Southeast US Market Report Q UPDATE Ranking Retail Tenant Activity: Stop, Wait, Grow

Transcription

1 Southeast US Market Report Q UPDATE Ranking Retail Tenant Activity: Stop, Wait, Grow

2 Crossman & is a premier real estate firm focused on serving retail landlords exclusively throughout the Southeast US. Founded in 1990, Crossman & has built an ever-growing retail portfolio in excess of 340 properties and 25 million square feet and specializes in: Leasing Investment Sales Property Management Asset Management / Receivership The first quarter of the year often marks a return to reality for many. The holiday glow is over, people return to work, and retailers across the nation tally their holiday sales, pour over balance sheets, and strategize for the future. For some retailers the future is bright, and they announce expansion plans. Others reassess and adjust their earnings guidance and strategies for the future. Poor holiday sales for a few retailers is the failure of a last-ditch effort to stave off closing part or all of their stores. Crossman & took a look at a wide range of retailers and their relative health and stability as indicated by their announcements of store openings or closings. We assembled a list of announcements and cross-referenced them with press releases, news articles, and financial reports filed by the companies. This report utilizes a stoplight metaphor. We grouped retailers into the following categories: Visit us on the web at ATLANTA Red Light Yellow Light Green Light These retailers have consistent losses over a number of years, filed for bankruptcy, or are trending downward. These retailers have triggered public attention with store closures. They can reposition in the market, but are vulnerable if they misstep. These retailers are leading the pack, and have announced major initiatives to capitalize on their momentum. Key Takeaways: Stores with relatively poor performance, locations in non-strategic markets, and those with lower demand from shoppers are getting the ax in favor of reinvesting resources in Class A locations and premium markets. TAMPA ORLANDO BOCA RATON MIAMI Pairing complementary concepts and retailers is helpful for anchors looking to mitigate rent costs and draw customers with strong brand names. Some retailers are considering mergers and acquisitions in the face of disruptive healthcare reform and ecommerce forces. There is no safe bet category; retailers must constantly evolve to stay relevant. Notes on reading the tables: The Stores Opening / Closing in 2016 are gross numbers; they are not net figures unless otherwise noted. Retailers who have filed for bankruptcy or its equivalency are in red. page 2

3 LESS IS MORE: Retailers at every end of the spectrum are re-evaluating their footprints and evolving their brand to remain relevant to their core customer. Amongst healthy retailers, many are exploring smaller stores to gain access to urban consumers where real estate costs can be prohibitive. Lowe s Home Improvement now has two 30,000-sf locations in Manhattan that cater to their urban customers (their big boxes average 112,000 sf). Lowe s purchased Orchard Supply Hardware stores in 2013; the 36,000-sf Orchard stores boost Lowe s presence in highly populated areas on the West Coast, and in June 2015 they announced plans to add 40 new Orchard stores over the next three years. For some retailers, smaller boxes work in multiple contexts; Dollar General s CEO announced that they will test a format that is 19% smaller than their 7,400-sf standard. They intend to use the smaller stores in opposite extremes: densely populated urban areas and sparse rural markets with fewer households. WalMart has been expanding its better-performing Neighborhood Market concept for years (from 38,000-40,000 sf vs. 180,000 sf Supercenters). Target is testing smaller formats ranging from 19,000-45,000 sf. In fact, of the openings posted on Target s corporate site, only 1 of the 13 is the larger format (122,000 sf). Discount retailers serving price-conscious customers like Dollar General, Five Below, O Reilly Auto Parts, and Ross Stores will continue to see