Monday, March 20, 2017

Forget Profits - It’s All About Market Share Now!

Forget the profits; it’s all about market share right now for the big boys of retail!

Based on a number of revised pricing strategies coming out of executive offices lately, it appears that some of the more venerable brick-and-mortar retailers are deemphasizing profits right now in order to preserve, and possibly steal, a bigger share of the market.

With very few exceptions, shoppers are attracted by lower prices. Sure, shoppers appreciate good service, selection, and presentation of merchandise, but as they say, in the end, everyone likes a bargain. If retailers are going to compete effectively, low prices are going to be integral - and some of the big guys are taking dramatic action.

For example, a recent report from Reuters indicates that Wal-Mart recently went on the offensive by running a new price-comparison test in at least 1,200 US stores, and squeezing packaged goods suppliers in a bid to close a pricing gap with German-based discount grocery chain Aldi and with U.S. rivals such as Kroger (not to mention Lidl, the other German-based discount grocer making its US entry later this year). For now, Wal-Mart has limited the testing to Midwestern and Southeastern states, but if it’s successful one can only assume that the strategy will go nationwide. To offset margin reductions Wal-Mart is pressuring vendors to cut costs as well, exhibiting leverage that no other competitor could match. This could take a substantial toll on the grocery industry, resulting in potentially significant store closings.

Target shoppers can expect lower prices as well. In addition to building smaller stores, offering more private labels, and remodeling stores, this formidable retail chain just announced that it will be lowering prices to attract more shoppers into its stores. Like Wal-Mart, Target has the leverage, clout, and scale to lower margins in order to win back market share. It will be spending $7 billion over a three-year period to accomplish this goal.

After hearing about the heating up of this inevitable price war, Dollar General was not about to stand pat. Following Wal-Mart’s announcement that it would move faster to lower prices, Dollar General rolled out price cuts on hundreds of items across 17% of its stores. These locations have performed better than the chain average ever since, according to Dollar General CEO Todd Vasos.

While Macy’s hasn’t been so direct in announcing lower prices, it recently outlined a number of price-oriented steps to help drive shopper traffic. First, it will roll out discounted sections in its stores to be called Last Act. These sections will include dated merchandise with clearly marked tags showing discounted pricing. Macy’s tested these areas in 10 of its stores last year and plans to open another 30 locations in 2017. Additionally, Macy’s is experiencing some of the success off-price retailers have recently enjoyed. As a result the company is bolstering Backstage, its own off-price unit, testing Backstage pop-up shops in about 45 of its stores. These will be located alongside the Last Act clearance sections.

Now that some of the retail big boys have started this price war, it will be interesting to see who else joins the fray. While many retailers are still trying to figure out how to do battle with Amazon, the added pressure of lowering margins in order to remain in the game will challenge the long-term viability of many retail chains of varying sizes.

One thing we do know: the larger the retailer, the better the chances of surviving such drastic measures. An example of this is Sears, which has been bleeding cash for years now, but has managed to stay afloat simply by virtue of its sheer size and sizeable real estate holdings.

In the end, however, when the dust has settled, it’s all going to be about market share. To put it more simply: it will be Survival of the Fittest.

Bob Sheehan, Vice President of Research
BSheehan@KeyPointPartners.com

Company News

New Leasing Assignments: 228 Main Street, West Yarmouth, Massachusetts and 1440 Main Street Sanford, Maine. VP of Leasing Don Mace is handling the assignments.

National News

Most US retailers reported weak sales in February despite unseasonably warm weather, a possible result of delayed tax refunds. Sales at retailers nationwide rose a scant 0.1% in February, slowing sharply after big gains the prior two months, the Commerce Dept. said. Among retailers still reporting monthly sales, L Brands was down 13.0% and Costco was up 5.0% Gap has shifted to quarterly reporting. See our sales reports below.

