Tuesday, November 27, 2018

Just How Apocalyptic Is It?

If you haven’t read a story - make that ten stories - about the retail apocalypse by now, then possibly you’ve been living under a rock. The “thrashing” of brick-and-mortar retailers by online sellers over the past decade has taken a toll on shopping centers throughout the country, including our home region: retail vacancy in Eastern Massachusetts during that period quickly climbed from the mid-single digits to double digits and has been hovering around the 10% mark for the past few years. However, while the fallout is far from over, there are signs that the worst may be behind us.

To help put the current retail environment into perspective, we used our proprietary GRIID™ retail database to analyze the vacancy patterns of 270 shopping centers in Eastern Massachusetts. For this purpose, we’ve defined “shopping centers” as retail properties having at least 100,000 square feet of retail space, with three tenants or more. We divided these into three size classifications, 100,000 to 249,999 square feet: 250,000 to 499,999 square feet: and 500,000+ square feet. We then further divided those classifications by vacancy rate: centers with 10% vacancy or more, and those with vacancy under 10%. These results offer some insight into the so-called “apocalypse.”


Overall, the regional vacancy rate is currently 10%. The 500,000+ SF size class is 12% vacant, with 18 out of the 32 properties in this segment represented by regional enclosed malls - which adds a definite downside bias to this subgroup. Vacancy in the other two size categories is significantly lower, with both currently standing at 9%. The good news: 199 of the 270 centers (74% the regional total) have vacancy rates under 10%. The 500,000 SF and above segment has the highest at 5%, which includes 11 regional enclosed malls. The 100,000-249,999 SF classification was the lowest at only 3%. So the better news is that the average vacancy rate of all 199 centers is only 4%.

The remaining 71 shopping centers (26% of the regional total) have vacancy rates above 10%.  The average vacancy rate of these centers is 27% and all three size classifications are well above the 20% level. The smallest segment, those centers between 100,000 SF and 249,999 SF, has the highest vacancy rate at 29%, followed by the 500,000 SF and above segment, which encompasses nine shopping centers including seven regional enclosed malls, is 26% vacant. Those centers in the middle range are 23% vacant.

Focusing on shopping centers with 10% of vacancy or more, we dug into the reasons behind the high rates, starting with the large 500,000 SF+ segment. Vacant department stores are the underlying reason for high vacancy among this property group. Six of the nine centers are being impacted by a vacant Sears box.  Macy’s is vacant at two locations. Other vacant department stores among these nine centers include JCPenney and Apex. Vacant Toys R Us stores and  a vacant Babies R Us store affect three shopping centers in this group.

Shifting to the mid-range segment, large format vacancies affecting these shopping centers are somewhat fragmented and include some of the usual suspects: a former Kmart, two Sports Authority boxes, a former Babies R Us, and a vacant Sam’s Club (which no longer operates anywhere in Eastern Massachusetts). Others include an Office Max space, a vacant iParty store, and a vacant Stein Mart store.

The 100,000-249,999 SF shopping centers are of the size that often includes a supermarket anchor. Out of the 49 centers in this category showing more than 10% vacancy, only five are impacted by a supermarket closing: four vacant Shaw’s units and one Stop & Shop vacancy. Three vacant Kmart stores are part of the fallout here as well. Four empty Rite Aid stores as well as vacant TJMaxx, HomeGoods, and Marshalls boxes impact these vacancy rates.

The point that needs to be stressed here is that 199 of the 270 shopping centers analyzed here - 74% - are only 4% vacant. In most circles that’s considered fully occupied.  Put another way: most centers are doing fine. The other 71 shopping centers have mainly been victims of recent or soon-to-be retail liquidations (looking at you, Sears and Kmart) which, it could be argued, are attributable as much to natural retail evolution as to any internet-driven sunami.

So I guess the answer to the question we asked above is… well, you decide!

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

KeyPoint Partners Company News

Promotion: Derrick Taylor has been promoted to Property Manager in the Burlington, MA office....New Leasing Assignments: VP of Leasing Don Mace will handle Alpine Commons, a 209,200 s/f power center in Wappinger, NY.






