Wednesday, November 20, 2019

The Replacements: Avoid the Big Gorilla

This past decade has been a revolving door of retail tenants closing stores, followed by the ensuing scramble to fill the empty spaces left behind. We all recall the days of large format retailers such as Linens ‘N Things, Circuit City, Borders, Filene’s Basement, Office Max and, more recently, Sports Authority and Toys R Us. There are many more we could add to this list.

And then we have Sears, JCPenney, and Macy’s: the major department store companies that were blind-sided by the impact of ecommerce and the attitude reversal of shoppers that had grown up on regional malls. More closings resulted. Exacerbating the problem was that these were all large format vacancies that needed to be filled. A certain degree of panic set in among landlords who had to find viable replacements in a retail world that was in a state of disarray. Who would they find?

In many cases they called on low rent payers, retail “bottom feeders” if you will, that once would never have been considered viable candidates for the better power and community centers which traditionally catered to the type of tenants noted above. But then things changed again: the more attractive target tenants now included familiar names such as Burlington, Ocean State Job Lot, Tractor Supply, and Big Lots. When things improved a bit, other more desirable candidates came to the forefront, such as Target, Hobby Lobby, Whole Foods, Dick’s Sporting Goods, and the TJX divisions. Also, there were newcomers to the market that helped eat up vacant space, including At Home, Floor & Décor, and PGA Superstore. However, even the recent proliferation of viable retail replacements hasn’t been enough to fill all the vacancy built up over the past 10 years.

So landlords reached beyond general merchandise and grocery prospects and actively pursued entertainment venues - not only more traditional movie theaters, but also trampoline parks, bowling venues, adventure parks, and escape rooms – as well as medical uses and fitness centers. These tenant types have one common advantage over traditional retail tenants: what they provide to fulfill customer needs and desires cannot be purchased online; they’re “gorilla proof” (as in the 900 lb. variety whose name begins with an A).

Growth in these retail tenant categories is clearly evident when we review the annual results within our proprietary GRIIDTM retail database. The Health & Fitness category has been the most consistent winner for more than a decade with respect to square footage gains in Eastern Massachusetts/Greater Boston. Going back as far as 2007, this category has been consistently ranked in the top five. In fact, in the past ten years it’s made it into the top three in all but one year.

The Amusement & Recreation category, better recognized today simply as Entertainment, has also come to the forefront in recent years. While movie theaters and bowling alleys have always been a big part of the Entertainment industry, we are now seeing significant upgrades to these venues compared to years past. Theater offerings now include reclining seats, bar service, dessert menus, and reserved seating. Bowling facilities are incorporating luxury bowling with live music, larger-than-life sports viewing, billiard tables, and retro-video gaming. In more recent years, the entertainment category has broadened to include trampoline and adventure parks and escape rooms. These newer venues have helped push Entertainment space in the region to the top position in our annual rankings in three of the past six years and to the top ten nine times since 2009. The other strong growth category worth mentioning is Medical & Dental Services. In the past 15 years, this category never ranked in the top 10 until 2014. Since then it has ranked among the top six every year, including two first place finishes. Urgent care centers, dental offices, doctors’ offices, and other medical uses have been the main drivers as landlords hunt for non-retail uses to fill unoccupied space.

In reviewing the vacant spaces over 10,000 square feet that exist across all three KeyPoint Partners GRIIDTM regions, which includes just under 400 units, we identified 29 spaces that have commitments from tenants. While these new tenants come from a variety of categories, seven come from the Entertainment category, including four trampoline parks of various brands. Also included are a movie theater and a Dave & Busters. There also will be five Health & Fitness tenants added later this year and early next year, including three Fit Factory locations. While there are no spaces larger than 10,000 square feet with medical use commitments thus far, there are 10 commitments for smaller units, including urgent care, physical therapy, dental clinics, and other doctors’ offices. The remaining larger format boxes are earmarked mainly for grocery, pharmacy, and restaurant uses, although there are commitments for a number of these spaces from Target, Marshalls, and Ulta Beauty, all dominant retailers within their respective merchandise lines.

