonemergency requests for services such as pothole filling and water main repair. Other cities now using 311 lines for some services report 20% fewer nonemergency calls to 911.

Potter County has saved nearly $200,000 on manpower and transportation in the past five years by establishing a video teleconference link between two courts and the county jail. By eliminating trips to the courts for arraignments in 1993 and for plea hearings in February 1998, the county has eliminated the chance of prisoner escapes during transit and the opportunity for inmates to mix in cramped courtroom holding facilities, which can lead to violent incidents. The system also frees the sheriff's department to concentrate on other duties and reduces liability costs for transporting prisoners and guards.

Creating Connections, a consortium of 24 Texas school districts and six of the state's 20 regional service centers, uses video teleconferencing technology to provide distance learning, curriculum and teacher training. Students use the system to gain college credit before graduating from high school, and teachers use it to work on graduate degrees. Created in 1994, the system serves as an example of what technology can bring to education. Funding began with more than $1 million in grants from the Texas Education Agency and now includes a Telecommunications Infrastructure Fund grant for more than $2.5 million.

Contributing to this article:
Greg Mt.Joy

Going Public
Texas companies join the boom
in initial public offerings

Rising stock prices on Wall Street in recent years have encouraged thousands of privately held businesses to "go public" in search of equity capital. The first step for each of these firms was to sell common stock to the general public through an initial public offering (IPO).

Since 1990, nearly 4,000 U.S. companies have gone public by selling stock on one of the three primary markets. The number of IPOs completed has grown dramatically, from 177 in 1990 to 531 in 1997, while proceeds from IPOs have more than quadrupled, from $9.8 billion in 1990 to $42.6 billion in 1997.

More than 300 Texas companies have gone public during the 1990s, raising more than $20 billion. Texas firms have represented around 8% of all U.S. firms issuing IPOs, often ranking third behind California and New York in terms of funds raised through IPOs.

Tapping the markets: A growing company can raise capital for plant expansions, new operations or acquisitions in three basic ways. The company can borrow from banks or the bond markets; keep its profits and reinvest these "retained earnings"; or sell ownership shares (common stock) to private investors, venture capitalists or the general public.

Each method has advantages and disadvantages. While borrowing may be easier than an initial sale of stock, lenders expect to be repaid with interest on an established schedule. Failure to meet scheduled payments could damage a company's credit status or result in a loss of assets. Financing growth with retained earnings allows company owners to maintain full control of the company's operations, but retained earnings may not be sufficient to pay for expansion plans.

Raising capital through an IPO avoids the drawbacks of the other two methods but has its own disadvantages. First, an IPO can be costly, especially for smaller firms. Companies incur accounting and legal fees, printing expenses, registration and listing fees and underwriters' fees. In 1996, the U.S. Securities and Exchange Commission (SEC) reported that the cost of issuing an IPO could average as much as 16-17% of the total amount of the issue.

Also, the IPO process can take from six months to two years or more, depending on stock market conditions. Finally, a company must follow accounting conventions and meet stringent reporting requirements imposed by the SEC.

IPO steps: When a company decides to go public, it typically hires an accountant, a law firm and an investment banker, also called an underwriter, who analyzes the company's financial and management strengths and weaknesses, its position in its industry and its growth plans and capital needs. The investment banker also recommends the appropriate exchange or market in which the company's stock should be traded.

Generally, larger firms are listed on either the New York Stock Exchange (NYSE) or American Stock Exchange, where buyers and sellers meet on the trading floor. Smaller firms opt for a listing on the Nasdaq market, in which dealers in offices throughout the country trade shares electronically, or on one of the regional stock exchanges. Each market has different listing requirements and fees.

With some exceptions, before a company can offer its stock to the public, it must register with the SEC, which regulates trading on the exchanges and requires firms to disclose certain information of interest to investors. Companies may also have to register with various state regulatory bodies. Generally, Texas law does not require companies trading on the national exchanges or Nasdaq to register with the state.

IPO registration documents filed with the SEC must describe the nature of the company's business, its growth strategy, existing and future competition, management, existing shareholders, the relation of the IPO to the firm's existing securities, use of IPO proceeds, risk factors and financial statements audited by an independent accountant. SEC approval can take from six weeks to several months.

These documents also specify an expected range of prices at which the shares will be offered to the public. The company and its investment banker negotiate the price range.

Generally, the final offering price is set the day before the stock begins trading. Although various arrangements exist, the company typically sells its shares to the underwriter, who in turn sells them to the public. The underwriter may form a syndicate with other firms to obtain greater marketing resources and spread the risk of stock price fluctuations.

While the term IPO may connote a small start-up company that has finally established enough appeal to attract investors, a large publicly traded corporation may use an IPO to finance the spin-off of a subsidiary. For example, New Jersey-based Lucent Technologies was spun off from AT&T in April 1996 with a $2.6 billion IPO--one of the largest in U.S. history.

