SPECS store planning, equipment, construction and facilities services

Dominant retailers continue to grow; portfolio optimization is new mantra store planning, equipment, construction and facilities services By Connie Robbins Gentry The annual Survey measures new stores opened in 2009 and 2010, including relocations, and highlights retailers with notable construction activity. Although not a comprehensive ranking of all retail construction activity, the Big Builders report chronicles key leaders in select categories: department stores, discount stores, do-it-yourself stores, drug stores, food stores, specialty hardlines and specialty softlines. From the dark cloud cast over retail construction by a slowed economy that has directly impacted real estate sales, development and financing, a silver lining has emerged in the form of clearly articulated growth strategies. Many retailers have announced definitive shifts in their strategies that reflect the new normal of the global economy: Portfolio optimization has become the watchword for all retailers, and growing the Capital Expenditures (000 omitted) 1 Wal-Mart Stores $14,000,000 $12,200,000 2 Walgreens $2,680,000 $1,800,000 3 Target $2,500,000 $1,729,000 4 Lowe s $2,100,000 $2,500,000 5 Kroger $2,000,000 $2,315,000 6 Costco $1,300,000 $1,300,000 7 The Home Depot $1,250,000 $966,000 8 Safeway $1,000,000 $851,600 9 Kohl s $900,000 $666,000 10 Best Buy $850,000 $615,000 11 TJX Co. $750,000 $429,282 12 Supervalu $700,000 $691,000 13 Delhaize America $650,000 $461,000 14 Gap $575,000 $334,000 15 Publix $555,000 $693,489 16 Macy's $550,000 $460,000 17 J.C. Penney $500,000 $600,000 18 O Reilly Automotive $450,000 $415,000 19 Staples $450,000 $313,228 20 Nordstrom $375,000 $360,000 21 Dollar General $350,000 $274,000 TOTAL $34,485,000 $29,973,599 brick-and-mortar footprint includes carefully considered steps to invest wisely in the current store count before adding new stores. Store closings, relocations and expansions of existing stores often outnumber new development, resulting in flat growth across the retail enterprise even when a number of new stores have opened. 1 Wal-Mart Stores 32,500,000 34,000,000 2 Walgreens 10,570,500 8,729,000 3 Dollar General 6,750,000 5,931,000 4 Lowe s 5,085,000 7,006,000 5 CVS 4,060,000 4,031,000 6 TJX Co. 3,888,000 2,597,000 7 Dollar Tree 3,456,000 3,402,000 8 Kroger 2,750,000 3,000,000 9 Kohl s 2,640,000 3,542,000 10 Costco 2,574,000 2,860,000 11 Big Lots 2,384,000 1,549,600 12 Target 2,132,000 11,443,000 13 Aldi 1,738,500 1,390,800 14 Family Dollar 1,700,000 1,615,000 15 Dick s Sporting Goods 1,525,000 1,325,000 16 Bed Bath & Beyond 1,500,000 1,700,000 17 Ross Dress for Less 1,416,500 1,649,200 18 AutoZone 1,400,000 1,220,000 19 The Home Depot 1,290,000 1,677,000 20 Tractor Supply Co. 1,240,000 1,209,000 21 hhgregg 1,200,000 660,000 TOTAL 91,799,500 100,536,600 40 chainstoreage.com DECEMBER 2010

Sam s Club, which is included in the charts as part of Wal-Mart Stores, has experienced back-to-back years of negative or negligible growth despite having a billiondollar budget for capital expenditures. In 2009, Sam s Club closed 10 and opened four stores. In both 2010 and 2011, Sam s Club projected $1 billion in capital expenditures that would go primarily for remodeling projects, although seven to 12 stores each year would be relocated, expanded or new. International expansion affords a world of new opportunities for many retailers and will remain a focus for organic growth in the coming year. For instance, of the roughly 660 stores Wal-Mart opened in each of the last two years, 500 units were attributed to organic growth in international markets. Doug McMillon, Wal-Mart International president and CEO, recently announced new store growth in the coming fiscal year would focus on the emerging markets of China, Brazil and Mexico. Wal-Mart added a total of 32.5 million sq. ft. in 2010, but the bulk of that expansion was outside the United States. The company is expected to add more than 23 million sq. ft. in international space next year compared with 21 million sq. ft. opened in New 1 Dollar General 750 659 2 Walgreens 729 602 3 Wal-Mart Stores 662 657 4 Game Stop 400 388 5 Dollar Tree 320 315 6 CVS 280 278 7 