Tuesday, February 23, 2016

Mixing the Good with the Bad!

It seems as if all we ever read about these days are store closings. Just this morning, we read that Sports Authority is on the brink of bankruptcy, and that 140 stores, nearly one-third of the chain, will be closing. Last month we read that Sears and Kmart will be closing more stores than previously announced, and at an accelerated rate - just another cost-cutting announcement from the corporate office. Radio Shack, Building 19, Coldwater Creek, Dots, and Fashion Bug are just a few of the retailers who have downsized and/or liquidated in recent years, and are responsible for historically high vacancy rates that have lasted nearly a decade.

We should anticipate that we’ll see some combination of Walgreens and Rite Aid closings, should tentative merger agreements come to fruition with regulatory approval from the FTC, and the same can be said for Staples and Office Depot. Of course, we can all point toward the Great Recession as a catalyst leading to the demise of many retail chains, but even with an improving economy we continue to experience fallout from the expansion of omnichannel retailing and the ongoing shift toward online purchases.

A review of Eastern Massachusetts retail store counts from the past five years within our GRIIDTM  database uncovered a number of retail chains that have experienced a significant decline of 10 or more locations, either through consolidation, acquisition by other retail firms, or liquidation. Heading the list of chains reducing store counts by more than 40 locations just since 2010 is Curves, which has been facing an onslaught of new competition during that time frame. This group also includes White Hen Pantry (acquired by 7-Eleven in 2006 and later converted), Blockbuster Video, and Radio Shack. A complete listing of chains with 10 or more closures is illustrated in Table 1 below.

While vacant storefronts are never a welcome site, they do sometimes offer opportunities to healthy retailers which are in expansion mode. A look back to 2010 shows that many chains exhibiting growth today were either not in existence yet, or were just beginning to grab hold in the region; at the same time a number of mainstays in the region continued to spread their wings with new store openings; and acquisitions were another means of entry into the region.

Led by Subway, seven chains added 25 or more new locations, including 7-Eleven, Metro PCS, Orange Leaf and others. In all, 35 chains added 10 or more locations. Among expanding categories, Fitness and Restaurants were two of the strongest. In the Fitness arena were Planet Fitness, Anytime Fitness, Get in Shape for Women, Pure Barre, and Koko Fit Club. Along with the aforementioned Subway, expanding restaurants included Panera Bread, Five Guys, and Chipotle. Coffee shops also made headway with Dunkin Donuts, Starbucks, and Marylou’s Coffee making the list. Orange Leaf and Pinkberry were at the top of the popular FroYo category, each adding more than ten stores. Personal Services continue to grow as well, with Massage Envy, Elements Massage, Supercuts, and Great Clips adding significant numbers of stores. Auto parts chains on the expanding list included Auto Zone and Advance Auto, while growing drug store chains included CVS and Walgreens. The complete list of retail chains in several categories that exhibited marked growth is shown in Table 2 below. It’s interesting, although not surprising, to note that many of the retail categories that have been growing during the past five years are those least impacted by online retailing. Conversely, a number of significantly contracting chains were greatly impacted by internet retailing – among them Staples, Borders, Radio Shack, and FYE.


Many of the chains which have been mentioned here, it should be noted, represent small format stores. Some might argue that expansion and contraction among the larger format stores has had a much greater impact on the retail real estate landscape, since they represent the anchors that other shopping center tenants have come to depend upon to effectively draw shoppers. In a future issue, we’ll evaluate changes in square footage among larger format chains within the region, and the effect of those changes on retail occupancy. For now, we’ll continue to keep track of the latest headlines about retail contractions, bankruptcies, acquisitions, and mergers. Stay tuned.

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

KEYPOINT PARTNERS COMPANY NEWS

New Business: Property Management: 1869-1881 Centre Street West Roxbury, MA, a 7,335 s/f, single-story building, and Blackstone Place in Pawtucket, RI. Linear Retail is the client. Property Management and Leasing: Greendale Mall, an enclosed mall located near the intersection of Interstates 290 and 190 in Worcester, MA. Don Mace is handling leasing...Lease signed: Ocean State Job Lot signed a lease for nearly 42,000 SF at Frenchtown Plaza, No. Kingstown, RI. VP of Leasing Don Mace handled the transaction...Leasing: 6155 Post Road, a 1,300 s/f former convenience store in North Kingstown, RI. Sr. Associate Michael Branton is handling leasing.

