Tuesday, December 16, 2014

December Review: The Year in KeyPoints

As we do at the end of every year, here’s  a brief look at our observations and pronouncements from 2014:

January: You Can't Help But Notice!
Bob Sheehan wrote about internet sales reporting related to total retail sales - and the continuing rise of e-commerce:
“You can’t help but notice, between Thanksgiving and Christmas, the divergence between reported internet sales and total retail sales. Mid-double digits vs. low-single digits have been the norm. For many retailers, it’s moving money from one pocket to another, from brick-and-mortar stores to online business, with possibly some synergistic benefit. For retail landlords, however, it has become an increasing concern that retail stores are downsizing as the internet absorbs market share.”  UPDATE: “Cyber Monday” online sales jumped 8.5% over last year.

February: It's More Than the Weather!
Bob wrote about the tendency to blame poor retail performance on the weather:
Watching Q4 retail sales roll in this year was less than impressive, to say the least, and January wasn’t any better. “It’s the weather”, everyone says. Of course, living in New England this winter has been a tough row to hoe, and Mother Nature has been even tougher on other regions of the country. There’s no question that bad weather impacts retail sales...but the next time you hear about bad weather adversely impacting retail sales, it doesn’t hurt to be a little skeptical. People are digging out from a lot more than just snow these days.” UPDATE: From a Bloomberg article last month: “After blaming the Polar Vortex’s chill for sluggish results last winter, U.S. retailers now say warm temperatures in October hurt sales of boots and sweaters.

March: Prophecies Fulfilled?
In our March article, Marketing Manager Chris Cardoni  wrote about dire “prophecies” for Radio Shack and Staples:
Despite the title of this article, we don’t claim to be fortune-tellers. However, we are dedicated to research, and we know that our readers rely on us to provide detailed industry knowledge, as well as practical insights. We’ve made it our business to keep track not only of what is happening with key retailers, but also what might happen. A few of the companies we’ve written about in this regard include Sears, JCPenney, Circuit City, Borders, and others. We’ve seen several of our presentiments borne out. It didn’t take a fortune-teller to foresee the difficulties faced by both Radio Shack and Staples, and their product categories, in today’s environment.” UPDATE: A Bloomberg headline from a few days before this writing: “RadioShack Posts 11th Straight Quarterly Loss.” A Nasdaq headline the day of this writing: “3 Reasons Staples Stock Could Fall.”

April: Family Dollar: Holiday Woes or Something Deeper?
In April, Bob commented on the announced closings of several Family Dollar stores, and CEO Howard Levine’s stated reasons for those closings:
“Family Dollar’s net income increased 52% since 2009, but net income at Dollar Tree went up  86% while net income at Dollar General increased an eye-popping 202%! As a result, profit margins at Family Dollar have remained relatively flat during that period and are substantially below that of the competition. The Family Dollar profit margin last year was only 4.3%, reflecting modest improvement since 2009. Profit margins at Dollar Tree and Dollar General were 7.6% and 5.9%, respectively. While internal operations may have contributed somewhat to this wide deviation, it appears that Mr. Levine, after looking at net income and profit margins, is finally realizing the need to unload a substantial number of bad apples.” UPDATE: As is well-known, Family Dollar is an acquisition target for both major competitors.

May: Regional Malls: Days of Future Past?
Bob wrote about the fate of lower-tier malls in light of major anchor store closings:
“An article in Yahoo! Finance examined how those B and C malls suffer when long-time major tenants such as Sears and JCPenney race to close stores. Nearly half of the 1,050 indoor and open-air malls in the U.S. have both of those struggling chains as anchor tenants, according to real-estate research firm Green Street Advisors. As the overall retail industry continues to change at a more and more rapid pace, as the Sears and Penney closures proceed and likely accelerate, and as we await the next major-tenant-multiple-store-closing shoe to drop, the fate of even that small percentage of marginal malls that have a chance at redevelopment remains very much to be seen.”

Our June through September issues were all about the release of our annual KeyPoint Reports on retail real estate activity in key New England markets. This year’s reports included a special report on dramatic changes in grocery real estate landscape since 2004. As you know, the complete  reports are available at KeyPointPartners.com.
June: Preview: KeyPoint Report for Eastern Massachusetts
“What’s that they say…two steps forward, one step back? With respect to vacancy, that’s exactly what happened during the past year. The vacancy rate in Eastern Massachusetts jumped up to 8.5% from 7.8% last year.”
July: Preview: Ten-Year Eastern Massachusetts Grocery Report
“The last decade has seen significant changes in grocery shopping options and the grocery real estate landscape. The proliferation of dollar stores and their reallocations of space toward grocery items have made these value retailers an increasingly popular alternative to traditional grocers.”
August: Preview: KeyPoint Report for Southern New Hampshire
“The region continued its upward trend in retail inventory, reaching a level of 30.0 million square feet by the end of the year. This represents a gain of 283,500 square feet, or 1.0%, thanks in large part to Seabrook Commons, DDR’s first ground up development in New England.”
September: Preview: KeyPoint Report for Greater Hartford, CT
“The Greater Hartford retail market traveled further down the road to stability. Total retail space in Greater Hartford currently totals 37.2 million square feet, a nominal increase of 70,000 square feet from last year. In today’s environment, limiting new development should be regarded as a good thing. Much of the existing vacancy needs to be filled or demolished before considerable retail space can be added to the region.”

