Tuesday, December 18, 2012

We Take A Look Back

Seasons Greetings! The end of yet another eventful year approaches, and it’s time for our annual look back at just a few of the observations, predictions, and pronouncements we’ve discussed in this publication in 2012.

In Sears: The Beginning of the End?, in our January issue, Vice President of Research Bob Sheehan reacted to the closings of over 100 Sears stores by observing that the venerable retailer’s “too big to fail persona” seemed precarious at best, but concluded, “With total sales last year of more than $35 billion, a store count above 4,000 units, and an employment base of more than 300,000 workers, it is unreasonable to think that Sears Holdings will follow the path of Circuit City, Borders, and Linens ‘n Things (among many others) by liquidating anytime soon. Sears Holdings remains a top 10 retailer and is surpassed only by Walmart among department store firms. We don’t recall such a top ten retailer ever going out of business. Yet we also believe that the latest wave of store closings, a mere 2% or so of its store count, is far from the last; if the slight bleeding turns into major hemorrhaging, who knows what might happen next?” Note: in October, Sears spun off its Hometown and Outlet stores. Sears announced in February that it would split off the companies as a separate publicly traded entity, Sears Hometown. In November it was reported that net income for the spinoff had risen 29% for the quarter.

Bob Sheehan saw so much to comment on at JC Penney that he wrote about it twice this year, in Ron Johnson’s Next Attempt at Retail Magic: The Transformation of JCPenney in the February issue, and in November’s JCP: Doomsday or New Beginning? Of Johnson’s promotion-free “fair and square” pricing policy, Bob wrote, “No matter how much creativity Johnson can instill, it will all be for naught if the new strategy doesn’t draw substantially more shoppers (particularly younger ones). But it’s a gutsy move, an attempt not merely to improve the company, but reinvent it, which if successful will be no small achievement.”

In November, reacting to a “precipitous fall” in JCP comp sales, Bob wrote, “in my 30-plus years in the retail industry, I can’t recall any other retailer’s sales falling as dramatically in such a short stretch”, but went on to note that “the loss in sales is largely a result of previously loyal shoppers jumping ship for Kohl’s, Macy’s, Dillard’s and Target. Sales at these firms have been generally improving this year for which they can probably give thanks, at least in part, to Penney’s – but that thanks may be short-lived if those shoppers begin to migrate , and Johnson succeeds in drawing in a new, younger shopper. While many people think Ron Johnson’s strategy for JC Penney is way off course, its brethren department stores better hope Johnson doesn’t, eventually, have the last laugh”. Note: Earlier this month JCP listed listed company morale among new “risk factors” surrounding workforce reductions, and concern that customers may not accept new marketing and merchandising strategies, in its Q3 regulatory filing.

Two of our articles this year were based on numbered lists: 10 Keys to A Shopping Center Event (Marketing Manager Chris Cardoni, March) and 4 Key Points About Distressed/Foreclosed Properties (VP of Property & Asset Management Bob Hayes, August). Chris Cardoni shared some of the secrets our Marketing Team’s has learned through staging successful, family and community-oriented promotional events at our client’s shopping centers, noting that “well-thought-out, carefully-executed, community-based events can enhance your property’s relationship with tenants, potential tenants, shoppers, and the surrounding community”. Note: a recent Day of Giving at a Pittsburgh shopping center brought together Santa, live carolers, and non-profit Operation Troop Appreciation, a charity supporting American troops overseas.

Bob Hayes based his insights on managing troubled properties on KeyPoint Partners’ - and Bob’s own - wealth of experience handling troubled assets for special servicers and other clients: “From the first day you take on a distressed or foreclosed property, you’re thinking about the last day you own it. A service company should have that goal in mind, too. An exhaustive takeover checklist (such as the one we use) assures that no detail is overlooked. The checklist is a blueprint for everything you need to know, and to which you have to pay attention. It takes a special set of skills, and a special way of thinking, to handle the distinct challenges of such assets”. Note: if you’d like to see our checklist, or if you have questions about how we can help you with distressed properties, contact Bob Hayes at BHayes@KeyPointPartners.com.

In July’s E-Tail to Retail, Chris Cardoni wrote about rends in online retailing: “It goes without saying that online retailing has evolved from a developing but still somewhat separate phenomenon, warily observed and tentatively sampled by what are still sometimes referred to as “bricks-and-mortar” retailers, to simply one of several ways in which virtually all of those retailers do business, with varying degrees of dedication, innovation, and success - a world of Twitter feeds, tablet wars, showrooming, and QR codes.” Note: a report by comScore says that for the holiday season-to-date, 11 individual days have surpassed $1 billion in online retail sales, surpassing last year's record of 10 such days.

In Mobile Dials It Up (September), Bob Sheehan wrote about the “phenomenal recent growth” in the mobile communications retail category, as tracked in our proprietary GRIIDTM retail database: “Even during the Great Recession, consumers have to run out and buy the latest mobile devices. From juveniles to seniors, mobile phones and tablets have become a basic necessity. That’s a big piece of business, and it makes sense that everyone from discounters to wholesale clubs to office supply stores to online sellers want a share of the sales dollars. The category still has room for growth”. Note: in our article we mentioned Apple, saying,”When the iPhone 5 was released this month, sales reached 2 million units the first day.” After that initial burst, sales of the iPhone 5 stumbled a bit, with a long wait for the next batch and a reported lag in supplies and accessories; then of course there are the ongoing issues related to the infamous Apple Maps app on the iP6.

Visit KeyPoint Partners.com to read the full version of any article above, review our KeyPoint Reports on key retail markets based on our proprietary GRIIDTM, look at our Properties For Lease listings and Tenant Representation assignments, read the KeyPoint Retail RoundUp at Blog.KeyPointPartners.com, or simply find out more about our company and our services. We welcome you to contact us with all your commercial real estate needs. Have a happy holiday season!
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

New Employees: Brian Dell'Erario joined the Burlington Office as a Property Operations Assistant. New Business: The Leasing Team has added 436-438 Southbridge Street, Auburn, MA, a 24,000 s/f space near the Auburn Mall, and 310 Andover St., Peabody, MA, a pad opportunity adjacent to Peabody Place, to its retail leasing portfolio. Vice President of Leasing Don Mace is handling both assignments.

Industry News: National

US chain store comp retail sales for October rose by a light 1.7% over last year as measured by the ICSC's tally of 22 major retail chains. According to the ICSC, November performance was impacted by Hurricane Sandy during the first two weeks of the fiscal month; the strong demand from online sales during the final week of the month, which will be booked in December's fiscal month; and the strength of lay-away purchases that will also be booked in December. Among merchandise categories, Wholesale Clubs led with a gain of 6.0%. Apparel followed with a 3.1% gain. Department Stores dropped 2.4%, Discount Stores were flat and Luxury Stores dipped 1.1%. Drug Stores dropped 5.3%. Among individual retailers, Gap gained 3.0%, and Limited rose 5.0%; Costco rose 6.0%. Nordstrom was down 1.1%; Target fell by 1.0% and TJX rose 3.0%. Macy’s dropped 0.7%, and Kohl’s fell by 5.6%; Rite Aid was down 3.0%. See retail sales results on Page 4...In a reported shakeup at Delhaize America, Beth Newlands Campbell has been named to succeed Cathy Green Burns as president of Food Lion. This follows the recent departure of Ron Hodge as CEO of Delhaize America and an effort to revive the Food Lion banner. Roland Smith took over Delhaize America after Hodge's announced retirement. Newlands Campbell had been president of sister chain Hannaford Supermarkets. Brad Wise, who had been Sr. VP of human resources for Delhaize America, was named president of Hannaford and Sweetbay...Staples Inc. president and COO Michael Miles will leave the company effective Feb. 2. to accept a position with investment firm Berkshire Partners.