The telling point in all of this is that there are opportunities out there for landlords to fill vacant retail space, but it’s best to find the kind of tenant that is Amazon-proof…in other words, avoid the big gorilla!
Bob Sheehan, Vice President of Research
BSheehan@KeyPointPartners.com

KeyPoint Partners Company News

Team News: Tina Chenosky, PM in the Maryland office, has earned the ICSC Certified Retail Real Estate Professional (CRRP) credential. This certification is earned through a demonstration of knowledge of the core principles essential to the retail real estate industry…Investment Sales: VP of Investment Sales Jonathan Aron represented the seller and procured the buyer in the sale of Hooksett Village Shops, Hooksett, NH; a retail property fully-tenanted by Sherwin Williams in Falmouth, MA; and Center Plaza in West Bridgewater, MA. Jonathan also represented the buyer in the sale of a newly-constructed Aldi in No. Lauderdale, FL...New Leasing Assignments: VP of Leasing Don Mace has added Christmas Tree Shops and Cumberland Plaza, North Attleboro, MA; Hale Road Plaza, Manchester, CT; North Dartmouth Towne Center and Towne Center West, North Dartmouth, MA.


National Retail News

US retail sales rebounded in October, but shoppers cut back on big-ticket household items and clothing, which could alter expectations for strong holiday sales. The Commerce Department said retail sales increased 0.3% last month, lifted by motor vehicle purchases and higher gasoline prices.. See sales reports below.

Accelerating Retail News

At Home added 5 new stores last month. The retailer now operates 213 locations in 39 states with an eventual goal of having more than 600 stores…Lidl US will roll out a 2nd wave of stores across New York’s Long Island; by next summer, the grocer will have 8 stores in the area. Lidl operates 10,800 stores in 32 countries…Major League Baseball will open a retail destination in midtown Manhattan in summer 2020, the league’s first permanent retail location in the US…Five Below and Nerd Street Gamers will build 3,000 s/f Localhost spaces in Five Below stores, and host in-person gaming events using professional-level equipment. The test will begin with a multi-store pilot in 2020 and could scale to 70 or more locations...Chipotle’s has over 80 restaurants currently under construction, about half of which will feature mobile pickup lanes, dubbed Chipotlanes, resulting in about 60 Chipotlanes by the end of the year. In 2020, the company expects to open 150 to 165 restaurants, and more than half will include Chipotlanes…Take 5 Oil Change opened its 500th store…UK-based EG Group has completed its acquisition of Cumberland Farms, which operates 567 c-stores in 7 Northeast states and Florida. The deal brings EG Group’s US network to 1,680 c-stores and gas stations across 31 states…CVS announced that its BeautyIRL concept will be expanding to nearly 50 stores by the end of the year...Duluth Trading Co. debuted a new concept,  “The Museum of Man Area and Underwear Shop,” at Mall of America. The store is dedicated to Duluth’s underwear styles for men, with sections dedicated to its four main product lines. Duluth Trading operates 55 stores…Bob’s Discount Furniture will open its first 2 Cincinnati-market stores and enter 2 other new markets early next year. The company is leasing a 31,000 s/f former Hhgregg on Mall Road in Florence, KY., and a former 39,000 s/f Toys R Us in Colerain, OH. With the latest expansion, Bob’s store count will reach 126. The company said additional openings are slated for later in the year and include more new markets...Allbirds will add 20 stores next year. The company currently has 15 stores…Ashley HomeStore opened its 1,000th store last month, a 22,000 s/f  showroom in Millsboro, DE…The Coffee Bean & Tea Leaf will open 3 new locations over the next several months, starting with East Pasadena, CA.  The company currently has more than 1,200 retail locations across the globe...Primark signed a lease to open a 34,200 s/f store in Fashion District Philadelphia, the new retail and entertainment center. The retailer opened its first US store in 2015 in Boston. It now has 9 locations in the Northeast...Happy Socks opened its 4th NYC store in Herald Square, a continuation of Happy Socks’ US expansion plans. The new store opening comes on the heels of 2 store openings earlier this year. Later this year, Happy Socks will open a 5th New York location...HomeGoods is opening 9 new stores across 8 states this month and reopening 1 updated unit…Edible Brands Inc., parent company of Edible Arrangements, is rolling out Incredible Edibles, a line of hemp C.B.D. products set to launch in traditional Edible Arrangement stores and newly branded Gifts & Treats Edible stores later this year. Edible Brands also has plans to introduce its first Incredible Edibles store, which will focus on natural health and wellness, next year...Restaurant chain Slim Chickens expects to open its 100th restaurant in December and is on track to open more than 30 stores in 2020... Burlington Stores will add 50 stores to its portfolio in fiscal 2019 as the 736-unit chain approaches its eventual goal of 1,000 stores...Grocery Outlet envisions quadrupling its current store base through expansion to contiguous markets, eventually reaching 4,800 US stores. Grocery Outlet currently operates 337 stores, all but 20 on the West Coast... REI opened 4 stores in a single day this month as it entered two new markets. REI has 158 stores in 37 states and DC

