Wednesday, December 16, 2015

The Year in KeyPoints: Our Annual Review

The end of another KeyPoints publishing year approaches swiftly. As always, in these pages we’ve explored some of the most important events and trends in the retail real estate industry, and shared our own unique research. Below is a recap of the topics on which we’ve commented in 2015 - stay with us in 2016 to see where these stories go from here:

January: Millennials Shift Fashion Direction
VP of Research Bob Sheehan wrote about the changing fortunes of youth apparel retailers: “It appears fashion-forward teen shoppers have become less label-conscious and more price-conscious. They’ve forsaken Abercrombie’s and Eagles. But they still want cool clothes. The answer is affordable fashion, a trend that complacent mall-based merchants like A&F never saw coming. New-school fashion retailers Forever 21 and H&M have been rolling out stores while offering wide selections of affordable fashion”.

February: Merge Ahead? Staples, Office Depot, and the FTC
Bob commented on the proposed merger of the two major office supply retailers: “This month came the announcement that Staples and Office Depot had entered into a merger agreement. In 1996, Staples made its first attempt at a merger with Office Depot, but was denied by the FTC on the basis that a potential monopoly would dictate office supply pricing. While Staples and Office Depot made the case that competition existed in the form of Wal-Mart, Target, Circuit City and Best Buy, among others, the FTC was not swayed. So will the FTC view the merger any differently this time around?” [NOTE:  for the latest on the deal see the National News section].

March: The Bean Boot Marches Forward
Marketing Manager Chris Cardoni wrote about the ongoing success and accelerated expansion of LL Bean: “One old-school retailer with a classic name is striding confidently into the future on the strength of a 104-year-old boot. L.L.Bean, Inc. has grown from a one-man operation to a global organization with 2014 revenue of $1.61 billion. The signature boots sell out every winter; this past winter, Bean sold approximately 450,000 pairs, a new record, and Bean boots are back-ordered until spring or even summer.”

April: Return to RECON: KeyPoint Partners Goes To Vegas
We noted our return as an exhibitor at the retail industry’s premier trade show: “KeyPoint Partners will be an exhibitor at the International Council of Shopping Centers RECON at the Las Vegas Convention Center, the largest retail real estate trade show in the world, and one of the largest conventions of any kind in Las Vegas, with over 1,000 exhibitors and an expected 34,000 attendees.”

Our May through August issues focused on our annual KeyPoint Reports on retail real estate activity in key New England markets, based on our GRIID™. This year’s reports included an analysis of the restaurant sector. All three reports are available at KeyPointPartners.com: May: Eastern MA Report Preview: “We never want to be the bearers of bad news, but somebody has to do it: vacancy in Eastern MA continues to trend upward. In 2015, the region experienced a rise in the vacancy rate from 8.5% to 8.8%. We continue to see national and regional chains close stores.”
June: Southern New Hampshire Report Preview: “Vacant space in the region declined by more than 200,000 square feet, partially absorbed by replacement tenants and partially by conversion to non-retail uses.. As a result, the vacancy rate in the region declined from 10.4% to 9.6% throughout the year, a sign that the retail environment continues to stabilize.”
July: 10-Year Eastern MA Restaurant Report: “Much of the growth in the number of restaurants resulted from the development of fast casual chains, in addition to the phenomenal growth of Subway to become the largest restaurant chain in the world. Its current global store count exceeds 42,000 locations, an average of two store openings per day since 1965.”
August: Greater Hartford, CT Report Preview: “In today’s environment, limiting new development is a good thing. Much of the existing vacancy needs to be filled or demolished before substantial new retail space can be added, and the region took considerable strides toward accomplishing just that. Total occupancy increased by more than 350,000 square feet in 2015, lowering the vacancy rate in Greater Hartford from 11.0% in 2014 to 10.1% this year.”

September: Are Supermarkets About to Get Sandwiched?
Bob Sheehan shared some thoughts on the impact of online grocery shopping: “At one time it seemed that Grocery was the one retail category that was going to avoid the internet sales onslaught. What happened to music, books, electronics could never happen to groceries- or so one thought. But the buzz lately suggests things are about to change. Would you order your weekly groceries online if they’d show up at your door a couple of hours later for a $3.99 delivery charge? Or would you rather fight the traffic and line up at the check-out?”

