Monday, December 18, 2017

Looking Ahead to the New Year

There are always retail stories that make headline news, and 2017 was no exception. The Walgreens acquisition of 1,932 Rite Aid locations comes to mind, as well as the Amazon acquisition of Whole Foods Market. The entry of Lidl into the U.S. market was another top-of-mind story impacting the grocery industry. There were a number of retail bankruptcies, the largest of which included The Limited, Toy R Us, Gymboree, Payless ShoeSource, and Radio Shack.

We read about Walmart stepping up its game to compete more effectively with Amazon by acquiring online/omnichannel retailers Moosejaw, ModCloth, and Bonobos, and getting explosive online sales results in return. There were stories about pop-up shops coming to enclosed regional shopping centers, hoping to develop increased traffic and fill vacant units. Casper, Just Cozy, and Spirit Halloween are just a few of the growing list of short-term retailers that have been able to drive additional traffic at malls. There are numerous others that we could go on and on about, but what I really want to talk about is what may or may not happen as we move into 2018. In no particular order, here is a list of topics that could make 2018 headlines:

Sears is running out of money, customers and time. Is it possible that 2018 is finally the year that the company files for bankruptcy? More store closings are scheduled for January - 45 Kmart units and 18 Sears stores, Suppliers will become less patient, and even more store closings will likely be announced. Could this be the year…?

With the Walgreens acquisition coming to fruition this year, by the spring 600 stores will close. Most will be within one mile of a sister store and most are expected to be existing Rite Aid locations. Which stores will be on the list?

Mall REITs have been recent acquisition targets, Westfield becoming the first to accept an offer from the Paris-based real estate investment firm Unibail Rodamco. Brookfield Asset Management is optimistic that it can complete a deal to acquire GGP, even though its first offer was rejected. And there is buzz that others could be in play. Who will be next - and is this a display of long-term confidence that tales of the retail apocalypse have been exaggerated?

Besides Sears, other retailers will be under pressure to avoid bankruptcy in the coming year. Some of the names bantered about as potential candidates include J Crew, Nine West, Charlotte Russe, Bon-Ton, Bi-Lo, and GNC. Others will be added to the list, perhaps futilely hoping that a better than expected holiday season will throw them a lifeline. It’s inevitable that some will not survive: who will be the first to make the news?

There was a lot of commotion the day Amazon acquired Whole Foods Market this year. Following the announcements that the former would be selling 365 products online, and that prices at Whole Foods customers would soon experience significant price drops, there hasn’t been much for the grocery industry to be alarmed about. In fact several new surveys find that the price rollbacks have been very limited so far, in both the number of products affected and the discounts offered. Was this just an Amazon scare tactic - or are grocers really in the eye of the hurricane?

It is expected that the new tax plan, if enacted, will benefit retail landlords by lowering taxes on companies that rent space and leaving consumers with more discretionary income to spend. Revathi Greenwood, head of Americas research for Cushman & Wakefield, recently indicated that “mall operators are looking at restructuring anyway,” and are remaking their properties to give shoppers the kind of experiences they can’t get online. We think some of the money saved in taxes will be reinvested back into business.” It would be welcomed news for landlords heading into the New Year. Will it really happen?

Stay tuned next year to see our answers to these and other questions. This brings us to the close of another action-packed retail year! We thank you for your readership and your support, and we wish you Happy Holidays and a peaceful, profitable New Year!
Bob Sheehan, VP of Research
BSheehan@KeyPoint Partners.com

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New Leasing Business: VP of Leasing Don Mace and Sr. Associate Michael Branton are handling the following assignments: in MA: 699 Mt. Auburn St., Cambridge; 760A Boston Rd., Groton; 35 Columbia Rd., Hanover ; 18 Sisson Rd., Harwich ; 125 Robert Toner Blvd., N. Attleboro ; 1331 Cove Rd., New Bedford ; 180A Cambridge St., Burlington; and in ME: 600 Center St., Auburn.

National News

US consumers went on a shopping binge last month, led by gains among online retailers, electronics, and furniture, the Commerce Department said. Retail sales jumped 0.8% in November from the previous month, after a 0.5% gain in October. Consumers’ willingness to splurge should give the economy a boost in the final three months of the year. Among retailers reporting monthly sales, L Brands was down 1.0% and Costco was up 10.8%. See sales reports on Page 4...Starting Jan. 1, 2018, Ahold Delhaize USA will be the new official parent company for all of Ahold Delhaize’s U.S. companies, including its brands Stop & Shop, Food Lion, Giant, Hannaford, Giant/Martin’s and Peapod, as well as Retail Business Services (RBS), a U.S. shared services company providing support to the brands.