Industry News: Accelerating

Urban Outfitters is planning 49 new stores, including 18 Urban Outfitters, 15 Free People, 14 Anthropologie, one BHLDN and one Terrain for fiscal 2013…DSW Inc. plans to open 25 to 30 new stores next year…PGA Tour Superstore opened its first Northeast location, a 57,000 s/f store in Paramus, NJ, the chain’s 15th location…Ulta Beauty will open about 125 stores in 2013. In the third quarter, Ultaopened 49 stores and ended the period with 537 stores…Starbucks will open at least 1,500 US stores in the next 5 years...Fatburger announced the signing of an agreement with The Riese Organization to bring the brand to New York City and surrounding areas. The first Fatburger will open in the Murray Hill neighborhood in the spring of 2013.  Riese will develop and operate multiple Fatburger locations across Manhattan, as well as Queens, Bronx, Brooklyn, Nassau, and Suffolk. Fatburger currently has more than 140 locations across the United States, Canada, Asia, and the Middle East...Dollar General plans to open approximately 635 stores in fiscal 2013, including 20 Dollar General Market stores and 40 Dollar General Plus stores. The company also plans to remodel or relocate approximately 550 stores…Yumz Gourmet Frozen Yogurt has locked in 50 locations in its first year of franchising and will open more than its goal of 100 new stores by 2014. Yumz Gourmet Frozen Yogurt opened its first store in Chicago in 2010...Cinnabon opened its 1,000th bakery. Since opening its first bakery in 1985, Cinnabon has expanded its footprint to cover 48 states and 50 countries this year. Throughout the remainder of 2012 and into 2013, Cinnabon plans 200 new domestic and international openings…Hurricane Grill & Wings announced 18 new restaurant openings in the coming year. The chain finished 2012 with 48 locations in six states...CVS Caremark will accelerate MinuteClinic’s growth, and now plans to operate at least 1,500 clinics by 2017, continuing to enter new markets, including Hawaii and Louisiana next year...Caribou Coffee Company, Inc. and the Joh. A. Benckiser Group announced a definitive merger agreement under which an affiliate of JAB will acquire Caribou for approximately $340 million. Caribou will continue to be operated as an independent company with its own brand, management team and growth strategy. As of September 30, 2012, Caribou Coffee had 610 coffeehouses.

Industry News: Decelerating

GameStop will close 200 stores next year. The video game retailer has more than 6,600 stores in 17 countries…Tesco will likely sell or close its entire US presence, which means that 199 Fresh & Easy stores could be shuttered or sold after 5 unprofitable years.

Industry News: New England

Yogurtland plans 20 greater Boston locations in the next year. Yogurtland currently has more than 190 US locations with more than 50 additional locations scheduled to open over the next 6 months…The British Beer Co. has signed a lease to move into a 5,800 s/f commercial space at 99 Hanover St. in Portsmouth, NH….Citigroup will close 9 of 31 MA branches and lay off about 66 employees. Citigroup plans to close about 44 bank branches nationwide as part of the cost saving plan. Its Massachusetts and Pennsylvania operations would be the hardest hit of its domestic markets…The Tile Shop will open its first MA store in the former Loehmann’s space at Sherwood Plaza in Natick. A second store is slated to open in Avon. The retailer operates more than 60 stores in 20 states…Ulta Beauty will open next summer at Patriot Place in Foxborough, MA. The 10,000 s/f store will be Ulta’s 8th MA location...Federal Realty Investment Trust has reportedly signed a purchase-and-sale agreement to buy the 12-acre Somerville site owned by IKEA at Assembly Row. Federal Realty is the developer of the Assembly Row project, an outlet mall scheduled to open in 2014. IKEA dropped plans to build a 350,000 s/f store there. Federal is now considering a supermarket, residences and offices on the site. The acquisition will expand Assembly Row, which already includes 450 homes, a theater, a retail facility and restaurants…Amazon.com will begin collecting MA sales tax on purchases made by Bay State customers starting next fall, according to Governor Deval Patrick’s office . Under federal law, online retailers do not have to collect sales taxes from buyers unless the company has a physical presence in the state. Officials in the Patrick administration contend that Amazon’s purchase of a North Reading technology firm, Kiva Systems this year, as well as its ongoing efforts to recruit engineers for a new office in Cambridge, establish the kind of physical presence necessary to collect sales tax. Amazon now collects taxes in eight states...Boston-Cambridge natural-foods grocer Harvest Co-Op opened its Forest Hills store near the Arnold Arboretum in Jamaica Plain. Harvest Co-Op recently vacated its Central Square store in Cambridge, due to a rent increase. Its existing store at 57 South Street in Jamaica Plain will remain open..Lam's Restaurant, at 825 Washington St. in Newtonville, MA a popular eatery serving Chinese and Thai cuisine, will close this month after more than 10 years in business. The restaurant's lease expired in September...Market Basket is scheduled to open its first Maine store next fall, redeveloping the former Lowe's at The Shops at Biddeford Crossing, which has been empty since 2011. Market Basket has 69 stores in Massachusetts and New Hampshire.

November 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 Retail said sales rose 0.3% in November, rebounding from a 0.3% decline in October. Excluding automobiles, gasoline and building materials, rose a more healthy 0.5%.

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

Treasury Yields


















Treasury Yield Sources: Bloomberg, L.P.; Bondsonline.com; Wall St. Journal; federalreserve.gov; ustreas.gov

Consumer Confidence Index

The Conference Board Consumer Confidence Index®, which had increased in October, posted a moderate increase in November. The Index now stands at 73.7 (1985=100), up from 73.1 in October. The Present Situation Index was virtually unchanged at 56.6 versus 56.7 last month.

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

Purchasing Managers Index

Manufacturing contracted in November as the PMI™ registered 49.5%, a decrease of 2.2 percentage points compared to October's reading of 51.7%. This is the fourth month in the last six that the PMI™ has contracted, and the index is at its lowest level since July 2009’s 49.2%. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

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

Tuesday, November 27, 2012

JCP: Doomsday or New Beginning?

Things don’t seem to be going exactly the way JC Penney CEO Ron Johnson hoped they would a year ago.


You may have noticed the precipitous fall in JC Penney comp store sales which started almost the day the new CEO walked in the door. For the latest quarter ending October 27th, Penney’s comp store sales were down a shocking 26.1%. For the latest nine-month period, comp sales are down 22.3%. During the nine-month period ending October 29, 2011, just days before Johnson was hired, comp stores gained a modest but still positive 1.2%. To be completely honest, in my 30-plus years in the retail industry, I can’t recall any other retailer’s sales even coming close to falling as dramatically in such a short stretch.