National News

US retail sales rebounded in October as purchases of autos and building materials surged, possibly driven by rebuilding efforts in areas devastated by Hurricane Florence, and on purchases of electronics and appliances. The Commerce Department said retail sales increased 0.8% last month. Data for September was revised down to show retail sales slipping 0.1% instead of nudging up 0.1% as previously reported. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3% last month. Among retailers still reporting monthly sales, L Brands was up 4.0% and Costco was up 8.6%. See sales reports on Page 4.

Accelerating

Hibbett Sports, Inc. has signed a definitive agreement to acquire privately held City Gear, a retailer of premium athletic footwear, apparel and accessories with 135 stores in 15 states….Starbucks is planning to open 2,100 new stores globally next year. The company added about 600 new stores in the most recent quarter and nearly 2,300 last year, and has over 29,300 total locations...Giant Food Stores plans to acquire 5 Shop ‘n Save supermarkets from Supervalu Inc. Financial terms of the deal weren’t disclosed. Giant will convert the stores to Martin’s Food Markets. Giant operates 171 stores in Pennsylvania, Maryland, Virginia and West Virginia as Giant Food Stores and Martin’s Food Markets….Amazon has opened its third Amazon 4-star location, in Berkeley, CA. The format only sells items with a rating above four stars on Amazon, as well as new trending items and best-sellers... Multi-unit franchise operator Drew Smith has opened two  Melt Shop locations in Delaware and New Jersey, the first in these states. Smith owns and operates 23 Five Guys locations throughout greater Philadelphia. The restaurants are part of a 21-unit agreement….Launch Trampoline Park plans to open as many as 10-15 new parks each year over the next several years. Launch has 20 parks currently operating in 13 states, more than half of which have opened since the beginning of 2017 alone.  Development deals have already been signed for 30 new parks throughout 9 states... Lidl US and Best Market announced an agreement in which Lidl will acquire 27 Best Market stores in New York and New Jersey. The deal allows Lidl to expand its regional presence and enter a new market in Long Island…Ollie’s Bargain Outlet opened its 300th location, located about 10 miles south of downtown Baltimore in a former Toys “R” Us. The company has stores in 23 states... Tops Markets completed a financial restructuring and emerged from Chapter 11 bankruptcy. Tops closed 10 stores as part of the restructuring. The downsizing leaves Tops with 159 locations in Upstate New York, Northern Pennsylvania and Vermont…Online retailer Adore Me has opened a store at Bridgewater Commons mall, in Bridgewater, NJ, the brand’s second physical store to date and double the size of its first location at Staten Island Mall. Adore Me plans to open 300 stores during the next five years…Food distributor SpartanNash Co. plans to acquire Martin’s Super Markets Inc.’s 21 stores. The acquisition enlarges the footprint of SpartanNash-owned retail stores. The company currently operates 139 supermarkets under the Family Fare Supermarkets, VG’s Food and Pharmacy, D&W Fresh Markets, Sun Mart and Family Fresh Market banners. Those include 83 pharmacies and 29 fuel centers...Mattress Firm has emerged from bankruptcy having closed about 660 underperforming stores. The closures leave the company with about 2,600 US stores

Decelerating News

Target is planning to close 6 stores in February 2019. Earlier this year, Target closed 12 stores. However, Target will open 30 small stores near colleges and urban areas this year and next... Destination Maternity plans to close 117 locations over the next several months as part of an overall plan to close as many as 280 unprofitable stores over the next four years. The maternity clothing retailer expects to shutter another 42 to 67 stores in fiscal year 2019, which starts July 1. The list of the stores that will be closed has not been revealed...David’s Bridal filed for bankruptcy protection. David’s Bridal has received commitments for $60 million in new debtor-in-possession financing from existing lenders, along with a recommitment of its existing $125 million asset-backed loan, which will help it stay open for business during restructuring. Orders will arrive on time and bridal appointments will not be impacted... Blue Apron announced that its pilot program with Costco will shut down indefinitely.

