Thursday, June 22, 2017

Special News Issue: Amazon & Whole Foods - Who The Heck Knows?!

Few news stories in the retail industry have caused such a huge sensation - or such an insane level of general freaking out - as Amazon’s proposed acquisition of Whole Foods. Journalists, pundits, and commentators of all stripes are falling all over themselves to explain what it all means for grocery shopping, e-commerce, real estate, the economy, and, you know, eating food. Here’s a brief compendium of just a few of the thousands of recent banner headlines, with a selection of quotes from each story (the italics are, generally, ours):

Amazon to buy Whole Foods for $13.7 billion
Market Watch, June 16
“Amazon.com Inc. said it would buy Whole Foods Market Inc. for $13.7 billion as the giant internet retailer makes a deeper push into the grocery space. Amazon will pay $42 a share for Whole Foods, valuing the grocer at a 27% premium to its closing price Thursday. The deal is expected to close in the second half of this year. Amazon’s move tanked the stocks of grocery competitors as investors worried that Amazon could do to grocery the same as it did to booksellers.”

Amazon and Whole Foods: 5 things to know about the blockbuster deal
Chain Store Age, June 17
“The food retail industry has been flush with big mergers lately, but today’s stunner has no precedent. The announcement that Amazon plans to buy Whole Foods Market for $13.7 billion heralds the coming together of two retail icons with vastly different cultures - one a mainstay of the brick-and-mortar world and the other a master of online shopping. It also creates big challenges for competitors in the wider retail landscape, especially those focusing on groceries, beauty and health.”

Amazon may have launched a bidding war for Whole Foods
MarketWatch, June 19
“Amazon.com Inc. may have a fight on its hands, because its move to buy Whole Foods Market Inc. could potentially launch a bidding war for the natural and organic foods grocery chain. Karen Short, analyst at Barclays,… believes all retailers that sell food and compete with Amazon are potential bidders, “because we think most have too much to lose not to bid.” As a result, she said potential bidders could include Wal-Mart Stores Inc. (WMT), Target Corp. (TGT) and Kroger Co. (KR), “to name a few.”

Amazon’s bid for Whole Foods sparks speculation on what it might gobble up next
Washington Post, June 20
“Amazon.com’s surprise announcement last week that it would buy Whole Foods Market for $13.7 billion sent rival grocery stocks plummeting. It also unleashed a flurry of speculation about the retail behemoth’s next move. Shares of CVS, Walgreens and RiteAid also fell Friday as drugstore chains feared that the online giant could be heading their way next...In other corners of the Internet, analysts and investors speculated that Seattle-based Amazon could be setting its sights on organic grocer Sprouts, discounters DollarTree and Dollar General, and used-goods purveyors such as Plato’s Closet and Once Upon a Child.”

How Will the Amazon-Whole Foods Deal Affect Retail Real Estate?
National Real Estate Investor, June 19
“The proposed $13.7 billion acquisition of organic grocery retailer Whole Foods Market by e-commerce giant Amazon holds the potential to upset the grocery cart, so to speak. Yet retail real estate investors should cheer the Amazon-Whole Foods deal, experts say…Amazon’s purchase of Whole Foods should instill confidence in retail real estate investors, especially those whose portfolios include grocery-anchored properties.”

How Amazon could change your Whole Foods
USA Today, June 20
There’s one big question likely on your mind now that Amazon has rung up its largest purchase ever with the $13.7 billion acquisition of Whole Foods Market: How will CEO Jeff Bezos change my local Whole Foods store?...Depending on how you shop, this deal could mean eventually you never have to set foot in a Whole Foods store again - because you would order online, drive up to the store and have your groceries stuffed in the trunk, or have them delivered straight to your front door. Or, you could make a Whole Foods your neighborhood hangout...After inputting your grocery list, someone gathers all your goodies up while you dine on pizza or a sandwich. Maybe even test the latest Alexa-powered devices

Our very simple take? Anything in any of these article could possibly be true. Until the deal is done and the dust settles, who the heck knows?!
Chris Cardoni, Marketing Manager
CCardoni@KeyPointPartners.com