JC Penney should be concerned – but what if Johnson should ultimately be proven correct in his strategy for rebooting the perennial retail icon? In that case, JCP’s department store rivals should also be a little concerned.

Let’s look at the history: JC Penney was once a highly promotional department store, running a slew of ads in just about every daily newspaper in the country. There was always something on sale at Penney’s, a strategy not unlike that employed by any number of department store brethren. Penney was a go-to establishment for Middle America, typically attracting an older customer while leaving the younger set to more trendy retailers. Slow and steady seemed to be the corporate mantra, with an apparent unwillingness to step outside the box and compete for a broader base.

Then along came Kohl’s. Kohl’s roots go back to 1962 when it began as a grocery business. During that early decade the Kohl family started their department store division, positioning itself between higher-end department stores and discounters. In 1978, Batus, Inc., a major department store group, acquired the 10-unit Kohl’s Department Store chain and methodically grew it to 40 units by 1986. A management-led group of investors then acquired the chain, which became Kohl’s Corporation. However, it wasn’t until 1992 that Kohl’s entered its heyday, becoming a public company with the necessary capital for an aggressive expansion program. Between 1992 and 1999, Kohl’s more than tripled the size of the company to 259 stores, and became JC Penney’s number one competitor - and its worst nightmare. Kohl’s was able to blend branded merchandise with private label goods while diverting significant numbers of Penney shoppers and attracting a younger customer. That’s why, when Kohl’s wanted to jump into the regional mall fray as part of its expansion strategy, Penney would apply its approval rights when it could and prevent Kohl’s from entering - at least until Kohl’s simply found a pad across the street. Since that time Kohl’s has continued to pound away.

JC Penney was in need of a quick fix, and in walked Allen Questrom, the first outsider hired to run the company in nearly a century. Coming on board in 2000 as the new CEO and regarded as one of the industry’s top merchants, Questrom was the right leader at the right time. Unfortunately, his stay was much too short. Following a turnaround of the company, including the sale of Eckerd Drug, the aging Questrom decided to retire in 2004. In 2011, JC Penney, in need of another visionary, gave Johnson the call.

Although a somewhat intriguing hire having come from Apple, Johnson also had executive experience at Target on his resume, and many believed this was the “outside the box” decision that Penney needed to make. Thus the radical and much-heralded change in pricing strategy and the precipitous sales declines which may have left the Penney board wondering why it ever strayed from its slow and steady approach. Recently, to stop the bleeding, Johnson, without admitting that overhauling its pricing strategy may have come too abruptly, implemented a holiday sales promotion between Black Friday and Christmas Eve whereby coded buttons will be passed to customers indicating whether she has won any of a number of prizes, anything from a trip to Disneyland to JCP gift cards, an idea that is promotional while downplaying the sales promotion feeling. In the words of Johnson, "We believe in acts of generosity."

At this point you may be thinking that Penney’s fate is inevitable. Allen Questrom made a recent statement that he is “shocked” at the drastic changes in pricing strategy and pointed to the unprecedented decline in sales. While he’s not sure about the changes in store layout and the remerchandising effort, he questioned the lack of test-marketing before going full bore with a strategy that may ultimately fail. But don’t count JCP out just yet. Because the reality is, if you’ve had an opportunity to see the significant upgrade to presentation and the introduction of quality brand names and designer labels in Penney stores, you’ve likely come away impressed. And it’s early in the game for the “visionary” CEO; Johnson has stated that it will not be until 2014 that his plan is fully implemented. Could he pull it off and prove the naysayers wrong?


It’s my opinion that the loss in sales thus far is largely a result of previously loyal shoppers jumping ship for Kohl’s, Macy’s, Dillard’s and Target. Sales at these firms have been generally improving this year for which they can probably give thanks, at least in part, to Penney’s – but that thanks may be short-lived if those shoppers begin to migrate back, and Johnson succeeds in drawing in a new, younger department store shopper. While many people think Ron Johnson’s strategy for JC Penney is way off course, its brethren department stores better hope Johnson doesn’t, eventually, have the last laugh.

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

Company News

New Employees: Aaron Huntley joined the Burlington, MA office as an Investment Sales Assistant, supporting VP of Investment Sales Jonathan Aron. Aaron is a recent graduate of James Madison University and has experience with Cushman & Wakefield and TJX Corp. Glenn Maggiocomo joined the Burlington office as Marketing Coordinator, overseeing shopping center marketing programs. Kelly Oyekoya joined the Burlington office as a Property Manager for the Woburn Mall. Kelly has many years of experience in property management, most recently with Jones Lang LaSalle.


Industry News: National

US chain store comp retail sales for October rose by a modest 5.0% year-over-year as measured by the ICSC's tally of 22 major retail chains. An easier year-over-year comparison in October, combined with  underlying momentum and improving economic fundamentals helped sales, while apparel demand was pared by a warmer than normal month and weakened demand for seasonal goods. Hurricane Sandy’s impact was modest for the overall industry. Among merchandise categories, Luxury Stores led with a gain of 9.8%. Wholesale Clubs followed with a 7.0% gain. Department Stores rose 4.9%, Discount Stores were up 3.7% and Apparel was up 3.6%. Drug Stores dropped 4.7%. Among individual retailers, Gap gained 4.0%, and Limited rose 3.0%; Costco was up 7.0%. Nordstrom was up 9.8%; Target grew by 2.4% and TJX by 7.0%. Macy’s gained 4.1%, and Kohl’s rose by 3.3%; Rite Aid was down 1.1%...NCR Corp. will install 10,000 SelfServ Checkout lanes in more than 1,200 US Walmart locations in 2013.

Industry News: Accelerating

Eataly, the artisanal Italian food and wine emporium, will open its second US location, at The Shops at North Bridge in Chicago. Eataly opened its first US store, in Manhattan, in 2010…Signet Jewelers Ltd., parent company of specialty jeweler Sterling Jewelers Inc., is buying Ultra Stores Inc., operator of the Ultra Diamonds outlet stores as well as the jewelry departments in a number of off-price department stores…Williams-Sonoma’s West Elm will launch a neighborhood market format, West Elm Market, featuring home, garden, care & repair, and personal care items in Brooklyn NY, followed by 8 in-store shops across the country…GameStop is opening 80 US GameStop Kids stores aimed specifically at children. The stores will feature E-rated games alongside an assortment of related toys, accessories and collectibles...Health and wellness retailer LaVida Massage opened 13 new franchised units in 2012. Another 8 are slated to open in early 2013. LaVida currently operates 45 centers nationwide..Starbucks will open 1,300 net new stores globally in 2013, representing 22% growth over fiscal 2012. Starbucks is maintaining its growth target of approximately 600 net new stores in the Americas, with the majority of those in the US…America’s Taco Shop is expanding nationally. The concept, which has 6 restaurants in the Phoenix, AZ, area, will open a franchised unit in MD and 6 additional restaurants in for Miami, Arizona, California and Texas. The units range from 1,200 to 1,800 s/f…Apple Inc. will open 30- 35 stores in 2013...Vitamin Shoppe will open 52 new stores for fiscal 2013...Foot Locker announced SIX:02, a retail concept featuring fitness apparel for women. The first 3 stores will open for the holiday season in CT, NJ, and Texas…Restaurant chain Not Your Average Joe’s will grow to 50 stores in 5 years from Boston to Washington, DC. NYAJ operates 17 eateries New England, including 15 in MA.