October: Happy Hallow-days!
Chris Cardoni shared a number of sales forecasts for Halloween and the Holidays: “It’s become a cliché to note how fast one retail season rolls into another, and here we are again in the usual Halloween-to-Christmas retail whirlwind. Walk into any Michael’s store or CVS seasonal aisle and you’ll see the orange and black right next to the red and green. Total spending on Halloween is expected to reach $6.9 billion, compared to $7.4 billion last year. In general, industry forecasters are looking for only modest increases in holiday retail sales.”

November: Walgreens-Rite Aid Deal: Elimination of 3,000 stores...REALLY?
Bob used GRIID™ to explore the number of store closing forecast as a result of the proposed merger of two major drugstore chains: “One has to wonder how many stores Walgreens will have to close in the face of FTC antitrust scrutiny before the deal is approved. So far, reported estimates of store closings range to as many as 3,000 stores. Walgreens indicated it would consider closing as many as 1,000 units in some combination of the two chains, but expects the real number will be closer to 500 stores. Whether anyone, including Walgreens, believes these estimates is another story.”

Which brings us to 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 Mgr.

COMPANY NEWS

New Leasing Business: 90 West River Road, an 8,000 s/f new construction strip center in Hooksett, NH. VP of Leasing Rob Grady and Sr. Associate Mike Branton are handling leasing. The Investment Sales Team has closed the sales of Walgreens on Route 1 in Saugus, MA for $4,150,000 and Unleashed by Petco in Roslindale, MA for $1,600,000 in all-cash deals. Employee News: Colleen Greiner, in the Cromwell, CT office, has earned the ICSC Certified Shopping Center Manager (CSM) credential. It is estimated that only 10% of retail real estate professionals complete this rigorous examination, demonstrating the highest level of competency.


NATIONAL NEWS

The Commerce Department said sales rose a seasonally adjusted 0.2% in November, the most in four months. Shoppers upped spending at apparel, sporting goods, and electronics stores. Spending at online retailers advanced a healthy 0.6%. General merchandise stores improved, but department stores were flat. The National Retail Federation estimated that spending averaged $300 per person over Thanksgiving weekend, down from $381 last year.  Among retailers reporting monthly comp-store sales, L Brands was up 7%, Gap was down 8.0%, Rite Aid was up 0.9%, and Costco sales were flat. See our sales reports BELOW... The federal government moved to block the merger of Staples and its chief competitor, Office Depot. Regulators at the US Federal Trade Commission filed legal action to kill the deal, saying it could lead to higher prices for office supplies, particularly for business customers, where the merged company would have a dominant 70% share of the market. The FTC’s four-member commission voted unanimously to file the complaint and to seek a preliminary injunction against the merger. Both companies said they plan to contest the agency’s action. Together, the companies contend, they would be stronger and would lower costs for consumers and businesses. They said their competition includes manufacturers selling directly to businesses, as well as companies like Amazon and Walmart.

