Wednesday, February 28, 2018

Mall Owners Fill Up On Entertainment

For a while it seemed as if brick-and-mortar retail was in recovery mode from the doom and gloom days following the Great Recession. Based on KeyPoint Partners proprietary GRIID™ data, vacancy rates in Eastern Massachusetts peaked in 2010. The region has been experiencing some stabilization in the vacancy rate in recent years, settling into the mid-8% range. However, it appears that the region will see a bump up this year: preliminary data for our KeyPoint Reports on New England retail real estate markets (being compiled now) suggests that the vacancy rate could rise significantly this year.
Enclosed malls have much to do with higher vacancy rates: the rate within this retail venue runs about a point higher than the regional rate. Much has been written about the decline in the mall industry and we’ve all seen the projections. An April report from Cowen and Co. predicted that as many as 20% of stores at some mass and middle-market mall retailers will close in the next five years; a Credit Suisse report from May forecast that 25% of all U.S. malls could shutter by 2022.

Within the larger mall category, Class A malls such as Natick Mall, South Shore Mall, Burlington Mall, and North Shore Mall continue to perform at near full occupancy, with vacancy rates of 4.5% or lower. The problem malls tend to be those with vacant department stores such as Silver City Galleria, Swansea Mall, and Westgate Mall, in which overall vacancy exceeds 20%. As department store anchors continue to close and malls experience a corresponding decline in foot traffic, it should be expected that mall shop chains will continue to close underperforming units. Consequently, it has become essential for mall landlords to find alternative uses to fill space and bring back shoppers, even at the expense of below market rents.

Some of the merchandise categories helping the cause by occupying space in enclosed malls include restaurants, which have generally been a part of the mall tenant mix, and health clubs and medical uses, which have generally not. It’s a measure of the current atmosphere that less traditional tenants are now being considered - and even courted – by mall owners.

The tenant category that is arguably playing the largest role in the re-thinking of mall tenancy is the category we broadly refer to as Entertainment. Well-established entertainment operator Dave & Buster’s is a slam dunk to replace anchor space if your leasing representative is lucky enough to land one. Movie theaters have been selectively added to malls this year (according to our Mall database, which tracks activity in over 700 U.S. malls). AMC Theatres has been active, opening several mall locations, and may be the best choice among theater operators if the market offers a cinema opportunity.

However, a variety of non-traditional entertainment concepts of many different types are absorbing large chunks of unoccupied mall square footage, while others are serving as traffic-generating kiosks. Some of these include inflatable bouncy parks, escape rooms, indoor golf, bungee jumping, virtual reality simulators, go-cart tracks, and video arcades. According to a recent article in Forbes, “at Opry Mills in Nashville, there’s now a Madame Tussauds wax museum. The Palisades Center in West Nyack, New York has what they claim to be the tallest indoor ropes course. And Layton Hills Mall in Layton, Utah, now has an aquarium where a sporting goods store used to be.”

Some of the more active concepts within the entertainment category include such names as All In Adventures, an escape room concept that currently operates more than 30 locations nationwide and has rapidly expanded its footprint through enclosed mall availability in just the past few months.

Another expanding concept is Tilt, which offers both the Tilt Arcade and the larger Tilt Studio formats. Tilt Studio is multi-purpose game facility which, in addition to the video arcade, offers indoor golf, bumper cars, laser tag and other games. Together the company operates more than 30 locations across the US, including one at Solomon Pond Mall in Marlborough, MA.

Wild Dimensions is a growing chain operating in the world of virtual reality. Wild Dimensions allows mall shoppers the opportunity to experience short animated movies while seated in what is billed as a “9D Virtual Reality Chair”. Other expanding VR concepts being added to enclosed malls today include InfiniteVR, VRX Networks, and VR Junkies.

Glow Golf has been around for some time but this chain is still on the move and expanding. This concept only operates indoors under black lights and has found a natural home in enclosed malls. Size typically is not an issue for this versatile chain which now operates within floor plans of 4,000 to 60,000 square feet.