Industry News: Decelerating

Build-A-Bear Workshop will close 50-60 underperforming stores in the next 2 years in an effort to reach its “optimal” count of 225-250 locations.The company said sales from stores with its new interactive design exceeded its expectations. The retailer is on track to have 6 stores open in the new format by the end of fiscal 2012.

Industry News: New England

Tilly’s, the west coast teen apparel specialty retailer, will open its first MA stores at the South Shore Plaza and Northshore Mall. Tilly’s has 159 stores in over 20 states…Whole Foods has an agreement to purchase six leases from Johnnie’s Foodmaster, the Chelsea, MA based family-owned grocery chain. The transaction includes the Johnnie’s stores in South Weymouth, Arlington, Charlestown, Brookline, Melrose and Somerville. Johnnie’s plans to shutter the 31,000 s/f stores in the 6 locations prior to the closing date. Johnnie’s will keep close all of its remaining stores. Whole Foods intends to remodel each location, with the goal of reopening all six stores before the end of its 2013 fiscal year. The deal brings the number of Boston Whole Foods stores to 26…Two major Boston-area malls seized by lenders are hitting the market after creditors waited nearly a year for conditions to improve. Mortgage servicer C-III Capital Partners hired brokerage firm Eastdil Secured to sell Taunton’s Silver City Galleria and Leominster’s Mall at Whitney Fields on behalf of the shopping centers’ lenders. There’s no asking price specified for either mall, which investors can buy individually or in a package with as many as 4 other shopping centers C-III is trying to sell in other states…Tatyana Designs opened its 10th Bettie Page store, on Newbury Street in Boston. Bettie Page, which targets 18-35 year-old, fashion-conscious women, specializes in contemporary designs inspired by the 1950's and the iconic pin-up star Bettie Page…Sun & Ski opened its second MA store in Woburn. The new 14,393 s/f store will carry ski and snowboard gear. The 32-year-old adventure retailer, headquartered in Houston, Texas, is looking at MA as a 4-5 store market…The Bill Rodgers Running Center, one of the first stores to open at the revitalized Faneuil Hall Marketplace in the 1970s, is closing after a 35-year run. Financial and personal reasons factored into their decision…Stop & Shop Supermarket Co. opened a store in Wayland, MA. The 45,000 s/f store is smaller than the typical superstore the Quincy-based company has been building as they reduce their footprint to fit into smaller spaces. Located at 400 Boston Post Rd., the store is LEED certified, and is expected to use up to 20% less energy than a typical grocery store of this size. It boasts the latest in energy efficient features and introduce free electric car charging stations, providing nine parking spots for electric cars. Other energy features include more than 600 roof-top solar panels which are expected to supply about 11% of the store’s overall energy needs and LED parking lot lights which will reduce energy consumption by 50% vs. traditional lighting and will save about 1.4% of the store’s annual electricity requirements…Charter Realty and Development Corp. has acquired the 52,000 s/f Towers Plaza for $8.6 million. The neighborhood shopping center, located in Melrose, MA, was originally built in 1965 and was later renovated and expanded. It is anchored by Johnnie’s Foodmaster Supermarket and Rite Aid. Charter anticipates a façade renovation as well as upgrades to the common area...Stonewall Kitchen has opened its 10th company store in the Pheasant Lane Mall, the company’s 4th New Hampshire location…State and local officials recently joined Nordblom Co. for a groundbreaking ceremony on the first phase of the Northwest Park development in Burlington, a 285-acre business park off MiddlesexTurnpike which includes a planned 140,000 s/f Wegmans and 160,000 s/f of restaurant and other retail space...Shaw's Supermarkets will reduce its store workforce by 700 positions across 169 Shaw's and Star Market stores in New England…DSW will open in mall space once occupied by Filene’s Basement at South Shore Plaza, Braintree, MA…Panera Bread Foundation’s donation-based Panera Cares Community Cafe will open at 3 Center Plaza next year. The cafes’ mission is to serve each person who walks through the door, including customers who can’t pay anything. Menus at Panera Cares are consistent with those at Panera Bread’s for-profit restaurants, but have “suggested donation levels” in lieu of prices, and donation bins instead of cash registers...CarMax has acquired a parcel off the Norwood, MA AutoMile for $20 million with plans to build a showroom, a service center and a sales lot for 400 vehicles. The 115,000 s/f former Home Quarters on the site will be demolished.

October 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 that sales dropped 0.3% after three months of gains. Auto sales fell 1.5%, the most in more than a year. Excluding the volatile categories of autos, gas and building materials, sales fell 0.1%.
  Source: U.S. Department of Commerce - commerce.gov

Treasury Yields

Consumer Confidence Index

The Conference Board Consumer Confidence Index®, which had increased in September, improved again in October. The Index now stands at 72.2 (1985=100), up from 68.4 in September. The Present Situation Index increased to 56.2 from 48.7. The Expectations Index rose to 82.9 from 81.5 last month.

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

Purchasing Managers Index

Manufacturing expanded in October as the PMI™ registered 51.7 percent, an increase of 0.2 percentage point when compared to September's reading of 51.5 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, October 17, 2012

Halloween Again!

It’s back! It’s bigger than ever! And it’s coming for your retail dollars!

It’s Halloween, the juggernaut holiday that’s been growing like an atomic-radiated insect in a fifties horror movie. The growth of this formerly second-tier holiday is apparently unstoppable, as is the spending on costumes, masks, decorations, pumpkins, parties, pranks, and as we say in marketing, much, much more! In my own home, the level of decoration has reached an all-time high, and apparently isn’t over yet (a Halloween tree? Really?).

We’re also finding new ways to celebrate Halloween. One newly-established practice I’ve just learned about is called Trunk-or-Treat, in which people park their cars side by side, decorate their open trunks, and give out candy to costumed kids going “trunk to trunk”. The decorations can be surprisingly elaborate, and some venues offer prizes for the best-decorated trunk. It’s become popular at churches and schools, and some shopping centers (a center we manage near Pittsburgh is hosting just such an event; check it out at mtnebopointe.com). It’s a whole new Halloween.

Of course, from a retail real estate perspective, ‘tis the season for temporary stores, a very welcome late-year gift to many landlords that keeps on giving from late August through New Year’s Day. Spirit Halloween alone has over 1,000 locations open across the country right now, ready to rake in shopper dollars on spooky celebration stuff.