New England News

The parent company of Papa Gino’s Pizzeria and D’Angelo Grilled Sandwiches filed for Chapter 11 bankruptcy protection following the closure of 95 underperforming restaurants...Nouria Energy Corp. launched a new retail brand, nouria, with a grand-opening celebration of a new concept store in Lewiston, ME. The store marks the first of its kind for the company and features the newly designed company brands, nouria and café nouria. Worcester, MA-based Nouria Energy owns 137 c-store locations in 5 New England states, 116 of which are company operated and 21 of which are leased to dealers. It also owns and operates 47 car washes under the Golden Nozzle brand.

Mall News

Macerich has launched a concept known as BrandBox at Tysons Corner Center just outside Washington, DC. It will house six brands, including apparel retailer Naadam and makeup company Winky Lux, for six to 12 months. Each brand will have its own mini store inside an 11,000 s/f space, with new retailers funneling in and out each year. The mall will provide fixtures,data on foot traffic, radio-frequency identification tagging for inventory, and marketing and staffing help. Retailers simply need to show up and pay rent... GameStop Corp. has entered into a definitive agreement to sell its Spring Mobile business, which owns and operates 1,289 AT&T wireless stores, to Prime Communications, L.P..  The transaction is expected to close in the fourth quarter of fiscal 2018, subject to approvals and closing conditions.

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 US retail sales increased 0.8% last month. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3% 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 again in October, following a modest improvement in September. The Index now stands at 137.9 (1985=100), up from 135.3 in September. 

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

PURCHASING MANAGERS INDEX

Manufacturing expanded in October as the PMI® registered 57.7 percent, a decrease of 2.1 percentage points from the September reading of 59.8 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

Thursday, November 1, 2018

Then and Now: Decade of Change?

This is a time of great change in the retail industry. Everyday there’s a new headline about the so-called “retail apocalypse” as we hear of another venerable old-school retailer closing up shop.

In that light, if I were to ask you how much a list of the Top 25 Retailers by Store Count in a given region of the country had changed in the last ten years, what would you say – the list had changed a great deal, somewhat, or not very much, really?

We decided to use our proprietary GRIIDTM retail database to see how much change this region (Eastern Massachusetts/Greater Boston) has experienced during the past 10 years. To do so, we listed the top 25 retailers by store count in 2008 and in 2018. The rankings are shown below:


Among the 25 retailers with the most stores in 2018, only six have reduced their store count in the past decade. These include three banking firms: Bank of America, Santander, and Citizens. Fast food chains McDonalds, Papa Gino’s, and Burger King are the other three.

There are only six retailers ranked in the current top 25 that are not on the 2008 list. These include wireless phone chains Verizon, AT&T, and T-Mobile. The others are Supercuts, Dollar Tree, and Eastern Bank, which was in acquisition mode earlier in the period. Heading the top 25 are Dunkin and CVS, which also topped the list in 2008. Among the top 25 retailers adding the most stores during the period were 7-Eleven, by way of the Tedeschi acquisition, and Metro PCS, each increasing by 113 units. Metro PCS had not made its entry into the region yet in 2008. Subway and Dollar Tree were next, adding 67 and 53 stores, respectively.

Eight of the top 10 from 2008 remain in the current top 10. Seven companies on the 2008 list have fallen out of the 2018 list - and they include three that are no longer in operation: Tedeschi, Blockbuster, and Radio Shack. Curves for Women took a precipitous drop from #13 on the list to #561; only five locations remain under their nameplate in 2018. D’Angelo’s dropped from #19 to #37 over the ten year period. Payless ShoeSource fell from #23 to #56, while Shaw’s Supermarket went from #25 to #41.

Are you surprised or not? The changes affecting our industry are real and significant, and we’ll continue to track them. Certainly a sizeable number of retailers not in the top 25 have been severely impacted, and quite a number are no longer in operation. However, it appears that the answer to the specific question we posed above is a hardly-apocalyptic “not very much, really”. Let’s see what the next ten years bring.