AutoZone 216 189 8 Family Dollar 200 190 9 Best Buy 170 191 10 O Reilly Automotive 150 150 11 Advance Auto 150 107 12 rue 21 130 114 13 TJX Co. 130 91 14 Collective Brands 105 84 15 Aldi 100 80 16 Supervalu 100 40 17 Tractor Supply Co. 80 78 18 Big Lots 80 52 19 Genesco 69 61 20 Gap 65 47 21 The Children's Place 65 38 TOTAL 4,951 4,411 global markets this fiscal year. Similarly, Gap Inc. has set its sights on international growth with new store locations in China and Italy and the introduction of online stores to Canada and Europe. In updates to the company s strategic three-to-five-year plan, chairman and CEO Glenn Murphy said Gap enjoys significant global runway and is making the investments necessary to shift the balance of revenue over time to come increasingly from online and international businesses. By the end of 2010, Gap will be selling product in more than 80 countries an impressive uptick from the 25 countries Gap played in at the start of the year. The company has projected more than 25% of its net sales will be attributed to international sales by fiscal 2013. Across the board, China is emerging as a key area for expansion. And with good reason: Consumption is on the rise, and an investment boom is resulting in scores of new upscale > Compiling the Rankings The report was compiled from research of company reports, SEC filings, published statements and information provided by the retail companies. Rankings: This compilation represents retailers with measurable construction activity in 2009-2010 that are among the biggest builders in their respective retail sectors. The report is not intended to be all-inclusive or a ranking of all retailers opening new stores. Timing: The majority of companies surveyed have fiscal years ending in December, January or February. For the most part, the research represents construction activity during fiscal years that correspond to the 2009 and 2010 calendar years. If there is a significant departure from this rule, it is noted in the charts. New : Retailers typically report total net stores at the end of a given period, net stores being the number opened less the number of stores closed. The Chain Store Age report measures construction activity; therefore, the new-store numbers reflect the actual number of new stores opened, including relocated stores. It does not include acquisitions activity, nor does it reflect store closings. Square Footage: This report reflects square footage added from construction, including new-store openings, relocations of existing stores and expansions. Whenever possible, the amount cited is the actual number reported by the retailer. In some cases, square footage is an estimate based on the retailer s typical store footprint. When multiple formats were opened, it would be too speculative to estimate square-footage. Capital Expenditures: Reported capital expenditures are actual for 2009 and projected for 2010. Capital expenditures typically include costs of new-store openings, store relocations, expansions, remodels and acquisitions, as well as investments in corporate facilities, technology and other capital improvements such as supply chain enhancements. Therefore, capital expenditures should not be used for comparative analysis of retailers construction activities. DECEMBER 2010 chainstoreage.com 41

Department Stores malls and shopping districts. In January, Credit Suisse released a report which predicted that by 2020 China would account for nearly a quarter of the world s private consumption. Value-driven consumers have also prompted dramatic shifts in the real estate choices made by many retailers. Upscale department stores Saks Inc. and Nordstrom are aggressively expanding their off-price venues, and now, specialty softlines retailers are following suit. For instance, Abercrombie & Fitch announced plans to open more than 39 outlet stores this year. Likewise, in 2009, The Children s Place shifted its historical preference for malls in densely populated markets to value-oriented centers, or VOCs, in small- to mediumsize markets. Twenty of the retailer s 38 store openings in 2009 were in VOCs, while the majority of its 65 store openings in 2010 will be in VOCs. On the flip side of the coin, discount retailer