Speaking of which, as we do every year at this time (well, most years), let’s look at a few numbers from our friends at the National Retail Federation (who seem to particularly enjoy Halloween) and their 2012 Halloween consumer spending survey conducted by BIGinsight):

A record 170 million people, or 7 in 10 Americans (71.5%) plan to celebrate Halloween this year, up from 68.6% last year - the most in the NRF’s 10-year survey history (side note: Canadians, always more modest then we, plan to spend an average of $75 on Halloween, according to the Retail Council of Canada)

The average person will spend $79.82 on decorations, costumes and candy, up from $72.31 last year, with total Halloween spending expected to reach $8 billion (note: in the very first Halloween piece I wrote for this publication, in October 2003, Halloween sales were projected at $7 billion)

Of people celebrating Halloween this year, more than half (51.4%) will decorate their home or yard, up from 49.5% last year

45.0% plan to dress in costume, also up from last year (43.9%)

Of those buying or making costumes, the average person will spend $28.65 on costumes this year, up slightly from $26.52 in 2011

More than one-third (36.2%) will throw or attend a party and 33.2% will take children trick-or-treating

Despite record spending figures, 25.9% of US consumers say the economy will impact their Halloween plans - most say they will spend less overall (83.5%), while others will make a costume instead of buying one (18.0%), and over one-third (36.1%) will buy less candy (note: Kathy Grannis of the National Retail Federation notes that "People overall are feeling a little bit better about their finances", adding that that the rise in Halloween spending mirrors other positive signs of consumer behavior)

It’s important to note, however, that despite those positive comments, the NRF expects Holiday retail sales to be flat or increase only marginally (still, they’re projected at $586 billion).

And what are the popular costumes and/or masks this year? Well, it is an election year, which is a prospect that’s much more frightening to many people than any Halloween horror story. Naturally Mitt Romney and Barack Obama masks are big hits, but there’s one costume that’s really taking off in popularity due to the election, or more specifically due to the first presidential debate, and even more specifically, the Republican candidate’s remarks about proposed cuts to federal spending for PBS: in response to his new status as an endangered avian species, Big Bird costumes are flying off the shelves of party and Halloween stores nationwide.

Finally, in a bit of positive local economic news, a summer dry spell followed by rains has resulted in a bumper crop of pumpkins for Massachusetts growers. Happy Halloween!
Chris Cardoni, Marketing Manager
CCardoni@KeyPointPartners.com

Company News

New Business: KeyPoint Partners was awarded the property management and leasing contracts for the Woburn Mall in Woburn, MA, which was purchased by Bentall Kennedy. The Woburn Mall is a 276,200 s/f enclosed mall anchored by Market Basket, TJMaxx, Sports Authority, DSW, and CVS, Available space includes a 22,000 s/f junior anchor space, and several in-line and free-standing kiosk opportunities. Vice President of Leasing Don Mace and Leasing Associate David Hough will be the leasing team for the property. Vice President of Property & Asset Management Carol Kuosman will head up the property management team, and recent hire Andrea Bucelli is serving as Property Manager. Other new leasing business includes 308 Lafayette Road, Seabrook, NH, and Amherst Crossing, Amherst, NH.

Industry News: National

US chain store comp retail sales for September rose by a modest 0.9% year-over-year as measured by the ICSC's tally of 22 major retail chains. However, this was due largely to the poor performance of the Drugstore category, notably Walgreens, which fell by 11.1%. Excluding drugstores, the ICSC tally showed a gain of 3.9%. in september. Among merchandise categories, Wholesale Clubs led with a gain of 6.0%. Apparel followed with an 5.0% gain (likely buoyed by back-to-school sales) followed by Luxury Stores with a rise of 4.4% and Discount Stores with a rise of 3.3%. Department Stores were up 1.1%. Drug Stores dropped 8.6%. Among individual retailers, Gap gained 6.0%, and Limited rose 5.0%; Costco was up 6.0%. Nordstrom was up 4.4%; Target grew by 2.1% and TJX by 6.0%. Macy’s gained 2.5%, and Kohl’s fell by 2.7%; Rite Aid was down 0.7%.

Industry News: Accelerating

Macy’s, Inc. and Toys“R”Us, Inc. signed an agreement to offer Toys“R”Us Express-branded departments in 24 Macy’s stores nationwide during this year’s holiday selling season. The departments, which will operate on a leased basis, will average 1,500 s/f, and will be open for a period of about 3 months…Starbucks Coffee Co. plans to add 1,000 stores in the US during the next five years. Also, Starbucks announced that customers will be able to use Square Wallet to pay with their mobile phones at US Starbucks stores beginning in November. The chain will enable digital tipping at its US company-operated stores through both the Square and Starbucks mobile payment applications in the summer of 2013…Disney has joined other brands in setting up shop in J.C. Penney Co., with Disney children’s boutiques opening in Penney stores next fall. The in-store boutiques will feature products designed and sourced exclusively for J.C. Penney. The shops will average 750 to 1,100 s/f and sell costumes, plush toys, figurines, footwear, sleepwear, underwear, backpacks, lunch totes and apparel for boys, girls and babies…Kohl’s Department Stores announced the grand opening of 12 stores in 10 states. The company now operates 1,146 stores in 49 states. Of the 12 new locations, 11 are small format stores with approximately 64,000 s/f or less of retail space. 9 of the new stores were built according to a prototype that received Leadership in Energy and Environmental Design (LEED) certification at the Gold level from the US Green Building Council…Macy's Inc. announced that Finish Line Inc. will be the department store retailer’s exclusive athletic footwear partner, opening in-store shops in more than 450 Macy’s stores nationwide. The merchandise will also be available online at macys.com…Uniqlo opened its largest mall store in the world, in Westfield Garden State Plaza, Paramus, NJ. The two-level, 43,000 s/f store will serve as the prototype for the Japanese retailer¹s US mall expansion. The new Uniqlo joins the company’s 4 other US locations...Target Corp. opened a new retail concept, C9 Active Apparel, in San Francisco. The 3,000 s/f store is devoted to the C9 by Champion activewear brand, which was launched by Target in 2004…Wal-Mart will accelerate small-store growth to compete with dollar stores and drug stores, and plans to have 500 Neighborhood Market stores and 12 Express stores by fiscal 2016.  Wal-Mart currently operates 217 Neighborhood Markets and 10 Express stores…7-Eleven Inc. announced two acquisitions that will further expand its US store portfolio.The company has closed deals with EZ Energy USA Inc. to purchase 67 retail locations in the Cleveland and Pittsburgh markets, and with its licensee, Handee Marts Inc., to acquire 58 7-Eleven convenience stores in those same markets as well as locations in northern West Virginia and western Maryland.