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National Retail News

US retail sales recorded their biggest drop in more than a year in May. The Commerce Department said retail sales fell 0.3% last month after an unrevised 0.4% increase in April. May’s decline was the largest since January 2016. Among retailers still reporting monthly sales, L Brands was down 7.0% and Costco was up 4.1%. See our sales reports below....Amazon is acquiring Whole Foods Market in an all cash transaction valued at $13.7 billion. John Mackey, co-founder and CEO of Whole Foods, will remain CEO after the deal closes. Stores will continue to operate under the Whole Foods banner, and the company’s headquarters will remain in Austin, TX. The transaction is subject to approval by Whole Foods Market’s shareholders, regulatory approvals and other customary closing conditions. The parties expect to close the transaction during the second half of 2017 (see Commentary above).

Accelerating Retail News

TJX plans to open several US HomeSense stores this year, to operate as a complement to TJX’s existing HomeGoods chain, which has nearly 600 stores. HomeSense is the TJX-owned chain that operates 110 stores in Canada, and 46 in Europe. It did not reveal details of the locations except to say one store will be in its home base of Framingham, MA…High-end sweets retailer Lolli & Pops is teaming up with GGP Inc. to open 30 new locations.  Lolli & Pops currently operates 38 locations…Taco Bell plans to open around 300 of its city-style Cantina restaurants in urban areas throughout the US by 2022. There are currently 11 of these urban Taco Bell Cantinas in operation…Texas Roadhouse expects to open roughly 30 new units in 2017. That includes 24 new Roadhouses and six Bubba’s 33. The company operates more than 525 restaurants in 49 states and six foreign countries…Exercise bike brand Peloton hopes to have 40 stores by year-end. It currently has 22 US retail stores…Korean fast-casual chain Bibibop plans to open 3 stores in the Washington, DC this month. The expansion comes as a result of Bibibop’s takeover of all ShopHouse location from parent Chipotle earlier this year…Kohler Co. is debuting a retail format designed to showcase its products. The first Kohler Experience Center, in Manhattan, houses displays of Kohler’s product line. Kohler plans to open 9 KECs over the next year, with London to open soon…Lidl will open its first 9 US stores this month in Virginia, North Carolina and South Carolina… Vegan food chain Veggie Grill, which has 28 locations in California, Washington, and Oregon, expects to double in size by 2020, thanks to a new $22 million round of funding... Meijer plans to open its smallest urban store yet, a nearly 30,000 s/f store that will go by the name Bridge Street Market, to be open in fall 2018…CVS Pharmacy has acquired all 14 Illinois locations of Doc’s Drugs in Illinois, and plans to convert and rename the pharmacies by mid-July... French cosmetics giant L’Oreal will sell its Body Shop division to Brazilian make-up company Natura Cosmeticos. The Body Shop has 3,000 stores in 66 countries…Icahn Automotive Group LLC has entered into an agreement to acquire Precision Auto Care Inc., the parent company of Precision Tune Auto Care, which has more than 250 locations in 26 states. Icahn Automotive Group LLC is a wholly-owned subsidiary of Icahn Enterprises L.P. and consists of retailer Pep Boys and parts distributor Auto Plus...Soft Surroundings opened its 50th store this month. Soft Surroundings started as a catalog business in 1999 and opened its first brick-and-mortar location in 2005…Aldi plans to open 900 stores by the end of 2022, giving it 2,500 stores nationwide. The grocer currently operates approximately 1,600 stores in 35 US states…Fred’s Pharmacy secured additional financing to meet its obligation to acquire 1,200 Rite Aid stores that are expected to be divested as part of the Walgreens Boots Alliance/Rite Aid merger, even as reports circulated that the Federal Trade Commission was preparing to block the merger...Buffalo Wild Wings is opening two smaller format restaurants called B-Dubs Express. B-Dubs locations will be about 2,500 s/f  with seating for 35 to 50 people. Its full-service restaurants are about 6,000 s/f and seat 250. Buffalo Wild Wings has 1,200 US locations…Sports Direct, the largest sporting goods retailer in the UK, has completed its acquisition of Bob’s Stores and Eastern Mountain Sports. It will initially operate a total of some 50 stores in the Northeast and 5 EMS outdoor adventure schools, along with e-commerce sites for both brands. Sports Direct owns a portfolio of over 30 brands, including Slazenger, Everlast, Lonsdale, Karrimor, No Fear and Kangol. 

