Monday, October 19, 2020

A Masked Halloween


Our home office is about a 45-minute drive from Salem, MA, the self-proclaimed “Halloween capitol of the world”. Downtown Salem is a pleasant area of restaurants and quirky small shops, and anyone who’s been there on a Sunday afternoon in October can tell you that it’s shoulder-to-shoulder people, performers, vendors, and, you know, witches.

But this is Halloween 2020, when everyone’s wearing a mask, a man in Texas built a candy-shooting robot for distanced hand-outs, and the only thing more frightening than a face-to-face meeting is a crowd. Of the 700 events usually planned for Salem’s month-long Haunted Happenings celebration, which in a normal year brings half a million visitors to celebrate, shop, and dine in the city, only a small fraction will actually happen, and those will be very different. Across the country many municipalities are already canceling traditional trick-or-treating outright, or at least discouraging it. It’s hard to imagine a Haunted House attraction in this environment, and Halloween parties at schools or community centers will look very different this year, if they happen at all. 

What does this mean for the retail world? According to the National Retail Federation’s annual report on Halloween, overall consumer spending will drop, from $8.78 billion last year to a predicted $8.05 billion this year. However, the per person spending average is expected to increase, from $86.27 last year to $92.12 this year, as shoppers spend on home decor, candy and cards. The NRF reports that more than three-quarters of adults said the virus is affecting their holiday plans. About 17% plan to celebrate virtually. More than 148 million US adults plan to celebrate the holiday with at-home plans like decorating and carving pumpkins most popular. In 2019, 49% planned to decorate their homes, while this year 53% are decorating.  


While many retailers have put out seasonal merchandise earlier than normal, it seems as if consumers are more open to it this year. There’s also been a shift in the types of costumes being sold this year, away from super heroes and film characters toward everyday heroes such as nurses, doctors, and firefighters. Discount stores, specialty Halloween stores, grocery stores, and online retailers remain top physical shopping destinations, although 3 in 10 are making Halloween purchases online, up from one-quarter last year.

Party City plans to open just 25 pop-up stores under its Halloween City banner this year, a 91% reduction from the 275 they opened last year. However, seasonal retailer Spirit Halloween has said that they “can’t wait to welcome you back at our 1,400 locations nationwide” (with enhanced safety protocols), and US sales of Halloween candy were up 13% over last year in the month ending Sept. 6, according to the National Confectioners Association. Sales of chocolate alone are up 25%, good news for candy companies, which make nearly 14% of their annual $36 billion in US sales during the 10-week Halloween period.

Halloween 2020 may not be as much of a horror for retail as one might think. What will the Holidays bring? According to the NRF’s website, Holiday retail sales in 2019 grew 4.1% over the previous year, totaling $730.2 billion. In a survey of 54 retailers about 2020 Holiday plans, the NRF says, “from rethinking the shopping timeline to reimagining traditional sale events, retailers are actively planning ahead to ensure they’re ready to meet consumers’ holiday shopping needs”. That’s a sign of cautious optimism. So, put on your mask, and have a safe, (reasonably) Happy Halloween.

Chris Cardoni, Marketing Manager

KEYPOINT PARTNERS COMPANY NEWS

 New Management/Leasing Assignment:  The Property Management and Leasing teams have been awarded the contracts for Springfield Plaza, Springfield, MA. The contracts were awarded by ConwayMackenzie. Springfield Plaza is a 444,000 s/f center anchored by a Super Stop & Shop, with tenants including Ocean State Job Lots, Rocky’s Ace Hardware, Dollar Tree, Planet Fitness, O’Reilly Auto Parts, and many others. Available space for lease includes multiple inline, junior anchor, and new proposed pad opportunities. Tenant Rep: VP of Leasing Michael Branton is working with LaserMD Med Spa, a provider of cosmetic enhancement and medical spa services, to find new sites in MA.



NATIONAL

 The Commerce Department said retail sales increased 0.6% in August, in part as higher gas prices helped receipts at service stations. However, core retail sales fell 0.1% last month after a revised 0.9% increase in July. US retail sales rose 1.9% in September, as people spent on clothing, sporting goods, furniture and other items in stores and online. In August, retail sales grew 0.6%.. See sales reports below.

ACCELERATING

 Lidl US plans to open 50 new stores by the end of 2021, in the mid-Atlantic and Soutjh, which will bring its total number of US locations to more than 150…Hobby Lobby is expanding its Florida footprint with 3 new stores... Golden Gate Capital has agreed to sell its remaining equity stake in Red Lobster to a consortium of investor Thai Union and Red Lobster management. Red Lobster has 670 US restaurants... Authentic Brands Group and Sparc Group, a venture backed by Simon Property Group, completed their $325 million acquisition of Brooks Brothers. At least 125 Brooks Brothers stores will remain open as part of the agreement...Five Below opened a record 63 new stores during the 2nd  quarter, for a total of 982 stores in 38 states, and expects to open 110 to 120 net new stores in 2020…Macy’s plans to test several smaller stores outside of malls, and also plans to test a smaller-format, non-mall Bloomingdale’s next year... Dick’s Sporting Goods will open 11 stores in October, including 6 namesake locations, 2 combination Dick’s/Golf Galaxy locations, and 3 Dick’s Warehouse Sale outlets…Costco has either opened or begun construction on 6 new locations in the US and Canada…After opening 7 locations in the first half of 2020, RNR Tire Express has contracted to open 47 more stores in 7 states. The company has 400 stores under contract in the US...Bob’s Discount Furniture announced the grand opening of 3 stores in Ohio expanding its footprint in the state to 5 stores.  Bob’s opened an additional 8 stores nationwide over Labor Day weekend, bringing its total number of stores to 136…BurgerFi International, with approximately 125 locations spanning across 23 states, has signed letters of intent for 30-plus new units. In addition to the signed LOIs, the brand has 9 new stores scheduled to open before the end of the year...Levin Leichtman Capital Partners, a private equity firm, has acquired Tropical Smoothie Cafe. The terms of the deal were undisclosed. The brand has more than 870 units in 44 states. The chain has opened more than 55 stores in 2020 and expects to add more than 30 by the end of the year...Urban Air Adventure Park opened 18 new locations during the first half of 2020, with another 16 parks scheduled to open before year-end. Urban Air will have more than 150 locations…Simon Property Group and Brookfield Property Partners reached an agreement in principal to acquire J.C. Penney in a deal valued at approximately $800 million. The deal would keep most of the chain’s 650 remaining stores open....Amazon has opened its second Amazon Go grocery store, a 13,000 s/f store in a former Sears Auto Center in Redmond, WA.. J. Crew has officially exited bankruptcy after filing for Chapter 11 in May. The apparel retailer has 500 stores…MY SALON Suite  expects to have more than 200 locations in operation by the end of 2020, and more than 500 locations over the next 5 years. As of August 14, MY SALON Suite reported 168 active locations...Tractor Supply Company announced the opening of its 1,900th store located in Oakhurst, CA. The company, which opened 80 new stores in 2019, will open 75 to 80 new stores in 2020... Designer Brands Inc., parent of DSW, will open in-store shops at 6 Hy-Vee supermarkets in October, with additional locations expected to open in 2021…QuikTrip opened 4 new locations this month, growing its portfolio to 850 stores across 11 states...BJ’s Wholesale Club is planning at least 2 new sites near Pittsburgh, a new market for the company. BJ’s will open at 6 new clubs in 2021, and eventually10 or more clubs per year... Neiman Marcus Group has emerged from Chapter 11 bankruptcy protection. Neiman Marcus filed for bankruptcy in May…Edible added 63 new franchise agreements in 2020, 22 in August alone.  Edible Brands, the parent company of Edible, has more than 1,000 locations worldwide... Charming Charlie opened a location at Cumberland Mall in Atlanta. The company plans to roll out additional locations across the US during late 2020 and early 2021. Charming Charlie previously filed for bankruptcy in July 2019 and shuttered all of its 260 locations...Great Clips now has a location in all 50 states with the opening of locations in Maine, Louisiana, and Vermont. Great Clips has more than 4,500 salons throughout the US and Canada...Marco’s Pizza opened its 1,000th store...New home furnishings retailer Loves Furniture & Mattresses has opened its first 16 stores, with plans to open 31 stores total…Jewelry e-tailer Blue Nile plans to open 50 brick-and-mortar locations in the top 50 US metro markets over the next 3 years. There are currently 5 US stores…New York & Company will become a digital-only company under new owners. RTW Retailwinds, its parent company, has closed on the sale of its e-commerce business and all related intellectual property  and other assets to investment company Saadia Group...Wingstop opened a net 43 net openings this year. As of September 26, Wingstop had 1,308 US units…uBreakiFix opened 20 new stores, bringing the brand’s total to 595 stores across North America...Winn-Dixie plans to open 4 new stores throughout Florida in November... Albertsons Cos.’ Acme Markets will acquire 27 Kings Food Markets and Balducci’s Food Lover’s Markets, KB US Holdings, parent of Kings and Balducci’s, put the chains up for sale in August. Stores will retain their banners and become part of Albertsons’ Mid-Atlantic division.

