Looking Ahead to the New Year

There are always retail stories that make headline news, and 2017 was no exception. The Walgreens acquisition of 1,932 Rite Aid locations comes to mind, as well as the Amazon acquisition of Whole Foods Market. The entry of Lidl into the U.S. market was another top-of-mind story impacting the grocery industry. There were a number of retail bankruptcies, the largest of which included The Limited, Toy R Us, Gymboree, Payless ShoeSource, and Radio Shack.

We read about Walmart stepping up its game to compete more effectively with Amazon by acquiring online/omnichannel retailers Moosejaw, ModCloth, and Bonobos, and getting explosive online sales results in return. There were stories about pop-up shops coming to enclosed regional shopping centers, hoping to develop increased traffic and fill vacant units. Casper, Just Cozy, and Spirit Halloween are just a few of the growing list of short-term retailers that have been able to drive additional traffic at malls. There are numerous others that we could go on and on about, but what I really want to talk about is what may or may not happen as we move into 2018. In no particular order, here is a list of topics that could make 2018 headlines:

Sears is running out of money, customers and time. Is it possible that 2018 is finally the year that the company files for bankruptcy? More store closings are scheduled for January - 45 Kmart units and 18 Sears stores, Suppliers will become less patient, and even more store closings will likely be announced. Could this be the year…?

With the Walgreens acquisition coming to fruition this year, by the spring 600 stores will close. Most will be within one mile of a sister store and most are expected to be existing Rite Aid locations. Which stores will be on the list?

Mall REITs have been recent acquisition targets, Westfield becoming the first to accept an offer from the Paris-based real estate investment firm Unibail Rodamco. Brookfield Asset Management is optimistic that it can complete a deal to acquire GGP, even though its first offer was rejected. And there is buzz that others could be in play. Who will be next - and is this a display of long-term confidence that tales of the retail apocalypse have been exaggerated?

Besides Sears, other retailers will be under pressure to avoid bankruptcy in the coming year. Some of the names bantered about as potential candidates include J Crew, Nine West, Charlotte Russe, Bon-Ton, Bi-Lo, and GNC. Others will be added to the list, perhaps futilely hoping that a better than expected holiday season will throw them a lifeline. It’s inevitable that some will not survive: who will be the first to make the news?

There was a lot of commotion the day Amazon acquired Whole Foods Market this year. Following the announcements that the former would be selling 365 products online, and that prices at Whole Foods customers would soon experience significant price drops, there hasn’t been much for the grocery industry to be alarmed about. In fact several new surveys find that the price rollbacks have been very limited so far, in both the number of products affected and the discounts offered. Was this just an Amazon scare tactic - or are grocers really in the eye of the hurricane?

It is expected that the new tax plan, if enacted, will benefit retail landlords by lowering taxes on companies that rent space and leaving consumers with more discretionary income to spend. Revathi Greenwood, head of Americas research for Cushman & Wakefield, recently indicated that “mall operators are looking at restructuring anyway,” and are remaking their properties to give shoppers the kind of experiences they can’t get online. We think some of the money saved in taxes will be reinvested back into business.” It would be welcomed news for landlords heading into the New Year. Will it really happen?

Stay tuned next year to see our answers to these and other questions. This 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!

Bob Sheehan, VP of Research

BSheehan@KeyPoint Partners.com

Follow Our New Daily Mall News Digest:

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KeyPoint Partners Company News

New Leasing Business: VP of Leasing Don Mace and Sr. Associate Michael Branton are handling the following assignments: in MA: 699 Mt. Auburn St., Cambridge; 760A Boston Rd., Groton; 35 Columbia Rd., Hanover ; 18 Sisson Rd., Harwich ; 125 Robert Toner Blvd., N. Attleboro ; 1331 Cove Rd., New Bedford ; 180A Cambridge St., Burlington; and in ME: 600 Center St., Auburn.

National News

US consumers went on a shopping binge last month, led by gains among online retailers, electronics, and furniture, the Commerce Department said. Retail sales jumped 0.8% in November from the previous month, after a 0.5% gain in October. Consumers’ willingness to splurge should give the economy a boost in the final three months of the year. Among retailers reporting monthly sales, L Brands was down 1.0% and Costco was up 10.8%. See sales reports on Page 4...Starting Jan. 1, 2018, Ahold Delhaize USA will be the new official parent company for all of Ahold Delhaize’s U.S. companies, including its brands Stop & Shop, Food Lion, Giant, Hannaford, Giant/Martin’s and Peapod, as well as Retail Business Services (RBS), a U.S. shared services company providing support to the brands.

Accelerating News

Kwik Trip plans to open 40 to 50 new stores annually. The company has 621 stores in three states…Art Van Furniture has acquired two furniture companies: Levin Furniture, which operates 35 stores across Pennsylvania and Ohio, and Wolf Furniture, which has 18 locations in Pennsylvania, Maryland, and Virginia. With the two acquisitions, Art Van has 176 stores...Arby’s Restaurant Group will acquire the 1,250-unit Buffalo Wild Wings as a privately held subsidiary for $2.9 billion or $157 per share in cash, including its net debt. BWW will be a privately held subsidiary of Arby’s Restaurant Group Inc. but will operate as an independent brand. Arby’s has 3,300 locations and is majority-owned by Roark Capital Group affiliates…New York & Company has entered into an agreement to purchase certain assets of women’s plus-size apparel brand Fashion to Figure for $1.4 million in cash. Fashion to Figure, which filed for Chapter 11 protection in November, is currently holding liquidation sales at its stores. New York & Company operates 459 stores. The transaction is expected to close late in the fourth quarter of 2017...Duluth Trading Company opened its 30th and 31st stores, in Wisconsin and Michigan. Duluth has opened 22 stores since the beginning of 2016...Casey’s General Stores, Inc. opened its 2,000th last month store in Russellville, KY…PetSmart’s 1,600th store opened this month in El Paso, TX...Dollar General plans to open 900 new stores, remodel 1,000 existing sites, and relocate 100 stores in 2018. Dollar General operated 14,321 stores in 44 states as of last month... Wawa opened its first storefront in Washington, DC this month, a few blocks south of Dupont Circle, and not far from the White House. It is the chain’s largest location, totaling 9,200 s/f...Dave & Buster’s plans to start opening smaller-format stores, with the first in Rogers, AR, early in 2018. The unit will be 15–20,000 s/f, smaller than the brand’s current small format, which is 25–30,000 s/f. Dave & Buster’s sees the potential for 20–40 of these smaller format units in new markets once deemed too small for the brand. Dave & Buster’s opened 14 restaurants in 2017.. There are currently 11 stores under construction and a total of 27 signed leases. Overall, Dave & Buster’s has 105 locations in 36 states and Canada...Aldi plans to expand to nearly 2,000 stores from coast to coast by the end of 2018.

Decelerating News

J. Crew expects to close 50 stores this year, up from a previous forecast of 30. As of November 2017, the company operated 269 J.Crew retail stores, 121 Madewell stores, and182 factory stores (including 42 J.Crew Mercantile stores)...Charming Charlie has filed for Chapter 11 bankruptcy protection. The move was not unexpected. Charming Charlie expects to operate the majority of its stores and its website during the court-supervised process.

New England News

Temazcal Tequila Cantina will open its fourth MA location this month  in Dedham’s Legacy Place shopping center. The 7,000 s/f restaurant will be Temazcal’s first location south of Boston, with existing outposts in Boston, Lynnfield and Burlington...Luke’s Lobster opened its third Boston location on Northern Avenue in the Seaport, across from the Moakley Courthouse...The Carpionato Group will spend more than $100 million to redevelop 29 Benny’s locations after the retail chain closes its doors this year. The company is buying nearly all Benny’s locations for an undisclosed sum. The deal involves 14 stores in RI, 11 in MA and four in CT…Total Wine Spirits Beer & More will move into the Bauer Hockey store, next to CVS, at Burlington Crossroads Retail Center on Cambridge St. in Burlington, MA. The current Busa Liquors at the center will close. Target will open a small-format store in the former Roche Bros. at the same center, as well as a store at Porter Square Galleria in Cambridge, MA... Construction is set to begin on the first phase of the long-delayed Fenway Center, a five-building, 1.1 million-square-foot development where Brookline and Commonwealth avenues meet in Boston’s Kenmore Square area. Phase one will include an eight-story, 100-unit residential building, a 14-story, 212-unit apartment building, 200 parking spaces, and 37,000 square feet of retail space....Moody’s Delicatessen & Provisions opened a Newbury Street location, its first in Boston...A 19,000 s/f Brothers Marketplace, a small-footprint Roche Bros. grocery store, will open at MIT’s One Broadway building in Cambridge’s Kendall Square neighborhood in the summer of 2019. The ground floor of One Broadway is undergoing renovations and will feature a repositioned lobby, a restaurant, and a new Dunkin’ Donuts, plus 300 residential units and an additional 12,800 s/f of retail.

