Tuesday, March 18, 2014

Prophecies Fulfilled?

If you’ve been following the retail news, here or anywhere else, you’ve seen two stories recently about significant down-sizing by two major retailers. Radio Shack, as reported in USAToday.com, will close 1,100 stores  “in an effort to remake itself for a more competitive era of electronics retailing.”

Staples, as reported on Boston.com, will close 225 stores “as it seeks to trim about $500 million in costs annually by 2015...nearly half of its sales are now generated online, so it will aggressively cut costs to become more efficient”.

Despite the title of this article, we don’t claim to be fortune-tellers. However, as you know from reading KeyPoints, our annual KeyPoint Reports on retail markets, and our daily Retail RoundUp, we are dedicated to research, and we know that our readers and subscribers rely on us to provide detailed market and industry knowledge, as well as practical insights. We’ve made it our business, in these pages, to keep track not only of what is happening with key retailers, but also what might happen. A few of the companies we’ve written about in this regard include Sears, JCPenney, Circuit City, Borders, and others. We’ve seen several of our presentiments borne out - and we’re seeing the same thing happen now. It didn’t take a fortune-teller to foresee the difficulties faced by both Radio Shack and Staples, and their product categories, in today’s environment. We’ve been keeping a wary, weather eye on their relative fortunes, and warning about their possible fates, for quite some time.

In our February/March, 2009 two-part commentary Redefine and Recommit for Recovery, we noted several retailers that were in critical danger unless they somehow transformed themselves: “Only the most, creative, nimble businesses – those that are willing to take extraordinary actions to re-define themselves or re-commit to their core strengths - will survive the current Darwinian atmosphere” Among those we cited: Radio Shack and Staples.

In With Borders Gone, Who's Next? in August 2011, we once again mentioned Staples in relation to e-commerce and other challenges facing office supply retailers: “Staples is another retailer that’s in the midst of downsizing. Computers and office machines currently account for only 46% of sales after generating as much as 52% of the revenue as recently as 2006. With 500 leases expiring over the next three years, and on the heels of disappointing sales, Staples going-forward plan is to open smaller stores”.

In Dealing With the 900 Lb. Gorilla in our February 2013 issue, we said: “The current inclination of larger brick-and-mortar retailers is to develop smaller prototypes; simply put, big stores are getting smaller. There are several reasons for this – higher unemployment, the economy in general, changing technology - but the biggest factor has a great deal to do with the large, menacing creature mentioned in the title – the looming, gargantuan presence known as e-commerce...while the Commerce Department doesn’t specifically report e-commerce sales of office supplies, you can be sure they’re significant”.

In that article, by the way,  we devoted some space to discussing the office supply category and the dramatic downsizing plans of Staple’s major competitors, Office Depot and Office Max - which have since become one company.

As recently as January of this year, in You Can’t Help but Notice, we commented on “the divergence between reported internet sales and total retail sales. Mid-double digits vs. low-single digits have been the norm. For many retailers, it’s largely moving money from one pocket to another, from its brick-and-mortar stores to its online business...chains have that been shifting toward smaller stores include Best Buy, Kohl’s, Staples, Old Navy, Michael’s, and Walmart. To pick up the slack, many retailers are making e-commerce sales a priority, and this has been paying off”.

In light of Staples’ statement, in its latest closings notice, that nearly half of its sales are now online, this was a bit of a prophetic statement. We went on to note that “no brick-and-mortar retail category will be entirely insulated from the impact of e-commerce. As a result, it is reasonable to expect that...retail’s overall physical footprint will continue to contract”.

Brian Sozzi of Belus Capital Advisors, quoted in the Miami Herald this month, and noting that in addition to Staples and Radio Shack, “Even retailers that recently have been in expansion mode are trimming their store counts...Aeropostale is planning to close 175 stores in coming years, and The Children’s Place, while continuing to open stores, will shutter 125 of its weakest shops by 2016”. Sozzi also used the term “a tsunami of store closings” to describe what we should expect. Radio Shack and Staples are part of that wave, and the tide is rising. Who’ll be left standing? It’s hard to predict. After all, we’re no fortune tellers. But we’ll keep watching.