Big Lots said that 30 of the 80 new stores it would open this Discount Stores Department Stores Discount Stores year would be in A locations rather than its historical preference for B or C properties serving middle- to lower-income populations. The switch to upper markets is indicative of the overall trend for consumers in every socioeconomic bracket to value shop. By the NuMBERS: Across every sector, retailers are continuing to add stores and hone growth strategies. The accompanying charts and category summaries highlight new store openings, capital expenditures and new square footage for leading retailers, as well as some of the decision points that define the group. DEPARTMENT STORES: The majority of retailers in the department store category had single-digit new store openings, the exceptions being Kohl s and Nordstrom. Most notable among this group is Kohl s spike in capital expenditures from $666 million in 2009 to $900 million this year, due to the company s planned investment in store remodels. In 2010, Macy s opened two Bloomingdale stores in Dubai plus four Bloomingdale outlets Kohl s 30 / 56 $900,000 / $666,000 2,640,000 / 3,542,000 Nordstrom 21 / 17 $375,000 / $360,000 1,174,100 / 1,073,000 Macy s 8 / 9 $550,000 / $460,000 510,000 / 945,000 Stein Mart 8 / 2 $30,000 / $7,600 370,000 e / 74,000 Saks 5 / 6 $55,000 / $73,900 182,500 e / 150,000 e Neiman Marcus 4* / 1 $58,700 / $101,500 165,000 e / 120,000 J.C. Penney 2 / 18 $500,000 / $600,000 191,000 / 1,700,000 e Dillard s 2 / 0 $100,000 / $83,400 355,000 / 0 Belk 1 / 3 NA / $42,300 75,469 / 250,510 *Neiman Marcus store openings are for the calendar year, capital expenditures are for fiscal years ended July 31. Dollar General 750 / 659 $350,000 / $274,000 6,750,000 / 5,931,000 Wal-Mart Stores 662* / 657* $14,000,000 / $12,200,000 32,500,000 / 34,000,000 Dollar Tree 320 / 315 $160,000 / $145,000 3,456,000 / 3,402,000 Family Dollar 200 / 190 $170,000 / $155,400 1,700,000 / 1,615,000 TJX Corp. 130 / 91 $750,000 / $429,282 3,888,000 / 2,597,000 Big Lots 80 / 52 $115,000 / $330,000 2,384,000 / 1,549,600 Ross Dress for Less 50 / 56 $215,000 / $158,500 1,416,500 / 1,649,200 Costco 18 / 20 $1,300,000 / $1,300,000 2,574,000 / 2,860,000 Target 13 / 76 $2,500,000 / $1,729,000 2,132,000 / 11,443,000 BJ s Wholesale Club 9 / 7 $225,000 / $176,400 1,017,000 / 791,000 *Wal-Mart Stores had a gross unit growth in the U.S. of 157 stores in 2009 and 162 stores in 2010; estimated organic growth internationally in both years was 500 store openings. and two Macy s stores in the United States. Stein Mart, which opened three new stores and relocated five in 2010, saw impressive financial improvements from the start of 2009, when the company had $11 million in debt, to 2010, when the company was debt-free with $81 million in cash. Saks opened its second location in Mexico City in 2010, as well as four Off 5th outlets. Neiman Marcus opened one namesake store in 2010 and rounded out the year by opening three new value-concept stores, Last Call Studio. J.C. Penney, Dillard s and Belk had modest growth, although Penney maintained a $500 million budget for capital expenditures in 2010, largely to support the opening of Sephora stores inside its existing stores. DISCOUNT STORES: Dollar stores dominate the discount sector, and the cumulative total of new stores opened in 2010 by Dollar General, Dollar Tree and Family Dollar exceeds the total of new store openings by all of the other retailers in this category. However, no group of niche retailers comes close to the sheer volume of square footage opened by Wal- Mart or the $14 billion budget it allocated in 2010 to fuel growth. Despite cutting back on new store openings in 2010, Target bumped its capital expenditure budget from $1.7 million to $2.5 million, largely to cover an increased focus on remodels and expansions. TJX Co. ramped up new store > 42 chainstoreage.com DECEMBER 2010