Santa Fe International Corp., a drilling company headquartered in Dallas, went public for the second time in June 1997 with an IPO of $798 million, Texas' largest IPO last year. The drilling firm, founded in 1946, first went public in 1960 but was acquired by Kuwait Petroleum Co. (KPC) in 1981 and subsequently delisted from the NYSE. The June 1997 IPO spun off Santa Fe International from KPC. In November 1997, OYO Geospace, a Houston-based manufacturer of seismic equipment for oil and gas exploration, was spun off from OYO Japan with a $28 million IPO.

Texas offerings: In 1997, 50 Texas companies went public, raising nearly $3.1 billion by selling 202 million shares of stock through IPOs on the New York and American exchanges and the Nasdaq market. Shares of most of these companies began trading at less than $20 a share. The average initial selling price was around $12 a share.

The Houston metro area is home to 29 of these companies, Dallas-Fort Worth is home to 14, Austin has five and San Antonio and Bryan-College Station have one each. Houston and Dallas-Fort Worth companies also are dominant in terms of IPO proceeds. The companies are in industries ranging from hotel reservation services to medical practice management services to ergonomic furniture manufacturing and 3-D seismic imaging for oil and gas exploration.

Oil and gas companies and associated service companies dominated Texas' 1997 offerings, accounting for more than half the value of all IPOs completed. The service companies' operations include 3-D seismic image data collection, underwater installation and maintenance and communications via satellite, microwave radio and fiber-optic cable to oil and gas operations in remote regions.

As mentioned earlier, Texas' largest IPO in 1997 was completed by Santa Fe International. Other IPOs raising more than $100 million were completed by Group Maintenance America, a Houston-based company providing heating/ventilating/air conditioning, plumbing and electrical services, and Capital Senior Living Corp., a Dallas-based company managing senior residential communities. The latter company plans to develop and manage senior communities in major cities in the People's Republic of China.

The smallest IPO was completed by Horizon Pharmacies, headquartered in Princeton, north of Dallas. Horizon owns and operates retail drug stores in small communities, generally with populations of less than 50,000. Its IPO, for 1.2 million shares, raised $6 million. Other small issuers include Bay Bancshares ($9.6 million), a bank holding company headquartered in LaPorte, and Neutral Posture Ergonomics ($8 million), an ergonomic chair manufacturer in Bryan. Neutral Posture's customers include the U.S. House of Representatives and the Internal Revenue Service.

An emerging trend in medical and dental practice management is the rise of practice management providers. These firms provide administrative services including billing and collections, financial reporting, patient scheduling, purchasing, inventory management, staffing, education and management, payroll processing, record keeping and general administration.

Five Texas-based practice management firms went public in 1997. Two dental practice managers--Castle Dental Centers in Houston and Monarch Dental Corp. in Dallas--together provide management services to more than 100 practices in Texas, Arkansas, Tennessee, Florida and Wisconsin. Apple Orthodontix in Houston provides practice management services for orthodontists in the U.S. and Canada. Dallas-based American Physician Partners and Fort Worth-based ProMedCo Management Co. manage medical practices in Texas and other states.

IPO performance: Forecasting IPO activity and the rate of return on IPOs is like trying to forecast the stock market--a risky proposition for even the most experienced pros. The data show, however, that at least on the national level, IPOs have tended to underperform the overall market.

A Forbes magazine study of IPOs from 1987 through 1997 found that, on average, new offerings underperformed the Standard & Poor's 500 stock index by anywhere from 3-12%. A study by Equity Analytics found that on average, it takes a company about five years from its IPO before its performance matches that of established firms in its industry.

Some IPOs, of course, have enjoyed spectacular gains in value. An investor who bought $10,000 worth of stock in the June 1988 IPO of Texas-based Dell Computer would now hold an investment worth more than $1 million. An investment in the November 1993 IPO of Austin-based Whole Foods had increased in value by more than 500% by the end of 1997. Consolidated Graphics, a Houston-based provider of commercial printing products and services, went public in June 1994 at an offering price of $11.50 per share; a $1,000 investment in that IPO would have been worth more than $8,000 by the end of 1997.

The New York Times reported that the Dow Jones Industrial Average outgained IPOs issued in 1997. By year-end, the Dow had gained an average of 23%, while 1997 IPOs on average gained slightly more than 19%. Texas IPOs issued in 1997 matched the performance of IPOs as a whole.

Texas' IPO class of 1997 contained several star performers. First Sierra Financial, a Houston-based business equipment leasing company, led the pack with a gain of 122% from its May 1997 offering price of $8 per share. IWL Communications, a Houston-based provider of telecommunications services to oil and gas companies in remote areas, gained 117% over its $6 initial offering. Other notable Texas performers were Horizon Pharmacies, up 113% from its offering price of $5; Southwest Bancorporation, up 89% from $16.50; and Brigham Exploration, up 83% from $8.

If an IPO is in great demand, it may be hard for the general public to buy stock at its offering price or its opening price. Several sites on the World Wide Web track new and forthcoming IPOs, and much of their information is free. For more information on an upcoming IPO of interest, potential investors should contact a broker or the company's underwriter.

Contributing to this article:
Koren Sherrill

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