Mall News

The former Owings Mills Mall site will be redeveloped as an outdoor shopping center called Mill Station, to be anchored by a new Costco warehouse store. Kimco Realty Corp., the property’s owner, plans to start construction early next year on Mill Station, which should be completed by early 2019…Under construction off Route 95 in South Norwalk is the SoNo Collection, a 700,000 s/f enclosed mall. SoNo Collection will include Southern Connecticut’s only Nordstrom and Bloomingdale’s, according to developer GGP...AIG Global Real Estate Services, an affiliate of financial services provider American International Group Inc. has taken ownership of Bayshore Town Center, Glendale, WI, the mixed-use development, which includes stores, offices, apartments, restaurants and a movie theater. The ownership change  is the result of loan restructuring negotiations initiated by the previous owner, New York-based Olshan Properties...France’s Unibail-Rodamco will pay $24.7 billion to take over Westfield, creating a global property leader with 104 retail assets and a presence in 27 of the world’s biggest retail markets.The group will operate as a REIT in France, the Netherlands, the United Kingdom, and the United States.

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 that sales at retailers and restaurants jumped 0.8% in November. Online shopping rose 2.5%, with gains of 2.1% at electronics stores and 1.2% at furniture stores. Sales at restaurants and bars grew 0.7% .

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 improved in October, increased further in November. The Index now stands at 129.5 (1985=100), up from 126.2 in October. The Present Situation Index increased from 152.0 to 153.9, while the Expectations Index rose from 109.0 last month to 113.3.

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

PURCHASING MANAGERS INDEX

Manufacturing expanded in November as the PMI® registered 58.2%, a decrease of 0.5 percentage point from the October reading of 58.7%. This indicates growth in manufacturing for the 15th consecutive month led by expansion in new orders and production, offset by supplier delivery improvement and declines in raw material inventory. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

Source: Institute for Supply Management - Manufacturing Report on Business - www.ism.ws

Brick and Mortar Clawing Back

“A funny thing happened recently, which at least suggested – mildly – that, in the retail world, the worst may be over.”

That was the first sentence of our article in the Keypoints July issue, entitled Is Stability in the Air? In the article we cited that several major retailers reported modest comp store gains, or at least some flattening in the sales trend, for the first time in a long time. In recent years we’ve became accustomed to comp store sales declines as internet sales accelerated, so seeing some flattening in those trends was welcome sign.
For several reasons I am even more encouraged that we may be approaching a bottom. In just this past week, reports from GAP, Abercrombie & Fitch, and Foot Locker all indicated comp store improvement. What may be even more promising is the fact that all are mall-based retailers.

The report on GAP showed a 3% comp store increase in Q3 compared to a 1% decline a year ago. Although value-priced Old Navy had the strongest performance, up the same 4% as a year ago, the namesake division still enjoyed a 1% sales increase against a 4% comp store sales decline in Q3 2016. And although Banana Republic dropped 1% in comp store sales, it was a vast improvement from the 6% decline last year. GAP increased its full year forecast for comp stores as a result.

Abercrombie & Fitch, which has struggled mightily in recent years for a variety of reasons, experienced a comp store sales gain in Q3 of 4%, powered by an 8% gain in Hollister comp sales (although comp sales at the namesake division dropped 2%). At the same time, direct-to-consumer sales, which include online, showed some flattening, growing to approximately 24% of total company net sales, compared to approximately 23% last year.

While Foot Locker results weren’t quite as favorable, it still reported sales that exceeded estimates. Overall sales declined slightly by 0.8% while comp stores declined 3.7%. But a positive tone from its CEO indicated that the company can achieve, and perhaps modestly exceed, the top- and bottom-line guidance given for the fourth quarter back in August.

Even JCPenney showed comp store gains in Q3, increasing 1.7%, albeit at the expense of gross margin. Right now, however, retailers need to focus on maintaining market share, even if profit suffers a bit.

While brick and mortar news may be starting to turn around, another promising trend may be forming. For years now we’ve seen double-digit year-over-year gains in nonstore retail sales become the norm. In 2017, however, that trend is beginning to slow down. In the past three months, sales outside of stores have been below 10%. August sales were only 8.4% ahead of last year. While September inched up to a 9.2% year-over-year gain, significant cooling occurred in October with only a 6.8% gain. Coupled with recent improvement at the brick and mortar level, we may be experiencing some bottoming out in the swing toward internet retail sales.

However, landlords should not consider this as a signal that we are out of the woods just yet, and thus far it seems that they aren’t. In fact, a recent survey among both retail landlords and retailers conducted by FTI Consulting found landlords far more concerned than retailers about the shift to online shopping and changing consumer preferences: 80% of landlords, compared to 57% of retailers, who are able to react much more quickly to the digital age than landlords can. In fact, retailers expect e-commerce to account for 23.6% of their sales in three years, up from 16.1% today, as they shift more attention toward omnichannel retailing.

While it is far too early to call it a bottom, the tide is definitely starting to turn.

Bob Sheehan, VP of Research

BSheehan@KeyPoint Partners.com

We’re Looking At Malls

In our October issue, alert readers will have noticed a new Industry News section: Mall News (Page 3). You’ll also note that our Commentary last month was mall-related. That’s because we’re sharpening our focus on what’s happening at the nation’s malls, with new publications, new data tools, and new insights. There’s much more to come soon.

Can we help you with your mall?

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KeyPoint Partners Company News

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781.418.6242

New Business: Sr. Associate Michael Branton is handling leasing for Governor Francis Center, a retail property in Warwick, RI. VP of Leasing Don Mace is handling Capitol Shopping Center, a 198,000 s/f Shaw’s anchored center at 11 Western Ave. in Augusta, ME. Don Mace also negotiated the sale of Route 1 Marketplace, a 68,530 s/f center at 216 Newbury St. in Peabody, to the owner and operator of FUNCITY and Aero Trampoline Parks. The buyer plans to open a FUNCITY facility at the property. Don Mace also negotiated two leases at University Mall (UMall) in South Burlington, VT: Victoria’s Secret and Bath & Body Works, both long-time tenants, will relocate and expand in the mall; and Target will open its first Vermont store at UMall, in a 60,000 s/f anchor space currently occupied by The Bon-Ton. Construction will begin in February, with an October planned opening.

National News

U.S. retail sales rose at a solid pace last month, as consumers bought more cars, furniture and clothes. Retail sales increased 0.2% in October, the Commerce Department said, after a healthy 1.9% gain the previous month, the largest in 2 ½ years driven by big increases in auto and gas sales in the wake of Hurricanes Harvey and Irma. Excluding gas station sales, which fell sharply as prices dropped, retail sales rose 0.4% last month. Consumers spent more at electronics, grocery, clothing and sporting goods stores. Restaurants and bars reported a healthy 0.8% increase, the biggest gain since January. Among retailers reporting monthly sales, L Brands was up 2.0% and Costco was up 7.5%. See sales reports below.

