Wednesday, September 19, 2012

Mobile Dials It Up

That the mobile industry is exploding may be an understatement. The phenomenal recent growth in this category comes predominantly from the proliferation of smartphones and tablets. With the development of 4G LTE, which is capable of download speeds as fast as a home-based broadband connection, many see these devices as viable alternatives to traditional laptops.

Business Insider indicates that last year more smartphones were sold than laptops, and in two to three years, tablets are expected to outsell PCs. Smartphone users now represent 42% of all mobile subscribers in the US, according to a recent report from comScore. Will the smart phone craze be leveling off any time soon? Not likely - today there are 835 million smartphone users, compared to 5.6 million non-smart phone users. That’s a whole lot of potential converts, I’d say.

These surprising numbers created some curiosity around here. While we were aware of the apparent increase in the number of cellular phone stores, we decided to take a look at the historical growth of these units in the New England regions we cover in our proprietary GRIIDTM retail database: Eastern Massachusetts, Southern New Hampshire and Greater Hartford. The findings were somewhat surprising.

Between 2006 and 2008, the number of cellular phone stores showed a modest declining trend, with consecutive counts of 471, 468, and 462 units (see graph below). Contributing factors were the consolidations of AT&T and Cingular, as well as the merger between Sprint and Nextel. But also, during that time, the smartphone was a luxury and the tablet was a dream. The American consumer was generally content with a basic phone while the business community lived on the Blackberry. There was market stability in the industry with no compelling “toy” to spur huge growth numbers - until June 29, 2007, the introduction of - guess what – the iPhone.

Consumers were slow to react at first, with only 1.4 million in worldwide sales in that first year, when AT&T had exclusive selling rights. With the release of the iPhone 3G in 2008, sales volume jumped to 11.6 million units. And today, through Apple’s Q3 ending on June 30, partial year sales reached 98 million units. When the iPhone 5 was released this month, pre-orders reached 2 million units the first day. Now include all the other smartphones from numerous other manufacturers, and the numbers grow exponentially. In 2012, just in the US, the number of mobile phone subscriptions is higher than the number of people.

In April 2010, we got to see it all over again with the release of the iPad. So you might conclude that there has been explosive growth in the number of mobile stores that parallels industry growth. But you’d be wrong. While there’s been growth, it’s far from explosive.

As shown in the graph below, during the period from 2008 through 2011, the GRIIDTM regions experienced moderate growth from 462 stores to 516 stores, an increase of 11.7% (as shown in the graphs below). But much of the incremental gain can be attributed to the entry of Metro PCS to these regions. In 2008, this low cost retailer operated only 5 stores and by 2011 the number had grown to 78 units. And although the overall gain is significant the figure actually dropped by 5 stores in 2011, peaking at 521 units the prior year. Fallout during this time frame from third-party brick-and-mortar retailers has also contributed to these results.

The gain was more robust, however, when referring to square footage in this category, which increased 21% between 2008 and 2011. This was the result of larger store footprints. It should be evident where the inconsistency between mobile service subscription growth and mobile phone store growth lies: it lies in Best Buy and Costco and Staples and Wal-Mart and Radio Shack and Amazon - the list goes on and on.

Everyone wants a smartphone and/or a tablet, sometimes several within the same family, and as noted above, there are substantially more mobile service subscriptions than there are people. Even during the Great Recession, consumers have to run out and buy the latest mobile devices. From juveniles to seniors, mobile phones and tablets have become a basic necessity. That’s a big piece of business, and it makes sense that everyone from discounters to wholesale clubs to office supply stores to online sellers want a share of the sales dollars. The category still has room for growth, just not the same kind of growth.

What’s the outlook for the future? I’ll leave you with one final statistic: by 2016 there will be 1.4 mobile gadgets for every person on earth.

Bob Sheehan, Vice President of Research

Company News

New Business: The Leasing Team added Wampanoag Plaza, a 225,610 SF Stop & Shop-anchored center in East Providence, RI, to its roster. Tenants at the center, which KPP also manages, include Marshalls, Savers, Dollar Tree, Work Out World, Payless, and others. Dave Hough and Michael Branton will handle the assignment. VP of Leasing Don Mace negotiated a lease with Sun & Ski Sports in the 14,393 s/f former West Marine space on Washington Street in Woburn, MA.

