Wednesday, December 14, 2011

Annual Re-cap

Seasons Greetings. As we approach the end of yet another eventful year, we thought that, as we did last year, we’d review some of the observations, predictions, and pronouncements we’ve made in this publication in 2011.

In Closing The Book On Borders? in the January issue, Vice President of Research Bob Sheehan wrote about the potential impact of Borders’ demise: “This week we hear that Borders has hired bankruptcy and restructuring lawyers to figure out its next move. On a local level, according to KeyPoint Partners’GRIID™, Borders currently operates 15 superstores in Eastern Massachusetts, with stores averaging approximately 25,300 square feet. Under a worst case scenario, Borders liquidation would result in approximately 379,000 square feet of vacant space in Eastern Massachusetts, potentially bumping up the vacancy rate in the region from its current level of 8.6% to 8.8%. How bad would that be for the retail real estate industry in this area? Well, using the recent closings of Circuit City and Linens ‘n Things as reasonable gauges of expectations, it’s not so bad. Those two chains operated 38 stores in Eastern Massachusetts, with an average store size of approximately 32,000 square feet. In just about two years, the majority of those units have been absorbed, with only 9 vacant stores remaining. With an improving economy and somewhat smaller prototypes, finding replacement tenants shouldn’t be too daunting a task.”

In Are You Listening? in the February issue, Marketing Manager Chris Cardoni reinforced the importance of listening in personal as well as business relationships: “Of course listening is of the utmost importance in a personal relationship, but its importance in the business world, no matter your business, is absolutely vital. Are you listening, really listening, to your customers, clients, co-workers, constituents... none of us can afford to be complacent; we have to keep listening, because the consequences of not listening can be serious, even dire. Was the government of Egypt listening? Has Blockbuster been “listening” carefully to the business environment? Has Borders?”

In Sears Goofing Up Again? in the March issue, Bob Sheehan pondered the direction of the perennially direction-less Sears: “For more than a decade now, in a series of corporate “goof ups”, Sears has been searching for an ever-so-elusive identity. One could argue that the real value in Sears Holdings lies mainly in the real estate, and secondarily in selected brands such as Kenmore, Lands’ End, Craftsman and Die Hard. In addition to marketing closed-store opportunities, Sears Holdings Corporation Realty is currently marketing surplus space to other retailers in existing Sears stores that are inefficiently oversized. It is also not unreasonable to conjecture that Sears could develop relationships with other competing retailers to sell Sears brands in their locations. Perhaps very soon you’ll buy your Craftsman circular saw or Kenmore washer somewhere other than Sears. But will that scenario, coupled with the sale or sub-lease of Sears space, be enough to reinvigorate the storied Sears name? Time alone will reveal the direction in which D’Ambrosio will steer the company, and tell us whether he’s the real deal, or just another Sears goof-up.”

In Time to Pay More (Tax) Attention? in April, Bob commented on the online sales tax issue: “If I walk to the shopping center down the street and make a purchase, I’ll pay a state sales tax on that purchase, as I’m sure you would, too. But what if I go online and purchase the same item? A 1992 Supreme Court ruling prevents states from collecting sales tax from an online retailer if that retailer has no physical presence in that state. Technically consumers are required to pay the applicable state sales tax, via the honor system, in the form of a “use” tax – which we all do scrupulously, correct? I didn’t think so. Assuming an average 5% sales tax across the nation, total electronic shopping and mail-order house sales of $272 billion would generate tax revenue of $13.6 billion. That’s a great deal of lost revenue – revenue that lawmakers and others are gearing up to claim.”

In With Borders Gone, Who's Next? in the August issue, Bob Sheehan pondered the next big retail bankruptcy: “Right out of the box, we'll tell you that we haven't the foggiest. I suppose we have a number of names that make the Watch List, but no particular retailer stands out. While we continue to see fallout from some furniture operators and other independents, there is no significant chain that jumps out at us regarding a looming bankruptcy.”

In Mixed Signals in November, Bob commented on retailers who were expanding, while others are downsizing: “Most of us would agree that the worst of the retail cycle is behind us. But as we tread wearily through a very sluggish recovery, we are seeing a number of prominent (and some not so prominent) retailers announcing substantial store closings and even liquidations. We’ve observed a number of additional store closing announcements of late, especially in our geographic territory, including the Syms/Filene’s Basement shutdown of 46 store locations. Daddy’s Junky Music, a 39-year old, New England-based chain of 12 units, is another permanent casualty, and so is Priscilla of Boston, the 19-unit, high-end bridal boutique, which operated a store on Newbury Street since 1945. Gap also announced a substantial store reduction of 189 namesake stores, or 21% of its U.S. total, by the end of 2013. A number of weak retailers are holding their collective breaths for holiday season sales results, because a poor performance at the end of this difficult year could lead to substantial closings after the New Year. Stay tuned for our January issue!”