Accelerating News

Clothing retailer Soft Surroundings opened its first New Mexico store this month, the chain’s 57th store. Formerly a catalog-only brand, Soft Surroundings is opening 16 stores this year...Lidl will open its first New Jersey store this month. Lidl first established its US headquarters in Virginia in 2015. The company operates more than 10,000 stores in 28 countries…Danish retailer Flying Tiger is ramping up its US expansion. The company will open a 2,400 s/f store at Garden State Plaza, New Jersey this month, the company’s sixth US location. 4 additional stores are set open soon. Flying Tiger operates more than 800 stores in 30 countries...Starbucks opened its first US Princi bakery and café location at its Starbucks Reserve Roastery in Seattle. Princi, which operates stores across Milan and in London’s SoHo neighborhood, will become the exclusive food offering in all new Starbucks Reserve Roastery locations. In addition, Starbucks plans to open freestanding Princi stores in the US starting in 2018... Panera Bread will buy Au Bon Pain. The companies did not disclose how much Panera was paying for Au Bon Pain. St. Louis-based Panera now has more than 2,000 restaurants. Boston-based Au Bon Pain has about 300 locations. The deal is expected to close by the end of the year... Amazon will set up Amazon Pop-Up stores in a handful of Whole Foods Market stores nationwide. The first locations will open in November in Illinois, Michigan, Florida, California, and Colorado. All locations will be staffed by Amazon employees…Sears Holdings announced the opening of two Sears Appliances & Mattresses stores, in Camp Hill, Pa. and the Ala Moana Center in Honolulu...American Girl has unveiled its new retail concept, the 37,000 s/f American Girl Place, at Rockefeller Plaza in Manhattan. The store features the brand’s lineup of American Girl dolls and accessories, plus a design studio where girls can play doll designer; a salon where girls and their dolls can get matching hairstyles; manicures, and ear-piercing, movies and videos showcased in an area called the “content hub;” and the brand’s popular American Girl Cafe.... Wings Etc. Inc. will expand to 9 additional Michigan communities. From there, the company anticipates opening a new location every six months across western and central Michigan, as a part of the company’s rapid expansion strategy throughout the Midwest.

Decelerating News

Sears Holding Co. announced it will close an additional 18 Sears stores and 45 Kmart locations to those already announced. Also, Sears Holdings has reached a deal with a US government pension board that will allow it to sell up to 140 additional properties, likely setting the stage for another round of closures. The company is expected to use all of the proceeds from the sales or financing deals, estimated at $407 million, to fund a pension plan that supports about 100,000 beneficiaries....Target has decided to close a dozen underperforming stores across Michigan, Florida, Illinois and Texas — as of February 2018. Meantime, Target is in the midst of vastly expanding its portfolio of smaller-format stores. This year, Target will have opened 32 smaller stores, with 35 openings planned for 2018. Target also plans to remodel 1,000 of its 1,800 stores by 2020... After disclosing plans to shrink its chain after it fell behind on rent payments and other bills, plus-size retailer Fashion to Figure filed for Chapter 11 bankruptcy this month. The company operates 26 stores and listed $1 to $10 million in assets and the same amount in liabilities, according to the filing... Bon-Ton will close at least 40 of its 260 stores next year as it works to cut costs.

New England News

Chilacates, a locally-owned taqueria with locations in Jamaica Plain and Mission Hill, will open next spring in Chestnut Hill’s The Street shopping center…Friendly’s is about to open its second new restaurant in a year, at the Apex Center in Marlborough. The restaurant is a prototype new concept for the Massachusetts-based chain. The company will begin retrofitting restaurants with the new look and adding drive-thrus at 10 existing locations. All new locations will feature drive- thrus as well. Friendly’s expects to be opening between five and 10 new restaurants a year by 2019…Wegmans has opened its newest MA store at 3850 Mystic Valley Parkway in Medford... Sierra Trading Post and HomeGoods are opening locations at the site of an old Sports Authority store at the Royal Ridge Center shopping plaza, located off Daniel Webster Highway in South Nashua, NH. The HomeGoods store will be 25,000 s/f and the Sierra Trading Post store will be 18,000 s/f. Sierra Trading Post and HomeGoods are operated by The TJX Companies, Inc.  The Royal Ridge Center currently includes Shaw’s, Marshalls, PetSmart, buybuyBaby and The Paper Store…Market Basket will anchor tenant a yet-to-be-built retail plaza at the former Pike Industries quarry on Main Street, Westbrook, ME. The grocery chain operates 79 stores across New England, but only one in Maine.

NEW: Mall News

Brookfield Property Partners has bid $14.8 billion bid to acquire the remaining shares in General Growth Properties that it doesn’t already own. Brookfield has offered to pay $23 per share for the remaining 66% of GGP - half in cash and half in equity. The transaction would create one of the largest listed property companies in the world, with an ownership interest in almost $100 billion of premier real estate assets globally and annual net operating income of approximately $5 billion. GGP has formed a special committee of independent directors to review the bid. It has retained Goldman Sachs as a financial advisor... Ridgmar Mall in Fort Worth, TX, announced that SeaQuest Interactive Aquarium opened this month, in space formerly taken up by seven stores. Ridgmar lost two anchors, Neiman Marcus and Macy’s, in the past year. Owner GFK Development expects the new aquarium will boost the mall’s appeal beyond shopping.

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

Retail sales increased 0.2% in October, the Commerce Department said, after a healthy 1.9% gain in the previous month. Excluding gas stations, retail sales rose 0.4% last month. Restaurants and bars reported a healthy 0.8% increase, the biggest gain since 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 improved marginally in September (an upward revision), increased again in October. The Index now stands at 125.9 (1985=100), up from 120.6 in September. The Present Situation Index increased from 146.9 to 151.1, while the Expectations Index rose from 103.0 last month to 109.1.

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

PURCHASING MANAGERS INDEX

Manufacturing expanded in October as the PMI® registered 58.7 percent, a decrease of 2.1 percentage points from the September reading of 60.8 percent. This indicates growth in manufacturing for the 14th consecutive month and continues expansion consistent with pre-hurricane levels. 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

Shaping The Future of the Mall

For every industry news article I read full of dire predictions for retailers and retail properties of many types, there seem to be twice as many about the fate of the nation’s enclosed malls.

There are many malls in the United States, comprising a significant portion of the retail real estate landscape. Of just under 1,100 malls, quite a number are are facing severe challenges, and simply shouldn’t remain as malls; others still have a legitimate and even vital role to play in the overall retail environment.

Yes, traditional mall anchors such as major department store chains are going through a period of significant readjustment, and traditional smaller tenants such as apparel merchants are facing challenging times, or disappearing altogether. At the same time, new less traditional tenants are seeing the advantages of leasing mall space – notably health services and entertainment venues for all ages – and major retailers who have had no, or little, mall presence are looking at vacant mall anchor space in a new way. Target, for example, has been aggressively opening smaller format stores, and this effort has led them to consider space they might not have considered before.  And, ironically, retailers who started with an on-line presence, are, in some cases, trying out bricks and mortar too.  Owners and managers need to manage and lease carefully for the new retail environment – and sometimes reimagine their shopping center.

In our work on a number of malls of various sizes, for a variety of clients including special servicers, we’ve encountered many of the challenges facing mall owners everywhere, and helped guide our clients’ efforts through renovation, remerchandising, or complete redevelopment.  We oversaw the building of a full-sized skating rink within a mall we worked on in upstate New York – shifting the mall toward an entertainment destination years before this became a trend. Another New York mall in our management portfolio is in the final stages of “de-malling” into a much more robust center. The Latham Circle Mall was a 650,000-square-foot enclosed mall with Lowes, Burlington Coat Factory, JC Penney, and a 10-screen theater.  What exists today is a 500,000-square-foot open air center with a 185,000-square-foot Walmart SuperCenter, Bob’s Furniture, Lowes, and Burlington.  The final 45,000 square foot phase will be under construction in the spring of 2018.   We’ve shepherded malls through the process of being demolished and reborn. We’ve also helped move them toward revitalization.

A mall we manage and lease in Vermont is undergoing just such a process. University Mall (UMall), located on Dorset Street in South Burlington, is Vermont’s largest enclosed mall at more than 610,000 square feet. Built back in the heyday of malls, UMall is very much in the traditional mall mode, and has seen its share of ups and downs. UMall is anchored by Kohl’s, JCPenney, Sears, and (until recently) The Bon-Ton. Tenants include more than 80 retailers and restaurants such as Charlotte Russe, American Eagle, Zumiez, Christopher & Banks, Applebee’s, and many others.