Drug Stores openings from 91 in 2009 to a projected 130 in 2010, with the biggest increases in TJX, Marshalls, HomeGoods and TKX brands. Ross Dress for Less scaled back from 56 new stores in 2009 to 50 in 2010, with a stronger emphasis on opening smaller-footprint stores. The highlight for Costco was celebrating its best entrance into a new country, with revenues of $841,000 on the day its first Australian store opened in 2009; a second Australian store opened in 2010. DO-IT-YOURSELF STORES: Auto-parts retailing is a niche that is thriving as well, and the sweet spot for these chains closely mirrors that of the dollar stores. Characterized by low-cost real estate and catering to a cross-section of socioeconomic demographics, but skewed to the middle- and lower-income masses, the three DIY Stores DIY Stores AutoZone 216 / 189 $315,400 / $272,200 1,400,000 / 1,220,000 O Reilly Automotive 150 / 150 $450,000 / $415,000 1,050,000 / 1,050,000 Advance Auto 150 / 107 $240,000 / $192,900 1,050,000 / 750,000 Lowe s 45 / 62 $2,100,000 / $2,500,000 5,085,000 / 7,006,000 The Home Depot 10 / 13 $1,250,000 / $966,000 1,290,000 / 1,677,000 Drug Stores dominant auto-parts chains are nowhere near putting the brakes on domestic expansion. International openings accelerated as well in 2009 and 2010 for AutoZone, which opened 90 stores in Mexico over the two-year period, and Advance Auto, which opened 72 international locations. Unlike most retail categories, both the autoparts and home improvement chains attribute a significant percentage of revenues to corporate sales. While the beating that the housing industry took during the recession clearly hurt Lowe s and The Home Depot, consumers propensity to keep cars running an extra mile rather than buying new benefited auto-parts stores. DRUG STORES: Walgreens owns the numbers in this category, continuing to grow its store base aggressively and firmly planted in the No. 2 spot among Walgreens 729 / 602 $2,680,000 / $1,800,000 10,570,500 /8,729,000 CVS 280 / 278 NA / $2,500,000 4,060,000 / 4,031,000 Rite Aid 14* / 58 $250,000 / $193,630 NA / 725,000 *In the first half of 2010, Rite Aid opened 1 and relocated 13 stores. Projections were not available for the remainder of the year. NA: Not available Food Stores Food Stores Aldi 100 / 80 NA 1,738,500 / 1,390,800 Supervalu 100 / 40 $700,000 / $691,000 NA Kroger 50 / 52 $2,000,000 / $2,315,000 2,750,000 / 3,000,000 Delhaize America 50 / 36 $650,000 / $461,000 NA Fresh & Easy 36 / 17 e NA 360,000 / 170,000 e Publix 34 / 48 $555,000 / $693,489 1,000,000 / 1,300,000 Whole Foods 15 / 15 $260,000 / $315,000 634,800 / 801,800 Safeway 15 / 8 $1,000,000 / $851,600 825,000 / 440,000 The Fresh Market 10 / 8 NA 232,100 / 160,000 Harris Teeter 7 / 19 NA 357,718 / 979,494 all retailers for New, New Square Footage and Capital Expenditures. Equally important to Walgreens market position are the acquisition numbers not included in this survey s tally of new stores added. However, Walgreens total $2.68 billion in capital expenditures includes its $1.08 billion acquisition of Duane Reade in April. CVS maintained a consistent growth pattern the past two years and, in 2010, opened nine stores in Puerto Rico. For Rite Aid, the growth story is more subtle but no less strategic. The company is adding 105 GNC stores inside existing Rite Aid stores plus testing a co-branded Save-A-Lot and Rite Aid pharmacy concept at 10 stores in the Greenville, S.C., market. GROCERY STORES: For the most part, food retailers continued to follow steady, proven growth patterns. The most active company, the extreme-value grocer Aldi, opened 180 stores over the two-year period. In 2010, Aldi opened its first stores in the Lone Star state and announced it planned to open a total of 30 stores in the Dallas-Fort Worth market. Kroger is another example of a retailer that is seriously focused on portfolio optimization. The company closed 36 stores in 2009, 27 of which were operational closings, meaning there was not another store opened in the vicinity to replace it. Additionally, Kroger continues its strategic focus on owned versus leased real estate: 43% of its supermarkets are company-owned, and Kroger reported the company saves $1.00 per square foot with owned versus leased stores. Whole Foods is still riding the wave of consumer popularity, but six of the company s > 44 chainstoreage.com DECEMBER 2010

