Wednesday, May 20, 2020

Easing Back to the Mall: May 11-15

Dear Subscribers: We wish you and your families continued health and safety as we transition to reopening. We thank you for your ongoing support.

“Easing back” to the mall is putting it kindly, I guess - it was more like crawling back. 

As a resident of the area, I decided to stop by Pheasant Lane Mall, a Simon-run property in Nashua, New Hampshire on three different occasions during the past week to observe retail occupancy, and to see if shopper enthusiasm would build after eight weeks of stay-at-home orders. Stores were in no rush to be the first to pull the trigger, and shoppers were in no rush to experience the new normal; at least that’s the way Week 1 looked at New Hampshire malls following the lifting of restrictions at stores.

My first visit occurred on Monday afternoon, when I found that mall hours had been shortened from 11:00 AM to 7:00 PM six days a week and Sunday from 12:00 PM to 6:00 PM. Complimentary face masks were available at mall entrances, and there was no shortage of “Stay 6 Feet Apart” signs throughout the mall. Pheasant Lane is part of a second wave of Simon properties that have begun to open their doors, which also included the Mall of New Hampshire in Manchester and the Mall at Rockingham Park in Salem.

Foot traffic was severely hampered at Pheasant Lane Mall with three department stores closed, Sears permanently and Macy’s and JCPenney temporarily. Target was open, of course, one of the selected stores to have been considered essential throughout the pandemic. Unfortunately, for some unknown reason, this anchor unit elected not to open interior entrances to the mall on either level, constraining Target shoppers from directly accessing the common area of the mall and vice versa. It could have been staffing levels or pilferage concerns that kept the doors closed.

Dick’s, the only other anchor to be opened, only had its upper level entrance accessible to mall shoppers while the lower level entrance remained closed. Consequently, those mall shops that decided to open on Day One had to draw traffic virtually on their own, a recipe for a potential sales setback. At the same time only about 25-30% of the mall shops were open, and those were weighted toward independent operators and kiosks.

Monday’s food court openings included only two, Chick-fil-a and Charley’s Philly Steaks. That left nine closed food court occupants. National tenants were literally few and far between. Forever 21 (under Simon ownership now) was not-unexpectedly open, as were Pandora, Journeys, and Finish Line. Other brand name tenants opening Monday included Shoe Dept., Olympia Sports, Lindt Chocolate, Verizon, AT&T, Newbury Comics, Stonewall Kitchen, Cohen’s Optical and Zumiez.

My second visit was on Wednesday afternoon; it was almost a carbon copy of my first trip, with the exception of one additional open food court tenant, Cibao Chicken. There was evidence, however, that other retailers were getting close to opening with some employees apparently prepping their stores.

My Friday visit, however, did show improvement albeit limited. There was a noticeable uptick in foot traffic, with some shoppers apparently biding their time until the weekend. Taco Bell had opened in the food court. A few more stores had opened as well - American Eagle, sporting a 60% OFF sale, was one. Abercrombie & Fitch and Francesca’s had also opened and both were pushing their own 50% OFF sales. Aerie was another retailer that waited for the weekend “rush”. But that was it. For the most part, all three visits were uninspiring and left me with considerable doubt regarding a quick economic turnaround.

Week Two at Pheasant Lane Mall promises to draw better traffic following the Macy’s opening on May 18th. Manchester and Salem stores have opened as well. Perhaps the silver lining here is that a slow rollout will mean a safer rollout. I wouldn’t bet the farm on it, but the days and weeks ahead will get us, one hopes, closer to where we need to be. 

Bob Sheehan
Vice President of Research
BSheehan@KeyPointPartners.com

KeyPoint Partners Company News

New Management Assignments: The Property Management team has been awarded contracts for four retail centers in New Hampshire by KGI Properties, LLC. The portfolio includes Mountain Valley Mall and Fairways Plaza in North Conway; Hooksett Commons in Hooksett; and Mountain Valley Plaza on Route 16 in Gorham.


National Retail News: COVID-19 Updates

The Commerce Department said US retail sales tumbled by a record 16.4% from March to April as the pandemic kept shoppers away. The severity of the decline is unrivaled for retail figures that date back to 1992, and nearly doubled the record drop of 8.3%, set last month. The migration of consumers to online accelerated, with that segment posting an 8.4% gain. Other than online, not a single retail category was spared. Clothing sales tumbled 79%, department stores 29%. Restaurants suffered a nearly 30% decline. Auto sales dropped 13%. Furniture stores took a 59% plunge. Electronics and appliance stores were down over 60%. After panic buying in March, grocery sales fell 13%. Sales report below.

COVID-19:
Game Stop has begun the process of re-opening stores in South Carolina and Georgia and is preparing for the potential to re-open in other states in the coming weeks. GameStop operates approximately 5,500 stores across 14 countries....The Retail Industry Leaders Association and the National Retail Federation released a Blueprint for Shopping Safe that calls for a 3-phase approach to reopening retail. The plan urges governors to issue uniform, statewide protocols for retailers as they reopen stores and work to keep employees and customers safe... Costco is requiring that all members and guests wear a face covering that covers the mouth and nose at all times while in stores...Kimco, which operates more than 400 grocery-anchored and mixed-use centers across the country, kicked off its Curbside Pickup program at Grand Parkway Marketplace in Spring, Texas. The company intends to move the program nationwide this month...Peterson Companies, owner of 4 lifestyle centers in the Washington DC region, has issued a detailed plan to reopen its locations...Chains Reopening: Havertys expects to reopen all of its 120 stores by mid-May... David’s Bridal’s 300-plus store locations will be open for appointments starting June 1, 2020... Chico’s FAS, whose banners include Chico’s, White House | Black Market and Soma, will begin a 3-part store reopening plan this month, beginning with fulfillment of orders through physical locations using store inventories. Store openings will be consistent with local health and safety regulations...Starbucks expects to have approximately 90% of all company-operated US stores reopened by early June with enhanced safety protocols and modified schedules. Starbucks is asking its landlords for a break on rent. In a letter to landlords earlier the month, the company asked for “adjustments to lease terms and base rent structures.”…Best Buy has started reopening some stores, but initially customers will need an appointment. It also is resuming home delivery and other at-home services. The service will launch in about 200 of Best Buy’s 1,000 US stores...Children’s Place has started reopening stores in 10 states…Macy’s has begun reopening stores in 4 states with reduced hours. The retailer expects that all its 775 stores will be reopened in 6 weeks, should local governments allow retailers to proceed…Five Below has started reopening its stores. The retailer is also slowing its expansion amid the pandemic. It has reduced its new store opening target for fiscal 2020 to 100 - 120 stores as compared to the original target of 180 stores... Kohl’s will open about 25% of its stores this month…Ulta will reopen approximately 180 stores this month; it has been offering curbside pickup at more than 350 stores... Nordstrom is preparing to reopen stores in a phased approach. The company is also planning to permanently close 16 full-line stores... Express expects to reopen approximately 300 stores before Memorial Day, in accordance with federal and state guidelines... Gap Inc. will reopen up to 800 stores by the end of this month...Genesco Inc. has reopened more than 300 Journeys stores and anticipates reopening more than 400 stores by the end of May. Genesco’s Johnston & Murphy division began its initial phase of reopenings with up to 30 locations.