The Bon-Ton, one of many venerable department store mall anchors now closing stores in these difficult times, announced this month that it will close its 60,000 square foot store at UMall. As you may have heard, our team has negotiated a lease with Target to open at UMall in the space that had been occupied by The Bon-Ton. This is major news because Vermont had been the only US state without a Target store. As Target noted in a release: “Target’s strategic priorities include reaching guests in new ways by expanding small-format stores in dense suburban and urban neighborhoods, as well as near college campuses. With Target’s small-format stores, assortments are tailored to meet the needs of local guests. The Vermont store will provide neighboring residents and University of Vermont students in the Burlington area a quick-trip shopping experience.”

Construction of the new Target will begin in early 2018, with a Fall opening projected.  The much-anticipated Target will become the centerpiece of an ambitious plan to re-merchandise UMall. Our team has negotiated many leases at the mall including L Brands to expand and relocate the Victoria’s Secret and Bath & Body Works stores.  Many other potential new leases are being considered.

With Target and other retailers adapting their store sizes and expansion parameters, and the rise of non-traditional tenants such as grocers  and other large-scale entertainment operators, as well as health care, service providers, and others, many malls (although not all), may not be down for the count. We’re keeping a careful eye on US malls and their future, and we’ll share our mall data, news, and experience with you in much more detail in the coming months, starting with the addition of a section of this newsletter dedicated to mall news. Stay tuned!

Chris Cardoni, Marketing Manager

CCardoni@KeyPoint Partners.com

KeyPoint Partners Company News

Employee News: Chris Black joined the Plymouth, MA office as a Property Manager. Chris had been at Jones Lang LaSalle. Tim Mai has moved to the Boston, MA office as an Assistant Property Manager. Tim has worked on the Accounting team in the Burlington, MA office for three years. Chris Domos joined the Burlington, MA office as an Assistant Property Manager.

National News

US retail sales recorded their largest increase in 2-1/2 years in September, the Commerce Department said. Retail sales rose 1.6%. The National Retail Federation (NRF) said September sales were 0.5% ahead of August on a seasonally-adjusted basis and up 3.2% annually on an unadjusted basis. Among retailers still reporting monthly sales, L Brands was down 2.0% and Costco was up 8.9%. See our sales reports on Page 4...Coach Inc. is changing its corporate name to Tapestry Inc., to update its image after Coach bought Kate Spade earlier this year and shoemaker Stuart Weitzman in 2015 to grow into a broader lifestyle company.

Accelerating News

Williams Sonoma opened its second standalone Williams Sonoma Home location in New York City. The 5,300 s/f store will feature a full suite of home furnishings and décor offerings targeted for city living…Teen retailer rue21 emerged from Chapter 11 bankruptcy. rue21 has 758 stores in 45 states…DICK’S Sporting Goods opened 3 new DICK’S Sporting Goods stores and 1 new Field & Stream store in the last weeks of September. DICK’S will now have 713 DICK’S Sporting Goods locations and 35 Field & Stream locations across the country...Uniqlo opened its newest US store this month at Union Station in Washington, D.C. The 3,400 s/f store is Uniqlo’s 46th store in the US and second in the D.C. metro area. Uniqlo has more than 1,900 stores worldwide…Nordstrom opened its newest full-line store, a three-level, 154,000 s/f location with a new design and new services, in Los Angeles. The retailer also opened its newest retail concept, Nordstrom Local, in Los Angeles. The 3,000 s/f format, which has no inventory, is designed as a neighborhood hub where customers can access the company’s best services…DSW announced a redesign of its stores with a new warehouse-like look that will allow 70% more merchandise to be showcased…Gymboree has emerged from bankruptcy with a reduced footprint and new owners. The children’s apparel retailer announced it has successfully completed its financial restructuring and emerged from Chapter 11 as a new corporation under the name Gymboree Group. Gymboree filed for Chapter 11 bankruptcy in June…Ace Hardware has acquired a majority stake in Somerville e-commerce startup The Grommet, the company’s first startup acquisition. Financial terms were not disclosed. The Grommet provides an e-commerce website that showcases new products created by entrepreneurs, and has served as the launching pad for brands like FitBit, IdeaPaint, OtterBox, SimpliSafe and SodaStream. The Grommet displays products at 400 Ace stores now, and will eventually cover a majority of the retailer’s 5,000 stores... Apparel brand Fiorucci, which acquired cult status and flourished in the 1970s-80s, has opened a 5,000 s/f flagship in London’s SoHo. A New York City location is planned for 2018…Sprouts Farmers Market will open 9 new locations in the first quarter of 2018, and approximately 30 new stores across the country by the end of 2018. Sprouts operates more than 280 stores in 15 states….CoreLife Eatery will add 40 new stores by the end of 2018, including 20 in the brand’s home state of New York. CoreLife plans to open 300 stores within the next five years...Teen apparel retailer Forever 21 is rolling out its beauty boutique concept, Riley Rose, at 13 US shopping centers. Riley Rose features mascara and lip balm, but also candy, housewares and other everyday essentials... Aldi plans to open 4 stores in New Jersey by next year as the supermarket chain continues its expansion in that state...Trader Joe’s has opened new stores in Allston, MA.; Kalamazoo, MN; and North Brunswick, NJ. The company has opened 14 new stores this year, rounding out its portfolio to 474 locations in 41 states....Target opened 12 new stores this month: 11 small-format stores and a standard big box store in Honolulu. The new stores bring Target’s total US store count to 1,828 locations…Ruby Tuesday, Inc. announced an agreement to be acquired by a fund managed by private equity firm NRD Capital. As of September, there were 599 Ruby Tuesday restaurants in 41 states, 14 foreign countries, and Guam...Bob’s Discount Furniture announced the opening of 6 new stores in the Los Angeles market, its first on the West Coast. Bob’s currently has 89 stores in 15 states across the East Coast, Mid-Atlantic and Mid-West regions, adding more than a dozen new stores in the past year... Five Below is set to open its 62nd store in its home state, a two-level store on Market Street in Philadelphia. The new location is one of approximately 100 Five Below stores opening in 2017... Tim Hortons Bakery and Café will open 105 Northeast Ohio locations starting in 2018. The chain owns or franchises 4,613 restaurants... Camping World detailed plans to open the first 15-20 re-branded Gander Outdoors locations by the end of the first quarter on March 31, 2018. Another 40-45 could open by the end of September 2018. CEO Marcus Lemonis led an investor group that bought out Gander Mountain’s intellectual property and store leases in a bankruptcy auction after Gander Mountain filed for Chapter 11 bankruptcy protections in March.

Decelerating News

Plus-size retailer Fashion to Figure, a 26-store chain with locations along the East Coast, announced plans to shutter as many as 10 locations after the holiday shopping season...Hudson’s Bay, the owner of Lord & Taylor and Saks Fifth Avenue, will sell Lord & Taylor’s flagship store on Fifth Avenue to WeWork, the New York-based marketer of shared office space, for $850 million. WeWork will convert the 11-story building at Fifth Avenue and 38th Street into its headquarters...Walgreens will shutter 600 stores early next year following its $4.4 billion Rite Aid deal. The closures will be mostly Rite Aid stores, but may include some Walgreens locations, and will consist of stores within a mile of another Walgreens or Rite Aid location. The closings will start next spring and will continue over an 18-month period.

New England News

61-year-old New England-based retailer Country Curtains will begin liquidating immediately, and a going-out-of-business sale has been launched in its 19 retail stores. The stores will close by the end of the year…Wegmans will open in Medford early next month, in a 120,000 s/f space at the Meadow Glen Mall... David Yurman has reopened the doors to its new, expanded 2,500 s/f boutique in Boston’s Copley Place. The boutique is one of more than 350 Yurman locations... Iconic Boston guitar store Bay State Vintage Guitars on Huntington Avenue is closing to make way for condos, ending 35 years of local music history. In its time the store, directly across from the New England Conservatory of Music and a short walk from Berklee, served The Rolling Stones, Bob Dylan, and Paul Simon among others.