Accelerating News

TJX, parent company of T.J. Maxx, Marshalls, HomeGoods, and Sierra Trading Post, grew its store base by 198 to 3,800 total stores last year. It plans to open at least another 250 stores this year — including 4 stores under a new home concept to complement to HomeGoods. The company sees potential for 5,600 stores in the long term...Starbucks is opening another Reserve coffee bar in one of its traditional stores. Starbucks has rolled out the concept in 20 US stores, and eventually aims to install them in 20% of its stores…Make Up For Ever opened its first global flagship, and 6th US location, in Manhattan, near Bloomingdale’s…Food Lion will remodel 93 stores in the Greensboro, NC, market in 2017. The company has previously remodeled 142 stores in Charlotte, NC, 162 stores in Raleigh, NC, and 76 stores in Wilmington and Greenville, NC. Food Lion will continue to launch enhancements across its more than 1,000 stores, as well as remodeling additional markets...Petco will open 12 new stores in March. It will also relocate one store in Ohio. The retailer operates more than 1,500 Petco and Unleashed by Petco locations…Bach to Rock music school signed franchise agreements to launch 6 new schools in the third quarter of 2017. The music school brand opened 9 new schools in 2016 with an additional 19 schools slated to break ground later this year and into 2018. There are currently 21 US Bach to Rock  schools…Chuy’s Holdings, Inc. opened 12 new Chuy’s restaurants last year, and are on track to open 12 to 14 new locations this year. Chuy’s had 80 restaurants as of December 25, 2016... Bahama Buck’s Original Shaved Ice opened its 100th shop this month in El Paso, TX…Gordon Brothers announced it is acquiring the Wet Seal and other brands within the Wet Seal portfolio, including Arden B, Blink, and Chic Boutique, and plans to rebuild the brand. The transaction is pending final court approval. Wet Seal filed for Chapter 11 bankruptcy protection in February...Trunk Club, the Nordstrom-owned retailer that offers personalized styling services, has opened an 18,000 s/f Clubhouse on Boylston Street in Boston. The store carries ready-to-wear for men and women, along with men’s custom clothing. With the addition of Boston, Trunk Club now operates 7 US Clubhouse locations….Ross Stores  opened 23 Ross Dress for Less stores and 5 dd’s Discounts stores across 15 different states in February and March. The new locations are part of the company’s plans to add approximately 70 Ross stores and 20 dd’s locations during 2017. With the new openings, Ross operates 1,561 Ross Dress for Less and 198 dd’s stores... Rise Biscuits Donuts opened its 8th NC location, and the company has deals in place for 85 US locations. Rise is partnered with franchise development company Fransmart, which developed brands such as Five Guys Burgers and Qdoba…In 2017, Dick’s Sporting Goods plans to open approximately 43 Dick’s Sporting Goods stores, and relocate approximately 7 stores. It also expects to open 9 Golf Galaxy stores and 8 Field & Stream stores. As of January 28, 2017, Dick’s operated 676 Dick’s Sporting Goods stores, 91 golf specialty stores and 27 Field & Stream stores…Amazon will open an Amazon Books location in Bellevue, Washington,  its second in the state and 10th overall...Hammer & Nails Grooming Shop for Guys, a new male grooming franchise, is set to open its first 50 locations in Texas. The concept was originated in 2013 by Michael Elliot, who opened the first Hammer & Nails on Melrose Avenue in LA... Signet Jewelers, parent company of Jared the Galleria of Jewelry, Kay Jewelers, and Zales, plans to close 165 to 170 stores in the coming fiscal year and open 90 to 115 new stores... La Madeleine bakery-cafĂ©, which has more than 80 US locations, plans to double its size through a refranchising initiative. Corporate markets currently offered for refranchising are Houston, Atlanta, Austin, Washington, D.C., and Louisiana…Retro Fitness, a national fitness system with more than 155 gyms in 16 states, is expanding its footprint with more than 100 gyms in its development pipeline and plans to have 250 gyms open in the next two years in new markets such as Florida, Illinois, California, Maryland, Michigan, New York, North Carolina, Pennsylvania, Texas, Utah, Virginia, and Washington, D.C... Dollar General plans to open approximately 1,000 stores and remodel or relocate 900 existing stores in fiscal 2017. During 2016, the company opened 900 new stores and remodeled or relocated 906 stores.