DECELERATING

 CBL Properties has made a restructuring deal that calls for a Chapter 11 bankruptcy filing. The REIT’s major tenants include Ascena, Forever 21, J.C. Penney, Claire’s, and other retailers that have filed for bankruptcy or closed several stores... KB US Holdings, the  parent company of Kings Food Markets and Balducci’s Food Lover’s Market, filed for Chapter 11 bankruptcy protection and accepted a stalking horse bid from TLI Bedrock to purchase the company for $75 million. Kings operates 25 supermarkets in NJ, NY, and CT. Balducci operates 10 stores.. Estée Lauder aims to close 10% to 15% of its standalone stores globally. The beauty giant will be reevaluating its role in department stores as well... Lord & Taylor and its owner Le Tote expanded going out of business sales to all of Lord & Taylor’s 38 stores. The companies filed for Chapter 11 bankruptcy protection in August, and announced that only some stores would close...Southeastern Grocers plans to sell 23 stores under its Bi-Lo and Harveys Supermarket banners to grocery wholesaler and retailer Alex Lee and independent operator B&T Foods. Financial terms of the transaction weren’t disclosed...Luby’s board has approved a plan to liquidate the company through the sale of its real estate and other assets, which include the Luby’s Cafeterias and Fuddruckers brands. The plan is subject to the approval of shareholders. The company operates about 77 namesake cafeterias and about 50 Fuddruckers units, and franchises about 100 more Fuddruckers...New York retail institution Century 21 is going out of business. The retailer has filed for bankruptcy, with plans to shut down its 13 stores…American Eagle Outfitters Inc. plans to close 40 to 50 stores for the year. The retailer operated 1,098 stores at the end of the quarter…LVMH stated that it likely would not be able to complete its planned $16.2 billion acquisition of Tiffany & Co. The jeweler fired back with a lawsuit and said LVMH was trying to leverage the retail slowdown caused by the pandemic and recent “social protests” to seek a lower price...GameStop is on track to close about 400 to 450 stores worldwide during its current fiscal year, more than the 320 closures GameStop announced in March. At the end of the quarter, GameStop had 5,122 locations worldwide, 602 fewer than last year... A&G Real Estate Partners has begun marketing leases for 280 Stein Mart locations closed in connection with the company’s bankruptcy filing. The stores span 30 states...Ascena Retail Group Inc., parent of Ann Taylor, Loft and Lane Bryant, announced the winning bid of $40.8 million from FullBeauty Brands Operations LLC for its Catherine’s brand. FullBeauty outbid City Chic Collective Ltd., which had made a stalking-horse offer of $16 million. FullBeauty is owned by Apax Partners and Charlesbank Capital Partners...Sizzler USA has filed for bankruptcy. The filing is only for Sizzler’s 14 company-owned restaurants -- not its international locations or more than 90 franchised US restaurants....H&M plans a net decrease next year of about 250 stores. In June, the company said it would close 170 stores , but with openings that’s a net 40-store decrease...Regal Cinemas, the 2nd-largest movie theater chain in the US, announced that it will temporarily shutter its 536 theaters. The company closed all of its theaters in mid-March and had been slowly reopening as states and cities lifted shutdown orders...Casual-dining chain Ruby Tuesday filed for bankruptcy and will permanently shut down 185 company-owned restaurants... Bed Bath & Beyond which expects to close about 200 stores in the next 2 years, has entered into an agreement to sell all 80 Christmas Tree Shop stores and a distribution center to Handil Holdings. In addition, Bed Bath & Beyond is selling its Linen Holdings business to The Linen Group LLC, an affiliate of Lion Equity Partners…Flying Tiger Copenhagen is closing all US locations…Ascena Retail Group is selling its Justice brand to Premier Brands Justice (an acquisition vehicle of IHL Group). Ascena Retail has shuttered roughly 600 of Justice’s 820 stores.

NEW ENGLAND

 Neiman Marcus plans to close its Natick (MA) Mall store sometime next year...The Paper Store has emerged from bankruptcy. The Paper Store filed for Chapter 11 bankruptcy protection in July…The Pour House Bar & Grill on Boylston Street in Boston’s Back Bay plans to change ownership and close after 34 years…The Hingham Beer Works chain faces statewide consolidation. An auction notice went up for beer equipment and furniture at the Hingham location, and the path forward for the 4 remaining locations is up in the air...MarketStreet Lynnfield (MA) opened 2 new stores: Madewell and local boutique The Cue... Town Sports International, parent company of Boston Sports Clubs, filed for bankruptcy protection. There are 28 Boston Sports Clubs in MA, and 1 in RI...FRAME, the LA lifestyle brand, opened a store on Newbury Street in Boston. This store is the 12th store for FRAME and first in MA... PNC Bank opened its first retail branch in Boston this month, one of 5 planned in 2020.

MALLS

 H&M, Primark, and Zara will finally open at American Dream mall in October. The project’s skating rink, DreamWorks Water Park, Nickelodeon Universe theme park, and Out of This World Blacklight Mini Golf are also slated to open in October. The Big Snow indoor ski slope American Dream opened on Sept. 1...Ingka Centres, an Ikea unit that owns and operates 48 malls in Europe and Asia, has acquired the 375,000 s/f  6 X 6 Building on 945 Market Street, San Francisco. Ingka has budgeted at least $250 million for redevelopment into a new enclosed shopping center and the city’s first Ikea store, its first US development... More than 50 shops that make up Manhattan’s Hudson Yards have re-opened.

RETAIL SALES REPORT

 















NOTE: Because of the pandemic, many chains have reported net sales, not comp store sales, or company revenue - or postponed reporting.

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 0.6% in August, the Commerce Department reported.

US retail sales rose 1.9% in September, as people spent on clothing, sporting goods, furniture and other items in stores and online. 

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® decreased in August, after declining in July. The Index now stands at 84.8 (1985=100), down from 91.7 in July.

The Conference Board Consumer Confidence Index® increased in September, after declining in August. The Index now stands at 101.8 (1985=100), up from 86.3 in August.

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

PURCHASING MANAGERS INDEX

 Manufacturing grew in August, as the PMI® registered 56 percent, 1.8 percentage points higher than the July reading of 54.2 percent.

Manufacturing grew in September, as the PMI® registered 55.4 percent, 0.6 percentage point lower than the August reading of 56 percent.

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

Thursday, August 20, 2020

Meeting Change With Intuition

 

How do you make real estate decisions? Do you do it based on your feel for the market or are you data driven? Most investors I’ve spoken with over the years use a combination of the two. Some are more guided by “feel” and let the data confirm (or not) what they already believe. Others use data to drive them to markets and then use their “feel” to select the best property to meet their needs.

We use demographics to assess demand, we use market studies to assess supply (I hope you all rely on KeyPoint Partners’ GRIIDTM data) and we use leasing comps to gauge revenue potential. But what happens when historical data is no longer applicable to current markets?  Such is the case today, and it began in March as the country started shutting down in response to the Covid pandemic. Suddenly, the leasing comps we relied on from December no longer seemed appropriate for the deals we were working on in April. That STNL sale that closed in January – was it still a good comp for the property we listed in May? So what’s a real estate investor to do when historically reliable indicators no longer offer the reliability of the past? To find out, we spoke with several members of our local real estate community to gather their thoughts.

Aubrey Cannuscio, Partner/Chief Investment Officer at Linear Retail Properties, notes that “Linear has always made good use of market data in both its acquisition and leasing functions. Today, there is limited, critical data available to us and other market participants. There are few lease and sale comps which were negotiated and closed post-Pandemic and historical data is not as helpful as it used to be when analyzing investment opportunities.  Where are rents? Which tenants have paid their rent? Which tenants have acceptable credit? Our priority is to monitor the markets and collect current data (where we can) to support our valuation assumptions. Ultimately, investment decisions are based on an investor’s experience, access to data and instinct. The missing link today is post-pandemic data which is in limited supply.”

Jonathan Aron, KeyPoints Partners’ VP of Investment Sales, advises his clients, both buyers and sellers, to take a long-term view. “The value of a property is directly related to the long- term prospects for future income. While current metrics may have temporarily changed due to the pandemic, things will eventually return to a normal environment…or a reasonable facsimile thereof. Viewed in this context, historical metrics are still useful so long as their use is tempered by the current situation.”