NEW SECTION: Mall News

Amazon, which has plans for 23 new fulfillment centers, is placing one of them on the site of the now-demolished Randall Park Mall in North Randall, Ohio, once the largest mall in America. The footprint required for the 855,000 s/f facility and huge parking lot is around 67 acres, which the mall easily provides….Next month Simon Property Group, the largest US mall operator, will unveil a platform known as “The Edit@Roosevelt Field at the Roosevelt Field mall on Long Island, NY,which offers retailers early on in their businesses the opportunity to set up shop in 20 to 200 s/f enclosed spaces in a dedicated portion of the mall. Some of the first brands to be featured include Raden Smart Luggage, menswear brand Vitaly, athletic apparel retailer Rhone, beauty brand Winky Lux, dessert company JARS by Dani, and contemporary art gallery Uprise Art... The local government Brookfield, Wisconsin plans to build a conference center and hotel at the CBL & Associates-owned Brookfield Square mall. By creating a hub for conventions on 9 of the 29 acres currently occupied by Sears, the city hopes to boost CBL’s efforts to reinvent the property, the largest taxpayer in Waukesha County.

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

U.S. retail sales recorded their biggest increase in 2-1/2 years in September, the Commerce Department said. Retail sales rose 1.6%. Excluding automobiles, gasoline, building materials and foodservices, retail sales increased 0.4% last month after being unchanged in August.

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 improved marginally in August, declined slightly in September. The Index now stands at 119.8 (1985=100), down from 120.4 in August. The Present Situation Index decreased from 148.4 to 146.1, while the Expectations Index rose marginally from 101.7 last month to 102.2.

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

PURCHASING MANAGERS INDEX

Manufacturing expanded in September as the PMI® registered 60.8 percent, an increase of 2 percentage points from the August reading of 58.8 percent. This indicates growth in manufacturing for the 13th consecutive month and is the highest reading since May 2004, when the index registered 61.4 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

PREVIEW: The KeyPoint Report for Greater Hartford, CT

With the releases of The KeyPoint Reports on Eastern Massachusetts/Greater Boston and Southern New Hampshire behind us, it’s time to move on to the report for Greater Hartford, Connecticut, based on our proprietary GRIID™ retail database. As with the other reports, our modus operandi is to share some of the regional highlights while the complete version is still “baking.” In Greater Hartford, the 2017 retail market was a relatively stagnant one.

Retail Inventory and Vacancy: Total retail space in Greater Hartford currently totals 37.6 million square feet, a nominal increase of 25,600 square feet from last year - in today’s environment, limiting new development should be regarded as means of stabilizing brick and mortar vacancy which has remained at frustratingly high levels for nearly a decade now.

Unfortunately, the region was unable to reduce vacant square footage during the past year, remaining virtually the same. While some retailers targeted Greater Hartford in their expansion plans in 2017, this growth was offset by a number of store closings, and bankruptcies in some cases, which resulted in the vacancy rate remaining unchanged at 11.1%. Although significantly below the peak level of 13.1% in 2013, shifting spending habits toward online purchases continue to impact retail real estate in Greater Hartford as it generally has across the U.S. As a result, net absorption in the region was nominally positive this year at 24,800 square feet.

Size Classifications: During 2017 changes in vacancy rates among size classification were mixed. First the good news: two size segments between 10,000 and 49,999 square feet showed significantly lowered vacancy rates, the latter (25,000-49,999) by 3.3 percentage points. The 2,500-4,999 SF vacancy rate also declined by 100 basis points. The bad news is that the 50,000-99,999 SF classification had a jump in the vacancy rate from 8.0% to 10.8%, impacted by two big box closings, Sears in Enfield and Bob’s Stores in Manchester. The other segment to experience a significant rise in the vacancy rate was the 5,000-9,999 SF classification, increasing 190 basis points. The remaining three size ranges experienced little to no change. Although Sears closed a store in the 100,000-199,999 SF bracket, the site was already earmarked for redevelopment and, as a result, Sears is not reflected as vacant space in the data.

Town Rankings: The ten largest retail markets among Greater Hartford communities, based on square feet of retail space supply, remain unchanged. It should be no surprise that the top three towns are Manchester, West Hartford, and Enfield, all regional retail hubs serving Greater Hartford. Manchester dominates the region with 5.4 million square feet of retail space; West Hartford comes in a distant second with 3.0 million square feet. However, it should be noted that the 1.3 million square foot Westfarms regional mall, which straddles the West Hartford/Farmington line, has a Farmington address but is very much rooted in the West Hartford retail hub. Consequently, West Hartford is effectively a 4.0 million square foot market.

Regarding vacancy, lowest rates were found in Newington and Rocky Hill, both under 4.0%. Farmington, Plainville, and West Hartford follow, respectively. Among towns with the highest vacancy rates, only East Windsor finished above the 20% level, coming in at 24.6%. The vacant Walmart and Showcase Cinema buildings are the biggest culprits impacting retail vacancy in this community. The top ten towns have vacancy rates of 10.0% and higher.

Retailer Activity: Key Bank led all retailers in square footage gain this year by acquiring First Niagara Bank. Included in the 300-branch acquisition were 20 locations in Greater Hartford, including 72,500 square feet. Jump Off Trampoline Park was a distant second with its second Connecticut location in Manchester, occupying a former Mill Store. Dollar General added three stores and 24,500 square feet.  Key Bank is also the leader in added store count with its 20 branch locations. Metro PCS added 9 stores, continuing its steady expansion. Dollar General also ranks third in this category with three new stores.

Sears continued its downward spiral, contracting by 242,600 square feet with store closings in Enfield and West Hartford. While the Enfied store remains vacant, West Hartford is under redevelopment and will be called The Corbin Collection, which will include REI, Saks Off 5th, and Buy Buy Baby among others. The First Niagara Bank sale removes this namesake and its 72,500 square feet from the region. The closing of Bob’s Stores in Manchester ranks this retailer third in square footage decline. First Niagara also led the pack in store reduction with 20 locations. Radio Shack closed its remaining four units, placing it in a tie with Ruby Tuesday for second place.

Bob Sheehan, Vice President of Research

BSheehan@KeyPoint Partners.com

The KeyPoint Report examines the retail real estate marketplace for Greater Hartford, Connecticut, with a focus on changes between August 2016 and August 2017. This report provides an analysis of changes in the region’s retail activity and examines supply, vacancy and absorption, retailer activity, and market composition by store size and retail categories. The Greater Hartford market includes 26 cities and towns and represents more than 835 square miles. The complete report contains much more detailed information on these categories and more, and will be available soon at KeyPointpartners.com.

KeyPoint Partners’ GRIID™ database maintains detailed information on virtually all retail properties in three key regions: Eastern Massachusetts, Southern New Hampshire and Greater Hartford, Connecticut. These markets encompass approximately 44% of all retail space in New England. GRIID™ has information on nearly 262 million square feet of retail space and approximately 60,000 retail establishments. The KeyPoint Reports contain a summary and analysis of market trends and activity for each studied area.

The NH Report is here!

The KeyPoint Report on Southern New Hampshire 2017 is available now, as is the KeyPoint Report on Eastern Massachusetts/Greater Boston 2017. The KeyPoint Report on Greater Hartford, CT 2017 will follow soon. Visit KeyPointPartners.com.

KeyPoint Partners Company News

New Leasing Assignments: Carriage Crossing, an Ocean State Job Lot-anchored center in East Bridgewater, MA, and 648 West Central Street,  a convenience center in Franklin, MA; Senior Associate Michael Branton is handling leasing.

National Retail News

US retail sales fell unexpectedly in August as Hurricane Harvey likely depressed auto purchases. Among retailers still reporting monthly sales, L Brands was down 4.0% and Costco was up 7.4%. See our sales reports below...The biggest retail deal of 2017 has been cleared by the FTC, after shareholders of Whole Foods voted to approve the grocer’s $13.7 billion acquisition by Amazon...Staples Inc. is no longer a public company after Sycamore Partners  completed its $6.9 billion acquisition.