strong gains. The personal care category trifecta of health / fitness / beauty is also seeing aggressive growth (see Under Armour, Planet Fitness, CycleBar, and Ulta). Quick service restaurants (Yum! Brands, Starbucks, Dunkin Donuts, and Chipotle), fast fashion (H&M), and internet-resistant retailers like Kroger and Mattress Firm round out the leaders. This highlights the need to pair convenience and price when considering the retail mix. Yum! Brands Stores Opening in 2016 Current Store Fleet # Stores Announced # of Stores As of 16 % increase* Nearly +2,400 across all banners WW KFC: 19,952 WW TB: 6,407 WW PH: 16,063 WW YUM!: 42,692 WW Dec % Mattress Firm +1,253 Mar 16 2, % Starbucks +900 net in Americas +1,800 net WW Dec 15 14,974 in Americas 23,571 Worldwide Dec % 7.64% WW Notes Yum! owns KFC, Taco Bell, and Pizza Hut. In 2015, Yum! opened 705 KFC, 429 Pizza Hut, and 276 Taco Bell locations. Again, China and India were major areas of focus, opening 743 and 147 locations respectively. Yum! opened a total of 2,365 locations in Integrated nine acquisitions, totaling over 600 stores, that were completed in fiscal Acquired the nation s 2nd largest mattress retailer, Sleepy s, (more than 1,050 stores) in. Overhauled their loyalty program; Starbucks Rewards customers will earn more stars with each dollar using the updated mobile app; by 2016 close, customers can use a prepaid Visa card to earn rewards wherever they use the card. Dollar General +900 Dec 15 12,483 Jan % Plan to remodel 875 stores in Testing a smaller format for urban infill and remote rural locations. Dunkin' Donuts WW H&M +425 WW Jan 16 Chipotle Mexican Grill O'Reilly Auto Parts ,431 11,750 Worldwide 415 3,924 Worldwide 3.79% Nov % Opened 405 new locations, 704 in total in 2014; 349, 495 in total in They have a longterm stated goal of 17,000 Dunkin Donuts restaurants in the US. H&M s growth goals are to increase the number of stores by 10 15% per year and boost sales in comparable units at the same time. 1,783 Dec % Opened 185 new locations in 2013, 192 in 2014, 200 in Feb 16 4,571 Dec % Under Armour +200 WW Jan Worldwide Jan % Planet Fitness Kroger +500 over 3 yrs Acquired 151 Roundy s CycleBar +100 Nov-15 Opened 190 stores in 2013, 200 stores in 2014, 205 stores in They have had 9 consecutive quarters of comparable store sales growth of more than 5%. More than one third of their current locations are within larger partners such as Dick s Sporting Goods. They are focusing the majority of their new locations in China. Mar 16 1,124 Dec % Most of their growth in 2015 was through franchisees. Dec 15 2,778 Dec % 3 corporateowned units Nov-15 3,333.33% Ulta +100 Mar Mar % Exploring opening stores in smaller markets. Ross Stores +90 Mar 16 1,295 Ross 178 dd's Mar % Acquisition of Roundy's gives Kroger a presence in Wisconsin and more stores in Chicago. Kroger also operates 786 convenience stores, 326 fine jewelry stores, 1,360 supermarket fuel centers and 37 food processing plants in the US. They have sold about 130 franchises, and aim to have 100 studios open by 2016 year-end; 5 companyowned, 95 franchises. Alternative format is dd s Discounts openings will be 70 Ross Dress and 20 dd's Discounts. Growth goal: Ross can grow to 2,000 total locations and dd s Discounts can become a chain of 500 stores. Five Below +85 Mar Mar % Opened 62 net new locations in 2014, 71 net new in *% increase / decrease is calculated estimate using the opening / closing store number (net store number if available) and the total number of stores. If a range of numbers was given or a number of closings was spread out over a series of years, the average number of stores opening / closing was used. page 3