Finally, for Michael Crawford, Senior Vice President at Rockland Trust, experience and feel for the market now have an outsized importance in underwriting as noted in his statement below: 

“Not unlike commercial real estate investors and potential purchasers, real estate lenders need to use data, such as rent rolls, cash flows, appraisals, etc... However, much of that data references a market, maybe from only a few months back, which might be far different than our markets today. No one can predict the future, but in the exercise of evaluating good value/bad value or acceptable risk in a loan, investors and lenders need to try to do just that. Most banks will tell you their lending windows are still wide open, but realistically, it depends upon the sponsor and the asset, which is a blend of product type, location, tenant mix and strength and lease maturities.”

Certain “facts” that we have been comforted by in the past have now changed. And no one knows if/when they will return to past “normalcy”. Lenders have always relied upon a mix of experience, analysis, and intuition to get comfortable with the risk profile of a loan. Today, however, a lender’s experience has become critically important as we have less relevant data to rely upon.” I asked Mike if he was aware of any lending institutions in the area giving their lenders new underwriting criteria and he was not aware of any doing so.

All in all, for those of us who consider ourselves to be data driven, during this time of rapid change, we are finding ourselves to be more reliant upon intuition and feel than we might normally be. 

Mark Becker, Partner/CFO,

MBecker@KeyPointPartners.com.


KEYPOINT PARTNERS COMPANY NEWS

 

NATIONAL NEWS

 The Commerce Department said retail sales rose 7.5% in June. Consumers stepped up spending at furniture, clothing, electronics and appliance, hobby, musical instrument, and book stores. Sales at restaurants and bars rose 20.0%. Online sales fell 2.4%. In July, sales. rose 1.2%, the Commerce Dept. reported, with sales up 22.9% in electronics and appliance stores. See sales reports BELOW..

ACCELERATING NEWS

 Capriotti’s Sandwich Shop plans to expand to 500 locations by 2025 through franchising. Capriotti’s has 100 US locations…Pet Supplies Plus will open 20 new stores this coming year, including its 500th location…Bruster’s Real Ice Cream opened 3 new stores and has 5 stores under construction. There are 200 Bruster’s in 21 states…Aurify Brands plans to reopen more than 40 Le Pain Quotidien units after purchasing the brand out of bankruptcy. The brand has 98 US units...Primark will open 5 new stores this year worldwide, including 2 US locations. Primark has 375 stores... Kum & Go opened its 1st new concept urban convenience store in Des Moines. The retailer will expand the concept to Denver, with 5 locations in other cities to follow. Kum & Go has 400 stores in 11 states…Big Blue Swim School is opening 3 swim schools in Louisville, KY. The company plans to open 1 location per year over the next 3 years. Big Blue has 5 locations in Chicago, 1 in Atlanta, and 80 units in development…Walgreens Boots Alliance has entered into a partnership with VillageMD to open 500 to 700 primary care clinics in more than 30 US markets during the next 5 years, with a plan to build hundreds after that…Meijer has opened 5 new locations in 4 states. Meijer operates 253 supercenters and grocery stores in 6 states... Whataburger is opening restaurants in Tennessee and Kansas City. There are 15 more openings this year, and 25 next year...RSG Group GmbH was selected as the winning bidder in a court-approved auction to acquire Gold’s Gym. With this acquisition the RSG Group will have over 900 locations on 6 continents. Gold’s Gym has just under 700 gyms…Tropical Smoothie Café has opened 43 new locations in 2020, with 35 opening since March 1. The company has signed 103 new franchise agreements this year in 25 states...Rue 21 will open 3 new brick-and-mortar stores this month in South Carolina, Tennessee, and Texas, bringing the chain’s store count to 673 in 45 states... Amazon is planning to open 3 grocery stores under its new, still-unnamed banner in the Philadelphia metro area by the end of the year.  Amazon is also planning conventional grocery stores in North Hollywood, CA, the Chicago suburbs of Oak Lawn, Schaumburg and Naperville, Seattle and Washington, DC, and plans to open Amazon Go grocery stores in Redmond, WN and Washington DC…Lidl opened a store in North Brunswick, its 10th store in New Jersey. Lidl plans to open 25 new stores by the end of next year, and opened its 100th US store in May…Fashion retailer Aritzia will be taking over the space formerly occupied by Dean and Deluca in the NYC’s Soho district. Aritzia has more than 95 locations...Aldi will open 70 new stores in the 2nd half of 2020, after recently surpassing 2,000 locations in 36 states. With the addition of 70 more stores this year, Aldi moves closer to a goal set in 2017 of 2,500 US stores by the end of 2022...Ulta Beauty expects to open 30 new stores in fiscal 2020. The retailer had paused its new store growth in the first quarter, but openings are expected to resume in August.  In addition, Ulta plans to permanently close 19 stores in the second and third quarter of 2020. As of May, the company had 1,264 stores across 50 states.. BJ’s Wholesale Club is opening 2 new locations in New York, its 220th and 221st locations. Both are due to open in early 2021.... Brooks Brothers will be sold to Authentic Brands Group and SPARC Group, a partnership with Simon Property Group, for $325 million. The company has more than 200 stores in the US and Canada, and 500 worldwide in 45 countries. Authentic Brands and Simon Property have teamed up to buy other well-known brands, including Frye, Juicy Couture, Aeropostale, and most recently Lucky Brand Dungarees, which filed for bankruptcy at the beginning of July.  As of May, Lucky Brand operated 112 stores and 98 outlet locations in North America... Marathon Petroleum has agreed to sell its Speedway chain to 7-Eleven. The transaction is expected to close in the first quarter of 2021 subject to closing conditions. Marathon Petroleum Corp. has 3,900 US stores.  7-Eleven Inc. has more than 9,300 US stores. and 71,100th worldwide...Sour Patch Kids is opening of its first-ever brick-and-mortar location, in Manhattan. The store will include a sweets bar, create-your-own candy mix station, and limited-edition merchandise...Sola Salon Studios signed agreements with 8 franchise groups that will bring 22 new locations to key US markets over the next several years…The Melting Pot Restaurants will grow by more than 30 franchise locations through the end of 2024…2 Texas Roadhouses and 1 Bubba’s 33 were opened during the 2nd quarter. Two more Roadhouses opened in July, with 4 more slated to open in the third quarter; another 8 will open by the end of the year...Dick’s Sporting Goods is opening 11 new stores in August: 4 namesake locations, 1 combination Dick’s/Golf Galaxy, 5 Dick’s Sporting Goods Warehouse Sale clearance outlets and 1 Overtime by Dick’s Sporting Goods. Following the openings, Dick’s will have 729 namesake stores, 96 Golf Galaxy stores, 10 Warehouse Sale stores, and 4 Overtime stores...FAT Brands purchased Johnny Rockets from an affiliate of private-equity firm Sun Capital Partners, Inc. for $25 million, its first acquisition since Elevation Burger in June 2019. Johnny Rockets currently has 325 locations, 9 of which are corporate units... Trader Joe’s is opening 4 new stores…Whole Foods opened new stores New York City, Colorado, Maryland, Washington, DC, and Austin, Texas....Retail Ecommerce Ventures acquired Modell’s Sporting Goods at a bankruptcy auction for $3.64 million.  The sale makes Modell’s a majority-owned subsidiary of REV. Among REV’s most recent acquisitions are Pier 1 Imports, Linens ‘n Things, Franklin Mint, and Dressbarn... Payless ShoeSource, which filed for bankruptcy protection last year and went on to close approximately 2,500 stores, unveiled its strategy to turn around the business, launch a new e-commerce site as well as a new retail prototype, and open 30 to 45 stores by the end of next year.