Accelerating Retail News

Dollar General has entered Washington state with a store in Cathlamet. 6 additional locations are under construction in the state. In March, Dollar General said it planned to open 1,000 new stores, remodel 1,500, and relocate 80 stores this year. As of February, Dollar General operated 16,368 stores in 45 states…Murphy USA opened 2 new locations in the quarter, bringing the store count 1,161 Murphy USA sites and 330 Murphy Express sites...Grocery Outlet opened 10 new stores and closed 2 stores in the 1st quarter, giving the retailer 355 US locations...Tractor Supply opened 20 new stores and closed 1 Del’s location. As of March 28, Tractor Supply operated 1,863 stores in 49 states along with 180 Petsense stores in 26 states... Hightimes Holding Corp., owner of cannabis brand High Times, announced an agreement to acquire equity and assets of 13 CA dispensaries from Harvest Health & Recreation Inc. The transaction will allow Hightimes to enter the retail sector. The company plans transform the stores to High Times destinations…REI added 8 new stores by the end of 2019, bringing the co-op’s total to 160 in the US...Fast-casual restaurant chain Doner Kebab plans to open 350 US restaurants over the next 7 years. The first location will be at American Dream in NJ...Boston Market has been acquired by Engage Brands, LLC from affiliates of Sun Capital Partners. Terms were not disclosed. Sun Capital purchased Boston Market from McDonald’s in 2007. The brand ended 2019 with 376 domestic units.

Decelerating Retail News

J. Crew Group has filed for bankruptcy protection. J. Crew has reached an agreement with lenders to convert about $1.65 billion of its debt into equity. Madewell will remain part of J. Crew Group. The retailer had planned to spin off the brand as a public company.  J. Crew, which has 181 namesake stores, 140 Madewell stores, and 170 factory outlets, plans to reopen its locations once lockdowns are lifted...Creative Hairdressers Inc., whose salons include Hair Cuttery, Bubbles and Salon Cielo, has filed for Chapter 11 bankruptcy and is selling off substantial assets, including the majority of its salon locations, to HC Salon Holdings Inc. The investment by HC Salon, an affiliate of Tacit Salon Holdings LLC, will allow Creative Hairdressers to continue paying employees and reopen its salons when allowed to do so. Creative Hairdressers has more than 750 salons nationwide...TooJay’s Original Gourmet Deli filed for bankruptcy protection shortly after it received a $6.4 million FPP loan. The company operates locations throughout Florida…Clothing retailer Roots Corp. plans to permanently close 7 of its 9 US stores...Gold’s Gym filed for Chapter 11 bankruptcy, with at least 30 company-owned gyms set to close... Neiman Marcus has filed for Chapter 11 bankruptcy, the 1st department store chain to do so and the 2nd major retailer to be toppled by the pandemic. The company, which operates 43 stores, expects to emerge from bankruptcy this fall...John Varvatos has filed for bankruptcy. The company was forced to close all its stores March 18…Aldo is also seeking bankruptcy protection...Stage Stores has filed for Chapter 11 bankruptcy as it seeks buyers and starts winds down operations. The company plans to start reopening its 738 stores in order to liquidate inventory by June 4...Steak n Shake closed 57 restaurants in the first quarter, 51 company-owned and 6 franchised. The closings reduced the number of franchised stores to 247 and total restaurants to 553, down from 624 a year ago... JC Penney has filed for Chapter 11 bankruptcy protection. Stores will close in phases with the first phase to be disclosed in the coming weeks. As of February, the retailer had 846 US stores... Pier 1 Imports will liquidate after being unable to find a buyer. The retailer operates 541 stores, and had filed for bankruptcy protection in February.

New England News

Saugus, MA restaurant Kowloon plans to transform its parking lot into a drive-in movie theater, and deliver food and drinks to diners in their cars. Guests will also be able to bring lawn chairs and sit outside...LL Bean has reopened two of its Freeport, ME retail stores...Westfarms shopping center in West Hartford CT will reopen this month, but it’s unlikely all stores will open on the same day. Taubman Centers, which owns Westfarms and malls around the country, says the company is seeing an average of 30 - 50% of stores in their malls reopening.

Mall News

Simon Property Group has begun re-opening 49 malls and outlets centers in 10 states this month. These are not only curbside-pickup re-opens Simon will welcome shoppers inside, offering temperature checks and CDC-approved masks and sanitizing kits. Shoppers will not be required to wear masks, though mall personnel will... Brookfield Asset Management is pledging $5 billion to assist troubled retailers operating in its malls. The Retail Revitalization Program, will concentrate on retailers with $250 million or more in normalized revenues that have been operating for at least two years...Ingka Centres, a division of Ingka Group, which owns IKEA and has 45 shopping centers worldwide, is looking to enter 45 large cities across its existing markets and the US. New York, Los Angeles, San Francisco, and Chicago are on its wish list. The company is in talks to buy old post offices, department stores, or existing malls to convert.

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 fell by 16.4% in April, nearly doubling the record largest decline set last month when sales fell by 8.7%.

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® deteriorated further in April, following a sharp decline in March. The Index now stands at 86.9 (1985=100), down from 118.8 in March.

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

PURCHASING MANAGERS INDEX

Manufacturing contracted in April, as the PMI® registered 41.5 percent, 7.6 percentage points lower than the March reading of 49.1 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

Tuesday, April 21, 2020

Entering Uncharted Waters

Dear Subscribers: All of us at KeyPoint Partners wish you and your families continued health and safety during the pandemic. We thank you for your ongoing support.


It was just over a decade ago that the retail industry was facing its most difficult period since the Great Depression. Retail stores were closing by the hundreds and vacancy skyrocketed by more than 50%  - over a three-year period, although it felt like it overnight. 

At the same time, online shopping was gaining momentum, with Amazon leading the way. It was the perfect storm—“hit ‘em when they’re down” as they say. From that point on we have seen online sales growing rapidly at double-digit rates while brick-and-mortar sales struggle to stay above water.

Since that time, however, shopping center landlords have done a respectable job of filling vacancies left behind in the wake of the Great Recession. In large part they did it with Amazon-proof tenants, tapping categories such as restaurants, bars, movie theaters, trampoline parks, bowling venues, adventure parks, escape rooms, and fitness centers. These efforts were enough for many shopping centers to survive another day.  But now the industry has been plagued with COVID-19, maybe the most impactful watershed moment that retail veterans have experienced in their lifetimes.

Right now, everyone wants to know when stores will open, how will openings be rolled out, and what operational guidelines will be in place when states give the go-ahead. We were handed the map, Guidelines for Opening Up America Again, a few days before this writing. First, states need to get past a 14-day declining trend in new coronavirus cases, or percentage of positive tests, before they can begin a three-phase approach leading to a “new normal”. If all goes well and there are no setbacks, it’s possible for some states to reach the third phase by June or July. Nevertheless, social distancing and hygiene practices are probably here to stay for a while. 


But what will the retail world look like when the dust settles? Well, if the writing wasn’t already on the wall for regional enclosed malls, it sure is now. The best should survive, but the worst won’t. There’s just too much pressure on department stores and mall-based retailers for the weaker centers to continue operating. We’ll likely see a number of bankruptcies coming among the prime suspects such as JCPenney, Neiman Marcus, J Crew, Macy’s, GNC, Lands’ End, and the Signet jewelry stores, as well as the Tapestry group of fashion chains. Even L Brands and Gap were recently downgraded.

Beyond the malls, there should be concern for numerous retail and entertainment operators where face-to-face interaction is part of the business. It’s the restaurants, movie theaters, and other Amazon-proof concepts which played such an important role in filling space in many shopping centers during post-recession era. Will those business models work now if social distancing cuts seating capacities in half? Will consumers patronize these establishments with the same frequency as in the past, if at all? At least until a vaccine is approved, maybe not.