NATIONAL NEWS

January retail sales excluding automobiles, gasoline, building materials and food services increased 0.6%, according to the Commerce Department. Among retailers reporting monthly comp-store sales, L Brands was up 4.0%, Gap was down 8.0%, Rite Aid was up 1.4%, and Costco sales rose 1.0%. See our sales reports on Page 4...Pizza Hut plans to remodel 700 stores a year through 2022 to a new modern look with pendant-style industrial lighting and exposed rock walls. Pizza Hut has 6,400 US locations...Ronny Shmoel and Albert Liniado acquired the brand, domain, and associated trademarks of Circuit City last year from Systemax, which bought them in a bankruptcy auction, and plan to revive the brand under the name Circuit City Corp., with retail stores, web sales, branded and private-label products, licensed kiosks, mobile shops and franchise opportunities. The company will open its first store in June, most likely in the Dallas market, and relaunch CircuitCity.com. They expect to have 50 to 100 corporate-owned stores running by next year and eventually an additional 100 to 200 franchised locations. Stores will range from 2,000 to 4,000 s/f...Staples and Office Depot said that they will sell more than $550 million in their large corporate contract business and related assets to office supply wholesaler Essendant Inc. in a move to appease federal regulators and expedite the $6.3 billion merger of the two firms. Essendant will pay Staples approximately $22.5 million. The deal is subject to the completion of the proposed merger. In December, the FTC moved to block the proposed merger citing the deal’s potential to eliminate competition.

ACCELERATING NEWS

Starbucks plans to open approximately 1,800 net new stores in its current fiscal year...European grocery Lidl is seeking to build stand-alone stores of 36,000 s/f in dense population markets in 8 East Coast states between New Jersey and Georgia...Under Armour will open 200 stores in 2016, likely to be a mix of several store formats. Under Armour currently operates 144 stores...H&M plans to add another 425 new stores in 2016 and enter New Zealand, Cyprus and Puerto Rico for the first time. As of November 30, the retailer had 3,924 stores in operation, including 415 US stores...Nordstrom has signed for a second Manhattan store in three floors and 43,000 s/f at 3 Columbus Circle...Soft Surroundings plans to open as many 15 stores this year, expanding in new markets and filling out current markets. The women’s apparel/d├ęcor chain has 28 stores in 17 states. Last year, the retailer opened 11 stores...Grocer Stew Leonard’s is planning to open a 70,000 s/f Long Island store this year. The family-owned grocery chain has 5 stores...A Sears Hometown store has opened inside Nelson Ace Hardware in Selma, CA, the second store-within-a-store for the format – the other is inside the Options Rent-to-Own Store in Caribou, ME. 4 Sears Hometown Stores have opened this year around the country...Australian retail company Cotton On Group has launched 121 US stores in the past six years, and plans to open hundreds more US stores in the next 3-5 years. Currently, 10 stores are on track to open this year. The company has over 1,400 stores in 17 countries...Destination XL expects to open 30-40 DXL stores per year through fiscal 2020. The company currently operates 440 stores... Michaels Companies Inc. bought Lamrite West Inc., parent company of the Pat Catan’s chain, for $150 million. Michaels owns and operates nearly 1,200 stores and 118 Aaron Brothers stores. Pat Catan’s was founded in 1954 by Pat Catanzarite (AKA Pat Catan).Today, there are more than US 30 Pat Catan’s locations...Bob’s Discount Furniture opened five stores on the same day in the Chicago market. The chain has 64 stores in New England and Mid-Atlantic states...Rite Aid stockholders have voted to approve the proposed merger with Walgreens Boots Alliance. Approximately 97% of the votes cast at a special meeting of stockholders voted in favor of the adoption of the merger agreement. The merger, which is expected to be completed in the second half of calendar 2016, is subject to the satisfaction of certain customary closing conditions...Sally Beauty recently opened its 5,000th location, and plans to grow its store base by approximately 3% for at least the next five years, which could translate into roughly 800 new stores. Another 500 stores are slated to receive physical improvements this year, including the addition of hair color and hair solutions studios at 3,000 US stores...O’Reilly Automotive expects to open 205 net new stores and expand into Connecticut in 2016. As of Dec. 31, the company operated 4,571 stores in 44 states...Tractor Supply Company opened its 1,500th store this month, in Odessa, Texas. Tractor Supply was founded 78 years ago. The Company operates stores in every state with the exception of Alaska. It opened a total of 114 stores in 2015 and expects to open between 115 and 120 new stores in 2016....Skechers  plans to open 330-340 stores worldwide this year. By the end of the year the retailer will have 1,650 stores globally...Whole Foods will open its first “365 by Whole Foods Market”, a lower priced, no frills, smaller footprint format near LA in May. The company also sees potential for 1,200 Whole Foods Market stores in the US, with the new 365 format expanding the growth opportunity beyond 1,200 stores...Build-A-Bear will add 10 corporate locations in 2016. Through a combination of remodels and new openings, it expects to end the year with between 45 and 55 stores in its updated “Discovery” format. The company operated 329 company-owned stores (269 in North American and 60 in Europe) at the end of 2015. Its international franchisees ended the year with 77 stores in 11 countries...German discount grocery chain Lidl is seeking approval to build a 36,000 s/f store in Wilson, PA, one of its first of several stores planned in the US. Lidl has about 10,000 stores in 26 countries...Timberland expects to open 80 new stores and increase e-commerce by 20%  in 2016. The company ended last year with 1,520 stores – up from 1,401 the prior year.