DECELERATING NEWS

 J.C. Penney plans to close 2 NYC stores: its location at Manhattan Mall in Herald Square and Kings Plaza in Brooklyn, with liquidation sales likely to begin next week…Bed Bath & Beyond plans to close about 200 stores during the next 2 years. The retailer operates a total of 1,478 stores. Authentic Brands Group LLC and Simon Property Group Inc. won a competition to supply financing to the retailer, offering an $80 million debtor-in-possession loan…Sur La Table, which filed for bankruptcy this month and said it would close over 50 of its 121 stores, has been sold for nearly $89 million to a joint venture between e-commerce investment firm CSC Generation and Marquee Brands LLC. According to court documents, the joint venture plans to keep at least 50 stores open....RTW Retailwinds, parent of New York & Company, has filed for Chapter 11 bankruptcy protection with plans to close many, if not all, of its 378 stores…The U.S. arm of Japanese retailer Muji has filed for Chapter 11. Muji is looking to close unprofitable stores and renegotiate leases in the Chapter 11 process.  The retailer has 18 US stores...The Paper Store filed for Chapter 11 protection in US Bankruptcy Court for Massachusetts. The retailer, hoping to secure a sale by late August, is not planning to liquidate. The Paper Store has 86 stores... PVH Corp. plans to shut down its 162-outlet-store Heritage Brands Retail business. Brands include Van Heusen, Izod, Arrow, Warner’s, Olga, Geoffrey Beene, Calvin Klein and Tommy Hilfiger. The stores are expected to stay open through mid-2021... Tailored Brands has filed for Chapter 11 bankruptcy protection. The retailer currently operates more than 1,400 stores under the Men’s Wearhouse, Jos. A. Bank, K&G, and Moores names...Ascena Retail Group, parent company of Ann Taylor, Loft, Lane Bryant, Justice, Cacique, Catherines, and Lou & Grey, filed for Chapter 11 bankruptcy protection. Ascena plans to permanently close a “significant” number of stores during its restructuring, and permanently close all stores across all brands in Canada, Puerto Rico and Mexico. It is shutting down Catherines entirely and plans to sell those intellectual property assets to City Chic Collective Limited. Last year Ascena wound down its Dressbarn business, shuttering more than 600 stores. Ascena currently has 2,800 stores...Neiman Marcus plans to close its store at Hudson Yards, NYC, the new retail, residential, and office complex, according to a court filing. The store opened less than a year ago. The 3-level, 180,000 s/f store served as the anchor for Hudson Yards’ retail complex... Lord & Taylor has filed for Chapter 11 bankruptcy protection and will close 19 US stores…Pret a Manger is pulling out of the Boston and Chicago markets and has closed 17 locations…California Pizza Kitchen has filed Chapter 11 protection…Dunkin’ will close 800 Dunkin’ stores by the end of 2020…Bootmaker Frye’s will shutter its entire fleet of 16 stores... Steak ‘n Shake is auctioning off 15 properties. Steak ‘n Shake’s total unit count has declined by 69 restaurants over the first half of 2020. 56 of those are corporate locations...Stein Mart filed for Chapter 11 bankruptcy protection and plans to permanently close most, if not all, of its 281 stores... Rent the Runway does not plan to reopen any of its 5 physical locations, in New York, Chicago, Boston, Washington, D.C., and San Francisco... Stage Stores has received court approval for its bankruptcy plan, which calls for the liquidation of all its stores and the wind down of the company…NPC International plans to close up to 300 Pizza Hut locations, after an agreement with the franchisor that will pave the way for a sale of the company’s remaining pizza operations.

NEW ENGLAND NEWS

 The Sears at the Square One Mall on Route 1 in Saugus will close, to be replaced by a massive Apex Entertainment Complex. Apex will move into the first floor of Sears... Kelly’s Roast Beef, a Boston-area icon, is looking to develop up to 20 franchise locations throughout South Florida...Hair Cuttery salons have closed throughout New England. Included are locations in Framingham and Worcester, MA, 13 salons in Connecticut, 2 in New Hampshire and 2 in Rhode Island. About a dozen other Hair Cuttery locations nationwide have also closed, and the remaining 750 locations were sold to HC Salon Holdings, Inc. in June.... Garbanzo Mediterranean Fresh will open later this year at Arsenal Yards in Watertown, MA. The company plans 3 more locations in the area over the next 5 years.

MALL NEWS

 PREIT’s most recently completed new project, Fashion District in Center City Philadelphia, was the last of its malls to re-open during the COVID-19 crisis. Now all 19 of its properties covering 22 million s/f are back in business.

RETAIL SALES REPORT

 NOTE: This month, because of store closings related to the pandemic, many chains have reported net sales, not comp store sales - or postponed reporting.




















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 June retail sales rose 7.5% last month after jumping 18.2% in May, the biggest gain since the government started tracking the sales in 1992. July retail sales rose 1.2 %.

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® increased in June, after virtually no change in May. The Index now stands at 98.1 (1985=100), up from 85.9 in May.  The Index® decreased in July, and now stands at 92.6 (1985=100.

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

PURCHASING MANAGERS INDEX

 Manufacturing grew in June, as the PMI® registered 52.6 percent, higher than the May reading of 43.1 percent. Manufacturing grew in July, as the PMI® registered 54.2 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

Monday, June 29, 2020

A Look Back

Bob Sheehan, the primary author of this column for the last sixteen years, is moving on.  I asked him to think back to some of the trends affecting retail during the last 16 years and share them with me.

As I listened to Bob, I couldn’t help but think of a heavyweight boxer from the 1970’s, Chuck Wepner. Fighting with a ton of heart, he was the inspiration for Sylvester Stallone’s first Rocky screenplay. Mr. Wepner would take punch after punch, earning himself the nickname, The Bayonne Bleeder, but seemingly recover and fight another round.

As Bob tells it: “When I started at KeyPoint Partners, we were starting to see cracks in the viability of regional malls. In fact, the last traditional enclosed mall, as we know them today, opened in 2006. Lifestyle centers had taken a toll on the mall concept and had become the preferred mode of growth for specialty retailers.

I guess I have to tip my cap to those prognosticators who warned us about the de-malling of America. When the Great Recession struck in 2008, it pounded away at large format retailers such as Circuit City, Borders, Linens ‘N Things, Comp USA, and Office Max. At about the same time, we were nearing the end of the pure lifestyle center life cycle, as affluent market opportunities for those projects ran dry and developers realized the need to shift gears to a hybrid concept, mixing some big boxes with a smattering of lifestyle retailers in order to target a broader base of shoppers.

But lurking in the background all this time, a monsoon was brewing in the form of Amazon. Back in the late 90s and early 2000s, there was a measurable level of online purchasing but it was targeted to only a few merchandise categories. Books and music stores were the first to be impacted. Electronics stores closely followed. But overall the online retail segment contributed minimally to total retail sales at the time. The perception was that there wasn’t much to worry about and that, for the most part, online sales had little effect on apparel retailing. In the aftermath of the Great Recession, however, everything changed. Let’s face it; we never really saw the potential impact coming until it was too late for many.

This all leads us to 2020, the year of Covid-19 and unprecedented upheaval in the industry. We are faced with so many questions and so few answers. No one can say with any degree of confidence how all this plays out. We’ve been living in a world of double digit vacancy for more than a decade - and then lightning struck. How much unoccupied space will be left in its aftermath?”


Like Chuck Wepner, retail has fought on, at times bloodied and a bit bruised. But it’s important to remember that retail is evolutionary. After the rise of lifestyle centers and category killers, malls and power centers, and even smaller centers, all found ways to co-exist and vacancy rates eventually recovered. Also, after the recession of 2008, which left lasting impacts on the industry, we saw the rise of new entrepreneurs entering retail and the expansion of franchise businesses.

With stores just starting to open after our Covid-19 experience, it is too soon to know the lasting impact on retail. Certainly the Decelerating section of this newletter far exceeds the Accelerating section at the moment but we’re beginning to see some signs of opportunistic investment (see our Accelerating News section for a few names). Companies such as Ingka Centres, the mall arm of IKEA, which has 45 centers around the world, is looking to open another 45 in several large cities across existing markets and the United States, some near its IKEA stores. The company is in talks to buy properties such as old post offices, department stores, or existing malls to convert. We also see some of our clients accumulating cash should they see value opportunities in the near future. This is a pinch of confidence in the future of retail.

We wish Bob Sheehan all the best as he moves forward. As we all move forward through COVID recovery and onward, we’ll continue to observe the evolution of retail, and to share our observations with you in these pages. Thanks for your continued readership and support.

Mark Becker, Partner/CFO
MBecker@KeyPointPartners.com.

KeyPoint Partners Company News

Tenant Representation: VP of Leasing Don Mace negotiated a lease on behalf of Apple Cinemas in Hartford, CT. Apple Cinemas will lease a 60,098 s/f space on New Park Avenue in Hartford, just off of Route 84.


National Retail News/COVID-19 Updates

US retail sales jumped by a record 17.7% from April to May, with spending rebounding after the coronavirus flattened the economy during the previous two months. The Commerce Department reported that retail sales have somewhat recovered after record-setting month-to-month plunges of 8.3% and 14.7% in March and April as businesses have reopened. Still, the pandemic’s damage remains severe, with purchases still down 6.1% from a year ago. Sales at non-store retailers, which include companies like Amazon and eBay, rose 9% in May after posting growth of 9.5% in April. Building materials stores enjoyed a monthly gain of 10.9%. Grocers posted a 14.4% annual sales increase, reflecting fewer people eating out. Other sectors in retail posted spectacular growth in May yet still face an uncertain future given the blows they absorbed in March and April. Clothiers achieved a 188% monthly gain but still remain down 63% over the past 12 months. Furniture store sales surged 90% last month, but they’re still down more than 21% on the year. The same holds for restaurants, electronics stores, department stores, and auto dealers. See sales reports on Page 4...Simon Property Group has terminated its merger agreement with Taubman Centers Inc. and has filed suit against Taubman. In the suit, Simon alleges that the COVID-19 pandemic had a “uniquely material and disproportionate effect on Taubman”.  It also alleges that Taubman breached its obligations related to the operation of its business. Taubman owns, manages or leases  26 premium shopping malls in the US and Asia.

