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

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