The full versions of these articles can be found at KeyPoint Partners.com. We encourage you to visit, review our KeyPoint Reports on key retail markets, look at our Properties For Lease listings, read the KeyPoint Retail RoundUp, or simply find out more about us and our services. And of course we welcome you to contact us with all your commercial real estate needs. On behalf of all of us at KeyPoint Partners, have a happy holiday season and a peaceful, prosperous New Year.

The Partners of KeyPoint:
Mark A. Becker, MBecker@KeyPointPartners.com
Robert K. Lemons, RLemons@KeyPointPartners.com
William A. Lawler, WLawler@KeyPointPartners.com
Brian Kelley, BKelley@KeyPointPartners.com

Company News














Honored: Bob Lemons, KeyPoint Partners’ Managing Partner, was named Executive of the Year at the BOMA Boston TOBY & Industry Awards ceremony on November 17...New Employee: Catherine Connors has joined the Middleboro, MA office as a CAM Specialist. Cathy comes from Beacon Capital Partners, where she worked for 13 years.

Industry News: National

US comparable chain store retail sales for November rose by 3.2% year-over-year as measured by the ICSC's tally of 21 major retail chains, the slowest pace since March, according to the ICSC. Among merchandise categories, Wholesale Clubs rose by 9.0%, followed by Luxury Stores with a 6.5% gain. Discounters gained 2.3%. Apparel gained 0.8%, Department Stores rose 0.4%, and Drug Stores rose 1.9%. Among individual retailers, Gap dropped by 5.0% and Limited gained 7.0%; Costco was up 9.0%. Nordstrom was up 5.6% and Saks gained 9.3%; Target grew by 1.8% and TJX by 4.0%. Macy’s gained 4.8%, JCPenney dropped 2.0%, and Kohls fell by 6.2%; Rite Aid rose 1.9%.

Industry News: Accelerating

Hot Topic Inc.’s Torrid division will open more than 20 plus-size fashion Torrid stores in 2012, many of them located in strip centers rather than traditional malls. The fleet of Torrid stores could grow to more than 335 locations. Hot Topic runs more than 634 Hot Topic stores and 146 Torrid stores, mostly in the continental US…City Sports has opened its 21st store, in downtown Silver Spring, Md. It is the retailer’s second location in the metro DC area to open in the past year. The store features an interactive electronics section that offers shoppers the use of in-store iPads to access information about products and the ability to wear-test headphones…A new retail concept, Wonder!, has opened it first location in Deerfield, Il. The 135,000 s/f space combines a broad selection of baby gear, furniture, bedding, apparel, and toys with an array of experiential elements, and features a half-acre interactive play area, 10 classrooms and a stage that will host special events, concerts and activities…1-800-FLOWERS.COM, Inc. announced the signing of a 45-store franchise development agreement for its Fannie May Fine Chocolates division with GB Chocolates, LLC. GB Chocolates will open a minimum of 45 new Fannie May franchise stores beginning in December 2011. All stores under the agreement are required to be opened and operating by year-end 2014. GB Chocolates has also acquired 17 existing Fannie May stores from the Company…P.F. Chang’s China Bistro Inc. plans to open an even more limited-service and pared-down-menu version of its fast-casual Pei Wei Asian Diner in Phoenix next April, executives said Friday. Called Pei Wei Asian Market, the new test restaurant will take over an existing Diner unit in Phoenix, said K.C. Moylan, president of the 173-unit Asian Diner division. The division is also looking for three to five additional locations around the country...Dollar General Corp. will open 40 new Dollar General Markets, its expanded grocery concept, in 2012, the first new DG Markets since 2007. The company operates 62 Dollar General Markets…J.C. Penney Co Inc bought a stake in Martha Stewart Living Omnimedia Inc and will build mini-stores under that brand. Martha Stewart store-in-stores will open at Penney in February 2013. ..Wingstop, the national chicken wing chain, opened its 500th restaurant this month, in Brooklyn, NY. Wingstop was founded in 1994 and began franchising in 1997.