As noted earlier, the traditional mall is among the most challenged of retail real estate categories. Those challenges will certainly continue, and there will continue to be casualties in the mall category. But if mall landlords and their leasing teams continue to be flexible, innovative, and creative in their leasing strategies - envisioning an indoor golf course or virtual reality environment where there was once a department store - it may be that some troubled malls can find revitialization through entertainment.
Bob Sheehan, VP of Research
BSheehan@KeyPoint Partners.com

KeyPoint Partners Company News

Returning Team Members: the Burlington, MA office welcomes back Laura Ferrara as a Property Manager and John Matyjas as a Property Accountant, and the Plymouth Office welcomes Shannon Murphy as temporary help during staffing transitions. Promotion: Michael Branton of the Burlington, MA office has been promoted to Vice President of Leasing.

National Retail News

US retail sales unexpectedly fell by 0.3% in January, recording their biggest drop in nearly a year, the Commerce Department reported, as households cut back on purchases of motor vehicles and building materials. There were declines in sales at furniture and health and personal care stores. Sales at electronics and appliance stores rose 0.5%. Receipts at clothing stores increased 1.2%. Receipts at sporting goods and hobby stores fell 0.8%. Among retailers reporting monthly sales, L Brands was up 2.0% and Costco was up 6.0%. See sales reports below.

Accelerating Retail News

Kum & Go opened a new Tulsa location, the 34th in the Tulsa area and the third to feature the company’s Go Fresh Market design. The company has 40 such stores and plans 26 new locations throughout its 11-state market... 7-Eleven Inc. has acquired 1,030 Sunoco LP convenience stores in 17 states.This acquisition is the largest in the company’s history and will bring the total store count to approximately 9,700 in the US and Canada...McDonald’s plans to open about 1,000 restaurants worldwide and add new self-service ordering systems and other store upgrades. McDonald’s has about 37,000 locations worldwide…Ashley HomeStore opened 3 new Texas locations... Dunkin Brands Group plans to add approximately 1,000 net new US Dunkin’ Donuts locations by the end of 2020, with more than 90% of the stores built outside of its core Northeast territory. The company has over 9,100 US restaurants. For 2018, the company expects franchisees to build more than 275 net new US locations. The chain reaffirmed its goal to eventually have more than 18,000 US restaurants...Eyeglass retailer Warby Parker plans to have nearly 100 US stores by the end of this year. The company opened its first store in New York in 2013. Today, Warby has 64 stores…FAO Schwarz has entered into an agreement with travel retailer Hudson Group to open a chain of FAO Schwarz- branded airport shops in the US and Canada. The expansion follows the company’s announcement last fall that it will open a 20,000 s/f flagship at Rockefeller Plaza in Manhattan in time for the holiday 2018 season...Albertsons has agreed to merge with Rite Aid as part of a $24 billion deal that will take the privately-held grocer public. The integrated company will operate approximately 4,900 locations, 4,350 pharmacy counters and 320 clinics across 39 states. Most Albertsons pharmacies will be rebranded as Rite Aid, and the company will continue to operate Rite Aid standalone pharmacies. The transaction has been approved unanimously by the boards of directors of both companies. The merger is expected to close early in the second half of calendar year 2018, subject to the approval of Rite Aid’s shareholders, regulatory approvals and other customary closing conditions.The combined company is expected to be comprised of leadership from both companies and will be dual headquartered in Boise, Idaho, and Camp Hill, Pa. Current Rite Aid chairman and CEO John Standley will become CEO. The name of the combined company will be determined by transaction close... Family-owned tire retailer Tire Discounters will open 2 new locations, including a new warehouse. The company is currently the nation’s ninth-largest independent tire retailer and has already opened three stores this year, bringing its store total to 113…Five Below plans to open 5 stores in Arkansas by the end of the year...Indochino announced 4 new stores opening this spring in the southern US, part of an expansion that will add 3 more locations later in the year. The menswear company began in 2015 as an e-commerce retailer and has opened 24 physical locations in North America.