With respect to independent mom-and-pop operators, we can only imagine what the landscape will look like. Even with assistance from the federal government, there’s a strong chance that many will simply run out of cash. Given the fact that retail sales pre-virus had been just plodding along, the impact of the coronavirus may push a significant slice of this retail segment over the edge. 

It would be a godsend if strong pent-up demand leads to a sharp recovery and by fourth quarter we are out of the woods. But before we can expect clear sailing, we’ll first have to venture into uncharted waters.
Bob Sheehan
Vice President of Research
BSheehan@KeyPointPartners.com


KeyPoint Partners Company News


National Retail News: COVID-19 Updates

According to the Commerce Department, retail sales plunged a record 8.7% during March, the largest monthly fall since the Commerce Department began tracking retail sales three decades ago. The previous record was a 3.9% drop in November 2008, during the Great Recession. Core retail sales, excluding the volatile auto and gas components, fell 3.1%. Online spending rose 3.1% and grocery sales jumped 26.9%. Sales at department stores fell 19.7%, furniture stores saw a 26.8% drop, sporting goods sales fell 23.3%, and clothing sales fell by 50.5%. Auto and auto parts sales plunged 25.6% and gas sales fell 17.2%. However, even with the significant decline from February to Match, total retail sales from January through March of this year are up 1.1% compared to the same period a year ago.  See sales reports below.

Covid-19:
We can’t include every headline related to retail and the pandemic. However, here are some key ones:
 Tapestry, Parent of Coach and Kate Spade,will extend store closures in North America and Europe through April 24, and will continue to pay employees through that time…Michaels is expanding its product delivery options with a national rollout of a contactless, same-day delivery option at US stores…Starbucks plans to re-open as many stores as it can with modified operations and safety measures, and will gradually expand and shift in-store customer experiences. Some locations will continue as drive-thru only, while others may feature mobile ordering for contactless pickup and delivery. Others may reopen with to-go ordering only...Amazon will reportedly delay its annual Prime Day due to concerns over COVID-19 until August or even later. Since its launch in 2015, Prime Day has always occurred in mid-July. The delay could reportedly cost anywhere from $100 million to $300 million. Amazon has seen surging demand from the COVID-19 pandemic. A postponement would negatively impact Amazon third-party sellers, who participate in Prime Day sales...The number of retail employees who have been furloughed number will over 1 million as of this writing. Here’s a partial list of retailers who have furloughed all or most employees: Abercrombie & Fitch, Ascena, Best Buy, Burlington, Dick’s Sporting Goods, Gap, Kohl’s, L Brands, Macy’s, Ralph Lauren, Ross Stores, Reformation, REI

Accelerating News

Note: Accelerating/Decelerating announcements may be subject to change in light of current conditions.

Stop & Shop, Aldi US and Lidl US are expanding hiring as grocery retailers nationwide seek extra hands amid the pandemic. Stop & Shop plans to hire at least 5,000 new associates for regular part-time jobs in stores, distribution centers and delivery operations in New York, New Jersey, Connecticut, Massachusetts and Rhode Island. Aldi US has hired nearly 7,500 employees. Lidl US announced plans to hire up to 1,000 temporary employees across its store network and distribution centers... Rise Southern Biscuits & Righteous Chicken has signed a 5-unit deal to expand to Tulsa, OK. Rise currently operates 16 locations in 6 states, with over 160 units in development...Ulta Beauty still plans to open new stores this year, but not as many as the 75 it had previously announced. Its 1,254 stores remain temporarily closed...Lidl is building a network of large distribution centers along the Eastern seaboard that will be capable of serving 1,500 or more stores when fully operational. The grocer recently opened its third center, in MD. A fourth warehouse, the company’s largest to date, will be located in southeast of Atlanta.  Any one of these facilities would be able to handle between 300 and 400 stores depending on sales volumes and replenishment frequency, based on the experience of other food retailers. Lidl currently has 100 US locations...Sea Bags plans to open 8 new locations this year, once the crisis is over. Sea Bags  has 25 retail locations from Maine to Florida…Sherwin-Williams added 62 net new stores in 2019 in its Americas Group unit. It plans to add 80-100 new stores in 2020…Big Blue Swim School has signed 4 franchise deals for a total of 14 units in March. The company has signed 22 units so far this year. Big Blue Swim School has 5 locations, and plans to grow through franchising to 150 by 2021...Raley’s has opened a new flagship location in Sacramento, CA as the grocer continues to serve customers through the pandemic. The 55,000 s/f store can process up to 250 orders for pick-up or delivery per day via the chain’s online ordering platform. Raley’s owns and operates 129 grocery stores under the names Raley’s, Bel Air Markets, Nob Hill Foods, Murieta Market by Raley’s, Market 5-ONE-5, Food Source stores, and Sak N’ Save…AlphaGraphics will open a new store in Hamilton, NJ later this year. AlphaGraphics has over 285 locations across 6 countries, and plans to open 25 new stores every year for the next 3-5 years.

Decelerating News

Note: Accelerating/Decelerating announcements may be subject to change in light of current conditions.

The parent of the Logan’s Roadhouse and Old Chicago casual chains said it is “mothballing” all 261 of its restaurants after a lender withdrew financing to keep the bankrupt company in operation until it could emerge from Chapter 11 protection. All of the restaurants are currently closed… Duluth Trading plans to reduce new store openings and take other measures that will curtail expenses and capital spending in 2020. The company has 5 new stores planned in 2020, including 4 with signed leases, that will continue but the company is holding off additional locations. For the year, the company opened 15 retail stores to end with a total of 61... In a court-supervised asset auction, Fairway Market awarded bids for 2 store leases in NJ to Amazon and 6 locations in NYC to ShopRite operator Village Super Market Inc. and Key Food Cooperative member Seven Seas Georgetowne LLC…GameStop is set to permanently close 300 more stores in the coming year... The parent of the Brio Italian Mediterranean and Bravo Fresh Italian casual chains has filed for Chapter 11 bankruptcy protection after closing 71 of its 92 remaining restaurants.The chains had been struggling with sales and profit declines before the COVID-19 pandemic. In January, 10 stores were closed…Pier 1 Imports, which filed for bankruptcy protection in February, is expected to receive a revised purchase offer that would keep open less than 100 of the retailer’s 900-plus locations. The bid is from CSC Generation, whose DirectBuy subsidiary acquired the assets of Z Gallerie in a bankruptcy auction last summer. Pier 1’s bankruptcy court process has been put on hold while its stores are temporarily closed due to the pandemic... TGI Fridays will not be going public after Allegro Merger, a shell company that agreed to take the casual-dining chain public in a reverse merger late last year, opted to back out of a planned $380 million merger and return money to shareholders…A&G Real Estate Partners concluded the sale of 10 Earth Fare store leases to Winn-Dixie, Whole Foods Market, Aldi and an investor group including one of Earth Fare’s founders. A&G also negotiated lease termination agreements for 9 other locations of Earth Fare. In early February, Earth Fare filed for Chapter 11 bankruptcy protection and announced plans to close all of its stores and go out of business... Stein Mart and Kingswood Capital Management have mutually agreed to terminate their merger agreement, announced in January, which would have taken Stein Mart private…Gold’s Gym has closed 30 company-owned clubs, noting that the pandemic had caused the company to evaluate the viability of some of its locations. Gold’s Gym International had temporarily closed all of its corporate-owned locations on March 16.