Industry News: Decelerating

Brown Shoe Co., parent of Famous Footwear, said it will close between 70 and 75 Famous Footwear stores in fiscal 2011 and 2012, for a total of about 145 store closures. The company will also be closing all of its Brown Shoe Closet and F.X. LaSalle stores, and will exit several business units including all of its children's wholesale and some women's specialty and private brands...Charming Shoppes will seek to sell its Fashion Bug clothing store chain and concentrate on growing its flagship Lane Bryant brand. The company will also undergo a strategic review of all its operations and finances. The company plans to open 125 new Lane Bryant stores over the next few years, relocate 125 stores from malls to lifestyle and strip shopping centers, and close 50 stores when their leases expire, bringing the number of Lane Bryant stores and outlets to 900...Pacific Sunwear of California Inc. will close as many as 200 of its weaker-performing stores around the country...RoomStore, the last surviving segment of the Heilig-Meyers furniture store chain, filed for Chapter 11 bankruptcy protection, with plans to reorganize around a smaller core of stores. RoomStore operated 66 RoomStore locations at the end of its second quarter, and owns 65% of Mattress Discounters, with 83 bedding specialty stores in the mid-Atlantic. RoomStore said it will continue to operate its stores while restructuring, and will retain its interest in Mattress Discounters…Sears Holding Corp. will spin off its Orchard Supply Hardware Stores later this month, with the hardware chain becoming a standalone public company. Sears bought Orchard Supply in 1996.

Industry News: New England

TD Bank has notified federal banking regulators that it plans to close down four of its facilities in Gloucester, Essex, Salisbury, and South Yarmouth, Massachusetts after the first of the year. TD is also planning to close one branch each in Connecticut, Vermont, New York state and New Jersey.  TD Bank has more than 1,200 branches in 15 states from Maine to Florida and the District Columbia. It includes branches in 114 cities and towns in Massachusetts alone...A Container Store will open in the Northshore Mall in Peabody, MA. The store will occupy 25,000 s/f of space previously occupied by a Bugaboo Creek Steakhouse; this will be the chain’s third Container Store in MA…Wegmans, which opened a full-scale store in Northborough, MA in October, plans to build a 70,000 s/f store at Chestnut Hill Square on Route 9, directly across from The Mall at Chestnut Hill in Newton, MA. The company does not have a construction schedule or opening date planned, however, according to a press release. Founded in 1916, Wegmans has 79 stores in New York, Pennsylvania, New Jersey, Virginia, Maryland and Massachusetts…Kelly's Roast Beef is closing its Allston operation at 1245 Commonwealth Ave. after a little more than a year there…The Palm Restaurant at Westin Copley Place in Boston will close at year’s end, and move to Boston's Financial District. The restaurant was unable to renew its lease at the Westin Copley.The Palm operates 30 locations. It opened in Boston in 1996...Bernie & Phyl’s will open two stores in Natick, MA  next month, buildings at the former Lexington Furniture site in a 34,000 s/f building and a 5,000 s/f. Plans call for a large showroom along with an upscale “Metro Living” concept in the smaller building. The company currently has seven stores…Dave & Buster’s opened its first Massachusetts location in Braintree as part of a national expansion. Dave & Buster’s plans to open 20 new locations across the country over the next five years. The Braintree location, in the former Circuit City building at the South Shore Plaza, is the third new Dave & Buster’s to open this year...Brio Tuscan Grille opened last month at Danbury (CT) Fair Mall, one of 50 of the restaurants that have opened since 1992. Brio joins The Cheesecake Factory, Dick's Sporting Goods and Forever 21 in space formerly leased by Filene's...Big Y has entered into an agreement to buy the assets of two pharmacy locations in Springfield and Wilbraham, MA  operated by Louis & Clark Drug Stores. Big Y will operate the stores as Big Y's Louis & Clark Pharmacies. With the addition of these two locations, Big Y will have 40 pharmacies throughout their 62-store chain.

Commerce Department Monthly Sales

Retail sales rose 0.2% in November, the Commerce Department reported this month, lower than October's gain, which was revised higher to show a 0.6% increase. nsumer spending rose sharply in the third quarter but November's retail sales growth was the weakest in any month since June.

Treasury Yields

Consumer Confidence Index

The Conference Board Consumer Confidence Index®, which had declined in October, improved in November.The Index now stands at 56.0 (1985=100), up from 40.9 in October.The Present Situation Index increased to 38.3 from 27.1. The Expectations Index rose to 67.8 from 50.0.

Purchasing Managers Index

Manufacturing continued its growth in November as the PMI registered 52.7 percent, an increase of 1.9 percentage points when compared to October's reading of 50.8 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.