Industry News: National

US chain store comp retail sales for August rose by 6.0% year-over-year as measured by the ICSC's tally of 20 major retail chains. The overall strength in August compared with a 4.6% gain in the same month of the prior year. The August pace accelerated over the prior two months from its recent low pace of 2.6% in June. This was considerably better than the ICSC and the industry expected, due in part to back-to-school spending. Among merchandise categories, Luxury Stores led with a gain of 21.0%. Apparel followed with an 8.1% gain, followed by Department Stores with a rise of 7.1% and Wholesale Clubs with a rise of 6.0%. Discount Stores were up 5.1%. Drug Stores dropped 5.8%. Among individual retailers, Gap gained 9.0%, and Limited rose 8.0%; Costco was up 6.0%. Nordstrom was up 4.9%; Target grew by 4.2% and TJX by 8.0%. Macy’s gained 5.1%, and Kohl’s by 3.4%; Rite Aid was up 0.4%, and Walgreens fell 0.6%.

Industry News: Accelerating

Dick's Sporting Goods is on track to open 21 new stores in the third quarter and a total of 38 stores for the year…Zumiez Inc. is on track to open 50 new stores in fiscal 2012, including up to 10 stores in Canada....Fashion retailer Dots new CEO Lisa Rhodes has been charged with leading Dots’ march toward 1,000 stores within the next few years.  Dots currently has more than 400 stores in 28 states…DSW Inc. is on track to open another 27 new stores over the next six months…Jos. A. Bank plans to expand to about 800 stores nationwide — 700 full-line stores and 100 outlet stores — up from a previous target of between 650 and 675 stores. The company expects to open between 45-50 stores in each of fiscal 2012 and 2013 including about 10 factory outlet stores each year. Jos. A. Bank currently operates 572 stores in 45 states...The Walt Disney Co. opened its first store under the Disney Baby banner in Glendale, Calif. Disney Baby sells a wide range of infant care products. Disney plans to create Disney Baby sections in its Disney Stores nationally…Gymboree Corp. plans to open 115 new stores, including 90 locations for its value-priced Crazy 8 concept...Nine West has opened the first standalone Vintage America Collection line in New York City’s SoHo neighborhood…Dalian Wanda Group Co. Ltd. of Beijing closed on its acquisition of AMC Entertainment Holdings Inc., paying $2.6 billion and becoming the world's largest movie theater owner. Wanda is reportedly committed to putting half a billion dollars toward capital improvements. Operations of the theaters will remain the same and most of the 18,500 employees will remain with the company...The Men’s Wearhouse will open 5 Men’s Wearhouse Outlet stores in the fourth quarter, located in outlet centers across the US…Microsoft Corp. will open 32 pop-up stores in the US and Canada in time for the holiday shopping season...Toys “R” Us will open 150 to 200 temporary locations for the holidays under the Toys “R” Us Express banner…Ace Hardware Corp. is on-track to open 170 new domestic stores in 2012. Ace retailers opened 30 stores in the first quarter and 36 stores in the second quarter for a total of 66 new activations year to date. 31 retail locations have converted to Ace Hardware from competitive formats.