Decelerating Retail News

Hamilton Beach Brands Holding Co. is closing all 160 of its Kitchen Collection retail stores by the end of this year. Kitchen Collection has stores in 39 states, mainly in outlet malls...Destination Maternity filed for bankruptcy with the US Bankruptcy Court in Delaware and is considering options including a sale. Destination Maternity said it intends to use the process to optimize operations, including right-sizing its brick-and-mortar store footprint. As of August, Destination Maternity operated 446 stores in the US, Canada and Puerto Rico under the banners Motherhood Maternity, A Pea in the Pod and Destination Maternity, along with 491 leased departments in department stores and baby specialty stores. It also operates international stores via franchising…Hudson’s Bay Company has agreed to be taken private by a group of its shareholders headed by Richard Baker, executive chairman of the company. The shareholders include Rhone Capital LLC, WeWork Property Advisors, Hanover Investments and Abrams Capital Management. Hudson’s Bay has been struggling to adjust to the evolving retail marketplace, closing underperforming locations and shedding assets. In August, the company announced that it was selling its Lord & Taylor division to clothing rental subscription company Le Tote. Founded in 1670, Hudson’s is the oldest company in North America. It operates more than 300 stores around the world, under the banners Saks Fifth Avenue, Hudson’s Bay, Lord & Taylor, and Saks Off 5th... Fresh Thyme Farmers Market will close 3 stores in mid-November. These closures follow two others that took place over the summer...Parent company Ascena Retail Group started store-closing sales at all of Dressbarn’s remaining 544 locations. All stores are expected to go dark no later than December 26…Olympia Sports is closing 76 stores across the country. 50 of those stores are in New England, 22 in MA...Forever 21 Inc. will keep open more than 60 US stores previously set to close as part of the company’s bankruptcy restructuring, after the retailer secured rent concessions from several landlords. The company had no reorganization plan when it filed, and had said it would close at least 178 US stores. Its beauty offshoot, Riley Rose, will also be closing all 100 stores…A bankruptcy court judge in Poughkeepsie, NY approved the sale of Barneys New York to Authentic Brands Group, which plans to close most Barneys stores...Transformco, parent company of Sears and Kmart, will close another 96 Sears and Kmart stores, leaving the Sears/Kmart chain with a total of 182 locations…CVS Health Corp. will close 22 “underperforming” drug stores early next year, in addition to the 46 stores CVS closed earlier this year….BBB Group, parent company of Bailey Banks & Biddle, filed for Chapter 11 bankruptcy. Bailey Banks & Biddle began 2019 with 5 stores. However, by the summer, it had closed 4.

New England Retail News

Bridesmaid gown showroom Brideside Bridesmaid opened a 2,000 s/f location on Boston’s Newbury St. A second location for bridal gowns, named Brideside Bride, is scheduled to open nearby in January...Shake Shack opened its 3,015 s/f downtown Boston location last month. Shake Shack has 330 US locations, including 5 in Greater Boston.

Mall News

After 17 years, a small part of the 3 million s/f American Dream retail and entertainment complex at the Meadowlands in East Rutherford, NJ opened last month. Developer Triple Five obtained a temporary certificate of occupancy from the State of New Jersey and was able to open what it calls “Chapter One” of the center which includes a massive indoor Nickelodeon Universe amusement park and The Rink, an NHL-sized ice skating and hockey facility. The TCO will last for 90 days and can be renewed. “Chapter Two” begins this month when the gates open at Dreamworks Water Park. The opening of Big Snow indoor ski slope is the third chapter and is slated for December. The retail and shopping districts of the center, when open, will include 450 retailers and restaurants...J.C. Penney opened a revamped location at North East Mall in Hurst, TX that features a totally reimagined format and a truncated name: Penney’s.  The store includes Penney’s first ever fitness studio with instructor-led fitness, stretching, and yoga classes, lifestyle workshops, cooking gadget demos, a kid’s clubhouse, 11 lounges, a café, and a Shutterfly Picture Pop Selfie Studio.

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 increased 0.3% last month, lifted by motor vehicle purchases and higher gasoline prices, reversing September’s unrevised 0.3% drop, which was the first decline in seven months.

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® decreased marginally in October, following a decline in September. The Index now stands at 125.9 (1985=100), down from 126.3 in September.

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

PURCHASING MANAGERS INDEX

Manufacturing contracted in October, as the PMI® registered 48.3 percent, an increase of 0.5 percentage point from the September reading of 47.8 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