COVID-19:
TJX Cos., parent of T.J. Maxx, Marshalls and HomeGoods, has started reopening stores worldwide, and anticipates that most stores could be open by the end of June. Since May 2, TJX has reopened 1,600 stores worldwide, roughly 36% of the company’s 4,500 stores. In the US, TJX has fully or partially reopened in 25 states…Bed Bath & Beyond Inc. is reopening 600 stores, including about 500 Bed Bath & Beyond locations across North America, along with 50 Christmas Tree Shop stores and 50 Cost Plus World Market stores in the US. The openings mean that around 50% of the company’s total store fleet of 1,500 locations is expected to be open this month...Apple reopened about 100 US stores this month, with an emphasis on curbside pick-up. Apple has about 270 US locations.... Dick’s Sporting Goods has reopened 80% of its stores; Five Below has reopened 75%...Best Buy is dropping the shop-by-appointment model it put in place in its first wave of store reopenings. More than 800 Best Buy locations across the country will begin allowing a limited number of people inside.

Accelerating Retail News

Lidl opened its 100th US location last month in Suwanee, GA...Dollar General opened 250 stores during the first quarter, despite the pandemic. Dollar General operates 16,500 stores... Five Below has opened 40 new stores so far this year and expects to open 100 to 120 new stores in 2020. Five Below has reopened more than 75% of its 900-plus stores as pandemic restrictions ease...Tire Discounters is planning 5 new locations for the TN, AL, IN markets. The company has 132 stores and has added 25 stores within the last 2 years…Club Pilates is set to open 21 new locations in June. This brings the company to 615 US studios...Ahold Delhaize USA’s Food Lion plans to acquire 62 Bi-Lo and Harveys Supermarket stores and a distribution center from Southeastern Grocers. Plans call for the 46 Bi-Lo and 16 Harveys locations in NC, SC and GA to remain open under those banners until the transaction is finalized in the first half of 2021, and then be converted to Food Lion stores...Chicken Salad Chick will open its first-ever location in Indiana this month. Chicken Salad Chick has more than 155 restaurants in 17 states... Dick’s Sporting Goods has added 2 outlet and clearance store banners to its portfolio: Overtime by Dick’s Sporting Goods and Dick’s Sporting Goods Warehouse. Overtime offers apparel, footwear, and equipment from brands such as Nike, Adidas and Under Armour  at up to 75% off regular prices. 3 Overtime stores opened this month. The company opened 5 Dick’ Sporting Goods Warehouse locations, which offer footwear and apparel at up to 90% off. With the new openings, Dick’s will have 11 outlet and clearance centers in 9 9 states. As of May, Dick’s operates 726 US stores... Tire Pros has added 10 locations in 8 states. There are more than 600 US Tire Pros locations in 45 states...Wawa Inc. opened its 900th convenience store this month in Springfield, NJ. Pennsylvania-based Wawa operates 900 convenience stores in 7 states...American Eagle Outfitters opened a new store format, called Unsubscribed, in East Hampton, NY

Decelerating Retail News

L Brands plans to close approximately 250 Victoria’s Secret stores and 50 Bath & Body Works stores in the US and Canada in 2020...Albertsons Cos. plans to sell a more than 17% stake in the company to private equity firm Apollo Global Management. As of its 2019 fiscal year-end, Albertsons had 2,252 stores in 35 states under Albertsons, Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Jewel-Osco, Acme, Shaw’s, Star Market, United Supermarkets, Market Street and Haggen. .. Car-rental company Hertz Global Holdings Inc. filed for bankruptcy last month citing the collapse in air travel amid the pandemic...Off-price retailer Tuesday Morning filed for Chapter 11 bankruptcy protection with plans to close about 230 of its 687 stores this summer...G-III Apparel Group Ltd. announced the permanent closures of all 110 Wilsons Leather and 89 G.H. Bass stores as it restructures its retail operations segment. The liquidations are set to begin immediately or as soon as locations reopen amid the pandemic. Following the restructuring, the retail operations segment will retain 14 DKNY and 13 Karl Lagerfeld Paris stores... Signet Jewelers won’t reopen 230 stores it closed due to COVID-19 and plans to close another 150 stores this year. The stores that won’t reopen include 150 stores in North America. Currently, Signet operates 3,200 stores globally under the brands Kay Jewelers, Zales, Jared, H.Samuel, Ernest Jones, Peoples, and Piercing Pagoda...Stop & Shop parent Ahold Delhaize USA has decided to terminate the long-pending acquisition of Long Island, NY, grocer King Kullen because of “significant, unforeseen changes in the marketplace,” mainly triggered by the COVID-19 outbreak. The acquisition was announced in early January 2019, after the agreement was signed in the previous month. Financial terms weren’t disclosed…Children’s Place Inc. plans to close an additional 300 stores by the end of 2021, with 200 closures planned for this year and another 100 planned for 2021. As of May 2, Children’s Place had 920 stores in the US and Canada…Starbucks Corp. will  transform its US stores and shutter up to 400 locations as it focuses on digital integration and convenience. During the next 18 months, the coffee giant plans to accelerate the expansion of convenience-led store formats such as drive-thru, mobile order only, counter pickup and curbside pickup. It also plans to relocate stores from low-traffic malls to new locations that combine the store experience with drive-thrus... 24 Hour Fitness has filed for bankruptcy after the coronavirus pandemic forced its facilities shut for months. The chain has permanently closed 100 US locations in 14 states with roughly 300 clubs remaining... Party City  plans to permanently close 21 stores this year. The company said it is part of a “store optimization” plan that began in 2019 with 55 store closures. The statement also said 12 new stores will open by the end of 2021…AT&T plans to permanently shutter 250 AT&T Mobility and Cricket Wireless stores. There are currently more than 16,000 US AT&T retail locations, including authorized retailers and company-owned stores and kiosks...PizzaRev has permanently closed more than half its units and currently has just 13 US stores, down from 32 restaurants in 2019…GNC Holdings Inc. filed for bankruptcy protection with the aim of selling itself and closing stores. GNC plans scenario where it will restructure through a standalone plan or sale of the company. GNC will seek to close  800 to 1,200 stores. It has about 5,200 US locations... CEC Entertainment, parent company of Chuck E. Cheese, has filed for Chapter 11 bankruptcy protection, citing the COVID-19 pandemic. The company will continue operations through the process and reopen locations that were shuttered during the pandemic. Chuck E. Cheese has 555 company-owned locations.

New England News

After nearly three months, Simon reopened 9 malls and shopping centers in and around Boston, including Copley Place and Wrentham Village Premium Outlets Simon’s retail properties have been closed since March 19.

Mall News

Namdar Realty Group acquired Westfield Meriden, CT from Unibail Rodamco Westfield for an undisclosed price. It’s the 7th mall deal closed this year by Namdar, which owns 55 US malls in the Northeast, Midwest, and South, as well as 70 outdoor retail centers and mixed-use, office, and residential properties.

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 jumped 17.7% in May, the Commerce Department reported. All categories posted gains in May, with the largest gain of 188% in clothing and accessories. Despite the rebound, total spending remains 6.1% down on a year-over-year basis.

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® held steady in May, following a sharp decline in April. The Index now stands at 86.6 (1985=100), up from 85.7 in April. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – declined from 73.0 to 71.1

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

PURCHASING MANAGERS INDEX

Manufacturing contracted in May, as the PMI® registered 43.1 percent, 1.6 percentage points higher than the April reading of 41.5 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

Wednesday, May 20, 2020

Easing Back to the Mall: May 11-15

Dear Subscribers: We wish you and your families continued health and safety as we transition to reopening. We thank you for your ongoing support.

“Easing back” to the mall is putting it kindly, I guess - it was more like crawling back. 

As a resident of the area, I decided to stop by Pheasant Lane Mall, a Simon-run property in Nashua, New Hampshire on three different occasions during the past week to observe retail occupancy, and to see if shopper enthusiasm would build after eight weeks of stay-at-home orders. Stores were in no rush to be the first to pull the trigger, and shoppers were in no rush to experience the new normal; at least that’s the way Week 1 looked at New Hampshire malls following the lifting of restrictions at stores.