October: Bring on the Holiday Cheer!
In October, Bob noted that early projections for a modest improvement in retail sales this coming holiday season may be accurate:
“It’s always about this time of year that prognosticators toss out the holiday sales forecasts and retailers announce seasonal hirings. But there is something different in the air this year that smells…well…pretty good! All in all, I’m conservatively optimistic that we will better the 4% overall
holiday sales target this year. It just a matter of which retail pocket it ends up in.”

November: While Sears Holdings Self Destructs, Who Benefits?
Bob’s article about Sears focused on a history of steadily declining revenue:
“The declining comp store sales trend tells the whole story - this chain is dying a slow death. Just take a look at net income from continuing operations during the last three years, which show consecutive losses of $1.4 billion, $930 million, and $3.1 billion.” UPDATE: see the Decelerating News section on Page 3 for news of additional Sears store closings.

ALL OF WHICH brings us to our current issue, and the close of another action-packed retail year. We thank you for your readership and your support, and we wish you Happy Holidays and a peaceful, profitable New Year.

Mark Becker            Bob Sheehan           Chris Cardoni
Partner/CFO          VP of Research        Marketing Manager

Company News

New Business: Leasing assignment: 21 East Street, Hanover, MA, a 28,000+ s/f former fitness facility, handled by VP of Leasing Don Mace. Employee News: Brian Herlihy joined the Burlington, MA Office as a Property Manager. Brian has extensive property management experience, most recently at McKinney Corporation.

National News

November comparable-store sales posted a year-over-year gain of 5.0% based on the ICSC’s final tally of 11 retail chains that report monthly sales. According to the ICSC, “November sales showed relatively steady industry-wide performance, with improvement among the apparel segment”. L Brands was up 6.0%, Gap was flat, Rite Aid was up 5.1%, Walgreen’s rose 1.7%, and Costco gained 6.0%. See our sales report on Page 4.

Accelerating News

Aldi plans to open 650 new US stores, including expanding to Southern California, bringing its total number of US stores to nearly 2,000 by the end of 2018...Stein Mart is opening a total of 10 new US stores in the next several months, which will bring the total number of locations to 270 nationwide...Martha Stewart plans to open a coffee shop in Manhattan’s Chelsea neighborhood, in the same building where Martha Stewart Living Omnimedia Inc. is based...While the outcome of Dollar General Corp.'s plan to acquire Family Dollar Stores remains unsettled, the company remains committed to growth. Dollar General plans to ramp up its expansion in 2015, and enter new markets. The company expects to open approximately 730 new stores, including its first-ever locations in Maine, Rhode Island and Oregon. In addition, the discounter plans to relocate or remodel approximately 875 stores...McAlister's Deli has signed development agreements with 3 new franchise groups to open 20 locations throughout Rochester, NY, Northwest Indiana, and Chicago over the next several years. McAlister's has more than 330 restaurants in 24 states...Starbucks opened its first-ever Starbucks Reserve  Roastery and Tasting Room, a 15,000 s/f flagship that will serve as the launchpad for a planned chain of 100 stores, with initial locations opening in Chicago, Los Angeles, New York, San Francisco and Washington, DC...Simon Premium Outlets will open four new outlet centers in 2015: Vancouver Designer Outlet, Gloucester Premium Outlets, Tucson Premium Outlets, and Tampa Premium Outlets. Also in 2015, Simon is slated to begin construction on five new Premium Outlets, including Columbus, OH, Norfolk, VA, Clarksburg, MD, Tulsa, OK, and Denver, CO...Cabela’s plans to continue its rapid expansion with 3 new stores and a new distribution center. The outdoor outfitter plans locations in Farmington, Utah; Gainesville, Virginia, Cabela’s third in that state, opening in spring 2017; and in Ottawa, Ontario, opening spring 2016, the second location in the Canadian province. Cabela’s will build a 600,000-square-foot distribution center in Tooele, Utah, to open in summer 2015...Blackstone Group LP agreed to sell a majority stake in 39 US shopping centers to joint-venture partner Kimco Realty Corp. for $512.3 million in a deal that will almost double the firm’s equity investment. Kimco will buy Blackstone’s two-thirds interest in the properties, which total 5.6 million s/f and are in New York, Virginia, Texas, Florida, California and Maryland...PetSmart Inc. has agreed to be bought by a group led by BC Partners Inc. for more than $8.2 billion. The group agreed to pay $83 a share for the pet-supply retailer. Besides BC Partners, the group includes some of the buyout firm’s investors and Longview Asset Management LLC, which controls about a 9% stake in PetSmart and plans to hold on to one-third of that.