Accelerating News

Kwik Trip plans to open 40 to 50 new stores annually. The company has 621 stores in three states…Art Van Furniture has acquired two furniture companies: Levin Furniture, which operates 35 stores across Pennsylvania and Ohio, and Wolf Furniture, which has 18 locations in Pennsylvania, Maryland, and Virginia. With the two acquisitions, Art Van has 176 stores...Arby’s Restaurant Group will acquire the 1,250-unit Buffalo Wild Wings as a privately held subsidiary for $2.9 billion or $157 per share in cash, including its net debt. BWW will be a privately held subsidiary of Arby’s Restaurant Group Inc. but will operate as an independent brand. Arby’s has 3,300 locations and is majority-owned by Roark Capital Group affiliates…New York & Company has entered into an agreement to purchase certain assets of women’s plus-size apparel brand Fashion to Figure for $1.4 million in cash. Fashion to Figure, which filed for Chapter 11 protection in November, is currently holding liquidation sales at its stores. New York & Company operates 459 stores. The transaction is expected to close late in the fourth quarter of 2017...Duluth Trading Company opened its 30th and 31st stores, in Wisconsin and Michigan. Duluth has opened 22 stores since the beginning of 2016...Casey’s General Stores, Inc. opened its 2,000th last month store in Russellville, KY…PetSmart’s 1,600th store opened this month in El Paso, TX...Dollar General plans to open 900 new stores, remodel 1,000 existing sites, and relocate 100 stores in 2018. Dollar General operated 14,321 stores in 44 states as of last month... Wawa opened its first storefront in Washington, DC this month, a few blocks south of Dupont Circle, and not far from the White House. It is the chain’s largest location, totaling 9,200 s/f...Dave & Buster’s plans to start opening smaller-format stores, with the first in Rogers, AR, early in 2018. The unit will be 15–20,000 s/f, smaller than the brand’s current small format, which is 25–30,000 s/f. Dave & Buster’s sees the potential for 20–40 of these smaller format units in new markets once deemed too small for the brand. Dave & Buster’s opened 14 restaurants in 2017.. There are currently 11 stores under construction and a total of 27 signed leases. Overall, Dave & Buster’s has 105 locations in 36 states and Canada...Aldi plans to expand to nearly 2,000 stores from coast to coast by the end of 2018.

Decelerating News

J. Crew expects to close 50 stores this year, up from a previous forecast of 30. As of November 2017, the company operated 269 J.Crew retail stores, 121 Madewell stores, and182 factory stores (including 42 J.Crew Mercantile stores)...Charming Charlie has filed for Chapter 11 bankruptcy protection. The move was not unexpected. Charming Charlie expects to operate the majority of its stores and its website during the court-supervised process.

New England News

Temazcal Tequila Cantina will open its fourth MA location this month  in Dedham’s Legacy Place shopping center. The 7,000 s/f restaurant will be Temazcal’s first location south of Boston, with existing outposts in Boston, Lynnfield and Burlington...Luke’s Lobster opened its third Boston location on Northern Avenue in the Seaport, across from the Moakley Courthouse...The Carpionato Group will spend more than $100 million to redevelop 29 Benny’s locations after the retail chain closes its doors this year. The company is buying nearly all Benny’s locations for an undisclosed sum. The deal involves 14 stores in RI, 11 in MA and four in CT…Total Wine Spirits Beer & More will move into the Bauer Hockey store, next to CVS, at Burlington Crossroads Retail Center on Cambridge St. in Burlington, MA. The current Busa Liquors at the center will close. Target will open a small-format store in the former Roche Bros. at the same center, as well as a store at Porter Square Galleria in Cambridge, MA... Construction is set to begin on the first phase of the long-delayed Fenway Center, a five-building, 1.1 million-square-foot development where Brookline and Commonwealth avenues meet in Boston’s Kenmore Square area. Phase one will include an eight-story, 100-unit residential building, a 14-story, 212-unit apartment building, 200 parking spaces, and 37,000 square feet of retail space....Moody’s Delicatessen & Provisions opened a Newbury Street location, its first in Boston...A 19,000 s/f Brothers Marketplace, a small-footprint Roche Bros. grocery store, will open at MIT’s One Broadway building in Cambridge’s Kendall Square neighborhood in the summer of 2019. The ground floor of One Broadway is undergoing renovations and will feature a repositioned lobby, a restaurant, and a new Dunkin’ Donuts, plus 300 residential units and an additional 12,800 s/f of retail.

Mall News

The former Owings Mills Mall site will be redeveloped as an outdoor shopping center called Mill Station, to be anchored by a new Costco warehouse store. Kimco Realty Corp., the property’s owner, plans to start construction early next year on Mill Station, which should be completed by early 2019…Under construction off Route 95 in South Norwalk is the SoNo Collection, a 700,000 s/f enclosed mall. SoNo Collection will include Southern Connecticut’s only Nordstrom and Bloomingdale’s, according to developer GGP...AIG Global Real Estate Services, an affiliate of financial services provider American International Group Inc. has taken ownership of Bayshore Town Center, Glendale, WI, the mixed-use development, which includes stores, offices, apartments, restaurants and a movie theater. The ownership change  is the result of loan restructuring negotiations initiated by the previous owner, New York-based Olshan Properties...France’s Unibail-Rodamco will pay $24.7 billion to take over Westfield, creating a global property leader with 104 retail assets and a presence in 27 of the world’s biggest retail markets.The group will operate as a REIT in France, the Netherlands, the United Kingdom, and the United States.

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

The Commerce Department said that sales at retailers and restaurants jumped 0.8% in November. Online shopping rose 2.5%, with gains of 2.1% at electronics stores and 1.2% at furniture stores. Sales at restaurants and bars grew 0.7% .

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 improved in October, increased further in November. The Index now stands at 129.5 (1985=100), up from 126.2 in October. The Present Situation Index increased from 152.0 to 153.9, while the Expectations Index rose from 109.0 last month to 113.3.

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

PURCHASING MANAGERS INDEX

Manufacturing expanded in November as the PMI® registered 58.2%, a decrease of 0.5 percentage point from the October reading of 58.7%. This indicates growth in manufacturing for the 15th consecutive month led by expansion in new orders and production, offset by supplier delivery improvement and declines in raw material inventory. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

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