Industry News: New England

Beer Works will open its sixth location in the former Bugaboo Creek restaurant at 345 Cochituate Road in Framingham…Orange Leaf, the Oklahoma-based frozen yogurt chain, opened a store at 130 Water St. in Exeter NH. A second NH Orange Leaf will open at Hampton Beach in May, with another set for Portsmouth soon after…Jerry Remy’s Sports Bar & Grill opened a 6,200 s/f restaurant at Commonwealth Landing in Fall River, its first location outside Boston….Troubled pizza chain Upper Crust filed this month with the US Bankruptcy Court in Massachusetts. The Chapter 11 filing, which seeks protection from creditors while Upper Crust reorganizes, came several days after the company shuttered its Waltham location. Upper Crust’s remaining 16 locations will maintain normal operations during bankruptcy proceedings...Cambridge's North Point development is on track to enter a new stage of construction with a plan for more open space along Monsignor O'Brien Highway and a central retail square. North Point developer HYM will build taller, thinner buildings, separated by more green space in a revised plan for the massive real estate project. The 45-acre North Point development originally received a 20-year building permit in 2003, allowing for the eventual construction of over 5 million square feet of mixed-use space. The original plan called for nine acres of open space, but now the developer plans to increase that figure to 11 acres…Construction will soon begin for a new 57-acre shopping center located off Route 11 in Rochester, NH. Grossman Development Group has begun site work for the 330,000 s/f Granite Ridge Marketplace, which will consist of a mix of anchor retail, junior anchor retail, small stores, restaurants and entertainment…The Grand Union supermarket in downtown Nantucket will soon shut its doors.Winthrop Management LP, owner of the property at 9 Salem St.,says the company will not renew its lease, which expires at the end of this year. The closing will likely leave Stop & Shop the only grocery provider on the upscale resort island…Workers are putting the final touches on a Marshalls store on Brookline Avenue near Fenway Park in Boston. The two-level discount store in the former Boston Billiard Club space will also have an entrance on Van Ness Street…Foodie’s Market plans to open on West Broadway in South Boston soon. Built at the site of the American Nut & Chocolate Co., the new 8,500 s/f store will feature a mix of traditional and gourmet groceries, along with a large prepared-foods section and an old-fashioned butcher shop...Sports Authority has scheduled grand re-opening festivities for two of Massachusetts stores that have been closed for remodeling. The Sports Authority at Liberty Tree Mall in Danvers has been relocated to a slightly smaller, but more visible space in the chain’s new format, which features Nike and Under Armour mini shops as well as a simplified layout, brighter lighting, and bold colors, the Colorado-based chain said. The chain has similar plans for the Braintree store. Sports Authority has 13 stores in Massachusetts and 470 stores nationwide.

September Retail Sales Report

Commerce Department Monthly Sales

Retail sales increased 1.1% last month, the Commerce Department said, beating expectations after an upwardly revised 1.2% rise in August. Retail sales outside of autos, gasoline and building materials -- a barometer of consumer spending known as core retail sales -- rose 0.9% last month.

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

Treasury Yields

Consumer Confidence Index

The Conference Board Consumer Confidence Index®, which had declined in August, improved in September. The Index now stands at 70.3 (1985=100), up from 61.3 in August. The Expectations Index increased to 83.7 from 71.1. The Present Situation Index rose to 50.2 from 46.5 last month.

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

Purchasing Managers Index

Manufacturing expanded in September as the PMI™ registered 51.5 percent, an increase of 1.9 percentage points when compared to August's reading of 49.6 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, September 19, 2012

Mobile Dials It Up

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

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

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

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

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

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

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

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

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

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

Bob Sheehan, Vice President of Research

Company News

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

Industry News: National

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

Industry News: Accelerating

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

Industry News: Decelerating

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

Industry News: New England

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

August Retail Sales Report

Commerce Department Monthly Sales

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

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

Treasury Yields

Consumer Confidence Index

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


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

Purchasing Managers Index

Manufacturing contracted in August as the PMI™ registered 49.6 percent, a decrease of 0.2 percentage point when compared to July's reading of 49.8 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

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

Friday, August 17, 2012

4 Key Points About Distressed/Foreclosed Properties

KeyPoint Partners Vice President of Property & Asset Management Bob Hayes offers expert advice on managing difficult assets for special servicers and other clients.

“So-called distressed real estate, which included properties in default or foreclosure and real estate taken over by lenders, totaled $166.9 billion in January 2012…Retail has the fourth-most distressed assets at $27.9 billion…While the volume of distressed commercial real estate properties is significant, so is the looming volume of stressed property. These properties have characteristics of concern in the short term — maturing loans, bankrupt tenants, under-performance, financially troubled owners or other significant obstacles that could potentially lead to distress in the future.”1

Although the statistics have been improving, there’s likely to be a continued stream of distressed or foreclosed commercial properties in the pipeline - perhaps in your pipeline. From the first day you take on a distressed or foreclosed property, you’re thinking about the last day you own it. A service company should have that goal in mind, too. When undertaking the management of a distressed asset, there are essential things a management company has to understand. Here are 4 “Key Points”:

1. Understand the Collateral
The lender is foreclosing on a specific piece of collateral, so certain other pieces of real property may or may not be included. In eight out of ten instances, you’re dealing with one property and one parcel. However, for example, perhaps a shopping center has a shadow anchor, in which case reciprocal easement agreements – REAs - may exist that govern any interaction between the two pieces of property. These are generally included in the deed. Be aware that an owner who has had a foreclosed or distressed property for any length of time may have tried to sell a parcel, or not conformed to requirements of an REA. Also be sure you find out about any personal property that is part of the collateral – especially equipment, vehicles, etc. that go with the property and enable its operation.

2. Look for Landlord Defaults
Be watchful for provisions of leases which the distressed landlord has not fulfilled due to lack of capital: HVAC systems, the roof, the building envelope and common area maintenance, which borrower may have been unable to maintain due to lack of capital - or lack of care or interest. Deferred maintenance accumulated under distressed ownership can become a major image issue that negatively affects the leasability of any vacant space - which there will inevitably be in a distressed property.

3. Know the Leases
Thoroughly abstract the leases for a complete understanding of the landlord requirements under each lease. Research the term, rental structure, and especially individual tenant options and/or restrictions for each tenant and each lease. A major anchor or junior anchor tenant may have multiple options, and difficult, if not downright onerous, restrictions which can inhibit the leasing process, and therefore inhibit the ability to turn the project around.

4. Own The Image
Know where the property fits in the market, and what its reputation is in relation to the community. If it’s known as a “bad property”, understand that you may be stuck with a distressed reputation, even when the takeover is complete and the turnaround has begun. This can be difficult from PR standpoint, but it’s also an opportunity: acknowledge the bad, so you can then separate yourself from it and trumpet your turnaround effort. Commercial real estate redevelopment is a dream – this is a chance to put the dream together, and take the property from what it is, to what it could be. Establish a new identity: a name change, a façade upgrade or a new pylon sign can work wonders. Target appropriate tenants, or secure a high-profile anchor tenant. Of course, be sure, when courting tenants with pretty renderings, that you’ve thoroughly understood the town zoning, and know what is allowed under current by-laws and restrictions.

There are other points, but these are key, and eclipse all the others. These may seem obvious, but each contains a bewildering number of potentially confusing details, and vital tasks of various sizes. An exhaustive takeover checklist (such as the one we use) assures that no detail is overlooked. The checklist is a blueprint for everything you need to know, and to which you have to pay attention.

It takes a special set of skills, and a special way of thinking, to handle the distinct challenges of such assets. We know this because we developed those skills in the commercial real estate downturn of the 1990’s, when we were building our company. Since then we’ve handled the takeover, management, and disposition of retail, office, industrial, exhibition, and other properties totaling in excess of 10 million square feet for special servicers and other clients – like you. Let us know how we can help you.

Bob Hayes, Vice President of Property & Asset Management
BHayes@KeyPointPartners.com

Bob Hayes joined KeyPoint Partners in 1996. Bob has over 30 years of experience in asset and property management. His prior positions include three years with Recoll Management as an Asset Manager, four years with H. N. Gorin as the Director of Property Management, and six years with The Codman Company as a Property Manager. Bob holds a B.A. in Education from the University of Massachusetts at Amherst. He is a Certified Property Manager, a licensed real estate broker, and a member of BOMA, NAR, ICSC, IREM, ULI and NAIOP. In his career at KeyPoint Partners, Bob has been involved in the takeover of distressed or foreclosed retail office, industrial, exhibition and other properties totaling over 10 million square feet. Contact Bob at 781.418.6253.