Decelerating Retail News

Toys “R” Us now says it will close about 380 US stores, 200 more than previously announced…Friedman’s Fresh Markets will close their three remaining stores. Friedman’s first opened 117 years ago…Fred Meyer Jewelers is closing an undisclosed number of its mall stores. Fred Meyer had already been slimming down: In the third quarter of 2016, it numbered 324 stores; at the end of the third quarter of 2017, it only had 306... Michael Hill Jeweler plans to close its 9 US stores and exit the market. The company bought 17 stores in August 2008 that were part of the now-defunct Whitehall Jewelers chain. It has since closed 11 of those stores. It now has 6 in Illinois, 1 in the Mall of America, and 2 near NYC...Bon-Ton Stores Inc. said in a bankruptcy filing with the US Securities and Exchange Commission that it plans to close 12 of its 53 Carson’s stores, 16 Bon-Ton locations, 7 Younkers stores, and 6 Elder-Beerman stores. Bon-Ton operates 260 department stores under several names across 24 states...The Kroger Co. has sold its 762 convenience stores to EG Group, a privately-held convenience store retailer based in the UK for $2.15 billion. Kroger’s convenience store business operates in 18 states and includes 66 franchise operations under the names Turkey Hill, Loaf ‘N Jug, Kwik Shop, Tom Thumb and Quik Stop. The EG Group has more than 2,600 sites across the UK, France, The Netherlands, Belgium, Luxembourg and Italy... Genesco Inc.  has begun a formal process to explore the sale of mall-based hat seller Lids. Genesco, which also operates Journeys, Schuh and Johnston & Murphy brands — said it will focus on its shoe businesses…Crate & Barrel’s kid-centered offshoot Land of Nod has closed nearly all of its retail stores except one retail location and a furniture clearance center, both in California... J.C. Penney will close 8 US stores this year. Penney operates roughly 875 stores, after closing nearly 140 stores throughout 2017... Supermarket chain Tops Markets filed for Chapter 11 bankruptcy protection, saying an unsustainable debt load, falling food prices and stiff competition from Amazon.com and other low-cost rivals forced it to reorganize. Tops expects the 169 stores it operates in upstate New York, Pennsylvania and Vermont to remain open while it restructures.

New England News

Zoots Dry Cleaning declared bankruptcy in federal court on Jan. 20. All locations are closed... Tatte Bakery & Cafe will open a 4,000 s/f bakery at Pier 4, a mixed-use project in the Seaport District, its third area location...Provincetown restaurant The Lobster Pot has announced plans to expand across the Northeast. One or two more Lobster Pot restaurants will be open by the end of 2018,  and then a couple per year after that...Costco  is shuttering the photo departments at all but one of its Massachusetts locations. Photo Departments with on-site printing will remain at stores at 75 Freshwater Boulevard in Enfield, Connecticut, and in Dedham, Massachusetts.

Mall News

Store closing sales are underway at 42 select Bon-Ton Stores locations, part of the company’s previously announced “store rationalization” program and recent Chapter 11 bankruptcy protection filing. The sales will take place at Bon-Ton branded stores as well as other the nameplates owned by the retailer, including Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s, and Younkers. The company said more stores are expected to be added to the store closing process...GNC has entered into a strategic partnership and joint venture with a leading pharmaceutical company in China. Harbin Pharmaceutical Group Holding Co. will invest approximately $300 million in GNC, becoming the single largest shareholder in the US vitamins and supplements retailer.

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 decreased 0.3% last month, the largest decline since February 2017. Data for December was revised to show sales unchanged instead of rising 0.4% as previously reported. Excluding cars, gas, building materials and food services, retail sales were unchanged last month.

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® increased in January, following a decline in December. The Index now stands at 125.4 (1985=100), up from 123.1 in December. The Present Situation Index decreased slightly, from 156.5 to 155.3, while the Expectations Index increased from 100.8 last month to 105.5 this month.

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

PURCHASING MANAGERS INDEX

Manufacturing expanded in January as the PMI® registered 59.1%, a decrease of 0.2% point from the seasonally adjusted December reading of 59.3%. 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