Industry News: Decelerating

Advisors to Supervalu Inc. are asking potential buyers to bid for the entire operation. In July, Supervalu said it was looking at options for overhauling the company, including a sale. The chain hired Goldman Sachs Group Inc. and Greenhill & Co as advisors. Supervalu will close about 60 underperforming or nonstrategic stores in fiscal 2012. The closings include 22 Save-A-Lot locations, 27 Albertsons stores, four Acme stores and one previously announced Jewel-Osco. The majority of the stores will close before Dec. 1. 8 additional stores to be shuttered are yet to be identified and are slated to close by the end of Supervalu's fiscal year Feb. 23, 2013...Saks Inc. will close its Highland Park, Ill. store and its Austin, Texas store on Dec. 31...Piccadilly Restaurants, LLC filed Chapter 11. Piccadilly Restaurants has nearly 80 restaurants and over 70 food service operations and employs approximately 3,500…Ritz Camera & Image LLC plans to go out of business and close its remaining 137 stores after it failed to find a buyer in a bankruptcy auction. Ritz filed for Chapter 11 protection from creditors June 22, less than three years after emerging from an earlier bankruptcy...Great Atlantic and Pacific Tea Co. (A&P) plans to sell its 16 Food Emporium stores in Manhattan. The one remaining Food Emporium in CT will not be sold. A&P emerged from bankruptcy in March. The company, which operates 320 stores under the A&P, Pathmark, Waldbaum's, Food Emporium and Food Basics names, has shed close to 80 stores since filing for bankruptcy protection in December 2010...Walgreens plans to close more than half of the stores it is acquiring in its deal with USA Drug. The company confirmed it would close approximately 76 stores across the mid-South region. USA Drug operates 144 stores under the USA Drug, Super D Drug, May's Drug, Med-X and Drug Warehouse banners.

Industry News: New England

Upcoming restaurant openings in Harvard Square include: Tasty Burger, a two-level, 180-seat restaurant at the former 7-Eleven location at 40 JFK St.; Osushi, an 80-seat Japanese sushi restaurant at 1 Eliot St. in the former Conga Tapas Bar space; Toscano Italian restaurant at 52 Brattle St., which formerly housed Cafe of IndiaKings Food Markets has expanded into Connecticut with the acquisition of Porricelli’s Market in Old Greenwich. Kings presently operates 24 stores in New Jersey and New York…Whole Foods is in talks to buy or take over leases for half a dozen Johnnie’s Foodmaster locations in eastern Massachusetts. Whole Foods wants to move into six of the 10 Johnnie’s Foodmaster sites in Arlington, Brookline, Charlestown, Melrose, South Weymouth, and on Beacon Street in Somerville. Whole Foods currently operates 21 stores in the state and has another two planned for Boston’ s South End and Lynnfield...A new franchise owner with The Meat House opened a shop at Meadow Brook Crossing in the former Olympia Sports store at 124 Route 101A in Amherst, NH, the first of six stores planned in New Hampshire and Vermont. The Meat House has expanded its footprint to 32 stores in 10 states, and is planning to add about 15 more stores by the end of the year...Seasons 52 and Brio Tuscan Grill will open their first Bay State locations at Chestnut Hill Square in Newton, MA next year...LA Fitness has chosen Garden City Center in Cranston as its first Rhode Island location, in a new 38,000 s/f two-level building next to Office Max. Construction will begin in January 2013 and LA Fitness is expected to open in late December 2013 or early 2014…Davio’s is partnering with National Amusements on a new casual restaurant for that will be part of the movie theater chain’s Chestnut Hill Showcase Super Lux cinema complex. Davio’s Cucina and the cinema will share a kitchen, with the cinema serving its own menu and some signature Davio’s Cucina items to customers watching movies. Showcase operates its own eateries at its Cinema de Lux locations in Dedham and Foxboro...LowellBank's first "personal teller machine" will be installed next month at its lending office, bringing digital videoconferencing with a live teller to ATMs. LowellBank appears to be the first bank in New England to use the machines. The bank plans to add four more by the end of the year. LowellBank has hired 6 employees to serve as remote tellers.

August Retail Sales Report

Commerce Department Monthly Sales

August retail sales increased a seasonally adjusted 0.9%, the Commerce Department said. Gas station sales jumped 5.5%, the most in nearly 3 years and a reflection of sharp price increases. Demand for autos increased 1.7%. Outside those categories, sales rose only 0.1%.

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

Treasury Yields

Consumer Confidence Index

The Conference Board Consumer Confidence Index®, which had improved in July, declined in August. The Index now stands at 60.6, down from 65.4 in July. The Expectations Index decreased to 70.5 from 78.4. The Present Situation Index, however, was virtually unchanged, at 45.8 versus 45.9 a month ago.


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

Purchasing Managers Index

Manufacturing contracted in August as the PMI™ registered 49.6 percent, a decrease of 0.2 percentage point when compared to July's reading of 49.8 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