1.Delta: Distressed commercial real estate continues retreat, By Mike Donnelly, The Washington Post, March 18, 2012

Company News

New Employee: Samantha Rodriguez joined the Connecticut office as a Property Manager. Samantha's most recent experience has been with CAS Construction Co., Inc…New Business: The Leasing Team will lease The Mall at Lincoln Station, in Lincoln, MA, a 34,200 s/f center anchored by Donelan’s Supermarket. Michael Branton & David Hough will handle the property.

Industry News: National

US chain store comp retail sales for July rose by 3.4% year-over-year as measured by the ICSC's tally of 22 major retail chains. Walgreen’s performance dragged down the total because of its decision to no longer be part of Express Scripts, Inc. pharmacy network, which trimmed comparable-store sales by 2.7 percentage points on a year-over-year basis. Excluding the entire drug store sector, chain-store sales rose by 4.6% in July compared with the prior year. Among merchandise categories, Apparel led with a 9.2% gain, followed by Wholesale Clubs with a rise of 5.0% and Discount Stores with a rise of 4.1%. Department Stores were up 2.5%, Luxury Stores gained 1.3%, and Drug Stores dropped 5.2%. Among individual retailers, Gap gained 10%, and Limited rose 12.0%; Costco was up 5.0%. Nordstrom was up 0.9% and Saks gained 3.5%; Target grew by 3.1% and TJX by 7.0%. Macy’s gained 4.1%, and Kohl’s by 1.7%; Rite Aid was up 0.5%, and Walgreens fell 7.0%.

Industry News: Accelerating

DineEquity, Inc. parent company of Applebee's Neighborhood Grill & Bar and IHOP, has entered into an agreement with TSFR Apple Venture LLC for the sale of 65 Applebee's company-operated restaurants in Michigan. DineEquity has sold or entered into agreements for all 510 domestic Applebee’s company-operated restaurants acquired in the acquisition of Applebee’s in 2007.…Whole Foods Market opened a record 9 new stores in the third quarter, 1 in the fourth and plans another six by fiscal year end, bringing this year’s total to 25 new stores. The company is on track to grow the chain to 1,000 stores from its current 369…H&M plans to increase the number of stores each year by 10 to 15% means about 20 new openings this year. The bulk of those will be in the West, Southwest, Southeast and South Central regions, in small cities as well as traditional large markets. H&M currently has 245 US stores…J.C. Penney opened in-store shop concepts for Levi's, i jeans by Buffalo and The Original Arizona Jean Co. in nearly 700 stores nationwide. Penney’s second wave of branded shops will open Sept. 1, and will feature dedicated shops for Liz Claiborne, IZOD, and jcp – a new private brand…By the end of 2012 Toys “R” Us will have opened 8 new stores and remodeled 13 existing locations to the side-by-side Toys “R” Us/Babies “R” Us model. The 21 stores across 13 states are representative of its strategy to bring both concepts together in an integrated store format. Toys “R” Us said it expects to operate 204 side-by-side stores nationwide…7-Eleven Inc. has signed an agreement to acquire the company-operated convenience stores of TETCO Inc. Sources put the number of stores between 174 and 185. Others put it at between 250 and 280 stores. 7-Eleven operates, franchises or licenses more than 9,300 7-Eleven stores in North America. 7-Eleven Inc. is putting 30 convenience stores/gas stations in New York State on the market. The locations were part of the acquisition of the 188-store Wilson Farms chain in 2011. Six of the sites are convenience stores only (no fuel), while the other 24 are convenience stores with gasoline. All but one site is currently operating...Vitamin Shoppe is on track to open 52 stores in fiscal 2012...Quaker Steak & Lube has opened its 50th restaurant and is on track to open 10 additional restaurants this year. The brand will expand to 6 new markets with 5 franchise groups over the next several years. Additionally, restaurants are planned to open this year in NJ, KY, SC, OH, and PA.

Industry News: Decelerating

Neiman Marcus Group will would close its 118,000 s/f store Nicollet Mall store in Minneapolis…Moody’s Investors Service has placed apparel retailer J. Jill under review for a potential credit downgrade due to failure to provide audited financial statements to its lenders, an omission that triggered a technical default on some $115 million in debt outstanding. Privately held, J. Jill  operates 225 retail stores...Sears will spin off its 1,238 Hometown and Outlet stores, as well as some hardware stores, into a separate publicly traded company. Sears has already closed five Hometown stores, eight hardware stores and one Outlet store.

Industry News: New England

Cresset Development, owner of the Seaport District Liberty Wharf complex, is putting the property up for sale. The complex houses five restaurants: Legal Harborside, Temazcal Tequila Cantina, Del Frisco’s steakhouse, Jerry Remy’s sports bar, and 75 at Liberty Wharf, a bar and grill scheduled to open in the fall. 28,000 s/f of office space is leased to Congress Wealth Management, the software company¬ R Studio, and Fama PR, a public relations firm…Outback Steakhouse will replace David Ortiz’s Big Papi’s Grille on Route 9 in Framingham, MA. A demolition crew this week razed the eatery that closed last summer to make way for a new 12,532 s/f building that will have space for up to 3 new retailers...Lululemon Athletica signed a lease for a 3,100 s/f store at the Chestnut Hill Shopping Center, the 406,000 s/f center underway in Newton, MA, joining Pottery Barn, The Sports Club/LA, Cinema de Lux, Polarn O. Pyret, Shake Shack, Pinkberry, Treat Cupcake Bar, and Bernard’s. Occupancy is expected for next year…Linear Retail Properties has purchased 2 retail condos on the ground floor of the Bryant Back Bay at 303 Columbus Avenue in Boston for $1.79 million. The condos total 2,970 s/f. One space is leased to Urban Grape, and lease negotiations are underway for the other unit…A 50,000 s/f Whole Foods will anchor the retail portion of the planned Ink Block South End redevelopment of the former Boston Herald property on Harrison Avenue in Boston, the chain's largest in Boston. Ink Block South End will feature retail and restaurant space on the ground floor with 471 apartments. The site was the home of the Boston Herald until February. Construction is scheduled to begin in early 2013…Eastern Bank of Boston and Community Bank of Brockton will merge by year’s end. Eastern Bank is a mutual bank and the Community Bank is a cooperative bank, and no premium was paid, the two banks said. Community Bank has 5 branches, and Eastern Bank has 94 banking offices in Eastern Massachusetts, in addition to 22 Eastern Insurance offices…Insomnia Cookies, a chain of late-night cookie delivery shops, is eyeing a store at 65 Mt. Auburn St. in Harvard Square. The company now has 22 locations nationwide, 17 of them around college campuses…Suburban Massachusetts French-fry restaurant, 3Potato4, is planning to expand to Boston, eyeing restaurants at the Prudential Center, the W Hotel and the Theater District. 3Potato4 serves fries only. The potatoes are organic, baked instead of fried. 3Potato4 is also eyeing expansion to New Orleans, Las Vegas and New York…Stop & Shop opened a new 65,000 s/f store at 1220 Iayannough Road in Hyannis, MA, replacing an existing store on Independence Road. Stop & Shop operates more than 400 stores in six Northeast states…TJX Cos. purchased its Framingham, MA headquarters for nearly $117 million, three months after buying a pair of Marlboro office buildings for $63 million. TJX will renovate the properties over the next several years. T.J. Maxx will open a store this fall in the anchor space formerly occupied by Borders in the Cambridgeside Galleria in East Cambridge…Stephanie's will open its third location, a restaurant at 11 West Broadway in South Boston, replacing local watering hole The Quiet Man Pub…Franchiser Five Star Equity Partners, LLC signed an agreement with Jamba Juice to open five Connecticut stores over the next several years....The former Filene's Basement store at 215 Needham St. in Newton will be sold at a public foreclosure auction on Sept. 13 following a mortgage default.

