Since a traditional enclosed mall hasn’t been built in the U.S. in more than two decades, we’ll leave mall developers out of the discussion for now, and stick to open-air retail development of the kind typically anchored by a big box store - or several.
There was a time not long ago when developers had many choices among expansion-minded retailers that were ready to fill anchor positions. In fact, they often had choices within a particular category: if Dick’s fell through, there was Sports Authority; if they couldn’t get Bed Bath & Beyond, maybe Linens N’ Things had interest; and when Best Buy said no, they could go to Circuit City. If a grocery anchor was in order, there were even more choices: Stop & Shop, Shaw’s, Hannaford, Big Y, or Victory might be able to fill the bill.
Ah, but how times, and retailers, have changed! Growing chains that were once easy target prospects are no longer expanding. Kohl’s is a prime example. One of the fastest growing retailers a decade ago, Kohl’s has added a mere 37 stores to a 2012 base of 1,127 units, and only six stores in the past two years. And if you’re thinking of Best Buy, think again: Best Buy currently has 1,415 stores in the U.S., 32 fewer than in 2012. Target’s growth has slowed to a crawl, with the chain adding just 29 units since 2012, for a current total of 1,792 locations - and most of those are small-store concepts. Even Home Depot, which continues to experience healthy sales gains, has limited its expansion to only 22 stores during the same period. So, what is a developer to do? Tread carefully, of course.
However, believe it or not, some retailers haven’t slowed down all that much. Take the TJX divisions, which continue to add significantly to their store count. In the U.S., Marshalls and TJ Maxx combined added nearly 300 stores since 2012, while HomeGoods added 152 units. In addition, TJX is rolling out 15 more Sierra Trading Post locations this year, its newest addition to its off-price line-up. If that’s not enough, TJX announced a new, as-yet-unnamed retail start-up that will complement HomeGoods. Another off-price retailer in a growth mode is Ross Dress for Less, which added 321 stores since 2012 and now operates 1,446 units. If off-price isn’t in the cards, developers can turn to the high-flying Ulta Beauty, which has upped its count from 449 stores in 2012 to 874 stores in 2016, adding roughly 100 or more stores per year. Although not showing quite the same level of dynamic growth as Ulta, craft retailer Michael’s continues to increase its store count, adding 132 units since 2012. Going back to the sporting goods category, Dick’s remains a viable player, exhibiting significant expansion beyond those units recently acquired from the now-defunct Sports Authority. Overall, Dick’s has added 180 stores in the past four years.
While Dollar General’s addition of 2,546 stores since 2012 is a clear example that dollar stores show no sign of slowing down, this category may be a non-starter for some centers based on rental requirements for new construction. Among grocers, if you’re not lucky enough to land one of the few remaining Wegmans opportunities in the region, or work out some type of joint venture with Market Basket, you could pursue Aldi as a smaller store option with the average store size now at 18,000 square feet. This growing chain started the year with 1,600 stores in the U.S. and expects to add 400 more by 2018.
The key to finding the right tenants for your new retail development lies in avoiding those retailers - and retail categories - that are the most vulnerable to online competition. Project scale is also crucial: the current retail environment suggests that it may be better to build quality rather than quantity, limiting development to strong credit tenants. So, Open-air Retail Developers, all hope is not lost. While perhaps not as many as there used to be, you do still have some viable tenant options. One thing is certain though: it’s not easy anymore.
Bob Sheehan, Vice President of Research