Thursday, February 23, 2017

What’s a Developer to Do?

It used to be easy…retail development, that is, at least compared to today’s standards. Let’s take a look:

Since a traditional enclosed mall hasn’t been built in the U.S. in more than two decades, we’ll leave mall developers out of the discussion for now, and stick to open-air retail development of the kind typically anchored by a big box store - or several.

There was a time not long ago when developers had many choices among expansion-minded retailers that were ready to fill anchor positions. In fact, they often had choices within a particular category: if Dick’s fell through, there was Sports Authority; if they couldn’t get Bed Bath & Beyond, maybe Linens N’ Things had interest; and when Best Buy said no, they could go to Circuit City. If a grocery anchor was in order, there were even more choices: Stop & Shop, Shaw’s, Hannaford, Big Y, or Victory might be able to fill the bill.

Ah, but how times, and retailers, have changed! Growing chains that were once easy target prospects are no longer expanding. Kohl’s is a prime example. One of the fastest growing retailers a decade ago, Kohl’s has added a mere 37 stores to a 2012 base of 1,127 units, and only six stores in the past two years. And if you’re thinking of Best Buy, think again: Best Buy currently has 1,415 stores in the U.S., 32 fewer than in 2012. Target’s growth has slowed to a crawl, with the chain adding just 29 units since 2012, for a current total of 1,792 locations - and most of those are small-store concepts. Even Home Depot, which continues to experience healthy sales gains, has limited its expansion to only 22 stores during the same period. So, what is a developer to do? Tread carefully, of course.

However, believe it or not, some retailers haven’t slowed down all that much. Take the TJX divisions, which continue to add significantly to their store count. In the U.S., Marshalls and TJ Maxx combined added nearly 300 stores since 2012, while HomeGoods added 152 units. In addition, TJX is rolling out 15 more Sierra Trading Post locations this year, its newest addition to its off-price line-up. If that’s not enough, TJX announced a new, as-yet-unnamed retail start-up that will complement HomeGoods. Another off-price retailer in a growth mode is Ross Dress for Less, which added 321 stores since 2012 and now operates 1,446 units. If off-price isn’t in the cards, developers can turn to the high-flying Ulta Beauty, which has upped its count from 449 stores in 2012 to 874 stores in 2016, adding roughly 100 or more stores per year. Although not showing quite the same level of dynamic growth as Ulta, craft retailer Michael’s continues to increase its store count, adding 132 units since 2012. Going back to the sporting goods category, Dick’s remains a viable player, exhibiting significant expansion beyond those units recently acquired from the now-defunct Sports Authority. Overall, Dick’s has added 180 stores in the past four years.

While Dollar General’s addition of 2,546 stores since 2012 is a clear example that dollar stores show no sign of slowing down, this category may be a non-starter for some centers based on rental requirements for new construction. Among grocers, if you’re not lucky enough to land one of the few remaining Wegmans opportunities in the region, or work out some type of joint venture with Market Basket, you could pursue Aldi as a smaller store option with the average store size now at 18,000 square feet. This growing chain started the year with 1,600 stores in the U.S. and expects to add 400 more by 2018.

The key to finding the right tenants for your new retail development lies in avoiding those retailers - and retail categories - that are the most vulnerable to online competition. Project scale is also crucial: the current retail environment suggests that it may be better to build quality rather than quantity, limiting development to strong credit tenants. So, Open-air Retail Developers, all hope is not lost. While perhaps not as many as there used to be, you do still have some viable tenant options. One thing is certain though: it’s not easy anymore.

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

KeyPoint Partners Company News

New team members: Derrick Taylor and Patricia Akerley joined the Burlington, MA office as Assistant Property Managers.