New England News

Restaurant chain Wagamama laid off about 140 people across multiple MA locations in March. Primark laid off about 350 people from its MA locations. The TJX Cos. Inc. has closed its stores and will furlough store and distribution center employees in the US and Canada. Paper Source laid off 88 employees across its MA locations. Sephora, Destination XL, and DSW have also laid off a substantial number of employees in MA.

Mall News

True Religion is the first major retailer to file under Chapter 11 amid the spread of COVID-19. The company made the decision in March to close its 87 stores. The denim maker’s wholesale business has also been hurt by the closures of its retail partners Macy’s, Nordstrom, Saks Off 5th, Nordstrom Rack, TJ Maxx and Burlington.

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 reported that March retail sales were down 8.7% compared to February, the single largest annual monthly retail sales decline since this data was first tracked by Commerce in 1992.

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® declined sharply in March, following an increase in February. The Index now stands at 120.0 (1985=100), down from 132.6 in February.

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

PURCHASING MANAGERS INDEX

Manufacturing contracted in March, as the PMI® registered 49.1 percent, a 1-percentage point decrease from the February reading of 50.1 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

Monday, March 23, 2020

The Last Domino?

Life has been tough on all retailers in recent weeks, particularly the distressed ones. First restaurants and bars were ordered to close, then major retailers elected to close, and then entire malls followed suit. The response to COVID-19 threatens to impact retail foot traffic in ways never before experienced – and to exacerbate slowing sales trends at brick-and-mortar stores as shoppers continue to shift dollars toward online retailers. As noted by Retail Dive, retail traffic for the second week of March was down 30% year-over-year. This is certainly reflected in the recent announcement by Amazon that they will be hiring another 100,000 workers to handle the overload in warehouses and delivery systems, while Walmart his hiring another 150,000 employees to support the flood of both online and store traffic. The rush to online shopping should create at least some concern that when we eventually “flatten the curve”, not all the business will return to the brick-and-mortar side of the scale.

Not all retailers are facing a doomsday scenario. The fear of quarantines has implanted panic into the hearts of shoppers, causing them to overwhelm supermarkets, drug stores, warehouse clubs, discounters, dollar stores and home improvement stores. There’s no shortage of business among retailers that stock essential goods. Even Best Buy reported a run on home office equipment as many employees are encouraged to work at home. A long list of leading retail chains that rely on discretionary spending should be expected to survive a lengthy slide in performance, although it won’t look pretty on their annual reports this year. We’re talking about the likes of Apple, Ulta, TJX divisions, Kohl’s, Dick’s, Auto Zone, and many others.

That leads naturally to a discussion about those on the edge, the distressed retailers. For this segment of retail there was already much consternation about long-term survival. Among department stores, Neiman-Marcus and JCPenney are both on thin ice. Neiman has been struggling with debt; incremental sales declines will likely weigh heavily on its chances to remain viable. Penney faces similar debt problems. Although new CEO Jill Soltau is making measurable efforts to change the way this once-formidable retailer does business, it may be too little too late. It has been attempting to restructure debt, but it’s still operating with negative cash flow and appears to be heading for at least 15% sales declines in 2020, which may be too much to overcome.


It was already a bad year for Pier 1 before coronavirus. It had to close approximately 450 stores and file for bankruptcy. It appears that COVID-19 may force an eventual liquidation of the chain. Ascena Retail Group, owner of Ann Taylor, Loft, Lane Bryant, Catherine’s and Justice, is also at risk. The apparel retail group recently liquidated the Dressbarn chain following the sale of its Maurices chain earlier last year. It has considered selling other divisions as well. Time will tell if it is able to avoid bankruptcy this year, but serious doubts remain. Destination Maternity, which had already filed for bankruptcy, is likely not to withstand the loss of sales over the coming months. Another apparel chain to keep an eye on is J Crew. And with so many mall based apparel chains and department stores under pressure, there will only be more pressure on many regional malls to keep the lights on.

Athough this is not the most comforting article you could be reading, I am cautiously optimistic that it may be a much healthier environment for retailers that will come out of this and recover, which I believe represents the vast majority of brick-and-mortar stores. Maybe we’re entering an era when retail supply is more in balance with demand and overstored markets are a thing of the past; maybe it took the last domino to fall before that could happen.

Bob Sheehan
Vice President of Research
BSheehan@KeyPointPartners.com


KeyPoint Partners Company News

We’ve all been challenged to make sense of this ongoing global health scare. We’re carefully monitoring information from the WHO, CDC and Departments of Public Health in the various states in which we operate, and relaying this information immediately to our teams and through them to all clients and tenants. As of this writing, while our offices are technically open, most of our team members are working from home. However, we have taken steps to ensure that we continue to provide the same quality of service our clients expect of us. And as you can see, we’re continuing to provide timely industry news and commentary here in KeyPoints.


National Retail News: COVID-19 Updates

The Commerce Department said retail sales fell in February by the most in a year, indicating the main driver of the US economy, consumer spending, had begun to slow even before coronavirus containment measures began rippling through the economy. The value of overall sales decreased 0.5% from the prior month after a 0.6% gain in January. See sales reports below...Albertsons, the nation’s second-largest supermarket chain with more than 2,200 stores, filed for an initial public offering this month. The company has been owned for the past 14 years by private equity firm Cerberus Capital Management.

COVID-19
These are extraordinary  and challenging  times for retailers, restaurants, and retail property owners.  We can’t include every headline related to retail and the pandemic. A big one: Simon has closed all of its domestic retail properties: malls, outlets and mills. Taubman has closed all but two properties. Also, here is a recent list of retailers who are closing all or many stores for extended periods:

Abercrombie & Fitch
Allbirds
American Eagle
Apple
Aritzia
Away
Bed Bath & Beyond 
Benefit
Buck Mason
Canada Goose
Chicos
Columbia Sportswear
Everlane
Foot Locker
Gap
Glossier
Greats
Guess
J.C. Penney
J.Crew
Kate Spade
Kohl’s
L Brands
Levi Strauss & Co.
Lululemon
Lush Cosmetics
Macy’s
Madewell
Neighborhood Goods
Nike
Nordstrom
Outdoor Voices
Patagonia
Peloton
PVH
Ralph Lauren
Reformation
REI 
Rent the Runway
Rothy’s
Sephora
Tailored Brands
Tapestry
TJX locations
Ulta Beauty
Under Armour
Urban Outfitters
VF Corp.
Vineyard Vines
Walmart
Warby Parker
Williams Sonoma