4 OFF-PRICE IS ON POINT: Clothing retailers are turning to off-price formats and outlet malls to broaden their exposure to bargain-hunting customers. Though Kohl s cited poor sales in the 18 stores they are closing, they are fighting to find a fresh competitive mix. They are testing stores that are less than half the size of a typical store, an off-price concept called Off-Aisle, and reaching new shoppers through their Fila outlet stores. Forever 21 is also expanding their off-price concept, 21Red, with a smaller footprint of 10,000-12,000 sf that is designed for suburban power centers. Macy s debuted 6 off-price format stores Macy s Backstage, in Over the next two years, they aim to open 50 freestanding Backstage stores and pilot 10 Backstage stores within existing Macy s. Macy s purchased specialty cosmetic banner Bluemercury in February 15 and plans to open 40 new freestanding stores in the next two years. In addition to alternative formats, Macy s is playing host to other store-withina-store concepts. Men s Warehouse concept Tuxedo Macy s plans to open over 275 stores and Bluemercury will join its in-store beauty offerings in the next two years. Dick s Sporting Goods has partnered with Under Armour and currently hosts 127 UA stores. CVS purchased Target s pharmacy business for $1.9 billion in 2015 and will rebrand nearly 1,700 pharmacies. Other retailers are forging mergers and acquisitions to stay afloat in an increasingly complex and competitive market. Office Depot and Staples are contesting their right to unify against Amazon and others who are eroding their marketshare. Walgreens made a bid for Rite Aid hoping to find economies of scale as their traditional model is rocked by disruptive healthcare legislation. Both cases will be heard or retried by the FTC later in the year. McDonald s Circuit City Stores Open / Closing in 2016 Current Store Fleet # Stores Announced # of Stores As of 16 % increase* +1,000, -500 Worldwide over 2 yrs Jan 16 Gap +40 net WW Mar 16 WalMart +154, , -269 WW 14,259 36,525 Worldwide Dec % Jan 16 - Jan 16 3,700.00% 3,721, all banners, Worldwide Dec % Jan 16 11,600 Worldwide Jan % Cabela s +7 Oct Oct % Kohl s Target Target / CVS Oct 15 1, % Jan 16 1,793 Mar % Del Taco +15, -18 Dec Dec % All locations closing will be in Texas. American Eagle Outfitters NY & Chico s FAS WW in FY outlet Mar ,047 Worldwide Jan % Mar Dec % 1,518 Jan % Notes In 2014: opened 1,316, closed 487, for a net gain of 829 total locations. In 2015: opened 989, closed 722 for a net gain of 267 total worldwide. Many of the 2016 closings are likely to be in the US. Circuit City closed 2008, and then failed in its pure-play online outlet. While there is much speculation in the market about its future, the first store is expected to open in June, most likely in Dallas. Owns Gap, Old Navy, Banana Republic, Athleta, Intermix, and Piperlime. In FY 15, opened 249 stores, closed 237, including all Pipelime stores net additions are not banner-specific. Closing in 2016: 102 WalMart Express (launched in 2011), 23 Neighborhood Markets, 12 Supercenters, 7 stores in Puerto Rico, 6 discount centers, and 4 Sam s Clubs (-154 total). Opening in 2016: Supercenters, Neighborhood Markets, 7-10 Sam s Clubs (+154 total). No more than 7 new stores forecasted for They eventually want 225 stores in North America, but they are finding that their massive stores are cannibalizing their other stores performance. Kohl s plans to test 5 to 10 smaller-format stores this year, open Fila apparel stores in outlet malls (which Kohl s will operate and stock), and open 2 Off-Aisle off-price stores. Closed 11 stores in late 2014 & early 2015, and announced plans to open 15 new stores. 1,692 Target pharmacies in 47 states will be re-branded as CVS Pharmacies. Target s 79 in-store clinics will also be re-branded as CVS Minute Clinics. In FY 2014 they opened 60 new stores, mostly AEO Factory stores and international stores, and closed 70 stores. In FY 2015, they opened 23 stores and closed 32 stores. The majority of the stores that they are opening in 2016 are AEO Factory stores and international locations. At the end of their current fiscal year, the company expects to have more than one fourth, or 133 stores out of 490 stores, converted to the outlet format. There are 82 outlets in the footprint as of March 16. Chico s FAS said it will close 120 stores between in an effort to compete with omni-channel retailers. In 2015, 35 stores closed and 40 stores opened. Macy s -36 Jan Jan % Over the past five years ( ), Macy s closed 52 stores and opened 12 stores. Office