Tuesday, December 17, 2013

December Review: The Year in KeyPoints

Every month in KeyPoints we do our best to bring you timely industry news, as well as lively, informed commentary.  It’s time for a look back at our observations and pronouncements from 2013:

January: Missing the Bull’s Eye: Holiday Sales Forecasts
Bob Sheehan wrote about the questionable usefulness of holiday sales forecasts, especially when based on Black Friday sales:
“The Black Friday phenomenon has thrown sales forecasts for the holiday season way out of whack. Every year we hear reports of sales from the Black Friday weekend, supposedly an insightful gauge by which to measure the pulse of the holiday shopper and the strength of the holiday retail season. HOGWASH! With gross margins slashed to the hilt and shoppers jockeying for position outside stores, Black Friday sales figures don’t necessarily mean good things for a retailer’s holiday performance or bottom line.”

February: Dealing With the 900 Lb. Gorilla
Bob commented on the downsizing trend by big-box retailers as a strategy for responding to the growth of e-commerce:
“The current inclination of larger retailers is to develop smaller prototypes; simply put, big stores are getting smaller. There are several reasons for this - higher unemployment, the economy in general, changing technology - but the biggest factor is the large, menacing creature mentioned in the title, the gargantuan presence known as e-commerce. With an aging population and the propensity of boomers to spend more online purely for convenience, retailers need to take direct aim at the 900 Lb. Gorilla.”

March: Are You Buying What Best Buy Is Selling?
Bob wrote about Best Buys’ attempts at a turnaround under new CEO Hubert Joly:
“If Best Buy is going to compete, it has to be more than a showroom. Joly recently announced that Best Buy would put more focus on appliances, a category that had been relegated to the back of the store. Joly wants appliances front and center now, a shrewd tactical move in light of the housing recovery and the potential demand that should ensue. From a strategic perspective these recent moves should be applauded; but the big question now is, will it translate to the bottom line, and regain for Best Buy a little of the glory it once enjoyed?”

April: The Burgers of Burlington, MA
Chris Cardoni addressed the rise of “better burger” restaurants by conducting a taste test at nearby locations of growing burger chains:
“The lowly burger is enjoying a renaissance with the rapid rise and widespread expansion of so-called better burger restaurants, a category that now includes at least 50 chains, and which, between 2011 and 2012, grew by 21% and rang up sales of over $2 billion. We present an informal, unscientific rating of the offerings of each nearby chain, conducted by a panel of volunteer tasters [the winner: Bobby Flay’s Bobby’s Burger Palace].”

May: Eastern Massachusetts KeyPoint Report Preview
This issue featured highlights from the 203 KeyPoint Report on Eastern Massachusetts/Greater Boston:
“After suffering through the most dreadful economy in more than half a century, the Eastern Massachusetts retail climate is finally showing some giddy-up. Earlier this year the retail vacancy rate fell below 8.0% for the first time since 2008. The rate currently stands at 7.8%, the largest percentage drop in more than a decade.”

Note: the July issue featured a preview of our KeyPoint Report for Southern New Hampshire, and in September we highlighted the KeyPoint Report for Greater Hartford, Connecticut. This year’s reports, besides featuring an updated layout, included a 10-year historical section. All of our reports are based on quality data from our GRIIDTM, a powerful source of market knowledge that maintains detailed information on virtually every retail property in key New England markets. The 2013 reports are available on our website: click here.

June: The Case of the Shrinking Sales Index
Chris Cardoni on the shift away from monthly comp-store sales reports by retailers:
“In the 90s, over 100 retailers reported sales on a monthly basis, with the number dropping to around 75 by the early part of the last decade. We’ve always included a detailed list of sales results for retailers in a variety of categories. When I started working on this publication, in 2001, that list consisted of 73 retailers, all of whom reported monthly sales. Our current list reports sales for 40 retailers, and only five report monthly.”

August: Supermarket Square Footage: Winner & Still Champ
Bob Sheehan created a ten-year history of market share of traditional grocery chains in our region:
“There has been no substantial change in the relative market positions of The Big Three between 2004 and 2013. Stop & Shop, Shaw’s, and Market Basket remain at the top of the “food chain”(pun intended). Of course, we’d be remiss if we didn’t mention the grocery competitors taking a piece of the food expenditure pie: wholesale clubs, dollar stores, Walmart, and Target are grabbing significant shares of the grocery market. It would be compelling to analyze the growth of these non-traditionals against overall growth by traditional grocers.”