Accelerating Retail News

Note: Accelerating/Decelerating announcements may be subject to change in light of current conditions: Bob’s Discount Furniture opened 4 new stores last month in OH and IL and relocated a store in Norwalk, CT Bob’s has 126 stores across 20 states....PacSun is opening two “landmark stores,” in LA and NYC. Each location is designed to channel the energy, history and native talent of its locale, while working to amplify PacSun’s lifestyle brand...The first Amazon Go full-size, cashierless grocery store has opened in Seattle. The store is about 10,400 s/f and stocks roughly 5,000 items, including fresh produce, meats and alcohol...7-Eleven has expanded its “evolution” store format to Washington, DC, with an additional location to open in San Diego later this year. 7-Eleven plans to expand the concept across the country in 2020….Ono Hawaiian BBQ  opened 12 stores in 2019, and plans to open 12-14 new stores in 2020, bringing their total to 100 stores...L Brands plans to open a net of 70 US Bath & Body Works stores this year, up from 18 in 2019, with the majority located in strip centers. At the end of the fourth quarter, the chain had 1,637 US stores... Paper Source has acquired 30 shuttered Papyrus locations, giving it a total of more than 165 stores nationwide. The retailer plans to rebrand the stores, with the first wave of converted locations to open this month…Following the opening of its 100th small-format store last year, Target is planning to open nearly 36 locations in 2020, making it the biggest year to date for small-format expansion. Target will also begin exploring sites for stores that are approximately 6,000 s/f, roughly half the size of its smallest small-format store – as it looks to reach even more shoppers in urban neighborhoods and on college campuses. Target expects to sign the first lease for the new smaller format in 2020, with an opening date in 2021…Primark opened this month at American Dream in East Rutherford, NJ, Primark’s 10th in the US...Ross Stores opened 19 stores and seven dd’s Discounts outlets across 9 states in February and March. The company plans to add approximately 100 new stores – 75 Ross and 25 dd’s Discounts locations – during fiscal 2020.  Currently, Ross operates 1,565 namesake locations in 39 states and 266 dd’s Discounts stores in 20 states…Burlington Stores plans to open 54 net new stores in 2020…American Eagle Outfitters intends to accelerate the growth of Aerie in 2020, opening 60 to 70 stores. During the past year, American Eagle opened 37 Aerie standalone stores, ending the year with 148 locations…Taco Bell plans to revamp its urban Cantina concept with new “fast-social” restaurants in NY and CA.In addition to those 2 units, the brand will test a conversion of 3 traditional Taco Bells into Cantinas...Dollar General opened a store in Pine Bluffs, WY, its 1st in the state, expanding its footprint to 45 states. In December, the retailer announced plans to open 1,000 stores in 2020. The company operated 16,094 stores in 44 states as of November 1, 2019...CVS Pharmacy will acquire 99 pharmacy locations from Schnucks Markets along with the prescription files from 11 other locations. Terms of the deal were not disclosed. The acquired locations will all be rebranded under CVS Pharmacy. Schnucks operates 112 stores…Wagamama plans 30-40 new US locations. The chain currently operates 200 restaurants…Dollar General plans to open 1,000 locations and relocate 80 existing stores. During fiscal year 2019, the company opened 975 new stores, remodeled 1,024 stores and relocated 100 stores. It operated 16,278 stores in 44 states as of January 31, 2020... Zumiez intends to open up to 8 stores in North America in 2020. Zumiez ended 2019 with 718 stores.

Decelerating Retail News

Note: Accelerating/Decelerating announcements may be subject to change in light of current conditions: Potbelly Sandwich Shop plans to close 8 - 10 more underperforming units this year. The chain now has 470 units... Art Van Furniture will liquidate all Art Van, Art Van PureSleep and Scott Shuptrine stores this month... Modell’s Sporting Goods filed for Chapter 11 bankruptcy protection. Modell’s, in partnership with Tiger Capital Group, initiated liquidation sales this month. Modell’s operates 153 stores, primarily in the Northeast...7 Gardiner Wolf Furniture stores across MD are closing. Wolf Furniture has 17 stores in PA, MD and VA.

New England News

Guy Fieri’s Boston Kitchen + Bar and Chicken Guy! will open this summer in the former Masonic Lodge in downtown Boston…Natick and several other communities in New England have been targeted for franchises by Kelly’s Roast Beef, which has 4 area locations: Revere Beach, Saugus, Danvers and Medford. The chain plans to open as many as 6 new franchise restaurants, including locations in Worcester, Natick, Quincy and Providence. Kelly’s is also eyeing “express” locations in mall food courts and local universities. The ultimate goal is to have as many as 50 total locations open and operating in the next 5 years…Alpine Income Property Trust Inc. has acquired the 39,474 s/f 12-screen AMC Theater in Tyngsboro for $7.055 million. The seller was Stavins & Axelrod Properties Inc...The team behind Cambridge restaurant Puritan & Co. will open 3 new concepts at The Shed, a two-story building to be built at the mixed-use Cambridge Crossing Development near Lechmere Station. Café Beatrice, an all-day café; Gepetto, a 60-seat full-service Italian restaurant; and The Lexington, a rooftop bar and lounge are expected to open this June. Lamplighter Brewing Co. is also expected to open a taproom at The Shed in early summer…Whole Foods Market will open a 42,000 s/f  store in Portsmouth, NH, its 3rd in the state, this fall at Durgin Square Shopping Center, a 135,000 s/f retail property that houses HomeGoods and T.J. Maxx.

Mall News

sweet green, Skin MD and Blo Blow Dry Bar are all slated to open The Village at Burlington (MA) Mall in 2020.

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 fell by 0.5% in February after climbing by an upwardly revised 0.6% in January. Excluding a decrease in auto sales, retail sales fell by 0.4% in February.

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® improved slightly in February, following an increase in January. The Index now stands at 130.7 (1985=100), up from 130.4 in January.

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

PURCHASING MANAGERS INDEX

Manufacturing expanded in February, as the PMI® registered 50.1 percent, a 0.8-percentage point decrease from the January reading of 50.9 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, February 20, 2020

Malls: Getting Near The Edge?

In the past two weeks, three remarkable events took place in the mall industry. On February 5th, Macy’s announced that it will close 125 stores over the next three years which represent approximately one-fifth of its more than 600 stores. The initial round of 31 store closings is expected to take place early this year. Furthermore, a new location strategy was announced which will focus on smaller stores in off-mall environments, not exactly music to the ears of regional mall owners. 

The second and third major happenings occurred a week later and both involved Simon Property Group. Simon, along with Brookfield Property Partners and Authentic Brands Group, was announced as the stalking horse that has now made a successful $81 million bid for the once formidable, but now distressed, fast-fashion retailer Forever 21. In years past this might have been regarded as an opportunistic acquisition priced at pennies on the dollar. Today it more closely resembles a desperate attempt to hold mall vacancy in check and avoiding further occupancy fallout resulting from co-tenancy and kick-out clauses, or at least to avoid rent reduction demands from the affected remaining tenants. Simon is landlord to 98 Forever 21 stores, which typically average 40,000 square feet.

The last event was the announcement that Simon will purchase Taubman Centers, including 24 regional shopping centers. At a time when shoppers are walking away from malls, Simon will be acquiring a relatively upscale group of super-regional shopping centers that will complement Simon’s existing portfolio. Generally these malls are regarded as Class A quality, giving them more viability to survive the mall sector fallout that has accelerated in recent years. Taubman’s significant exposure to Forever 21 may have been just the clincher to get the deal done. This acquisition will give Simon full or partial ownership in approximately 254 properties worldwide.

If we take a closer look at what all this means to the mall sector in general, we can see that it means a lot. As Macy’s goes through the process of closing stores, more and more regional malls will be affected by the decline in foot traffic, which will inevitably result in more mall shop closings. Thus far, with a few exceptions, the bulk of these store closings will occur in secondary markets at Class B and C properties where Sears and JCPenney closings have already taken a toll and vacancy is high. But with another nearly 100 closings on the way, it is likely that some of the more prominent malls throughout the US will be impacted as well, including both Simon and Brookfield properties.


Regarding the Forever 21 acquisition, had Forever 21 ended up in bankruptcy, Simon and Brookfield would both have experienced large-format vacancies throughout their portfolios. In a move that paralleled their acquisition of Aeropostale in 2016, the mall owners also brought Authentic Brands in on the deal to run the business. As an expert on rebranding teetering retailers, Authentic Brands is viewed as a company that can revive the Forever 21 brand and present a new image among shoppers. However, apparel retailers are among those most impacted by current shopping trends, which leaves the long-term viability of Forever 21 and Aeropostale both in question.  While this adds plenty of risk to this Simon and Brookfield acquisition, the fact that these retail units will not go dark should at least give some protection to these owners.