Accelerating Retail News

Dollar General opened its 14,000th store last month in Middle Paxton Township, PA…DTLR Inc. is merging with urban lifestyle retailer Sneaker Villa Inc. to form a new entity that will comprise nearly 240 stores - 110 pre-existing DTLR outposts and 120 Villa stores - in 20 states…Sprint is turning 350 RadioShack locations into Sprint stores. In 2015, Sprint moved into 1,435 RadioShack stores to share space with the electronics seller, which had just filed for bankruptcy protection...Mobile payments processor Square has opened a store, Square Showroom, in Manhattan, that provides support for merchants using its technology and space to display its POS hardware…Ulta Beauty will open 100 new locations in 2017. It will also remodel 11 stores and relocate 7 others. As of July 29, 2017, Ulta Beauty operated 1,010 retail stores across 49 states... Private equity firm JAB Holding Company has entered into an agreement to buy Bruegger’s Bagels from Le Duff America, parent of la Madeleine French Bakery & Cafe. Terms of the transaction were not disclosed. JAB’s US holdings include Peet’s Coffee, Caribou Coffee, Krispy Creme, Stumptown Coffee Roasters, Intelligentsia Coffee and the Keurig Green Mountain, and Panera Bread...Wahlburgers has partnered with Hy-Vee grocery stores to open 26 restaurants. Hy-Vee also plans to add select menu items to all 84 Hy-Vee Market Grille restaurants. The move makes Hy-Vee the largest single franchisee of Wahlburgers, which currently has 17 locations in 9 states and in Canada. Hy-Vee plans to open its first Wahlburgers restaurant in West Des Moines, Iowa, in mid-2018. Hy-Vee Inc. has more than 240 retail stores across 8 Midwestern states…Dyson Ltd. will open a Dyson Demo store this fall in Toronto. Also in the works: a store on 5th Avenue in Manhattan, and one in San Francisco’s Union Square. In August, it launched a partnership with Best Buy, opening in-store shops in 90 Best Buy stores. Dyson debuted its freestanding store concept in London last year…Mattress startup Casper is opening pop-up retail stores that will be open through spring 2018 in New York, Los Angeles, Chicago and 12 other major metropolitan areas, Casper’s first foray into its own physical retail locations. Shoppers have been able to test Casper products in West Elm and Target stores…Dick’s Sporting Goods will open 10 Dick’s and Field & Stream stores in 8 cities during the first half of September. Dick’s will have 711 namesake locations and 34 Field & Stream locations across the country...Kohl’s will open 1,000 s/f Amazon shops next month in 10 Chicago and Los Angeles stores, where customers will be able to buy Amazon Echos, Fire tablets and other gadgets. Kohl’s has more than 1,100 US stores...Gymboree Corp. won court approval to exit Chapter 11 bankruptcy by the end of the month. Gymboree had filed for bankruptcy in June 2017 with a plan to close 375 to 450 stores. As of April 29, 2017, the Company operated a total of 1,281 retail stores...Japanese lifestyle brand Muji has opened a 7,300 s/f store in the Williamsburg section of Brooklyn, the retailer’s 7th store in greater NYC. Muji has 6 locations in California, one in New Jersey and one in Boston, and plans to add more US stores next year. Muji has over 800 global locations…Sandwich chain Melt Shop hopes to grow to 100 locations during the next 5 years across the US and internationally via franchising. The brand currently operates 6 corporate-owned locations in New York, one at Mall of America, and one in King of Prussia, PA...Nordstrom will roll out a new line of stores, called Nordstrom Local, which will be 3,000 s/f, instead of a typical Nordstrom box size of 140,000 s/f.  Nordstrom Local will have dressing rooms where shoppers may try on clothes, but won’t actually keep inventory in stock. Instead, Nordstrom will pull merchandise from its larger stores and from its website. The first is set to open in CA on Oct. 3... Mediterranean fast-casual restaurant Cava plans to expand its chain to Austin, Charlotte and Boston in early 2018. The chain currently has 35 restaurants, and is also planning its first CT restaurant as well as new locations in existing markets DC, NY, and NJ…Online footwear brand Birdies, known for its slippers, will open its first store, on Union Street in San Francisco, this fall... Auto services retailer TBC Corp. has opened 4 new company owned locations under the NTB Tire & Service Centers and Tire Kingdom Service Centers  brands…Online shoe brand Allbirds opened its second brick-and-mortar location, in Manhattan’s SoHo neighborhood…The Kroger Co. is opening its first-ever full-service restaurant, called Kitchen 1883, to be located next to Kroger’s new Marketplace store in Union, Kentucky, in October. It will serve lunch and dinner, and brunch on weekends…Monomoy Capital Partners has successfully completed the acquisition of West Marine, the firm’s third investment of 2017 following its acquisitions of Klaussner Furniture Industries and Friedrich Holdings. West Marine has 249 stores in 37 states and Puerto Rico….Target Corp. is adding health clinics to 31 stores in Southern California. Currently, there are 4 Target Clinics, with 4 set to open in November…Nestlé has bought a majority stake in the Blue Bottle coffee shop chain. Blue Bottle expects to nearly double its store count this year to 55 outlets...Walgreens Boots Alliance has secured regulatory clearance for a revised deal under which it will buy 1,932 stores from Rite Aid. The original proposal had included 2,186 stores. The deal will enable Walgreens to dramatically increase its store footprint to about 10,000 US locations. The stores will be converted to Walgreens in phases. The transaction is still subject to other customary closing conditions. Store purchases are expected to begin in October, with completion anticipated in spring 2018.

Decelerating Retail News

Sears is closing another 28 Kmart stores in addition to 180 previously announced closings this year...Perfumania has filed for Chapter 11 bankruptcy in federal court. The company plans to close 64 of its 226 stores...Gap Inc. is realigning its store portfolio to emphasize its two best-performing brands, Old Navy and Athleta, and expects to close about 200 underperforming Gap and Banana Republic stores over the next three years. During the same period, the company will add about 270 Old Navy and Athleta stores. Gap Inc. has about 3,200 company-operated stores and 450 franchise stores worldwide...Neiman Marcus will close 10 Last Call stores as part of its strategy to invest in its full-line stores. The company has 37 Last Call stores... Portrait Innovations has filed for Chapter 11 bankruptcy and has closed 63 portrait studios. The company continues to operate 119 other studios, and will expand with new concept studios in Walmart Supercenters…Vitamin World has filed for Chapter 11 protection in a federal court, and has identified 51 stores it wants to close. As of the filing, the retailer operated 334 stores... High-end bath and kitchen retailer Pirch is closing 6 of its 10 locations in an operations overhaul that will see it focus on its 4 CA stores... Women’s shoe retailer Aerosoles filed for Chapter 11 bankruptcy protection. The company will close up to 74 stores and focus on e-commerce...Toys “R” Us has filed for Chapter 11 bankruptcy protection. The company said most of its 1,600 stores will continue to operate.

New England Retail News

Restaurant chain Tender Greens will be open its first MA location next year, a 3,000 s/f restaurant at The Street shopping center in Chestnut Hill...Brew on the Grid has opened its second MA location at 93 Windsor St., near MIT in Cambridge, the first of four locations planned for Greater Boston this fall…Pure Hockey is converting its various store banners to its namesake brand. The company will begin rebranding all of its Total Hockey and HockeyGiant stores as Pure Hockey. Pure Hockey, headquartered outside of Boston, operates four e-commerce sites and 54 stores in 18 US states...Rhode Island family-owned retail chain Benny’s is closing all 31 stores by the end of 2017. Benny’s operates stores in MA, RI, and CT.

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 dropped 0.2% last month. Motor vehicle sales tumbled 1.6%, the biggest drop since January. Overall retail sales increased 3.2% in August on a year-on-year basis.

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 July, improved further in August. The Index now stands at 122.9 (1985=100), up from 120.0 in July. The Present Situation Index increased from 145.4 to 151.2, while the Expectations Index rose marginally from 103.0 last month to 104.0.