National News

US retailers posted strong sales in January, perhaps a sign of higher consumer confidence: retail sales rose 0.4% last month, the Commerce Dept. said. Every major retail sector reported higher sales except auto dealers. Excluding autos and gas, retail sales rose 0.7%. Outlets such as Best Buy saw a 1.6% rise in sales, the largest in a year and a half. Clothing and sporting goods stores posted gains of 1% or more. Sales at bars and restaurants advanced 1.4%. Department stores, whose sales fell sharply in 2016, surged 1.2%, the largest increase in more than a year. Among retailers still reporting monthly sales, L Brands was down 1.0%, Gap was up 4.0%, and Costco was up 3.0%. See our sales reports below...Walgreens Boots Alliance and Rite Aid extended their merger agreement under which Walgreens Boots Alliance will acquire all outstanding shares of Rite Aid. Under the terms of the amendment, the parties have agreed to reduce the price for each share of Rite Aid common stock to be paid by Walgreens. In addition, Walgreens Boots Alliance will be required to divest up to 1,200 Rite Aid stores and certain additional assets if required to obtain regulatory approval. The exact price per share will be determined based on the number of divestitures. The transaction is subject to customary closing conditions.

Accelerating News

Tractor Supply Company is celebrating the opening of its 1,600th store, in Brentwood, CA. The retailer opened 113 new stores in 2016…Soft Surrounding plans to add 17 stores this year. Soft Surroundings, which has 43 stores, added 15 stores last year and 10 in 2015…Dollar General  opened its first small-format store, DGX, in Nashville, TN, and plans a 2nd DGX in Raleigh, NC, in early 2017. The new format, which includes about 3,400 s/f of space, provides urban shoppers with a focused selection of items in a compact format...CBL & Associates Properties, Inc. has closed on a sale-leaseback transaction for 5 Sears stores and 2 Sears Auto Centers at CBL malls for a total consideration of $72.5 million, providing CBL with control of these locations for future redevelopment. The 5 Sears parcels are in North Carolina; Wisconsin; Tennessee; Ohio; and Kentucky. The 2 Sears Auto Centers are in Tennessee  and Florida... Craft beverage franchise Growler USA plans to open 25 new locations this year. Last year, Growler USA opened its first franchise location, and inked deals to bring more than 40 locations to 18 states. Growler USA currently has 9 US pubs…Petco will open two new Petco stores and remodel one store in Minnesota. Petco has more than 1,500 Petco and Unleashed by Petco locations across the US, Mexico and Puerto Rico…Willie Jewell’s Old School Bar-B-Q will open its newest location in Peachtree City, GA, their eighth location. Willie Jewell’s will now have restaurants in Florida, Georgia, New Hampshire, and South Carolina, and  is looking to double in size in the next nine months...Nordstrom will open two new Nordstrom Rack stores this fall, one in Norridge, IL and one in LA. Nordstrom currently operates 123 full-line stores, 215 Nordstrom Racks, and two clearance stores... The Container Store plans to open locations in Cleveland, New Jersey, and New York, as well as relocate its store in Chestnut Hill, MA. The retailer also plans to open a store in Albuquerque, NM, that will be the first of its new mid-size store format…The Kroger Co. has acquired Murray’s Cheese, a NYC retailer of specialty cheeses and meats. Financial terms of the deal were not disclosed. Kroger also bought the 3 retail condominium units that house Murray’s home base. The two companies entered into a partnership in 2008, opening in-store Murray’s cheese shops in a handful of Kroger stores. Currently, 350 Kroger-operated stores nationwide feature a Murray’s shop... In 2017, Buffalo Wild Wings plans to open 15 company owned  and 15 franchised US locations, along with 20 franchised locations internationally...Dollar General will open 1,000 stores and two distribution centers in 2017...Discount grocer Aldi plans to remodel and expand more than 1,300 of its locations by 2020. The remodeling program is in addition to Aldi’s accelerated growth plan, which calls for 650 new stores. By the end of 2018, Aldi, which currently operates some 1,600 US stores, expects to operate nearly 2,000 stores nationwide...Mission BBQ is opening a restaurant in Anne Arundel County as part of a rapid expansion, the company’s 13th in MD and 43rd overall... Lidl is opening its first wave of US stores in this summer ahead of schedule, with plans to open up to 100 locations across the East Coast within a year. Lidl’s first 20 US stores will open in North Carolina, South Carolina and Virginia, where the company established its first US headquarters in 2015. Lidl operates about 10,000 stores in 27 countries…Walmart is acquiring outdoor retailer Moosejaw in an all-cash deal. The Michigan retailer has an online presence as well as 10 physical stores across Michigan and the Midwest. Moosejaw will continue to operate its website and stores as a standalone brand... Stein Mart will open five stores this spring, the first phase of its 2017 plan to open 11 new stores. The remainder will open in the fall. Stein Mart is also relocating 1 store and closing 5 under-performing stores. Stein Mart currently operates 290 stores....Restaurant Brands International Inc., parent of  Burger King and Tim Hortons, has agreed to buy Popeyes Louisiana Kitchen for $1.8 billion. Popeyes has more than 2,600 locations…Dick’s Sporting Goods will open 5 stores during the second week of March.