DECELERATING NEWS

Chico’s FAS has sold its Boston Proper women’s apparel business to Brentwood Associates. Terms of the agreement were not disclosed. Chico’s purchased Boston Proper in 2011, and announced it was closing all 20 stores in August 2015...13 Target stores closed their doors this month. The retailer announced the closings in November of last year, citing falling profits. These stores are among Target’s nearly 1,800 US locations...Sears said it would accelerate the closure of some of its stores following a “challenging” holiday season. Sears said closures will include, but not be limited to, about 50 stores that the company announced it would be shuttering in the next few months.

NEW ENGLAND NEWS

Target is opening new stores in Cambridge and at Packard’s Corner, near Boston University, in the coming months, and is actively looking for other sites in Boston....The last three Xpect Discount stores in CT will be closing as of April 1...Market Basket will anchor the South Coast Plaza, the complex that will replace the New Harbour Mall, in Fall River, MA. An 85,000 s/f supermarket is planned, to open in June 2017...Carriagetown Marketplace, Amesbury, MA, was sold to Carriagetown Station, LLC for over $22 million... Krispy Kreme Doughnuts has signed a development agreement with NH Glazed to open 7 new locations, including four in New Hampshire, during the next few years. Currently, Krispy Kreme has about 300 shops in 41 states... Hannaford Supermarkets is expanding its online shopping service. The ME-based retailer recently opened its 25th location with Hannaford To Go. The service is the first of its kind in many regions. After piloting the program successfully in several stores, Hannaford opened 11 additional locations in the past year.  The company plans to pursue an aggressive rollout schedule in 2016. Hannaford operates 188 stores in Maine, New York, Massachusetts, New Hampshire, and Vermont...Clover Food Lab is developing a restaurant at 160 Federal St. in Boston in a space less than half a mile from Clover’s recently opened brick-and-mortar location at 27 School St. and its Dewey Square food truck spot... Certified Meatball Co. will be opening at 429 West Broadway, South Boston, right next to local favorites Lincoln and Loco and Capo restaurant.

JANUARY 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 excluding automobiles, gasoline, building materials and food services increased 0.6% last month after an unrevised 0.3% decline in December. Overall retail sales rose 0.2% in January.

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 increased in December, improved moderately in January. The Index now stands at 98.1 (1985=100), up from 96.3 in December. The Present Situation Index was unchanged at 116.4, while the Expectations Index increased from 83.0 to 85.9 in January.

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

PURCHASING MANAGERS INDEX

Manufacturing contracted in January as the PMI® registered 48.2 percent, an increase of 0.2 percentage point from the seasonally adjusted December reading of 48 percent, indicating contraction in manufacturing for the fourth 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