15 store openings in 2009 were relocations. Another of the most popular food concepts, Trader Joe s, continues to expand but keeps its growth strategies close to the vest. When the company opened its first Manhattan location in August, Fortune reported Trader Joe s would open five additional stores in 2010, but the retailer declined to confirm. In a related category, convenience stores, 7-Eleven is by far the most aggressive player. It opened more than 250 stores in the United States in 2009. It is on track to open roughly 300 stores in 2010. Of the regional c-store operators, Sheetz, based in Altoona, Pa., continues to build at a steady pace. It will open roughly 25 stores this year. SPECIALTY HARDLINES: The common denominator among the specialty hardlines retailers is that each is either Specialty Hardlines Specialty Hardlines Game Stop 400 / 388 $200,000 / $178,900 560,000 / 543,200 Best Buy 170* / 191 $850,000 / $615,000 NA Tractor Supply Co. 80 / 78 $95,000 / $74,000 1,240,000 / 1,209,000 Bed Bath & Beyond 60 / 67 $225,000 / $153,700 1,500,000 e / 1,700,000 Hibbett Sporting Goods 50 / 63 $10,300 / $9,600 250,000 / 315,000 Staples 50 / 48 $450,000 / $313,228 NA PetSmart 42 / 45 $135,000 / $112,920 840,000 / 900,000 hhgregg 40-45 / 22 $47,000** / $58,510 1,200,000 / 660,000 Jo-Ann Fabric & Craft Stores 30 / 20 $50,000 / $39,700 615,000 / 621,000 Dick s Sporting Goods 29 / 26 $147,000 / $140,300 1,525,000 / 1,325,000 *Best Buy 2010 projected openings are net of store closings. **hhgregg capital expenditure is net, less proceeds from sale-leasebacks. Specialty Softlines Specialty Softlines rue 21 130 / 114 $32,000 / $33,630 530,000 e / 465,600 e Collective Brands 105 / 84 $100,000 / $84,000 336,000 e / 268,800 e Genesco 69 / 61 $45,000 / $33,800 90,000 e / 85,000 e Gap 65 / 47 $575,000 / $334,000 NA The Children s Place 65 / 38 $85,000 / $62,200 325,000 / 190,000 Aéropostale 55 / 53 $80,000 / $53,900 198,000 e / 190,800 e Brown Shoe 48 / 63 $63,000 / $49,978 202,000 e / 394,600 e American Eagle 48 / 38 $120,000 / $127,419 274,400 / 220,400 Limited Brands 45 / 59 $275,000 / $202,000 165,000 / NA Abercrombie & Fitch 40 / 23 $260,000 / $175,500 NA Jos A Bank 40 / 14 $30,000 / $16,300 140,000 / 45,000 DSW 10 / 9 $40,000 / $21,785 220,000 / 198,000 the leader in its category, or fast approaching leader status. Game Stop, Tractor Supply Company and Hibbett Sporting Goods continue to expand across secondary and tertiary markets. For Best Buy, although its numbers didn t change dramatically from 2009 to 2010, the focus of store openings shifted somewhat. In 2009, 106 of the company s 191 stores were international locations, including the first Best Buy store in Turkey and continued expansion in Canada, China and Mexico. Best Buy also opened 36 U.S.-based Best Buy Mobile stores in 2009. In 2010, the company prepared to open large-format stores in the United Kingdom and added Five Star stores in China, but the primary focus has been on opening 75 to 100 small-format stores in the United States, predominantly the Best Buy Mobile brand. However, the rising star to watch in this sector is hhgregg, which doubled the number of new stores opened from 22 in 2009 to a projected 40 to 45 in 2010. SPECIALTY SOFTLINES: Another fast-growing retail starlet, and teen fave, rue 21 tops the specialty softlines chart with more than 240 new stores opened in the past two years, a total portfolio of 600 locations and expectations to exceed 1,000 locations within three to four years. While rue 21 has stated there are opportunities to increase its footprint in regional malls, particularly in small and middle markets, the company defined a new strategy at the beginning of 2010 that targeted expansion in single-anchor strip centers. Rue 21 reported its new stores typically achieve revenues of $900,000 to $1 million within the first 12 months of operation. Conversely, Collective Brands made the No. 2 spot on the specialty softlines chart, but in both years the company s portfolio optimization strategy closed more stores than it opened. In 2009, Collective Brands expanded into Colombia and the Middle East, but overall closed 128 stores while opening 84. In 2010, the company expects to close 120 stores versus opening 105 stores. Similarly, Genesco has said that market saturation will lead the company to slow organic growth and increase acquisitions. 46 chainstoreage.com DECEMBER 2010