My first visit occurred on Monday afternoon, when I found that mall hours had been shortened from 11:00 AM to 7:00 PM six days a week and Sunday from 12:00 PM to 6:00 PM. Complimentary face masks were available at mall entrances, and there was no shortage of “Stay 6 Feet Apart” signs throughout the mall. Pheasant Lane is part of a second wave of Simon properties that have begun to open their doors, which also included the Mall of New Hampshire in Manchester and the Mall at Rockingham Park in Salem.

Foot traffic was severely hampered at Pheasant Lane Mall with three department stores closed, Sears permanently and Macy’s and JCPenney temporarily. Target was open, of course, one of the selected stores to have been considered essential throughout the pandemic. Unfortunately, for some unknown reason, this anchor unit elected not to open interior entrances to the mall on either level, constraining Target shoppers from directly accessing the common area of the mall and vice versa. It could have been staffing levels or pilferage concerns that kept the doors closed.

Dick’s, the only other anchor to be opened, only had its upper level entrance accessible to mall shoppers while the lower level entrance remained closed. Consequently, those mall shops that decided to open on Day One had to draw traffic virtually on their own, a recipe for a potential sales setback. At the same time only about 25-30% of the mall shops were open, and those were weighted toward independent operators and kiosks.

Monday’s food court openings included only two, Chick-fil-a and Charley’s Philly Steaks. That left nine closed food court occupants. National tenants were literally few and far between. Forever 21 (under Simon ownership now) was not-unexpectedly open, as were Pandora, Journeys, and Finish Line. Other brand name tenants opening Monday included Shoe Dept., Olympia Sports, Lindt Chocolate, Verizon, AT&T, Newbury Comics, Stonewall Kitchen, Cohen’s Optical and Zumiez.

My second visit was on Wednesday afternoon; it was almost a carbon copy of my first trip, with the exception of one additional open food court tenant, Cibao Chicken. There was evidence, however, that other retailers were getting close to opening with some employees apparently prepping their stores.

My Friday visit, however, did show improvement albeit limited. There was a noticeable uptick in foot traffic, with some shoppers apparently biding their time until the weekend. Taco Bell had opened in the food court. A few more stores had opened as well - American Eagle, sporting a 60% OFF sale, was one. Abercrombie & Fitch and Francesca’s had also opened and both were pushing their own 50% OFF sales. Aerie was another retailer that waited for the weekend “rush”. But that was it. For the most part, all three visits were uninspiring and left me with considerable doubt regarding a quick economic turnaround.

Week Two at Pheasant Lane Mall promises to draw better traffic following the Macy’s opening on May 18th. Manchester and Salem stores have opened as well. Perhaps the silver lining here is that a slow rollout will mean a safer rollout. I wouldn’t bet the farm on it, but the days and weeks ahead will get us, one hopes, closer to where we need to be. 

Bob Sheehan
Vice President of Research
BSheehan@KeyPointPartners.com

KeyPoint Partners Company News

New Management Assignments: The Property Management team has been awarded contracts for four retail centers in New Hampshire by KGI Properties, LLC. The portfolio includes Mountain Valley Mall and Fairways Plaza in North Conway; Hooksett Commons in Hooksett; and Mountain Valley Plaza on Route 16 in Gorham.


National Retail News: COVID-19 Updates

The Commerce Department said US retail sales tumbled by a record 16.4% from March to April as the pandemic kept shoppers away. The severity of the decline is unrivaled for retail figures that date back to 1992, and nearly doubled the record drop of 8.3%, set last month. The migration of consumers to online accelerated, with that segment posting an 8.4% gain. Other than online, not a single retail category was spared. Clothing sales tumbled 79%, department stores 29%. Restaurants suffered a nearly 30% decline. Auto sales dropped 13%. Furniture stores took a 59% plunge. Electronics and appliance stores were down over 60%. After panic buying in March, grocery sales fell 13%. Sales report below.

COVID-19:
Game Stop has begun the process of re-opening stores in South Carolina and Georgia and is preparing for the potential to re-open in other states in the coming weeks. GameStop operates approximately 5,500 stores across 14 countries....The Retail Industry Leaders Association and the National Retail Federation released a Blueprint for Shopping Safe that calls for a 3-phase approach to reopening retail. The plan urges governors to issue uniform, statewide protocols for retailers as they reopen stores and work to keep employees and customers safe... Costco is requiring that all members and guests wear a face covering that covers the mouth and nose at all times while in stores...Kimco, which operates more than 400 grocery-anchored and mixed-use centers across the country, kicked off its Curbside Pickup program at Grand Parkway Marketplace in Spring, Texas. The company intends to move the program nationwide this month...Peterson Companies, owner of 4 lifestyle centers in the Washington DC region, has issued a detailed plan to reopen its locations...Chains Reopening: Havertys expects to reopen all of its 120 stores by mid-May... David’s Bridal’s 300-plus store locations will be open for appointments starting June 1, 2020... Chico’s FAS, whose banners include Chico’s, White House | Black Market and Soma, will begin a 3-part store reopening plan this month, beginning with fulfillment of orders through physical locations using store inventories. Store openings will be consistent with local health and safety regulations...Starbucks expects to have approximately 90% of all company-operated US stores reopened by early June with enhanced safety protocols and modified schedules. Starbucks is asking its landlords for a break on rent. In a letter to landlords earlier the month, the company asked for “adjustments to lease terms and base rent structures.”…Best Buy has started reopening some stores, but initially customers will need an appointment. It also is resuming home delivery and other at-home services. The service will launch in about 200 of Best Buy’s 1,000 US stores...Children’s Place has started reopening stores in 10 states…Macy’s has begun reopening stores in 4 states with reduced hours. The retailer expects that all its 775 stores will be reopened in 6 weeks, should local governments allow retailers to proceed…Five Below has started reopening its stores. The retailer is also slowing its expansion amid the pandemic. It has reduced its new store opening target for fiscal 2020 to 100 - 120 stores as compared to the original target of 180 stores... Kohl’s will open about 25% of its stores this month…Ulta will reopen approximately 180 stores this month; it has been offering curbside pickup at more than 350 stores... Nordstrom is preparing to reopen stores in a phased approach. The company is also planning to permanently close 16 full-line stores... Express expects to reopen approximately 300 stores before Memorial Day, in accordance with federal and state guidelines... Gap Inc. will reopen up to 800 stores by the end of this month...Genesco Inc. has reopened more than 300 Journeys stores and anticipates reopening more than 400 stores by the end of May. Genesco’s Johnston & Murphy division began its initial phase of reopenings with up to 30 locations.

Accelerating Retail News

Dollar General has entered Washington state with a store in Cathlamet. 6 additional locations are under construction in the state. In March, Dollar General said it planned to open 1,000 new stores, remodel 1,500, and relocate 80 stores this year. As of February, Dollar General operated 16,368 stores in 45 states…Murphy USA opened 2 new locations in the quarter, bringing the store count 1,161 Murphy USA sites and 330 Murphy Express sites...Grocery Outlet opened 10 new stores and closed 2 stores in the 1st quarter, giving the retailer 355 US locations...Tractor Supply opened 20 new stores and closed 1 Del’s location. As of March 28, Tractor Supply operated 1,863 stores in 49 states along with 180 Petsense stores in 26 states... Hightimes Holding Corp., owner of cannabis brand High Times, announced an agreement to acquire equity and assets of 13 CA dispensaries from Harvest Health & Recreation Inc. The transaction will allow Hightimes to enter the retail sector. The company plans transform the stores to High Times destinations…REI added 8 new stores by the end of 2019, bringing the co-op’s total to 160 in the US...Fast-casual restaurant chain Doner Kebab plans to open 350 US restaurants over the next 7 years. The first location will be at American Dream in NJ...Boston Market has been acquired by Engage Brands, LLC from affiliates of Sun Capital Partners. Terms were not disclosed. Sun Capital purchased Boston Market from McDonald’s in 2007. The brand ended 2019 with 376 domestic units.