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

PURCHASING MANAGERS INDEX

Manufacturing expanded in August as the PMI® registered 58.8 percent, an increase of 2.5 percentage points from the July reading of 56.3 percent. This indicates growth in manufacturing for the 12th consecutive month and is the highest reading since April 2011, when the index registered 59.1 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

Southern New Hampshire KeyPoint Report Preview

While the 2017 KeyPoint Report for Southern New Hampshire, based on our proprietary  GRIID™ retail database, is in production, we will again share some of the early results:

Inventory and Vacancy Rate: The retail inventory in Southern New Hampshire included 29.8 million square feet in 2017. This represents a net decline of 59,400 square feet, or 0.2%, resulting largely from retail demolitions and conversions to non-retail space. During the same period, retailers absorbed large chunks of vacant space in the region, dramatically reducing the level of unoccupied space by more than 400,000 square feet in Southern New Hampshire and cutting the vacancy rate from 10.5% in 2016 to the current level of 9.1%. Some of the larger retailers to fill space include Chunky’s Cinema in Manchester, Hobby Lobby in Nashua, and Ocean State Job Lot in Seabrook. Also a number of retailers plan to open in vacant space later this year, including Cardi’s Furniture and NH1 Motorplex Indoor Karting, both joining Ocean State to absorb most of the vacant Walmart space and the empty Shaw’s location at Southgate Shopping Center.

Size Classifications: It was an encouraging year across the board regarding vacancy by size. Although the Under 2,500 SF category experienced a nominal increase in the vacancy rate to 16.0%, the vacant square footage was actually able to show a nominal decline. The total inventory in the under 2,500 SF category is modestly lower however. Still, this is a segment that has been trending the wrong way for several years now and the relative stability is a positive year-end result. Three categories lowered the vacancy rate by more than 2.0%, including the 5,000-9,999, 50,000-99,999, and 100,000-199,999 SF classifications. Absorption of vacant Shaw’s, Walmart, and Lowe’s boxes had much to do with the latter two ranges. The 2,500-4,999 SF segment of the region also showed a solid reduction in the vacancy rate of 180 basis points.

Regional Submarket Rankings: There has been no change in the top ten largest regional markets: Nashua continues to rank first with 6.3 million square feet of inventory; Manchester follows at 5.3 million square feet; and Salem is a distant third at 3.9 million square feet. Seabrook and Bedford follow with 2.0 million square feet and 1.5 million square feet, respectively.

Among towns with at least 500,000 square feet of retail space, Salem remains on top of the rankings for lowest vacancy rate at 5.7%, although up a bit from last year. Derry is this year’s runner-up, moving up from fourth a year ago. Hudson slipped a notch to third place.  Among towns with the highest vacancy rate, Manchester takes over at first with13.2%, although down substantially from 16.0% last year. In fact, the five highest ranking towns had vacancy rates all lower versus last year. The Seabrook vacancy rate, which was the highest in the region a year ago at 17.8%, has been notably reduced to 9.4%, in line with the Southern New Hampshire average.

Retailer Activity: Retailers adding the most space in the region include Mattress Firm, which converted its acquired Sleepy’s locations, thereby increasing by 59,700 square feet, followed by Chunky’s Cinema, Hobby Lobby, and Ocean State Job Lot. The latter three all back-filled big box vacancy, largely contributing to the substantial decline in the region’s vacancy rate. Conversely, Sleepy’s closed the most space. Radio Shack and Namco round out the top three of retailers contracting by square footage. Mattress Firm also led the region in new stores, adding 10 units via the Sleepy’s acquisition. Cricket Wireless and Sprint were the only other retailers gaining multiple stores, three and two units, respectively. The acquisition of Sleepy’s reduced this retailer’s store count by 10 locations. Radio Shack also vacated the region, closing its last seven stores. The overstoring of yogurt shops was apparent with the closing of six Orange Leaf locations.

Bob Sheehan, Vice President of Research

BSheehan@KeyPointPartners.com

This KeyPoint Report examines changes in supply, vacancy and absorption, retailer activity, and market composition by store size and retail categories during the period from July 2016 to July 2017. The study area includes 39 cities and towns, representing more than 835 square miles and approximately 561,500 permanent residents (42% of the state population).  KeyPoint Partners’ GRIID™ database maintains detailed information on virtually all retail properties in three key regions: Eastern Massachusetts, Southern New Hampshire and Greater Hartford, Connecticut. These markets encompass approximately 45% of all retail space in New England. GRIID™ has information on approximately 263 million square feet of retail space and approximately 59,600 retail establishments. The KeyPoint Reports contain a summary and analysis of retail market trends and activity for each studied market area.

The Report is coming!
The KeyPoint Report on Eastern MA/Greater Boston 2017 is available now.
The KeyPoint Report on Southern New Hamsphire 2017 and the KeyPoint Report on Greater Hartford, CT 2017 will follow soon.

Visit KeyPointPartners.com and click on Retail Reports at the top.

KeyPoint Partners Company News

New Leasing Assignments: Sr. Associate Michael Branton: 515 Main Street, a 2,280 s/f, .37 acre convenience property in Dennisport, MA. VP of Leasing Don Mace: 553 Mast Road, a 166,545 s/f center in Goffstown, NH; Don Mace is also representing FUNCITYUS, a new indoor entertainment concept seeking 25,000 - 50,000 SF sites throughout New England.

National Retail News

Retail sales advanced 0.6% last month, the best showing since a gain of 0.9% last December, the Commerce Department reported. Sales got a boost in July from a 1.2% jump in auto sales, the strongest result since December. There were sales gains in other areas as well, including furniture stores, hardware stores and restaurants. For most of this year, retail sales have been lackluster, including a decline in May of 0.2% and a modest 0.3% June gain. Among retailers still reporting monthly sales, L Brands was down 7.0% and Costco was up 6.2%. See our sales reports on Page 4...Staples’ new private equity owner, Sycamore Partners, plans to spin off its retail operations from its corporate sales unit. In a filing with the Securities and Exchange Commission, Staples said it expects to separate its US retail business and Canadian retail businesses into two separate entities.

Accelerating Retail News

Monro Muffler Brake Inc. has signed agreements to acquire 20 stores, including 8 from an existing Car-X franchisee. 12 of the stores will operate under the Monro name, and the 8 Car-X stores will operate under that brand. The acquisitions are expected to close in the second quarter of fiscal 2018…Sephora has opened a new concept, Sephora Studio, on Newbury Street in Boston, designed to provide a customized shopping experience. At 2,000 s/f it is the brand’s smallest store in North America…Harris Teeter opened its newest and largest store in NC. The 67,000 s/f, 24-hour store features an in-store bar with local wines and 16 beers on tap. Harris Teeter was bought by Kroger in 2014...Buffalo Wild Wings opened its first small-format B-Dubs Express restaurant in Edina, MN. The company is testing the 2,500 s/f format, which seats up to 50 people, for future expansion…Tire Discounters Inc. plans to double its store network in 5 years. The company currently operates 106 US stores; that could exceed 200 by 2022. Tire Discounters plans to open 10 stores in the coming months... Fidelity National Financial Ventures LLC, parent of the 106-unit casual-dining chain Ninety Nine Restaurant & Pub, will merge that company with J. Alexander’s Holdings Inc., which operates 19 J. Alexander’s, 12 Redlands Grills, 12 Stony Rivers, and one Lyndhurst Grill…Dick’s Sporting Goods opened five stores in three different states this month: 2 namesake stores and 3 Field & Stream stores in Texas, Alabama, and Georgia. With these new stores, Dick’s will have 704 locations and 32 Field & Stream locations…Electronics accessories brand Otter Products opened a retail store, Otter Shop, in its hometown of Fort Collins, CO... E-cigarette/vapor products manufacturer VaporFi opened 19 brick-and-mortar stores in 6 US states and 2 other countries...Garden Fresh Restaurant Corp., parent of Souplantation and Sweet Tomatoes, has been acquired by two private-equity groups 7 months after the brands were sold out of bankruptcy. The 97-unit restaurant chains were acquired by Perpetual Capital Partners and CR3 Capital LLC. Terms were not disclosed. Garden Fresh has restaurants in 9 states…Iconic British brand Hunter, best known for its signature rain boots, will open its first North American store in Toronto. The 2,800 s/f store will be the third standalone location for the brand, whose boots are sold in department stores and specialty shops around the world. Hunter has two stores, one in London and one in Tokyo... Toys “R” Us will open a temporary 35,000 s/f store in Times Square, just two blocks from the chain’s flagship that closed at the end of 2015. Scheduled to open in August, the three-level store will feature life-size toy displays and a scaled-down version of the animatronic dinosaur in its former location... Bob’s Discount Furniture will open six Los Angeles-area stores early next year. Last year Bob’s opened a net of 12 stores. This year, Bob’s has opened a net 11 stores to date, and by Labor Day, it will boost its store count to 89... Hurricane BTW, a new fast casual restaurant concept developed by Hurricane Grill & Wings, plans to open more than 100 US units over the next few years. The first Hurricane BTW prototype will open in West Palm Beach, FL... Online made-to-measure retailer Indochino expanded its brick-and-mortar footprint with its largest location to date, a 4,100 s/f space at King of Prussia Mall, King of Prussia, PA. The Canadian retailer previously opened its second NYC location, and flagships in Chicago and Washington, DC. Earlier this year, the company opened two storefronts in Canada. It currently has 17 stores in North America. .. TJX Companies Inc. plans to open 260 new stores this year, increasing its total worldwide by nearly 7%.  The off-price retailer currently has more than 3,800 stores worldwide, including Marshalls, TJ Maxx and HomeGoods. Last month it announced plans to launch a fourth chain called Homesense, whose first store opened this month at Shopper’s World in Framingham, MA. TJX plans include about 80 new US HomeGoods stores this year, up from 53 last year... Saks Fifth Avenue is debuting a new salon concept which will offer hair care, skin care, and beauty services along with a medical spa and retail. The concept will launch this fall at Saks’ store in Huntington, NY, with additional locations at Saks’ stores in Houston and Boca Raton, FL opening by 2018. The concept will open in Saks’ NYC flagship in fall 2019, and will be rolled out in 10 US Saks stores during the next two years...Red Robin expects to open about 17 stores and close 9 in the remainder of the year...Capriotti’s Sandwich Shop will open 15 new shops in 2017, and grow to 500 locations by 2025 through franchising. Capriotti’s currently has more than 100 US locations