October: The 10th Anniversary Halloween Issue
Chris Cardoni’s semi-annual Halloween spending article looked at changes over the past decade:
“Halloween is about embracing fears. In the midst of a federal shutdown and yet another looming financial abyss, we embrace our economic fear:  over 86% of people who will celebrate Halloween say they’re cutting back on overall spending because of the economy. But that’s not to say the October spending spree won’t still be robust: in 2003, when the NRF first began tracking Halloween spending, the total was $3 billion; this year they expect it to be nearly $7 billion.”

November: Too Big To Fail?
Last month, Bob Sheehan questioned the fate of certain perennial (and perennially troubled) retail dinosaurs:
“Rite Aid, Best Buy, JCPenney, Sears: do they have anything in common? Are they too big to fail? There probably isn’t a retailer out there that is truly too big to fail, but there are reasons why some hang on longer than others, and some hang on just long enough to ultimately survive. Why? Maybe sheer magnitude is as good a reason as any.”

All of which brings us to our current issue, and the close of another action-packed retail year. We thank you for reading, and hope you’ll continue to do so.

Happy Holidays and a peaceful, profitable New Year.

Mark Becker, Partner/CFO

Bob Sheehan, VP of Research

Chris Cardoni, Marketing Manager

Company News

New Business: Property Management has added six properties to its portfolio. The assignments consist of retail, office, and industrial space totaling more than 1,390,000 s/f, and include: Springfield Plaza, a 400,000 s/f retail center in Springfield, MA; 978-980 Worcester Road, a 23,300 s/f office/retail property in Wellesley, MA; 140-142 Worcester Road, a 5,900 s/f retail property in Framingham, MA; two industrial/warehouse properties of 443,000 s/f and 277,000 s/f respectively, in South Hadley and Deerfield, MA; and the 242,000-s/f first phase of One Loudoun, a retail//entertainment/office/residential development in Ashburn, Virginia.

National News

November comparable-store sales posted a year-over-year gain of 2.1%, based on the ICSC’s final tally of 12 retail chains. A comparison with the 2012 effects of Hurricane Sandy helped sales comps for some retailers. L Brands (Limited) was up 8.0%, Gap was down 3.0%, Rite Aid was up 2.1%, Walgreen’s rose 5.8%, and Costco gained 3.0%. See our sales report below.

Accelerating News

Safeway Inc. will sell 11 of its metro-Chicago Dominick's stores to Roundy's, Inc. Roundy's will begin operating the stores over the next two months. Safeway previously announced the sale of four stores in the greater Chicago area to New Albertsons, Inc., which operates Jewel-Osco grocery stores...Westfield Group will invest $800 million to take full control of the retail space at New York’s World Trade Center. The company agreed to buy Port Authority of New York and New Jersey’s 50% stake in the retail part of the site, bringing its investment in the property to more than $1.4 billion. Westfield first acquired a 99-year lease interest in the retail concourse at the original trade center six weeks before it was destroyed in 2001, and sold it back to the Port Authority in December 2003. The group agreed in July 2011 to pay $612.5 million to take a half stake in a joint venture with the Port Authority to develop the center. The retail complex is scheduled to open in 2015. The project will encompass about 365,000 s/f of retail space, with another 90,000 s/f to be added in future...Dollar General plans to open approximately 700 stores in fiscal 2014 and remodel or relocate approximately 525 locations. The company operated 11,061 stores as of Nov. 1...Simon Property Group announced a plan to spin off all of its strip center business and smaller enclosed malls into an independent, publicly traded REIT, SpinCo. SpinCo's mission will be to own stable, quality strip centers and malls that effectively serve the communities in which they are located. SpinCo will operate one of the largest, most diversified portfolios of strip centers and malls in the U.S., having 53 million total square feet in 23 states...RadioShack will open its newest concept store in Fairfax, VA, the first such store in the area. All concept stores in the company's portfolio feature an upgraded shopping experience, which showcases the company's new look, and incorporates interactive areas designed to help shoppers improve their technology profile. RadioShack is opening a select number of these experiential stores in neighborhoods throughout the nation. The Fairfax location is one of more than a dozen concept stores to open since the company began converting to such stores. By the end of 2013, RadioShack will have more than 100 concept and brand statement stores open and will have made improvements to nearly all 4,300 stores throughout the nation.