Last on the list is the Taubman acquisition. This is a company that Simon first tried to acquire in 1992. It was an unwritten rule back then that family mall operators didn’t encroach on another’s territory, let alone make an attempt at a hostile acquisition; that offer was rejected, and so here we are today. While it may seem counterintuitive for anyone to want to acquire a regional mall portfolio, it does make sense in some respects. First, Taubman shopping centers generated mall shop productivity of $876 per square foot in 2019, the highest among mall sector REITs. Second, Simon has stated that the acquisition should be immediately accretive and with Taubman as the landlord to 21 Forever 21 locations, it should enhance the financial benefit somewhat. Simon, realizing that consolidation may be the only way to ensure survivability, may now shift its attention to Macerich, identified as another potential acquisition target with 31 Forever 21 leases under its belt, 

It can’t be ignored, however, that despite Simon’s best efforts, department store fallout may have much more to say about the eventual success or failure of these Simon acquisitions. Investors must be hoping Simon was right. 

Bob Sheehan
Vice President of Research
BSheehan@KeyPointPartners.com


KEYPOINT PARTNERS COMPANY NEWS

Team News: Mike Flood joined the Plymouth, MA office as Property Manager. Mike has prior property management experience most recently from Wilder Co...Rossy Pimentel and Stephanie Johnson joined the Burlington, MA office as Accounts Payable Data Entry Clerks…Zach Smith in the Burlington, MA office has been promoted to Property Manager... Danielle Ursino has been promoted to Assistant Property Manager in the Burlington, MA office....New Leasing Assignments: VP of Leasing will handle Dartmouth Towne Center and Towne Center West, located on Route 6 in North Dartmouth, MA.


NATIONAL RETAIL NEWS

The Commerce Department said retail sales rose 0.3% in January. Excluding automobiles, gasoline, building materials, and food services, sales were flat Sales of building materials rose 2.1%, the largest gain since last August. Sales at clothing stores dropped 3.1%, the most since March 2009. Sales at restaurants and bars increased 1.2%.. See sales reports on Page 4...Simon Property Group has entered into an agreement to acquire Taubman Centers in a deal valued at $3.6 billion. The Taubman family is selling 1/3 of its ownership interest but will retain a 20% stake in Taubman Realty Group. Taubman owns, manages, or leases 26 malls in the US and Asia. The company will be managed by its existing team, in partnership with Simon.

ACCELERATING RETAIL NEWS

Mars Retail Group is opening 3 new M&M’s stores, including a 24,000 s/f flagship at Mall of America...Whole Foods Market opened new stores in Richmond, VA and Delray Beach, FL...uBreakiFix increased its store count to 478 across North America...Gordmans plans to open stores in 13 small towns in NY this month. Stage, the company that owns Gordmans, is converting more than 500 US Bealls, Goody’s, Palais Royal, Peebles, and Stage stores to Gordmans…Krispy Kreme will open 6 locations in NYC this year, including its flagship in Times Square. Krispy Kreme has nearly 1,400 shops in 33 countries...Seafood restaurant Captain D’s opened 15 new locations and signed 8 franchise development agreements. Captain D’s has more than 530 restaurants in 22 states…Pet Supplies Plus will open 7 new locations throughout the Rochester and Buffalo, NY area by May 2020…Five Below plans to add about 180 stores this year to its roster of 900...Walmart opened its second Walmart Health Center next to a remodeled Walmart Supercenter in Calhoun, GA…The Children’s Place is relaunching Gymboree this month. The brand will be available in shop-in-shop locations in more than 200 Children’s Place stores in the US and Canada...Amazon will open 10 Amazon 4-star stores in 2020, including one at the American Dream mega-center in East Rutherford, NJ. Amazon debuted the concept in 2018. To date, it has opened 9 locations...Dick’s Sporting Goods will open a store in Texas and one in AL this month. The Alabama location will also include a Golf Galaxy.  Following the openings, Dick’s will have 727 Dick’s stores and 95 Golf Galaxys in 47 states...Sephora will open 100 stores in 2020, more than doubling its store growth in 2019. Sephora has more than 2,500 locations... After opening 51 new units in 2019, Burlington Stores will open 31 new locations in 20 states in 2020…The Fresh Grocer will reopen 4 former Nicholas Markets stores under The Fresh Grocer name this month, giving Fresh Grocer 12 stores in NJ and PA...Noodles & Company plans to develop 22 new units between 2021 and 2032. Noodles & Company has more than 450 restaurants... Mavis Tire Supply Co. is buying 112 NTB Tire & Service Centers in the Philadelphia, Boston, Atlanta and Chicago markets from TBC Corp. The deal will leave TBC with 615 locations under the Tire Kingdom and NTB banners. Before this acquisition, Mavis had 698 stores... With 2 CA locations opening this year, menswear brand Rodd & Gunn is on target to have 10 US stores by year’s end...BBQ Holdings, parent company of the Famous Dave’s barbecue chain, has agreed to buy Granite City Food & Brewery, the bankrupt operator of Granite City brewpubs and Cadillac Ranch, and will operate the acquired 29 restaurants under their current brands... At Home Group Inc. opened 6 stores this month, growing its footprint to 218 stores in 39 states…Lidl opened 2 new stores in NJ

DECELERATING RETAIL NEWS

Pier 1 Imports filed for Chapter 11 bankruptcy protection as it pursues the sale of the business. It plans to complete the previously announced closing of up to 450 stores...The Ratner Cos., parent company of Hair Cuttery, Bubbles and Salon Cielo, plans to trim its 844-store portfolio by 10%. Closings began this month…The Krystal Company filed for Chapter 11 bankruptcy protection in Georgia. Krystal has 318 restaurants…Lucky’s Market is planning to shutter as many as 32 of its 39 stores in 10 states...Fairway Market filed for Chapter 11 and entered an agreement with Village Super Market Inc. to sell its 5 Manhattan stores. Fairway will also begin a court-supervised sale of its 9 remaining stores...Gap closed 40 stores globally last month, including 29 US locations, part of a previously announced plan to shutter 230 stores over of 2 years...Bar Louie has filed for Chapter 11 bankruptcy protection after closing 38 of its 134 locations…Bakers Square and Village Inn filed for bankruptcy protection and closed 33 locations. The company now operates 97 restaurants...Saks Fifth Avenue closed its 16,000 s/f men’s store at Brookfield Place in Manhattan...Procter & Gamble will close a majority of the company’s 83 Art of Shaving stores in the next year. 70 of the stores are in the US…16 US Hallmark stores in 12 states are closing...Stein Mart has agreed to be taken private by a unit of Kingswood Capital Management LP. Stein Mart operates 283 stores in 30 states…Forever 21 has reached an agreement to sell its assets to a group of buyers that includes Simon Property Group Inc., Brookfield Property Partners and Authentic Brands Group for $81 million. Forever 21 filed for Chapter 11 bankruptcy protection in September, with a plan to close up to 178 US stores. The company had a total of 815 stores at the time...Grocery chain Earth Fare is beginning liquidation sales as it prepares to close its stores and corporate office. Earth Fare operates approximately 50 stores in 10 states...Macy’s  plans to shut 125 stores over the next 3 years, with plans to exit weaker malls, and focus on smaller-format stores in strip centers. Macy’s has shuttered more than 100 stores since 2015...Marathon Petroleum Corp. will close 450 Speedway-operated Dunkin’ units this year. Dunkin’ will open 200 - 250 new US units in 2020...SD Holdings, which operates 73 Sonic Drive-Ins in the South, has filed for Chapter 11 protection. Sonic Corp. plans to acquire the restaurants...L Brands Inc. agreed to sell a 55% stake in Victoria’s Secret to private equity firm Sycamore Partners in a deal worth $1.1 billion.The brand, which will include Pink, will become a private company. L Brands will retain a 45% minority stake, while Bath & Body Works will be a standalone public company.