Decelerating Retail News

Payless ShoeSource is seeking bankruptcy court approval to close up to 408 more stores. The chain, which filed for Chapter 11 bankruptcy protection in April, had originally said it planned to close nearly 400 underperforming locations. Payless currently has 4,000 stores in 30+ countries…Michael Kors will close more than 100 full-price retail stores in the next two years...RadioShack closed more than 1,000 stores since Memorial Day weekend and will only have 72 company-owned stores and about 500 dealer-owned stores remaining by mid-June...Central Grocers filed for Chapter 11 bankruptcy. Central Grocers is a grocery cooperative that operates as wholesaler for more than 400 independent grocery stores in the Chicago area. It’s also the parent company of Strack & Van Til and Ultra Foods stores in Illinois and Indiana, which are included in the bankruptcy filing. Last month, Central Grocers announced plans to sell 22 Strack & Van Til stores while closing 9 underperforming stores. The company said it expects to enter into a sales agreement for 19 of the Strack & Van Til stores...Sears is closing 72 more stores, in addition to the more than 180 closings already announced this year. The list includes 16 Sears stores, 49 Kmart stores, and 7 auto centers. The closings will bring Sears’ store count to about 1,200, down from 2,073 five years ago... Ascena Retail Group, operators of Ann Taylor, Lane Bryant and Dressbarn, is planning to close more than 250 locations by July. An additional 400 stores could close if the company can’t negotiate reduced rent with landlords. No particular brand is being targeted for the closures…Gymboree has filed for Chapter 11 bankruptcy protection. The retailer expects to operate its overall business and its stores as usual during restructuring. As of April, Gymboree operated a total of 1,281 retail stores…Bebe Stores, Inc. has made a series of deals that will leave it with no stores. Additionally, it turned over intellectual property rights, international wholesale agreements and e-commerce URLs to BB Brand Holdings LLC, the joint venture it has with brand management company Blue Star Alliance. The deals allow bebe to wind down operations and keep its brand alive without declaring bankruptcy...Teen apparel retailer Papaya Clothing has filed for Chapter 11 bankruptcy protection. Papaya asked the court for the ability to exit leases for 8 stores it is currently operating and another 22 it has already shut down.

New England News

The HYM Investment Group, a Boston-based real estate firm closed on the purchase of the 161-acre Suffolk Downs property in Revere and East Boston. HYM aims to begin developing retail and residential on the site, with office coming later...Dickey’s Barbecue Pit and local franchisee Larry Jones have signed an agreement for MA. The first Dickey’s locations in the state are under development in Andover and Burlington, scheduled to open in late fall 2017. Dickey’s has nearly 600 locations in 44 states... Oath Craft Pizza, a Nantucket startup known for its quick-bake pizza, has opened 5 MA locations since 2015, and plans 2 more Boston-area locations...Democracy Brewing Cooperative has signed a lease for 7,600 s/f, 145-seat brewery and restaurant at Temple Place in Downtown Crossing, expected to open in 2018…A $1 billion, 2.3-million s/f mixed-use development in Somerville’s Union Square is moving forward following zoning approval. Upon full buildout, developer US2’s project will feature 1.38 million s/f of commercial space, with uses including office, lab, hotel, retail and arts and creative economy spaces, in addition to residences…Bon-Ton will close its store at the Maine Mall in South Portland by the end of August.

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 retail sales fell 0.3% last month after an unrevised 0.4% increase in April. May’s decline was the largest since January 2016. Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged.

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 decreased in April, declined slightly in May. The Index now stands at 117.9 (1985=100), down from 119.4 in April. The Present Situation Index increased marginally from 140.3 to 140.7, while the Expectations Index declined from 105.4 last month to 102.6 in May.

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

PURCHASING MANAGERS INDEX

Manufacturing expanded in May as the PMI® registered 54.9 percent, an increase of 0.1 percentage point from the April reading of 54.8 percent, indicating growth in manufacturing for the ninth 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