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

NEWS: KeyPoint Partners

New Team Members: Peter McClean joined the new Lake Success, NY, office as General Manager. Joe Diaz joined the Burlington, MA office as a Property Accountant. Karen Beadle joined the Boston, MA Office as an Assistant Property Manager. Nicholas Guarente joined the Burlington, MA office as Marketing Associate...New Leasing Assignments: VP of Leasing Don Mace will handle Main Street Marketplace, Woburn, MA and West Bridgewater Plaza, West Bridgewater, MA; VP of Leasing Michael Branton will handle 475 Winter Street, Waltham, MA and 770 Main Street, Osterville, MA.


NEWS: National Retail

US retail sales barely rose in September as a rebound in motor vehicle purchases was offset by a drop in spending at restaurants and bars. Retail sales edged up 0.1 % last month after a similar gain in August.  Excluding automobiles, gasoline, building materials and food services, retail sales gained 0.5% last month. Among retailers still reporting monthly sales, L Brands was up 1.0% and Costco was up 9.2%. See sales reports below...Target is introducing Smartly, a line of essential products aimed at budget-conscious dollar store shoppers. The brand includes more than 70 everyday items, most priced less than $2. Products are available as single items and also offered in small multi-packs. The line will arrive in stores and online this month. Target is positioning the brand for dollar store shoppers and those who live in small spaces without storage for bulk merchandise sold at warehouse clubs.

NEWS: Accelerating Retail

Amazon opened a new store called Amazon 4-star in New York City’s SoHo neighborhood. The location only sells items that are rated 4 stars or above, are top sellers, or are new and trending on Amazon’s website...Brandless will open a pop-up store in New York City this month, the company’s second pop-up. The e-commerce start-up debuted a pop-up store in Los Angeles in May. The New York location is expected to be double the size of the Los Angeles store...Online home furnishings retailer Wayfair will open two holiday pop-up shops in November, at Natick Mall in Natick, MA, and Westfield Garden State Plaza in Paramus, NJ, Wayfair’s first foray into physical retail...Giant Food Stores debuted a new store concept, Giant Heirloom Market, designed for urban neighborhoods. The first will open later this year in Philadelphia the first of several stores planned for the city. Giant has had a presence in Philadelphia since 2011, but the Heirloom Market store will be its first in the downtown area. Giant Food Stores is owned by Ahold Delhaize…Birkenstock has a opened its first US unit, in lower Manhattan...Indigo Books and Music, the largest bookstore chain in Canada, has opened its first-ever US store, a 30,000 s/f store at The Mall at Short Hills, NJ. The concept combines typical book store categories such as books, magazines and stationery with toys, home décor, wellness and other lifestyle products. It will offer in-store events for kids and adults; an in-store café is under construction...Orangetheory will open more than 260 locations this year and plans to continue at that pace next year. The company currently has 901 locations…Beer restaurant Growler USA plans to double units in about an 18-month period - there are 24 currently - and to double again in the following two years…FAO Schwarz unveiled ambitious plans for its return to retail. The toy retailer has set an opening date of November 16 for its Manhattan flagship at 30 Rockefeller Plaza, the company’s return to NYC after it closed its landmark Fifth Avenue store in 2015, and months after former owner Toys “R” Us filed for bankruptcy and shuttered all US stores. FAO is also expanding into Canada, with plans to open permanent in-store shops across Hudson’s Bay’s 89 stores...Lidl is opening 3 new stores  in NJ in October and November. The openings could put the retailer back on track to meet its goal of  100 new US locations in 2018…Mountain Mike’s Pizza opened its 200th unit, in Sacramento, where the brand currently has 20 restaurants. Mountain Mike’s plans to surpass 300 units within the next few years...Ross Stores opened 30 Ross Dress for Less and 10 dd’s DISCOUNTS stores across 19 different states in September and October, completing the Company’s store growth plans for FY2018 with the addition of 99 new stores. Ross now operate nearly 1,500 Ross and over 230 dd’s DISCOUNTS locations...Coldwater Creek has opened a store in Texas, the company’s fifth since it filed for bankruptcy and closed all its stores in 2014...Tempur Sealy International has opened its 38th store, a Tempur-Pedic flagship in Roseville, CA. The 39th and 40th stores will open before the end of this year.Tempur Sealey is targeting 60 to 80 company-owned locations by the end of 2019, and is in negotiations with landlords of certain locations previously occupied by Mattress Firm, which recently filed for bankruptcy protection...Sprouts Farmers Market plans to open 30 new stores next year, and announced the locations of the first 7 in 5 states: CA, FL, NV,WA, and TX. During the first half of 2018, Sprouts opened 16 new stores. Sprouts now operates 315 stores in 19 states…Woof Gang Bakery, a specialty pet retail and grooming franchise, will end 2018 with a milestone 110 franchise locations and enter into 2019 with a goal to open a new store every 10 days. Woof Gang Bakery is projected to open store number 200 in 2021...Xponential Fitness announced the addition of Pure Barre to the company’s family of brands: Club Pilates, CycleBar, StretchLab, Row House, AKT and Yoga Six. Pure Barre has more than 517 studios throughout the US and Canada.