Decelerating News

Shoes.com took its e-commerce businesses, Shoes.com, ShoeMe.ca and OnlineShoes.com, offline, and closed the doors to two brick-and-mortar locations in Vancouver and Toronto. Shoes.com is working with its lenders to liquidate its assets…H & M is dropping its goal of opening 10% to 15% more stores each year, and turning its focus to revenue from existing stores. H&M has been aggressively opening stores for years, including recent new locations in such prime spots as Times Square. In 2016 alone, H&M opened 427 stores worldwide...The Wet Seal is closing its 171 stores, along with its headquarters in Irvine, CA after being unable to obtain the necessary cash infusion or find a buyer... Bebe Stores Inc. closed one store in the second quarter and plans to close as many 25 bebe and outlet stores in fiscal 2017...Eastern Outfitters, the parent of Bob’s Stores and Eastern Mountain Sports, has filed for bankruptcy protection. Eastern Outfitters is owned by private equity firm Versa Capital Management, which acquired Bob’s and Eastern Mountain Sports through the bankruptcy last year of Vestis Retail Group, previous owner of the chains... Marbles: The Brain Store has filed for Chapter 11 bankruptcy protection, and plans to close its 37 stores; the retailer cited a “dramatic downturn” in its 2016 holiday business that left it short on cash... Sporting goods retailer MC Sports filed Chapter 11 bankruptcy, and will begin liquidating its assets, including all 68 of its stores...Bloomin’ Brands Inc. has closed 43 underperforming restaurants amid weak sales at the company’s casual dining brands: Carrabba’s Italian Grill, Bonefish Grill, and Outback Steakhouse. Bloomin’ Brands has more than 1,500 locations.

New England News

Tatte Bakery & Cafe is planning to open its 7th Boston location at 1350 Boylston in the Fenway neighborhood. Tatte has locations in Cambridge  and Back Bay. The expansion comes a year after Panera Bread acquired a majority stake in Tatte…Stop & Shop plans to redevelop its existing store in Allston and build a combined 1,010 residential units, Class A office space and ground-floor retail and restaurant space. The project, dubbed “Allston Yards”, is planned on an 11-acre parcel adjacent to the 15-acre Boston Landing mixed-use development currently being built out by New Balance sister company NB Development Group. The existing Stop & Shop will remain in operation during construction. Boston Landing has landed three food-service tenants. Beauport Hospitality Group will open Rail Stop Restaurant & Bar; the Flatbread Co. will open a restaurant and candlepin bowling alley; and Kōhi Coffee Co. will open immediately adjacent to the New Balance global flagship store...Chicken & Rice Guys will open its 4th restaurant in a former Cheeseboy location in Boston’s Downtown Crossing this month…L.L. Bean will open a store at Mashpee Commons in Mashpee, MA this summer. L.L. Bean has stores in Burlington, Dedham, Mansfield, Natick, and Boston, and operates about 50 stores in 18 states... The 3rd location for grocery chain bfresh opened in Davis Square, Somerville, MA this month. Parent company Ahold Delhaize opened its pilot store of bfresh in Allston in September 2015, and has a store in Brighton.

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 more 0.4% in January followed a 1% gain in the prior month that was larger than previously reported, the Commerce Department said. Excluding a decline at auto dealers, sales increased the most in four months.

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 December, retreated in January. The Index now stands at 111.8 (1985=100), down from 113.3 in December. The Present Situation Index increased from 123.5 to 129.7, but the Expectations Index decreased from 106.4 last month to 99.8.

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

PURCHASING MANAGERS INDEX

Manufacturing expanded in January as the PMI® registered 56 percent, an increase of 1.5 percentage points from the seasonally adjusted December reading of 54.5 percent, indicating growth in manufacturing for the fifth consecutive month. 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