Decelerating Retail News

J. Crew Group has filed for bankruptcy protection. J. Crew has reached an agreement with lenders to convert about $1.65 billion of its debt into equity. Madewell will remain part of J. Crew Group. The retailer had planned to spin off the brand as a public company.  J. Crew, which has 181 namesake stores, 140 Madewell stores, and 170 factory outlets, plans to reopen its locations once lockdowns are lifted...Creative Hairdressers Inc., whose salons include Hair Cuttery, Bubbles and Salon Cielo, has filed for Chapter 11 bankruptcy and is selling off substantial assets, including the majority of its salon locations, to HC Salon Holdings Inc. The investment by HC Salon, an affiliate of Tacit Salon Holdings LLC, will allow Creative Hairdressers to continue paying employees and reopen its salons when allowed to do so. Creative Hairdressers has more than 750 salons nationwide...TooJay’s Original Gourmet Deli filed for bankruptcy protection shortly after it received a $6.4 million FPP loan. The company operates locations throughout Florida…Clothing retailer Roots Corp. plans to permanently close 7 of its 9 US stores...Gold’s Gym filed for Chapter 11 bankruptcy, with at least 30 company-owned gyms set to close... Neiman Marcus has filed for Chapter 11 bankruptcy, the 1st department store chain to do so and the 2nd major retailer to be toppled by the pandemic. The company, which operates 43 stores, expects to emerge from bankruptcy this fall...John Varvatos has filed for bankruptcy. The company was forced to close all its stores March 18…Aldo is also seeking bankruptcy protection...Stage Stores has filed for Chapter 11 bankruptcy as it seeks buyers and starts winds down operations. The company plans to start reopening its 738 stores in order to liquidate inventory by June 4...Steak n Shake closed 57 restaurants in the first quarter, 51 company-owned and 6 franchised. The closings reduced the number of franchised stores to 247 and total restaurants to 553, down from 624 a year ago... JC Penney has filed for Chapter 11 bankruptcy protection. Stores will close in phases with the first phase to be disclosed in the coming weeks. As of February, the retailer had 846 US stores... Pier 1 Imports will liquidate after being unable to find a buyer. The retailer operates 541 stores, and had filed for bankruptcy protection in February.

New England News

Saugus, MA restaurant Kowloon plans to transform its parking lot into a drive-in movie theater, and deliver food and drinks to diners in their cars. Guests will also be able to bring lawn chairs and sit outside...LL Bean has reopened two of its Freeport, ME retail stores...Westfarms shopping center in West Hartford CT will reopen this month, but it’s unlikely all stores will open on the same day. Taubman Centers, which owns Westfarms and malls around the country, says the company is seeing an average of 30 - 50% of stores in their malls reopening.

Mall News

Simon Property Group has begun re-opening 49 malls and outlets centers in 10 states this month. These are not only curbside-pickup re-opens Simon will welcome shoppers inside, offering temperature checks and CDC-approved masks and sanitizing kits. Shoppers will not be required to wear masks, though mall personnel will... Brookfield Asset Management is pledging $5 billion to assist troubled retailers operating in its malls. The Retail Revitalization Program, will concentrate on retailers with $250 million or more in normalized revenues that have been operating for at least two years...Ingka Centres, a division of Ingka Group, which owns IKEA and has 45 shopping centers worldwide, is looking to enter 45 large cities across its existing markets and the US. New York, Los Angeles, San Francisco, and Chicago are on its wish list. The company is in talks to buy old post offices, department stores, or existing malls to convert.

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 by 16.4% in April, nearly doubling the record largest decline set last month when sales fell by 8.7%.

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® deteriorated further in April, following a sharp decline in March. The Index now stands at 86.9 (1985=100), down from 118.8 in March.

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

PURCHASING MANAGERS INDEX

Manufacturing contracted in April, as the PMI® registered 41.5 percent, 7.6 percentage points lower than the March reading of 49.1 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

Tuesday, April 21, 2020

Entering Uncharted Waters

Dear Subscribers: All of us at KeyPoint Partners wish you and your families continued health and safety during the pandemic. We thank you for your ongoing support.


It was just over a decade ago that the retail industry was facing its most difficult period since the Great Depression. Retail stores were closing by the hundreds and vacancy skyrocketed by more than 50%  - over a three-year period, although it felt like it overnight. 

At the same time, online shopping was gaining momentum, with Amazon leading the way. It was the perfect storm—“hit ‘em when they’re down” as they say. From that point on we have seen online sales growing rapidly at double-digit rates while brick-and-mortar sales struggle to stay above water.

Since that time, however, shopping center landlords have done a respectable job of filling vacancies left behind in the wake of the Great Recession. In large part they did it with Amazon-proof tenants, tapping categories such as restaurants, bars, movie theaters, trampoline parks, bowling venues, adventure parks, escape rooms, and fitness centers. These efforts were enough for many shopping centers to survive another day.  But now the industry has been plagued with COVID-19, maybe the most impactful watershed moment that retail veterans have experienced in their lifetimes.

Right now, everyone wants to know when stores will open, how will openings be rolled out, and what operational guidelines will be in place when states give the go-ahead. We were handed the map, Guidelines for Opening Up America Again, a few days before this writing. First, states need to get past a 14-day declining trend in new coronavirus cases, or percentage of positive tests, before they can begin a three-phase approach leading to a “new normal”. If all goes well and there are no setbacks, it’s possible for some states to reach the third phase by June or July. Nevertheless, social distancing and hygiene practices are probably here to stay for a while. 


But what will the retail world look like when the dust settles? Well, if the writing wasn’t already on the wall for regional enclosed malls, it sure is now. The best should survive, but the worst won’t. There’s just too much pressure on department stores and mall-based retailers for the weaker centers to continue operating. We’ll likely see a number of bankruptcies coming among the prime suspects such as JCPenney, Neiman Marcus, J Crew, Macy’s, GNC, Lands’ End, and the Signet jewelry stores, as well as the Tapestry group of fashion chains. Even L Brands and Gap were recently downgraded.

Beyond the malls, there should be concern for numerous retail and entertainment operators where face-to-face interaction is part of the business. It’s the restaurants, movie theaters, and other Amazon-proof concepts which played such an important role in filling space in many shopping centers during post-recession era. Will those business models work now if social distancing cuts seating capacities in half? Will consumers patronize these establishments with the same frequency as in the past, if at all? At least until a vaccine is approved, maybe not.

With respect to independent mom-and-pop operators, we can only imagine what the landscape will look like. Even with assistance from the federal government, there’s a strong chance that many will simply run out of cash. Given the fact that retail sales pre-virus had been just plodding along, the impact of the coronavirus may push a significant slice of this retail segment over the edge. 

It would be a godsend if strong pent-up demand leads to a sharp recovery and by fourth quarter we are out of the woods. But before we can expect clear sailing, we’ll first have to venture into uncharted waters.
Bob Sheehan
Vice President of Research
BSheehan@KeyPointPartners.com


KeyPoint Partners Company News


National Retail News: COVID-19 Updates

According to the Commerce Department, retail sales plunged a record 8.7% during March, the largest monthly fall since the Commerce Department began tracking retail sales three decades ago. The previous record was a 3.9% drop in November 2008, during the Great Recession. Core retail sales, excluding the volatile auto and gas components, fell 3.1%. Online spending rose 3.1% and grocery sales jumped 26.9%. Sales at department stores fell 19.7%, furniture stores saw a 26.8% drop, sporting goods sales fell 23.3%, and clothing sales fell by 50.5%. Auto and auto parts sales plunged 25.6% and gas sales fell 17.2%. However, even with the significant decline from February to Match, total retail sales from January through March of this year are up 1.1% compared to the same period a year ago.  See sales reports below.

Covid-19:
We can’t include every headline related to retail and the pandemic. However, here are some key ones:
 Tapestry, Parent of Coach and Kate Spade,will extend store closures in North America and Europe through April 24, and will continue to pay employees through that time…Michaels is expanding its product delivery options with a national rollout of a contactless, same-day delivery option at US stores…Starbucks plans to re-open as many stores as it can with modified operations and safety measures, and will gradually expand and shift in-store customer experiences. Some locations will continue as drive-thru only, while others may feature mobile ordering for contactless pickup and delivery. Others may reopen with to-go ordering only...Amazon will reportedly delay its annual Prime Day due to concerns over COVID-19 until August or even later. Since its launch in 2015, Prime Day has always occurred in mid-July. The delay could reportedly cost anywhere from $100 million to $300 million. Amazon has seen surging demand from the COVID-19 pandemic. A postponement would negatively impact Amazon third-party sellers, who participate in Prime Day sales...The number of retail employees who have been furloughed number will over 1 million as of this writing. Here’s a partial list of retailers who have furloughed all or most employees: Abercrombie & Fitch, Ascena, Best Buy, Burlington, Dick’s Sporting Goods, Gap, Kohl’s, L Brands, Macy’s, Ralph Lauren, Ross Stores, Reformation, REI

Accelerating News

Note: Accelerating/Decelerating announcements may be subject to change in light of current conditions.