NEWS: Decelerating Retail

National Stores began store closing sales at 184 of its remaining Fallas and Factory 2-U stores across 12 states and Puerto Rico, conducted by a joint venture consisting of Hilco Merchant Resources, Gordon Brothers and SB360 Capital Partners. The closings are the result of the Chapter 11 Bankruptcy filing by National Stores, Inc. and certain of its affiliates. National Stores currently does business as Fallas, Fallas Paredes, Fallas Discount Stores, Factory 2-U, Anna’s Linens by Fallas, and Falas...Mattress Firm has filed for Chapter 11 bankruptcy. The chain plans to remain in business, but has filed for bankruptcy protection to get out of about 800 unfavorable leases. It will quickly close nearly 300 underperforming stores and make decisions about whether to close or maintain the other 500 stores in the coming weeks. It currently has more than 3,300 US stores. Mattress Firm plans to exit bankruptcy in about two months, and hopes that the liquidity gained from the bankruptcy allows it to expand into more favorable markets and even open new stores in existing markets.The chain has struggled with overexpansion, including its purchase of Sleepy’s in 2016 and Mattress Giant in 2012...National Wholesale Liquidators Inc. has filed for Chapter 11 bankruptcy. The  company has engaged two companies to help it sell the inventory and fixtures at its stores.

NEWS: New England

Versus, a new arcade bar and restaurant, opened this month in Boston’s Downtown Crossing. Versus is owned by Big Night Entertainment Group, which runs the Scorpion Bar, the Red Lantern restaurants, and Tremont Street’s Explorateur Café Restaurant and Bar.

NEWS: Malls

With opening of a new 60,000 s/f store at University Mall in South Burlington, VT, Target now has a store in all 50 states. University Mall is managed and leased by KPP, and KPP negotiated the Target lease as well as a lease with H&M, which also opened its first VT store at UMall this month...Sears Holding Corp. filed for Chapter 11 bankruptcy protection this month, hours before a $134 million debt payment came due. The company will close 142 stores near the end of the year, with liquidation sales to begin soon. (in addition to previously announced closures of 46 unprofitable stores by November 2018.) Sears currently operates a total of about 700 Sears and Kmart stores...Family-owned, Pennsylvania-based department store Boscov’s will occupy the space soon to be vacated by Nordstrom at the Providence Place mall. Boscov’s operates more than 45 department stores, primarily in PA.

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 rose a seasonally adjusted 0.1% in September, the Commerce Department said. Excluding motor vehicles, sales fell 0.1%. Sales at department stores fell 0.8%. Sales at non-store retailers, online or mail, increased 1.1% 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 September, following a large improvement in August. The Index now stands at 138.4 (1985=100), up from 134.7 in August. The Present Situation Index improved marginally from 172.8 to 173.1, while the Expectations Index surged from 109.3 last month to 115.3 this month.

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

PURCHASING MANAGERS INDEX

Manufacturing expanded in September as the PMI® registered 59.8 percent, a decrease of 1.5 percentage points from the August reading of 61.3 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