Wednesday, November 29, 2017

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

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.

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KeyPoint Partners Company News


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 cafĂ© 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.


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. 


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 -


Treasury Yield Sources:;


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 -


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 -