Depot / Office Max Office Depot / Staples Walgreens Boots Alliance, Inc ,564 1,834 Worldwide Dec % As a part of the Office Depot / Office Max merger, they will close 400 stores total by the end of They closed 168 stores and opened 1 in 2014, and closed 181 in They announced in 2015 that they would shutter 1,000 stores to win FTC approval. In Dec 15, the FTC vetoed the merger, 4-0. In, the European Union OK ed the merger if Office Depot closed its locations in Europe. Australia, New Zeland, and China have also approved, but US and Canada still oppose. The next trial is in May 16. Walgreens has expanded domestically since 2010 by acquiring Duane Reade, USA Drugs and Kerr Drug. They became the largest drugstore in the world after merging with Boots Alliance at the end of Walgreens made a bid to buy Rite Aid in Oct 15, offering to close up to 1,000 stores to get FTC approval. Rite Aid shareholders approved the merger in Feb 16; it will go to the FTC next. If approved, the merger may take place in Q2 - Q *% increase / decrease is calculated estimate using the opening / closing store number (net store number if available) and the total number of stores. If a range of numbers was given or a number of closings was spread out over a series of years, the average number of stores opening / closing was used. page 4

5 BLEEDING RED INK: Sears Holdings continues to close flags despite the $2.7 billion boost it got in 2015 from selling 235 of its stores to the newly minted Seritage REIT. JCPenney looks to close another 7 stores this year, in addition to losing two of its store-within-a-store partners: MNG and Joe Fresh. Barnes and Noble shared news that it would close the fewest number of stores since 2000, and that its stores fared relatively well compared to its online sales, owing to issues stemming from relaunching their website. That being said, the number of stores closed by bankrupt brands is significantly less than last year, indicating that the market as a whole is generally healthier. There were more than 2,600 stores shuttered by bankruptcy or sale in 2015, compared with 715 stores in 2016, a year-over-year decrease of 73%. However, there may be headwinds to tarnish that ironic silver lining; Aeropostale issued a statement in March 2016 that they are considering financial alternatives, including the possibility of selling or restructuring the brand. Some may be surprised to see athletic retailers experiencing issues. In a world ruled by sneakers and yoga pants, retailers like Sports Authority and Finish Line are facing competition from fast fashion houses H&M and Forever21 and subscription e-tailers like Fabletics. The crowded athleisure space may elbow out established retailers in aging malls, and the brands that remain must find ways to evolve and differentiate themselves. Other retailers have come under pressure by active investors to leverage their real estate assets in an effort to pump up returns. Both Macy s and McDonald s came under fire in 2015, and restaurateur Bloomin Brands may join the likes of Sears and Darden in the future. Their CFO indicated that they may sell a portion of their portfolio and pass the return on to their shareholders. Retailers must evolve to suit the needs of their customers, and even safe categories like fast casual dining, athletic wear, and grocers need to be aware of their position in the market. Stores Closing in 2016 Current Store Fleet # Stores Announced # of Stores As of 16 % decrease* Anna s Linens -252 Jun Jun % Filed for Chapter 11 bankruptcy protection in June Tailored Brands Wolverine Worldwide Sports Authority Sears Holdings Corp. Children s Place Finish Line Pier 1 Imports -248 Mar 16 1,724 Jan % -140 Mar Mar Sears and Kmarts -92 over 2 yrs in US and Canada -150 over 4 yrs -30 net in FY 16 Mar and Canada 463 and Puerto Rico 1,672 and territories 1,069 and Canada Jan % Mar % Jan % Jan % Jan Jan % Jan 16 1,055 and Canada Nov % Notes Has the following banners: Jos. A. Bank, Men s Warehouse, Men s Warehouse & Tux. Announced that their outlet stores were not sufficiently differentiated enough from the rest of their footprint to be