Chris Cardoni, Marketing Manager
CCardoni@KeyPointPartners.com

Company News

New Business: Vice President of Leasing Don Mace negotiated an 18,474 square foot lease with Work Out World at Pawcatuck Shopping Center in Pawcatuck, Connecticut. The center is now fully leased... New Employees: Brian Cipoletta joined the Boston office as an Assistant Property Manager in the Boston Office. Brian is a recent graduate of Westfield State University. Christopher Lowd joined the Burlington, MA office as a Property Manager on the Stop & Shop portfolio. Chris has prior property management experience with American Cleaning Company.

National Retail News

February comparable-store sales posted a year-over-year gain of 2.2% based on the ICSC’s final tally of 11 retail chains. According to the ICSC’s report “the February sales pace was a tad softer...due to adverse weather during the month that curbed the consumers’ shopping ability again”. L Brands (Limited) was up 2.0%, Gap was down 7.0%, Rite Aid was up 1.5%, Walgreen’s rose 2.0%, and Costco gained 3.0%. See our sales report below.

Accelerating Retail News

Cabela’s Inc. plans to enter three new markets, Idaho, Virginia, and Georgia, and open 23 stores in 2015 and 2016...Signet Jewelers, owner of Jared, agreed to buy Zale for roughly $900 million. Signet has 1,400 Jared and Kay stores in the US and 500 stores in the UK under the names H. Samuel and Ernest Jones. Zale Corp. has 1,680 stores in North America under Zales, Gordon’s and other names. The company, which went through a liquidity crisis in 2009, has closed hundreds of stores...Fresh Thyme Market, a new grocery chain getting ready to launch in the Midwest, has revealed its initial opening plans. After opening its first store in IL this spring, it will follow up with 8 additional stores this year. Fresh Thyme Market plans more than 60 stores in the next several years....Wal-Mart doubled its projected growth of its small-store format. Just months after announcing plans to open 120 to 150 small format stores under the Walmart Neighborhood Market and Walmart Express banners, the retailer upped its growth target to 270 to 300 units in the fiscal year...Nordstrom plans to open 28 Nordstrom Rack stores and three full-line Nordstrom stores during fiscal 2014...Macy's plans new stores in Sarasota, FL, Las Vegas, The Bronx, and Palo Alto, CA in 2014...Tim Hortons four-year growth plan for includes the opening of 300 new US locations by 2018...Ashley Furniture HomeStore opened its 500th store in Longview, Texas last month. The company has 50 additional HomeStores planned for 2014...Little Greek Restaurant plans to expand from 16 locations across Florida, Texas, and Arkansas to 25 locations across the US by the end of 2014, 50 in five years, and 200 in 10 years...Lowe’s plans to open 15 home improvement stores and five neighborhood hardware stores during fiscal 2014... Gap Inc. will open 30 additional US stores during fiscal year 2014, and will close about 70 company-operated stores net...Domino’s opened 58 net new US locations, its first major expansion since 1997. Domino’s operates 390 company-owned units and franchises another 4,596 US locations...Sprouts Farmers Markets Inc. expects to open 22 to 24 new stores during fiscal 2014...Costco will open 14 new US stores by the end of fiscal 2014...PetSmart will open 70 net new stores this year, including approximately 50 of standard prototypes, 20 micro stores, and 3 PetsHotels...Cerberus Capital Management has reached a preliminary agreement to buy Safeway Inc. for over $9 million. The deal is subject to board approval. Cerberus already owns the Albertsons supermarket chain, which operates some 1,000 stores...Starbucks will open a new location at Downtown Disney in Anaheim, CA, the first of four stores to be operated by Starbucks across US Disney properties...Dollar General will open 700 new locations in 2014. Dollar General ended 2013 with11,132 stores...Stein Mart will open 10 new and 6 relocated stores in fiscal 2014.