Decelerating Retail News

DineEquity, parent of Applebee’s and IHOP, will shutter up to 135 restaurants in fiscal 2017, while also expecting franchisees to develop between 20–30 new restaurants globally. There were 1,752 total IHOP units and 1,968 Appleebee’s as of June 30...Famous Dave’s of America Inc. closed 6 company-owned restaurants, as it takes “a more aggressive approach” in closing underperforming locations. The barbecue chain is in the process of either selling corporate restaurants to franchisees or closing them. Famous Dave’s operated 35 company locations as of the end of the first quarter. It closed 3 units during the second quarter, and another 3 after the end of the period, giving it 29 company units. The closures represented nearly 20% of Dave’s company-owned restaurants. Franchisees operate another 135 units...Joe’s Crab Shack has abruptly closed at least 41 locations across 19 states.

New England Retail News

Target held the grand opening of its fourth Boston area small-format store in the former Shaw’s at Redstone Plaza in Stoneham, MA…The TJX Companies debuted HomeSense, its new off-price home store concept, in August in Framingham, MA.  Three additional stores are planned by the end of 2017, two in NJ and one in Westwood, MA. HomeSense will complements its sister chain, HomeGoods, with expanded selections of large-scale furniture, lighting and art. As of April 29, 2017, TJX operated over 3,800 stores (see Accelerating News above)... Outerwear retailer Canada Goose plans to open a retail store at the Prudential Center in Boston this fall. Canada Goose merchandise can already be found at 11 Massachusetts retailers, but there are no company-owned stores in New England…Local restaurant 110 Grill, with 8 existing locations including 6 in Massachusetts and 2 in New Hampshire, plans to open at least four additional locations by the end of 2017 and six in 2018... Amazon is expanding its physical footprint in the Boston area with a pickup location at 870 Commonwealth Ave. near Boston University. Customers can pick up or drop off items at the location, a few doors down from a small-format Target store. Amazon’s announcement heralded the opening of 5 Instant Pickup spots near college campuses in California, Ohio and Maryland…Wegmans plans to hire 550 employees for its store in the Natick Mall, scheduled to open next spring. The Natick Wegmans, in a former J.C. Penney store, has direct access to the mall and will house the 134,000 s/f supermarket on two floors, including more than 100 seats for in-store dining. Another 12,500 square feet on the second floor will feature two restaurants. Wegmans is also seeking a tenant for a 45,000 s/f third floor space in the building.

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 jumped 0.6 percent last month, the largest gain since December 2016 and followed June’s upwardly revised 0.3 percent rise. Excluding automobiles, gasoline, building materials and food services, retail sales surged 0.6 percent.

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 declined marginally in June (a downward revision), improved in July. The Index now stands at 121.1 (1985=100), up from 117.3 in June. The Present Situation Index increased from 143.9 to 147.8, while the Expectations Index rose from 99.6 last month to 103.3.

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

PURCHASING MANAGERS INDEX

Manufacturing expanded in July as the PMI® registered 56.3 percent, a decrease of 1.5 percentage points from the June reading of 57.8 percent. This indicates growth in manufacturing for the 11th consecutive month and is the fourth highest reading in the last 12 months. 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

Is Stability in the Air?

A funny thing happened recently, which at least suggested – mildly – that, in the retail world, the worst may be over.

Last week Target announced that it expects a modest increase in same-store sales and boosted its Q2 earnings forecast. If the trend holds, it will be the first quarterly gain in comp-store sales in more than a year. Particularly encouraging is the added announcement that second-quarter earnings are expected to come in above the high end of its previous forecast. The improvement in the business has been attributed to an increase in customer traffic and newly introduced merchandise - lines but generally it has been broad-based, with nothing in particular driving the gains.

Also, just when everyone thought Wal-Mart had become a sleeping giant, it has shown life again, and is preparing to take on Amazon head to head. Wal-Mart’s comparable sales have increased now for 11 consecutive quarters and most recently gained 1.4 percent in Q1. Additionally, comparable store traffic has increased 3 percent on a two-year stacked basis. In the meantime, its acquisition of Jet.com has upped its e-commerce game and brought in new talent to improve digital operations. It’s no coincidence that Q1 online sales rose a phenomenal 63 percent. The fact that comp store sales have increased in light of the online sales boom is quite noteworthy. If omnichannel retailing is the future, then its 4,200 store count should be a huge advantage over Amazon. It’s quite apparent that even Amazon recognizes the need for a brick-and-mortar presence by virtue of its 465-store acquisition of Whole Foods Market.

Best Buy is another retailer that has stabilized its business, experiencing modest same-store sales increases the past three years following four years of declines. The company was more responsive than most retailers in dealing with the “Amazon effect” through its price matching policy and aggressive push to enhance bestbuy.com. While Best Buy now considers itself as a multi-channel retailer and no longer a pure brick-and-mortar retailer, the fact remains that its stores are here to stay.

The Best Buy turnaround may not have been so pronounced had it not benefitted from recent bankruptcies such as Radio Shack and hhgregg, among others. At the same time the consumer-electronics industry as a whole is growing less than 3% a year as interest in big ticket items such as flat screen TVs has waned.

While Kohl’s has experienced declines in comp store sales for the past five quarters, it did indicate that profit growth in Q1 was attributed in part to increases in store traffic. In the first quarter this year, same-store sales were down 2.7% - not as bad as analysts had predicted. Kohl’s will be one of the more interesting retailers to keep an eye on during the balance of 2017 based on the recent upheaval among department stores on the whole. Its predominantly non-mall location strategy probably puts Kohl’s in a better position to turn its comp store sales trend around compared to chains like Macy’s, JC Penney, and Sears, which continue to be impacted by the loss of traffic as more mall-based chains close stores.

There are also a number of brick-and-mortar categories that have avoided any serious impact from the shift toward online retailing. Off-price retailers, dollar stores, auto supply, and cosmetics all continue to perform admirably in the face of an ever-growing digital world.

There may be a hint of hope that the scale is starting to balance itself. However, no one should declare that the skies are clearing – we may find we’re just in the eye of the hurricane!

Bob Sheehan, Vice President of Research

BSheehan@KeyPointPartners.com

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