Stop & Shop, Aldi US and Lidl US are expanding hiring as grocery retailers nationwide seek extra hands amid the pandemic. Stop & Shop plans to hire at least 5,000 new associates for regular part-time jobs in stores, distribution centers and delivery operations in New York, New Jersey, Connecticut, Massachusetts and Rhode Island. Aldi US has hired nearly 7,500 employees. Lidl US announced plans to hire up to 1,000 temporary employees across its store network and distribution centers... Rise Southern Biscuits & Righteous Chicken has signed a 5-unit deal to expand to Tulsa, OK. Rise currently operates 16 locations in 6 states, with over 160 units in development...Ulta Beauty still plans to open new stores this year, but not as many as the 75 it had previously announced. Its 1,254 stores remain temporarily closed...Lidl is building a network of large distribution centers along the Eastern seaboard that will be capable of serving 1,500 or more stores when fully operational. The grocer recently opened its third center, in MD. A fourth warehouse, the company’s largest to date, will be located in southeast of Atlanta.  Any one of these facilities would be able to handle between 300 and 400 stores depending on sales volumes and replenishment frequency, based on the experience of other food retailers. Lidl currently has 100 US locations...Sea Bags plans to open 8 new locations this year, once the crisis is over. Sea Bags  has 25 retail locations from Maine to Florida…Sherwin-Williams added 62 net new stores in 2019 in its Americas Group unit. It plans to add 80-100 new stores in 2020…Big Blue Swim School has signed 4 franchise deals for a total of 14 units in March. The company has signed 22 units so far this year. Big Blue Swim School has 5 locations, and plans to grow through franchising to 150 by 2021...Raley’s has opened a new flagship location in Sacramento, CA as the grocer continues to serve customers through the pandemic. The 55,000 s/f store can process up to 250 orders for pick-up or delivery per day via the chain’s online ordering platform. Raley’s owns and operates 129 grocery stores under the names Raley’s, Bel Air Markets, Nob Hill Foods, Murieta Market by Raley’s, Market 5-ONE-5, Food Source stores, and Sak N’ Save…AlphaGraphics will open a new store in Hamilton, NJ later this year. AlphaGraphics has over 285 locations across 6 countries, and plans to open 25 new stores every year for the next 3-5 years.

Decelerating News

Note: Accelerating/Decelerating announcements may be subject to change in light of current conditions.

The parent of the Logan’s Roadhouse and Old Chicago casual chains said it is “mothballing” all 261 of its restaurants after a lender withdrew financing to keep the bankrupt company in operation until it could emerge from Chapter 11 protection. All of the restaurants are currently closed… Duluth Trading plans to reduce new store openings and take other measures that will curtail expenses and capital spending in 2020. The company has 5 new stores planned in 2020, including 4 with signed leases, that will continue but the company is holding off additional locations. For the year, the company opened 15 retail stores to end with a total of 61... In a court-supervised asset auction, Fairway Market awarded bids for 2 store leases in NJ to Amazon and 6 locations in NYC to ShopRite operator Village Super Market Inc. and Key Food Cooperative member Seven Seas Georgetowne LLC…GameStop is set to permanently close 300 more stores in the coming year... The parent of the Brio Italian Mediterranean and Bravo Fresh Italian casual chains has filed for Chapter 11 bankruptcy protection after closing 71 of its 92 remaining restaurants.The chains had been struggling with sales and profit declines before the COVID-19 pandemic. In January, 10 stores were closed…Pier 1 Imports, which filed for bankruptcy protection in February, is expected to receive a revised purchase offer that would keep open less than 100 of the retailer’s 900-plus locations. The bid is from CSC Generation, whose DirectBuy subsidiary acquired the assets of Z Gallerie in a bankruptcy auction last summer. Pier 1’s bankruptcy court process has been put on hold while its stores are temporarily closed due to the pandemic... TGI Fridays will not be going public after Allegro Merger, a shell company that agreed to take the casual-dining chain public in a reverse merger late last year, opted to back out of a planned $380 million merger and return money to shareholders…A&G Real Estate Partners concluded the sale of 10 Earth Fare store leases to Winn-Dixie, Whole Foods Market, Aldi and an investor group including one of Earth Fare’s founders. A&G also negotiated lease termination agreements for 9 other locations of Earth Fare. In early February, Earth Fare filed for Chapter 11 bankruptcy protection and announced plans to close all of its stores and go out of business... Stein Mart and Kingswood Capital Management have mutually agreed to terminate their merger agreement, announced in January, which would have taken Stein Mart private…Gold’s Gym has closed 30 company-owned clubs, noting that the pandemic had caused the company to evaluate the viability of some of its locations. Gold’s Gym International had temporarily closed all of its corporate-owned locations on March 16.

New England News

Restaurant chain Wagamama laid off about 140 people across multiple MA locations in March. Primark laid off about 350 people from its MA locations. The TJX Cos. Inc. has closed its stores and will furlough store and distribution center employees in the US and Canada. Paper Source laid off 88 employees across its MA locations. Sephora, Destination XL, and DSW have also laid off a substantial number of employees in MA.

Mall News

True Religion is the first major retailer to file under Chapter 11 amid the spread of COVID-19. The company made the decision in March to close its 87 stores. The denim maker’s wholesale business has also been hurt by the closures of its retail partners Macy’s, Nordstrom, Saks Off 5th, Nordstrom Rack, TJ Maxx and Burlington.

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 reported that March retail sales were down 8.7% compared to February, the single largest annual monthly retail sales decline since this data was first tracked by Commerce in 1992.

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® declined sharply in March, following an increase in February. The Index now stands at 120.0 (1985=100), down from 132.6 in February.

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

PURCHASING MANAGERS INDEX

Manufacturing contracted in March, as the PMI® registered 49.1 percent, a 1-percentage point decrease from the February reading of 50.1 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

Monday, March 23, 2020

The Last Domino?

Life has been tough on all retailers in recent weeks, particularly the distressed ones. First restaurants and bars were ordered to close, then major retailers elected to close, and then entire malls followed suit. The response to COVID-19 threatens to impact retail foot traffic in ways never before experienced – and to exacerbate slowing sales trends at brick-and-mortar stores as shoppers continue to shift dollars toward online retailers. As noted by Retail Dive, retail traffic for the second week of March was down 30% year-over-year. This is certainly reflected in the recent announcement by Amazon that they will be hiring another 100,000 workers to handle the overload in warehouses and delivery systems, while Walmart his hiring another 150,000 employees to support the flood of both online and store traffic. The rush to online shopping should create at least some concern that when we eventually “flatten the curve”, not all the business will return to the brick-and-mortar side of the scale.

Not all retailers are facing a doomsday scenario. The fear of quarantines has implanted panic into the hearts of shoppers, causing them to overwhelm supermarkets, drug stores, warehouse clubs, discounters, dollar stores and home improvement stores. There’s no shortage of business among retailers that stock essential goods. Even Best Buy reported a run on home office equipment as many employees are encouraged to work at home. A long list of leading retail chains that rely on discretionary spending should be expected to survive a lengthy slide in performance, although it won’t look pretty on their annual reports this year. We’re talking about the likes of Apple, Ulta, TJX divisions, Kohl’s, Dick’s, Auto Zone, and many others.

That leads naturally to a discussion about those on the edge, the distressed retailers. For this segment of retail there was already much consternation about long-term survival. Among department stores, Neiman-Marcus and JCPenney are both on thin ice. Neiman has been struggling with debt; incremental sales declines will likely weigh heavily on its chances to remain viable. Penney faces similar debt problems. Although new CEO Jill Soltau is making measurable efforts to change the way this once-formidable retailer does business, it may be too little too late. It has been attempting to restructure debt, but it’s still operating with negative cash flow and appears to be heading for at least 15% sales declines in 2020, which may be too much to overcome.


It was already a bad year for Pier 1 before coronavirus. It had to close approximately 450 stores and file for bankruptcy. It appears that COVID-19 may force an eventual liquidation of the chain. Ascena Retail Group, owner of Ann Taylor, Loft, Lane Bryant, Catherine’s and Justice, is also at risk. The apparel retail group recently liquidated the Dressbarn chain following the sale of its Maurices chain earlier last year. It has considered selling other divisions as well. Time will tell if it is able to avoid bankruptcy this year, but serious doubts remain. Destination Maternity, which had already filed for bankruptcy, is likely not to withstand the loss of sales over the coming months. Another apparel chain to keep an eye on is J Crew. And with so many mall based apparel chains and department stores under pressure, there will only be more pressure on many regional malls to keep the lights on.

Athough this is not the most comforting article you could be reading, I am cautiously optimistic that it may be a much healthier environment for retailers that will come out of this and recover, which I believe represents the vast majority of brick-and-mortar stores. Maybe we’re entering an era when retail supply is more in balance with demand and overstored markets are a thing of the past; maybe it took the last domino to fall before that could happen.

Bob Sheehan
Vice President of Research
BSheehan@KeyPointPartners.com