Decelerating Retail News

Bi-Lo Holdings, which received FTC clearance to acquire all but 12 of Sweetbay, Harvey’s, and Reid’s stores from Delhaize America, said that 13 stores will close in connection with the transaction between March and July. Bi-Lo, which operates the Bi-Lo and Winn-Dixie banners, is expected to rebanner the 134 stores it is acquiring to its existing brand names following the closing of the deal...Dots is closing all stores.  Dots filed for Chapter 11 protection in January, and has selected Gordon Brothers Group’s Retail Division to oversee going-out-of-business sales in all of its 360 locations, which will remain open until all merchandise has been sold...RadioShack plans to close up to 1,100 stores, approximately 1/5th of its total. The closings will leave the chain with over 4,000 locations, including more than 900 dealer franchise locations. Earlier reports had said it would close 500 stores...Cumberland Farms will sell 27 convenience stores in New Jersey, Delaware and Pennsylvania to Petroleum Marketing Group of Woodbridge, VA. PMG will continue to operate all mid-Atlantic locations as convenience stores and expects all its workers to stay on with the new ownership.The price of the transaction was not disclosed.Cumberland Farms will focus on its nearly 600 remaining stores in New England, New York and Florida...The Fresh Market will close 3 locations in Sacramento, CA and 1 store in Houston to focus on expansion in existing markets...Ashley Stewart, a retailer of plus-sized women’s clothes, will immediately close 27 underperforming stores as a part of a Chapter 11 bankruptcy restructuring plan. Ashley Stewart has 168 locations across 25 states...Sbarro Holdings Inc. has closed 155 company-owned units in North America.  Even accounting for the closures, Sbarro has more than 800 units worldwide; the US pizza chain filed for bankruptcy protection for the second time in three years. A group of lenders will provide $20 million in financing, and a reorganization plan will eliminate $140 million in debt....Men's Wearhouse ended a six-month takeover battle by announcing a deal to buy Jos. A. Bank for $1.8 billion.The deal combines the two largest independent men's clothing retailers.  Men's Wearhouse has 1,133 stores, and Jos. A. Bank has 629 stores. Both brand names will continue to operate after the deal, and the companies did not announce plans to close any of the 1,700 stores they have between them. It was also recently announced that Jos. A. Bank agreed to buy Eddie Bauer for $827 million. Jos. A. will pay $564 million in cash and about 4.7 million new shares of Jos. A. common stock to Golden Gate Capital, owner of Eddie Bauer, at $56 per share...Ross Stores opened 30 Ross Dress for Less and seven dd's DISCOUNTS stores in 14 different states. Including these openings, Ross now operates 1,173 stores in 34 states, and 137 dd's DISCOUNTS® in 10 states...Zoe’s Kitchen Inc., parent company to 111-unit Zoës Kitchen, filed for an $80.5 million initial public offering of stock. The Texas-based company is majority owned by private-equity firm Brentwood Associates. The company has 94 company-owned Zoës Kitchen restaurants and 8 franchised units. The company opened 27 restaurants in 2013 and plans to open 28 to 30 more this year.

New England Retail News

Anytime Fitness plans increase the number of New England locations from 60 to 90 during the next 18 months...The ground breaking of 114 Mount Auburn St. and the redevelopment of the Conductor’s Building in Cambridge, Mass., took place last month. Developer Richard Friedman plans to construct an eight-story, 70,000 s/f building that will include a restaurant, retail, and office space. The $65 million development will include a new main building that is 100% leased to Harvard University...The Massachusetts Gaming Commission awarded the state's only slots parlor license to Penn National Gaming for its proposed project at the Plainridge Racecourse horse track in Plainville, MA. The slot parlor will include up to 1,250 slot machines as well as a Doug Flutie-themed sports bar, a high end restaurant, and a four-venue food court. Harness racing will continue at the track, though it will be renamed Plainridge Park Casino after 106,000 s/f of food, entertainment, gaming, and retail amenities are added to the property...Eastern Bank, the largest bank headquartered in MA, will acquire New Hampshire-based Centrix Bank & Trust for about $134 million in an all-cash deal expected to close later this year. Centrix has seven branches, all in Southern New Hampshire...Inland Real Estate Acquisitions paid $26.5 million for the BJ’s Wholesale Club in Framingham. The seller, 26 Whittier Street LLC, an entity owned by Samuels & Associates in Boston, bought the 114,000 s/f property in 2004 for $16 million...Noodles & Company, a Denver-based chain of noodle restaurants, will open locations in Shrewsbury and Burlington, MA this spring...E-commerce clothing startup Tucker Blair has opened its first brick-and-mortar store, a 1,200 s/f showroom at 66 Beacon St. in Boston's Beacon Hill neighborhood.

February 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 rose for the first time in three months, the Commerce Department said. The 0.3%  rise in February followed a 0.6% drop in January.

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 increased in January, fell moderately in February. The Index now stands at 78.1 (1985=100), down from 79.4 in January. The decline was driven by the Expectations Index, which dropped to 75.7 from 80.8. The Present Situation Index, by contrast, climbed from 77.3 to 81.7.

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

Purchasing Managers Index

Manufacturing expanded in February as the PMI® registered 53.2 percent, an increase of 1.9 percentage points when compared to January's reading of 51.3 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