July Retail Sales Report

Commerce Department Monthly Sales

Retail sales rose in July for the first time in four months as demand climbed broadly for everything from cars to electronics, a sign that consumers could drive faster economic growth in the third quarter. Retail sales rose 0.8% last month, the Commerce Department said.

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

Treasury Yields

Consumer Confidence Index

The Conference Board Consumer Confidence Index®, which had declined in June, improved slightly in July. The Index now stands at 65.9, up from 62.7 in June. The Expectations Index improved to 79.1 from 73.4. The Present Situation Index, however, decreased slightly to 46.2 from 46.6 a month ago.

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

Purchasing Managers Index

Manufacturing contracted in July as the PMI registered 49.8 percent, an increase of 0.1 percentage point when compared to June's reading of 49.7 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, July 24, 2012

E-tail to Retail


In the earlier days of this publication there was a section called E-commerce Corner, a separate portion of the news dedicated to reporting – apart from “real” retail news - the latest trends in the growing world of internet sales.

In the first issue I ever worked on, July of 2001, we reported that “according to data published by Forrester Research, consumers spent $3.9 billion online in May”.  Online retail sales for that entire year would run to about $34 billion, according to Forrester, which back then sounded like real money. However, online retail sales for 2012 will likely come in closer to $210-220 billion: “online shopping has shown no signs of slowing down. Last year, it generated $200 billion in revenue…According to InternetRetailer.com, US e-retail sales alone will grow to $240 billion by 2013, and worldwide e-retail will approach $1 trillion by 2013”.1

Other tidbits from the July 2001 E-Commerce Corner: “53 internet companies closed in June, bringing the total number of dot-com sector companies to shutter over the past year and a half to 555 or more”. Remember those heady times? Also: “Amazon.com has halted free shipping on multiple orders of books, compact discs, videos, and digital video discs after a two-week promotion that…was a test run”. It’s almost quaint, isn’t it?

I don’t recall exactly when, but in one of several KeyPoints redesigns over the next decade-plus, I eliminated the separate e-commerce section. It’s all just retail industry news now, whether it’s about building a flagship store or building a Facebook following. It goes without saying that online retailing has evolved from a developing but still somewhat separate phenomenon, warily observed and tentatively sampled by what are still sometimes referred to as “bricks-and-mortar” retailers, to simply one of several ways in which virtually all of those retailers do business, with varying degrees of dedication, innovation, and success. In a world of Twitter feeds, tablet wars, showrooming, and QR codes, we herein present a few tidbits from the recent news that I’ll call E-Commerce Corner 2012:

What The Customer Wants:
“Shoppers worldwide expect a seamless integration across online, social media, mobile and physical stores, according to "Digital Shopper Relevancy," a report by Capgemini which surveyed 16,000 digital shoppers More than half of those surveyed (56%) are likely to spend more money at a physical store if they had used digital channels to research the product prior to purchase; however, 73% of respondents also expect online prices to be lower than those in physical stores…The study did highlight that 55% of women shoppers are more engaged when using digital channels, compared with 44% of men…”2

Retailers Lead the Way:
“When comparing social media investment to other emerging technology areas, retailers more than any other industry are making strong investments…successful retailers are integrating their mobile, analytic, and social media strategies into one cohesive business approach. Social media touch points such as Facebook, Twitter, and Groupon are enabling companies to analyze customer behavior and in turn deliver personalized offers direct to a consumer's mobile device.”3

Phone Yes, Mobile Shopping No:
“Mobile phones — once viewed as the best growth vehicle for online shopping — have proved a dud with many consumers because of their small screens and keypads.” 4

Tablets Take Over:
“Consumers are likely to spend more time shopping from a tablet than from other types of devices…According to the 2012 Shop.org/Forrester Research Inc. State of Retailing Online survey, 49 percent of merchants reported their average order value from tablets now exceeds Web sales from laptop and desktop computers and smartphones”.5

At Long Last Sales Tax:
“A wave of states have passed laws that will require consumers to pay sales tax on all Internet purchases as soon as next year…For states struggling in the troubled economy, this could mean $23 billion in new revenue each year. Had online retailers collected sales tax this year, Virginia would have added nearly $423 million to its coffers, while Maryland would have seen $376 million…The movement in state capitals is driving newfound support for a proposed bill in Congress that could make collection of sales tax a standard practice on the Web, no matter where a consumer logs in to shop… Amazon.com appears to have waved the white flag and supports the sales tax measures… Rather than threatening to shut down distribution centers or cut ties with online affiliates, the retail giant started cutting deals with state governments, analysts said. Amazon will begin charging sales taxes for customers in eight states, including Virginia, over the next four years. It currently collects sales taxes in six others.”6

Same Day Some Day?:
Speaking of Amazon, as one must when speaking of online retail sales, an item from a few days ago: “Amazon’s move to start collecting sales tax allows it to build distribution centers in major markets. Already the retailer is offering next day delivery, working to make it standard for Amazon prime user members. Same day delivery is reportedly not far behind”.7

Not far at all; an even more recent story, right here in our home state: “Amazon’s ability to undercut prices is a tough break. But imagine how much worse it could be for retailers if the...site turns the market upside down by delivering products at all hours of the day, on the date of purchase… as part of a plan to open warehouses near populous areas and provide same-day delivery. The Retailers Association of Massachusetts estimates that doing so would add $25 million to $45 million per year to Bay State coffers from Amazon alone…same-day delivery service by Amazon will put the squeeze on big box stores such as Target and Best Buy — not mom-and-pop stores that carry unique items…the immediacy gives them a huge advantage over competitors.”8

Chris Cardoni, Marketing Manager
CCardoni@KeyPointPartners.com

SOURCES: 1.Internetretailer.com; 2. Global report underscores need for seamless shopping across all channels, DrugStoreNews.com; 3. IDC Study Reveals Emerging Social Media Trends Across Vertical Markets - Retailers lead all verticals with social media investments, IDC; 4. Shoppers using tablets spend more online, Boston.com; 5. Shoppers using tablets spend more online, Boston.com; 6. States, Congress rallying for an e-sales tax, WashingtonPost.com; 7. Home Improvement Retailers Better Watch Out, Amazon Is Coming, Forbes.com; 8. Amazon eyes same-day delivery, BostonHerald.com