NEW ENGLAND NEWS

Crosspoint Associates has acquired Amherst Shopping Center, a Big Y Supermarket and CVS-anchored retail center in Amherst, MA. The 81,702 s/f center is 97% leased...Nick Varano, owner of Strega Italian restaurants, has signed a deal with Irish investment firm Danu Partners, the company that acquired Smith & Wollensky in 2016, to buy the restaurant chain. The new operators will explore expansion beyond Boston. The sale encompasses Strega Waterfront; Strega Prime in Woburn; Strip by Strega; and 5 Caffé Strega locations. Danu has announced a new US-based LLC, PPX Hospitality Group, to oversee the Strega Group as well as Smith & Wollensky…JLL Income Property Trust acquired Milford Crossing, a new 160,000 s/f grocery-anchored shopping center in Milford, MA. The property is anchored by Stop & Shop…Staples launched 6 reimagined stores in Greater Boston including Government Center and Needham. Called Staples Connect, the concept includes coworking, podcasting and community event spaces for professionals, teachers, and students. Staples will review the concept prior to rolling it out to the remaining 1,094 US stores... A public pension fund advised by TA Realty LLC recently sold Garden City Center in Greater Providence, RI to WS Development and CrossHarbor Capital Partners. Totaling 530,629 s/f, Garden City Center is anchored by Whole Foods…City Works Eatery & Pour House will open in the Arsenal Yards development in Watertown, MA in March, their 10th US location...New Hampshire’s first Dave & Buster’s will open its 137th location at the Mall of New Hampshire in March.

MALL NEWS

Express Inc. plans to close a total of 100 stores by 2022, including 9 that closed in 2019. Another 31 stores will close by the end of January, and an additional 35 by the end of January 2021. Currently, Express operates 600 stores…Sunrise Records is acquiring For Your Entertainment (FYE) in a deal valued at $10 million that  includes more than 200 locations, with plans to open 20 additional US locations by the end of this year..72-year-old menswear store Miltons The Store for Men will open their 3rd MA store at Burlington Mall this fall. Miltons also operates at South Shore Plaza in Braintree, MA and in Chestnut Hill. The Miltons store at Burlington Mall will open in the lower level Primark wing. The Burlington Mall also recently announced that Shake Shack will open on the lower Primark wing... The Taunton (MA) Galleria’s main entrance has been locked; 6 tenants have received license-at-will termination notices. and have until the end of this month to vacate the premises.

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 on Friday retail sales excluding automobiles, gasoline, building materials and food services were unchanged last month. Overall retail sales, however, rose 0.3% in January.

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 moderate increase in December. The Index now stands at 131.6 (1985=100), up from 128.2 (an upward revision) in December.

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

PURCHASING MANAGERS INDEX

Manufacturing contracted in December, as the PMI® registered 47.2 percent, a decrease of 0.9 percentage point from the November reading of 48.1 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

Wednesday, January 22, 2020

Trying to Predict a Brick and Mortar 2020

It was a very challenging 2019 for brick and mortar retailers. You’ve probably all read about the record-setting year for store closings: more than 9,300 units closed in 2019, which trumped the previous record of approximately 8,000 stores in 2017. So what should the retail industry expect as we move into the new calendar year?

So far holiday sales are looking a bit lackluster. While NPD Group is estimating sales gains of 3.4% between early November and late December, it is alarming to note that online sales again carried the day, picking up approximately 19% versus last year. At best we can say that brick and mortar sales likely finished the season with a relatively flat performance.

Of even more concern was the heavy discounting that occurred at physical stores during the holidays in an effort to compete with online pricing. As recently noted in Retail Dive, MKM Partners Managing Director Roxanne Meyer stated that the 2019 holiday sales season may have been the “most promotional holiday since the recession.” She went on to indicate that retailers never let up on the promotional activity once the Black Friday/Cyber Monday weekend passed, which was not the case last year, suggesting that the shorter holiday season put pressure on retailers to drive merchandise out the door.


Moody’s analysts warned in December that six fewer selling days between Thanksgiving and Christmas could “exacerbate the promotional environment” for the period, according to the Retail Dive article. Had retailers produced solid sales gains during the last two months, the heavy promotional activity may not have been a concern. But discounted prices will be cutting into sales margins, and that’s where the trouble may lie

Holiday sales were recently reported for several department store firms and none were particularly favorable. At JCPenney, comparable sales for stores open at least a full year were down 7.5% during the nine-week period that ended the first week of January. Kohl’s sales slipped 0.2% among comparable stores for a similar time frame, while Macy’s experienced a 0.6% decline. Accentuating the weakness is the fact that online sales are generally included in comp store sales figures.

Similarly, mall-based retailers also had a tough go of it during the holiday season. L Brands comp sales fell 3.0%, while Urban Outfitters dropped 1.0%. One of the latest retailers to report holiday sales was Target, which had been experiencing a very strong year through the third quarter. However, Target’s comp sales during the holidays finished with a surprisingly meager 1.4% gain versus last year’s rather robust 5.7% increase. 

These uninspiring sales performances set the stage for what could be another taxing year for most brick and mortar retailers (Costco was able to buck the trend, finishing the month of December with a healthy 10.5% increase from the same month a year ago).The widespread emphasis on promotional activity to combat pricing pressure from online retailers during the holiday season will very likely result in modest earnings results, as well as losses, for the year-end quarter and lead to additional store closings. At least 1,700 store closings are already confirmed and we aren’t even through the first month of the year. Retailers we know for sure are already affected are Pier 1 Imports, Sears and Kmart, Forever 21, Gap, Chico’s, and A.C. Moore. Others to follow include Destination Maternity, Olympia Sports, Bed Bath & Beyond, and Walgreens.  All of these retailers have been left behind in the race to effectively compete with Amazon and the entire online sales juggernaut, and are now paying the price. And who don’t we know about yet? 9,300 store closings in 2019? You know what they say: “Records are made to be broken.”

Bob Sheehan
Vice President of Research
BSheehan@KeyPointPartners.com


COMPANY NEWS

KeyPoint Partners has been ranked 6th on the latest Boston Business Journal list of the 25 Largest Commercial Property Managers in MA, with over 11 million s/f managed in the state, and more than 24 million s/f managed nationally. The List was published in the January 10 issue of the BBJ. Investment Sales: VP of Investment Sales Jonathan Aron represented the seller and procured the buyer in the sale of Alpine Commons, a 209,000 s/f, two-building shopping center anchored by BJ’s Wholesale Club in Wappinger, NY.


National

The Commerce Department said retail sales increased 0.3% last month. Data was revised to show sales gaining 0.3% instead of 0.2% for November as previously reported. Excluding automobiles, gasoline, building materials and food services, retail sales rebounded 0.5% last month after falling by a downwardly revised 0.1% in November. See sales reports below...CVS Health is updating hundreds more of its stores to its new health-focused store HealthHUB format, introduced  at the end of 2018. Currently, CVS has 50 HealthHUB locations. CVS will have about 600 hubs by the end of this year, with a goal of 1,500 hubs by the end of 2021...Gap Inc. announced it has called off plans to split Old Navy into a separate public company.Gap also said Neil Fiske, president and CEO of the brand, is departing and it will appoint a new CEO to oversee its full portfolio of brands, which includes Banana Republic, Athleta and Hill City.