Decelerating News

All 198 Alco Stores are shutting down. The company was founded 113 years ago and had evolved into a discount retailer that served smaller communities. In recent years, it had faced increasing competition from other discount retailers, such as dollar stores...Delia’s Inc. plans to liquidate operations as it prepares to file Chapter 11 bankruptcy protection. Delia’s will seek the court’s approval to close all existing stores and distribution centers and to conduct store closing and going out of business sales, with the sales starting as early as this month...Deb Stores Holding LLC, owner of Deb Shops, has filed for Chapter 11 bankruptcy protection, with plans to close stores and sell inventory if it can’t find a buyer for the business. The retailer operates 295 stores...Sears disclosed that it plans to close a total of 235 underperforming stores in 2014, nearly double the projection of 130 made in August. Sears said last month it might sell up to 300 stores to a real estate investment trust (REIT), which would then lease the properties back to Sears. If completed, the move would leave it with 400 to 500 owned stores and 1,300 to 1,400 leased stores...Aeropostale will close 75 stores in the fourth quarter, which will take the company's total US and Canada closures to about 120 stores in 2014, well ahead of its guidance of 40 to 50 closures this year. It is also considering closing another 50 to 75 Aeropostale stores in 2015, as well as 126 mall-based P.S. from Aeropostale stores by the end of January...Troubles keep mounting for teen retailer Wet Seal Inc., which reported a wider loss for the third quarter amid lower revenues.  Wet Seal, which previously reported it has engaged outside advisors to seek strategic alternatives, indicated it may consider filing for bankruptcy to recapitalize or restructure its debt and obligations. In addition, the company plans to close 60 stores in the fourth quarter of fiscal 2014 as lease term expires. As of November 1, the company operated 528 stores.

New England News

Carters Diamonds & Fine Jewelers opened at 3rd Ave Burlington last month...Whole Foods will unveil its first-ever spa inside its new 50,000 s/f flagship market opening in the South End’s Ink Block on the former site of the Boston Herald in 2015...National Wholesale Liquidators opened its second MA store in the old Building #19 location at 140 Main St. (Route 18), Weymouth...New shops opened in downtown New Haven, CT include 5 boutiques and 2 restaurants: Barbour, Emporium DNA, Extra Virgin Olive Oil, Harvest Wine Bar and Restaurant, Kiko Milano, Lou Lou, and Mario Batali’s Tarry Lodge...Wahlburgers will open 27 additional locations. Plans are already in the works to open two Boston-area locations, including one in Lynnfield and one in the Fenway neighborhood. The first of 20 forthcoming Florida Wahlburgers locations will likely be a franchise location in the Orlando area. The Wahlberg brothers say eventually there could be up to 300 across the country...Bangor-based J.L. Coombs, which says it is the oldest shoe store still in operation in the country, is going out of business after 184 years. The company has stores in Portland; Freeport; Portsmouth, New Hampshire; and Newburyport, Massachusetts...Online fashion brand Nic & Zoe opened its first brick-and-mortar store in Boston’s Shops at Prudential Center...Aldi opened a store in Derby, CT this month...Arthur T. Demoulas and family members who support him have regained full control of the Market Basket grocery chain, bringing an end to a battle that engulfed family members for years and led to the shuttering of stores this summer. The deal that in principle led to the Aug. 28 reopening of stores was finalized this month. Terms were not disclosed. Market Basket now has 73 stores — most of them in Massachusetts.

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

T he Commerce Department said retail sales excluding automobiles, gasoline, building materials and food services, increased 0.6 percent last month after rising 0.5 percent in October.

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 rebounded in October, declined in November. The Index now stands at 88.7 (1985=100), down from 94.1 in October. The Present Situation Index declined from 94.4 to 91.3, while the Expectations Index decreased sharply to 87.0 from 93.8 in October.

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

Purchasing Managers Index

Manufacturing expanded in November as the PMI® registered 58.7 percent, a decrease of 0.3 percentage point when compared to October’s reading of 59 percent, indicating growth in manufacturing for the 18th consecutive month. 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