profitable. Closing Jos. A. Bank, all 58 outlet stores, and Men s Warehouse Tux stores. They closed 58 stores in FY '14, 46 in FY '15, and will close an additional 140 in FY 16 in an effort to consolidate consumer-direct operations. Leonard Green & Partners bought Sports Authority in 2006 for $1.3 billion. They moved to file for bankruptcy in Mar 16, and forecasted closing 200 of their 463 stores. In 2014, Sears Holdings closed 255 Sears and Kmart stores, and sold its holdings in Sears Canada stores. In 2015 Sears closed 53 Sears and Kmart stores and sold 235 Sears stores and are leasing them back through the Seritage Growth Properties REIT. During Fiscal 2013, they opened 53 stores and closed 41 stores. During Fiscal 2014, they opened 25 stores, and closed 35 stores. During Fiscal 2015, they opened 4 stores, and closed 32 stores. Will remodel or reposition of stores in 2016, including brand shops such as Finish Line s Nike Track Club and Brand Jordan, as well as other key brand partnerships for store-within-store models. Pier 1 has initiated a plan to optimize its store portfolio. The company plans to close stores primarily through natural lease expirations and relocations, leaving it with just under 1,000 stores. City Sports -26 Oct Nov % Filed for Chapter 11 bankruptcy protection in October Bloomin Brands -14 Bonefish Grill 1,283 1,507 Worldwide (all banners) Dec % They own Bonefish Grill, Outback, Carrabba s, and Fleming s Prime. They plan to sell a share of its real estate in 2016 and give the returns to its shareholders. It has 258 properties that we do not intend to own long term, said CFO Dave Deno. Barnes & Noble -8 Mar Mar % They are working to diversify their in-store offerings to include toys, gifts, and music. JCPenney -7 Mar 16 1,021 Dec % Aeropostale A&P Closed 33 stores in 2014, 41 in Spanish retailer Mango declined to renew its five-year contract, and says it will close its 450 MNG boutiques inside JCPenney stores by. Canadian chain Joe Fresh also closed its JCPenney boutiques. In FY 13, they opened 65 stores and closed 49. In FY 14, they opened 8 stores and closed 248. In FY 15, they opened 1 store and closed 48. Mar 16: The Board of Directors authorized management to explore a full range of strategic and financial alternatives, including a potential sale or restructuring. In Mar 16, they had 769 stores and 1,132 Worldwide. Banners in the US: Food Basics, Food Emporium, Pathmark, Super Fresh, Waldbaum s, Best Cellars/A&P Wine & Spirits. Declared bankruptcy in July 15, and began to sell their 297 stores. All A&P stores have ceased to operate under the original owner group, but some (Food Emporium, Superfresh, Pathmark) have been purchased by other groups and will continue operating. A&P continued to dispose remaining of stores into *% increase / decrease is calculated estimate using the opening / closing store number (net store number if available) and the total number of stores. If a range of numbers was given or a number of closings was spread out over a series of years, the average number of stores opening / closing was used. page 5

6 Connect with Crossman & ATLANTA 6400 Powers Ferry Rd NW Suite 300 Atlanta, GA ORLANDO 3333 South Orange Ave Suite 201 Orlando, FL BOCA RATON 980 North Federal Hwy Suite 434 Boca Raton, FL TAMPA 9950 Princess Palm Ave Suite 340 Tampa, FL Miami office opening in May 2016 May 22 25, 2016 I Las Vegas, NV Meet Crossman & at RECon This document has been prepared in good faith on the basis of information available at the date of publication. Crossman & does not guarantee or warrant the accuracy, reliability, completeness or currency of the information in this publication. Readers are responsible for assessing the relevance and accuracy of the content of this publication. Crossman & will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on information in this publication. Booth SMR 221 in the South Meeting Rooms, between the Central and South Halls. Crossman & Retail Real Estate Southeast US Market Report, 2016 Q1 Update For questions or comments, please contact our Research Manager Jennifer Jackson at jjackson@crossmanco.com #RECon16