Accelerating

Town Sports International Holdings Inc. has agreed to acquire spin chain Flywheel Sports Inc. The acquisition is expected to close in the first quarter of 2020. Established in 2010, Flywheel has 29 indoor cycling locations across the US. Town Sports is an operator of fitness centers in the Eastern US, California and in Switzerland. Its brands include New York Sports Clubs, Boston Sports Clubs, Philadelphia Sports Clubs, Washington Sports Clubs, Lucille Roberts, TMPL Gym and Total Woman Gym and Spa…Yum Brands has entered into an agreement to acquire The Habit Burger Grill. The deal is expected to close by the end of Q2 2020. The Habit plans to grow to over 2,000 locations under Yum Brands and will be run independently within Yum…Sweetgreen plans to double in size to 200 stores in the next 3 years, growing at 35 to 40% each year...Aroma Joe’s opened 5 new coffee shops in 3 states (MA, ME, and NH) and signed 12 development deals totaling 12 coffee shops expected to open over the next several years. Aroma Joe’s currently has 67 locations currently open and is operating in 5 states, Aroma Joe’s plans to expand into several new markets, including VT, CT and RI...Casper Sleep Inc. filed to go public on the New York Stock Exchange under the ticker symbol “CSPR.” As Casper has expanded its offerings, it also has expanded in brick-and-mortar. The company currently operates 60 stores and could have at least 200 stores over the coming years in North America alone. It also plans to expand internationally…Wawa debuted a new small store format in Philadelphia’s Center City. At 3,000 s/f the location is half the size of a standard Wawa. The store includes the chain’s first-ever pick-up window, and will aim to reduce its environmental footprint by introducing compostable straws, reusable bags and an option to purchase a reusable mug for coffee or hot beverages. Wawa operates more than 880 convenience stores in PA, NJ, DE, MD, VA, FL and D.C... Furniture retailer Havertys will open 3 new stores this coming year. 2 locations are former Toys R Us stores. Havertys operates 121 stores in 16 Southern and Midwestern states...Five Below this year will open 180 new stores in 2020... Private equity firm Atticus Franchise Group, which operates Wingstop, Maaco, and Massage Envy franchise locations, has acquired 18 more Massage Envy locations in Colorado…FASTSIGNS signed over 35 new franchise agreements in the US and Canada, and opened over 30 locations. This year, FASTSIGNS is aiming to sign 45 franchise agreements and enter new markets…Saladworks opened its 100th location in Howard Park, MD this month…Payless ShoeSource  is emerging from bankruptcy protection this month with plans to reopen some of the 2,100 US stores it had shuttered last year. Payless declined to say how many stores it may open; it once operated 2,500 stores…PGA Tour Superstore will open 3 stores this spring. PGA Tour currently operates 41 stores in 16 states, and is looking to open additional stores later in the year... Sportsman’s Warehouse will open 3 new stores, 1 in CO and 2 in CA, the chain’s first announced openings in 2020, with additional openings likely to be announced in the near future.  Including the 3 new stores, Sportsman’s will have a total of 107 stores in 27 states…Starbucks Corp. is expanding its community store initiative by 85 stores, with a goal of opening 100 locations by 2025 in underserved rural and urban areas across the country. Currently, Starbucks operates 14 community stores…Bedding supplier Tempur Sealy plans to open its first Tempur-Pedic retail location in Manhattan in June and is opening its 56th store at the Walt Whitman Mall, Long Island this month. The chain plans to have 75 to 80 retail locations by the end of 2020... Macy’s has added “Feel Good Story” shops to 36 locations nationwide. The concept is the latest iteration of Story at Macy’s and comes 20 months after Macy’s acquired Story, the experiential Manhattan retailer that reinvents itself with a new theme every couple of months. Macy’s is partnering with fitness and wellness media platform Well+Good on the wellness-focused shop concept, which features curated spaces with merchandise and experiences...Love’s Travel Stops & Country Stores will open up to 40 stores in 2020. Love’s travel stop network operates more than 500 locations in 41 states. It has more than 350 truck service centers, which include on-site and standalone Speedco and Love’s Truck Tire Care locations…Casey’s General Stores Inc. plans to add 350 new locations during the next 3 years. The chain currently operates more than 2,200 stores in 16 states.

Decelerating

Pier 1 Imports will close about 57 locations in its current fiscal year, higher than its previous estimate of 45. Pier 1 currently has 967 stores...Macy’s plans to close 28 Macy’s stores and 1 Bloomingdales…Bed Bath & Beyond Inc. has entered into an agreement to sell approximately half its real estate to generate capital. The home furnishings retailer has completed a sale-leaseback transaction with an affiliate of Oak Street Real Estate Capital. The properties sold represent approximately 2.1 million s/f of space, including retail stores, a distribution facility, and its headquarters in Union, NJ. Bed Bath & Beyond will continue to occupy the properties through long-term leases...J.C. Penney is closing 6 stores by the end of April. The company said the decisions are part of an annual review of its 846 stores and other operations.

New England

The 102-year-old No Name Restaurant on Boston’s waterfront permanently closed after years of financial troubles. Greek immigrant Nick Contos opened the No Name in 1917... Top of the Hub, the 54-year-old restaurant on the Prudential Tower’s 52nd floor, is closing down, along with the Skywalk Observatory  on the 50th floor. Select Restaurants, Inc., which owns and operates the restaurant and observatory, announced that the last day for both destinations will be April 18. The decision not to renew the venues’ leases was attributed to Boston Properties Inc., owners of The Prudential Tower... Restaurant brand Cosi has shut down over 24 locations in and around Boston, Washington, DC, and elsewhere, cutting its US locations by at least half. The closures include 8 in MA; downtown Boston now has just one. The company has said nothing publicly about the closures, which may be related to an effort to sell the company...Linear Retail Properties, LLC, has purchased 519 Somerville Ave. in Somerville, MA, a 4,632 s/f shopping center between Porter Square and Union Square, for $4.150M. The property is fully leased to Dunkin’, The UPS Store and Wings Over Somerville. Earlier this month, Linear acquired 1755-1761 Mass. Ave. Cambridge, MA, a 6,291 s/f Porter Square store block, less than a mile away, for $3.625M...Salt & Olive Market, located inside The Garage in Harvard Square, will close by the end of February, its owners announced. The Cambridge purveyor of olive oils, salts, and spices took over the space inside the indoor mall formerly held by Starbucks in April 2019. Previously, the shop had a storefront on Massachusetts Avenue.

Malls

Bose Corp. will close all of its 119 retail stores in North America, Europe, Japan and Australia. Bose has retail locations at the Burlington Mall and Colonie Center in Albany, New York, as well as factory stores in Wrentham, MA, Merrimack, NH and Central Valley, NY...Papyrus is closing stores around the US, with liquidation sales already underway. Papyrus says on its website it has more than 260 stores.

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. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.5% 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® decreased marginally in December, following a slight increase in November. The Index now stands at 126.5 (1985=100), down from 126.8 (an upward revision) in November.

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

PURCHASING MANAGERS INDEX

Manufacturing contracted in December, as the PMI® registered 47.2 percent, a decrease of 0.9 percentage point from the November reading of 48.1 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