Decelerating News

Sears Holdings Corp. will spin off its Lands' End business as a separate company by distributing stock to shareholders. Sears said in October that it was considering separating the Lands' End and Sears Auto Center businesses from the rest of the company. Lands' End, which sells clothing and home goods on the Internet and through catalogs, began in 1963 as a sailboat hardware and equipment catalog, but morphed into a clothing company by 1977. Sears bought the company in 2002... J.P. Morgan Chase & Co. plans to close its banks at 49 of the 52 Dominick's stores in which it operates branches, and TCF National Bank will close 37 of its 155 branches in Jewel-Osco stores.

New England News

Paul, a fast-casual French bakery, will open its flagship Boston cafĂ© at the former Four Green Fields restaurant space at One Boston Place on Boston’s Washington Street. The two-level, 6,000 s/f space is slated to open next summer. One Boston Place is the first of four boutique bakeries scheduled to open locally in 2014, with up to seven additional locations slated to open in the next few years in Natick, Burlington, Somerville, and a second Boston location.  Boston is Paul’s second US market. It has opened five DC area locations since 2011...French fashion house Chanel opened a 10,000 s/f, two-story boutique on Newbury Street, one of the company’s largest behind New York and Waikiki. The store design was inspired by late designer Coco Chanel’s Paris apartment...New England’s first Smashburger opened this month in Natick’s Sherwood Plaza, on Route 9. 11 other Smashburgers will open in Middlesex County over the next several years, although no leases are signed yet. Consumer Capital Partners, a Denver private equity firm, started Smashburger in 2007. The chain has since grown to about 245 locations...After 54 years, the Howard Johnson’s Hotel on Boylston Street is being sold to make way for development in the Fenway area. The sale is expected to close at the end of the year, and developers Steve Samuels and Adam Weiner will take over the property as part of their plan to build new apartments, stores, and restaurants in the area...Kas Sharma has finalized the purchase of the Henry Bear’s Park toy stores from founder Sally Lesser. Sharma hopes to preserve what Lesser has done with the three stores in Arlington, Brookline and Cambridge by maintaining the same staff, the same locations of the stores, and the same operating philosophy. Founded in 1976, the Henry Bear’s Park stores were named for David McPahil’s children’s book of the same name...Regency Centers Corp. has agreed to buy an 80% interest in a portfolio of three properties: Fairfield Center, The Brick Walk, and Black Rock Shopping Center totaling approximately 315,000 s/f all located in in Fairfield, CT currently controlled by Kleban Properties. Terms were not announced and the deal remains subject to customary conditions as well as loan assumption consent. The properties feature national and regional retailers including Banana Republic, The Gap, Old Navy, Victoria’s Secret and Fidelity. Regency is real estate investment trust, focusing on grocery-anchored and community shopping centers. As of Sept. 30, the company owned or co-owned 333 retail properties totaling 43.6 million square feet...The Hasty Pudding Clubhouse is moving to the 4,700 s/f former Irish pub Tommy Doyle’s space in Cambridge’s Harvard Square. Following nearly a decade at 2 Garden St., also in Cambridge, Hasty Pudding said it will continue its traditions with the move. Tommy Doyle’s, the Irish pub plans to shutter on Dec. 22.

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 said retail sales rose 0.7% in November, the biggest gain in five months. The gain followed a 0.6 % advance in October that was larger than first reported.

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

Treasury Yields

Treasury Yield Sources:  federalreserve.gov; ustreas.gov

Consumer Confidence Index

The Conference Board Consumer Confidence Index®, which had decreased sharply in October, declined again in November. The Index now stands at 70.4 (1985=100), down from 72.4 in October. The Present Situation Index edged down to 72.0 from 72.6. The Expectations Index declined to 69.3 from 72.2 last month.

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

Purchasing Managers Index

Manufacturing expanded in November as the PMI™ registered 57.3 percent, an increase of 0.9 percentage point when compared to October's reading of 56.4 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