Decelerating News

J.C. Penney will close up to 140 US stores and two distribution facilities. The company has released a list of affected stores by mid-March...The Family Christian bookstore chain is going out of business. The company plans to close all 240 stores across 36 states. Family Christian filed for Chapter 11 bankruptcy in February 2015...Kohl’s is aggressively reducing the size of its stores. Kohl’s operates three classes of stores. The standard store is 88,000 s/f; 970 of Kohl’s 1,155 stores were this size as of the third quarter. 178 stores were in the range of 55,000-68,000 s/f, which the company calls its small size. The remaining seven stores were 35,000 s/f. For the fiscal year, Kohl’s opened 9 of the smallest format and closed 19 larger stores. The company is refitting some larger stores in a “standard to small program” to make more efficient use of space, and to right-size inventory levels. 115 stores are in the standard-to-small process, and it will add 200 stores to the program soon. The retailer is also considering closing some larger stores and opening smaller stores within the same market... Lucy Activewear, which is owned by VF Corp., will shutter its retail store operation and merge with sister brand The North Face, also owned by VF. Lucy’s 44 stores are expected to close by the end of 2017…BCBG Max Azria Group LLC filed for Chapter 11 of bankruptcy protection. Earlier this month, the company revealed plans to close 120 stores as part of its restructuring efforts…Crocs Inc. will close 160 stores in the wake of falling revenues. Crocs had 558 stores at the end of 2016... HHGregg will close 88 stores by mid-April as part of an effort to improve liquidity and return to profitability...RadioShack Corp. filed for Chapter 11 bankruptcy protection, its second filing in 2 years. The retailer will close approximately 200 stores, and evaluate options for the remaining 1,300 locations…Staples Inc. plans to close roughly 70 stores in North America this year…Vanity Shop of Grand Forks is shuttering all 137 of its Vanity stores in 27 states. The announcement follows the company’s filing for Chapter 11 bankruptcy protection on March 1... Chipotle Mexican Grill Inc. has a deal to sell the leases for all 15 ShopHouse Asian Kitchen locations and plans to close the restaurants this month...Gander Mountain is filing for bankruptcy. 32 underperforming stores will begin to close in the next several weeks. There are currently 152 Gander Mountain stores in 26 states…Gordmans, operator of about 100 stores in 22 states selling clothes and articles for the home filed for Chapter 11 protection in U.S. Bankruptcy Court in Omaha... Bon-Ton Stores Inc. will close 4 to 6 stores this year. Bon-Ton operates 263 stores, which includes 9 furniture galleries and 4 clearance centers, in 25 states.

New England News

Wegmans’ 5th store in the state is scheduled to open this fall on the Mystic Valley Parkway in Medford, MA... Dick’s Sporting Goods has set March 15 as the “preview” opening for its new store in Norwalk, CT in one of 22 locations Dick’s acquired from bankrupt Sports Authority…A freestanding Sephora store has opened in a glass pavilion at site of the former flower market at Boston’s Faneuil Hall... NGKF Capital Markets has completed the sale of Hannaford in Bedford, NH  to RK Centers for $14 million…Target is opening a 2-story, 21,000 s/f store on Massachusetts Ave. in Central Square, Cambridge, MA...The City of Everett has granted the Down The Road Beer Co. a full pouring license, meaning once they get approval from the state, DTR will open a 2,800 s/f taproom at 151 Bow Street in Everett. Down The Road had been contract brewing at Dorchester Brewing Company.

RETAIL SALES REPORT




























Notes: figures gathered from individual company websites, press releases, and Federal filings.  Not all companies report all figures; results not reported will be marked “n/r”. Quarterly results will be updated when available; quarterly figures are shown in italics. Figures from companies not calculated to one decimal point automatically received an ending digit of 0. 

COMMERCE DEPARTMENT MONTHLY SALES

US retail sales in February posted the smallest gain in 6 months. Purchases rose 0.1%, after a 0.6 % increase in the prior month, Commerce Department figures showed. Just four of the 13 major retail categories saw gains in February sales. Sales dropped at electronics and appliances stores, apparel outlets and car dealers.

Source: U.S. Department of Commerce - commerce.gov

TREASURY YIELDS

















Treasury Yield Sources:  federalreserve.gov; ustreas.gov

CONSUMER CONFIDENCE INDEX

The Conference Board Consumer Confidence Index®, which had declined moderately in January, increased in February. The Index now stands at 114.8 (1985=100), up from 111.6 in January. The Present Situation Index rose from 130.0 to 133.4 and the Expectations Index increased from 99.3 last month to 102.4.

Source: The Conference Board - www.conference-board.org

PURCHASING MANAGERS INDEX

Manufacturing expanded in February as the PMI® registered 57.7 percent, an increase of 1.7 percentage points from the January reading of 56 percent, indicating growth in manufacturing for the sixth consecutive month, and is the highest reading since August 2014, when the PMI registered 57.9 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Source: Institute for Supply Management - Manufacturing Report on Business - www.ism.ws