ACCELERATING NEWS

Conn’s Inc. reached the 100 store mark with the opening of a Conn’s HomePlus store in Las Vegas. Conn’s plans to open 15–18 stores in fiscal 2016, nearly 25 outlets in fiscal 2017, and believes it has the potential to expand to 500 US stores. Conn’s currently operates outlets in 12 states...Dollar General plans to expand its square footage by 7% in 2016. Dollar General operates 12,396 US stores...Saks Fifth Avenue will open its first Saks Off 5th outlet in New York City in March 2016. The opening is part of the company’s plans to open in high-density/high-traffic locations...Lord & Taylor will debut its new off-price concept, Find @ Lord & Taylor, this month in Paramus, NJ. This initial store will be followed by six additional locations next year...Modell’s Sporting Goods is opening two new stores in the NYC metro area. The new locations expand the retailer’s portfolio to 155 stores in 10 states... L.L. Bean Inc. opened a store Columbus, OH, the chain’s first in that area and second store in Ohio, part of the company’s push toward 100 stores by 2020. The company had 18 stores at the start of its retail push and is now up to 33...Liquor Stores NA Ltd., a Canada-based retailer whose US presence has so far been limited to Kentucky and Alaska, will enter three new states, New Jersey, Massachusetts and Connecticut, by mid-2016. Liquor Stores NA currently has 249 stores...The Greene Turtle Sports Bar and Grille opened its 43rd location and second New York site last month. So far in 2015, The Greene Turtle has opened 6 restaurants, including its first in WV, and announced new franchise agreements that will introduce the brand and to the suburbs of  Philadelphia and Virginia’s Shenandoah Valley...The private-equity owners of Petco have reached a $4.6 billion deal to sell the retailer to CVC Capital Partners and the Canadian Pension Plan Investment Board. Petco has 1,400 locations across the US and Mexico... Mattress Firm is acquiring Sleepy’s. The combined company will operate nearly 3,500 stores and 80 distribution centers in 48 states...Ross Stores plans to open 2,500 stores over the long-term. The company operates Ross Dress for Less and dd’s DISCOUNTS. As of October 31, 2015, the Company operates 1,276 Ross locations in 35 states, and 172 dd’s DISCOUNTS stores in 15 states...Shinola, which sells American luxury brands, opened a store in Dallas this month. So far, the chain of 11 stores and maker of watches and leather goods employs 525 people. The company is planning 6 to 10 stores next year and will eventually grow to 70 stores...Tropical Smoothie Cafe plans to open approximately 25 new locations in Maryland over the next 3-5 years, including 10 in Baltimore, and plans to exceed 475 stores nationwide. By 2018, the company plans to have 800 US stores...Dave & Buster’s intends to open a total of 8 to 9 new stores and relocate one existing store. All but one of the new store openings will be in the large-store format...Pedego Electric Bikes opened 5 new stores in FL, CO, OR, and CA, bumping the store count for Pedego-branded locations up to more than 75... As of this writing, the merger between Bridgestone Americas and Pep Boys, which had been threatened by a competing bid from Icahn Enterprises, is on again. Bridgestone matched Icahn’s offer of $15.50 per share, or approximately $863 million, while the Pep Boys board said it no longer considered the Icahn bid a “superior proposal” as defined in the October merger agreement with Bridgestone. If the deal goes through, it will add approximately 800 Pep Boys locations and 7,500 service bays to Bridgestone Retail’s network of 2,200 tire and auto service centers, which operate under the Firestone Complete Auto Care, Tires Plus, Hibdon Tires Plus and Wheel Works banners... New York private equity firm Sycamore Partners has completed its purchase of Charlotte-based department store company Belk. Belk started in 1888 and grew into the largest family-owned department store chain in the US, with nearly 300 locations in 16 Southeastern states.

DECELERATING NEWS

The bankrupt Quaker Steak & Lube restaurant chain expects to be purchased by TravelCenters of America for $25 million. The chain has grown to more than 50 locations in 16 states. TravelCenters operates more than 500 restaurants in 253 travel centers and convenience stores along major highways in 43 states. The deal is subject to bankruptcy court approval.

NEW ENGLAND NEWS

The Apple Store in the Mall at Chestnut Hill has taken over two adjacent storefronts. The new store, currently undergoing renovations, will be is three times the size of the old one. Apple operates 11 stores in MA. Its three-story store in Boston is the largest in the US... Wegmans is planning to open a store in Medford at the Meadow Glen Mall. Wegmans has locations in Burlington, Chestnut Hill, Northborough and Westwood...Sweetgreen salad chain opened its 5th Boston-area location this month and plans 2 others in the city. ..Gap plans to close its stores in the Bangor Mall and South Portland’s Maine Mall in January as part of a plan it announced earlier this year to close 175 stores nationwide... Top Chef finalist Tiffani Faison opened her second restaurant, Tiger Mama, in Boston’s Fenway neighborhood, on the same block as her barbecue restaurant, Sweet Cheeks Q....The Ames Plow Tavern in Faneuil Hall is closing at the end of this year. It has been in business at that location for nearly 40 years.


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

Sales at retailers and restaurants rose a seasonally adjusted 0.2% in November from October, the largest increase since July, the Commerce Department said. The rise comes after three months of nearly nonexistent growth, and largely thanks to a 0.4% fall in auto sales.

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 moderately in October, declined further in November. The Index now stands at 90.4 (1985=100), down from 99.1 in October. The Present Situation Index decreased from 114.6 last month to 108.1 in November, while the Expectations Index declined to 78.6 from 88.7 in October.

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

PURCHASING MANAGERS INDEX

Manufacturing contracted in November as the PMI® registered 48.6 percent, a decrease of 1.5 percentage points from the October reading of 50.1 percent, indicating contraction in manufacturing for the first time since November 2012 when the PMI® registered 48.9 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