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Refreshing Retail - Issue #12

February 19, 2024
Mike Jordan, Big V Property Group Director of Research

Big V Property Group Acquires Merchants’ Square

  • The asset marks Big V’s first investment in the Indianapolis suburb of Carmel
  • Anchors include Flix Brewhouse, World Market, Planet Fitness, Petco, and Dollar Tree in addition to the 3rd location for high-end grocer Harvest Market, set to open this fall
  • Read more about the transaction here >>

Retail Sales Slow in January, While Inflation Reduction Hits Pause

  • Core sales were up only 2.8%, while inflation remained above 3%
  • Home improvement performed worst among all categories, while restaurant sales improved continuing long term trends. Read More >>
  • Wholesale prices rose the most since August, highlighting persistent inflation Read More >>
Sources: Retail Dive, Chain Store Age, RetailStat
Shortly after The Children’s Place announced that they are exploring strategic alternatives amid a liquidity crisis, the brand received a potential lifeline in the form of Saudi-based private equity firm Mithaq Capital. Mithaq agreed to purchase a 54% controlling interest in Children’s Place subject to the company’s lenders agreeing to waive a change-of-control clause. The mall-based retailer has trimmed over 100 stores from its portfolio in the last year and focused on boosting e-commerce sales, however the results to date have not managed to reverse the company’s prospects.
Costco has named former Kroger CFO Gary Millerchip to the same role within their company. Millerchip will replace Richard Galanti, a 40 year Costco veteran who announced his retirement this month. The move was seen by some investors as a lack of confidence by Millerchip in the ability of Kroger to complete its proposed merger with Albertsons, which faces significant regulatory hurdles.
Chipotle posted a strong 4th quarter that beat most analyst expectations. Same store sales and traffic were both up around 8%. Buoyed by this success the burrito maker has set a long term goal to double its N American restaurant count to 7,000 locations starting with an additional 300 stores in 2024.
Grocery Outlet has announced plans to expand to the Southeastern US by acquiring Tennessee-based discounter United Grocery Outlet (UGO) and its 40 stores in 6 Southeastern states. Grocery Outlet currently has a footprint of over 400 stores located primarily on the West Coast and Mid-Atlantic regions. In addition to the acquisition, Grocery Outlet is planning to open 15-20 stores in its existing markets for 2024.
Kohl’s continues to be a target for activist investors. Several funds, including one tied to the government of Singapore have taken significant stakes in the company while expressing concerns about the retailer’s future and encouraging management to consider selling the company and/or monetizing its assets including real estate. Over 70% of Kohl’s profits come from credit card revenues and recent government proposals to limit card fees could pose further threats to the company’s turnaround strategy.
Kroger has said it plans to invest $500 million to lower prices across the board should its merger with Albertsons be approved by Federal regulators in the coming months. The company also said it would invest $1.3 billion in capital to improve the quality of its acquired store fleet. Kroger hopes these announcements will help persuade the Federal Trade Commission to overlook criticism of the deal from labor groups and state attorneys general, who have each filed suits to stop the transaction
Mall REIT Macerich has announced a leadership transition that will see company veterans Thomas O’Hern and Edward Coppola step down as CEO and President, respectively. Former Spirit Realty CEO Jackson Hsieh will take the reins as President & CEO of Macerich effective March 1st. Hsieh led Spirit during its $9.3 billion merger with Realty Income Corp. which closed earlier this year. Macerich operates 40 malls comprising 46 million square feet primarily in coastal markets.
Publix has unveiled a new, larger prototype store at its recent store opening in Wesley Chapel, Florida. The new store footprint is 55,700 square feet, more than 10% larger than prior generations of stores. The new prototype comes as the company is expanding its geographies with 2024 stores planned near Cincinnati and Washington DC. Meanwhile, Publix will be rebranding its GreenWise specialty concept with the flagship Publix banner.
Simon Property Group has reduced its stake in Sparc, a joint venture with Authentic Brands Group, which licenses retail brands such as Forever 21 and Brooks Brothers for proceeds of $300 million. Simon had partnered with ABG to help save many of its key tenants from liquidating during bankruptcy proceedings. Simon announced last year that it hoped to divest its retailer stakes in full over the next five to ten years. The mall REIT also holds a significant stake in JCPenney, which was not impacted by this recent transaction.
Walmart has announced that the company plans to open 150 full-size stores over the next 5 years, in a reversal of recent trends that saw the retailer focus capital expenditures on its online offerings and omnichannel logistics. In addition, Walmart will be remodeling 650 of its stores to conform to its new “store of the future” prototype. The company’s Sam’s Club division will also be pivoting back to growth with plans for up to 30 new stores in the coming years.

ICSC has been tracking the impact of digital sales on brick & mortar retail over the last several years, helping to combat fears that online retail would someday overtake physical stores. The organization released the latest update in this series recently, quantifying the impact of store openings and closings on overall retail sales; while highlighting Gen Z as perhaps the best ambassadors for the future of brick & mortar retail. A must read for all in our industry >>

Meanwhile, a recent report from CBRE on industrial real estate reveals a surprising fact: 34 of the biggest industrial leases signed in 2023 were by traditional retail & wholesale firms, far outpacing all other sectors last year, E-commerce retailers only signed 7 industrial leases, half of their 2022 total. Read More >>

Video of the Month: Carmel, Indiana isn’t just the home to Big V’s newest asset, it has also received international recognition and praise in urban planning circles for being the “Best Designed Suburb” in the United States. How did Carmel earn this lofty reputation? Find out more in this video by Shortcut Documentaries >>

Headlines around population growth and geographic shifts tend to focus squarely on areas in places like Texas, Florida, and other regions within the Sun Belt. And for good reason, as the region accounted for 75% of all population growth in the U.S. over the last decade. However, not everyone moves to escape cold winters and hug palm trees. In fact, according to one recent study, over 80% of people that relocate stay in the same state they came from. Clearly, there are pockets of growth to be found just about anywhere you look in this country. In the Midwest, this has manifested itself in the remarkable success stories seen in a trio of state capitals: Columbus, Indianapolis, and Minneapolis-St. Paul, each of whom have been quietly flexing their economic muscles for the past few decades.

Columbus was once nicknamed “Cow Town” and had an image of being in the sleepy middle between Ohio’s “big cities”: Cleveland and Cincinnati. However, Columbus has been adding residents faster than anywhere else in the Midwest since the 1980s. Whereas Cleveland was the state’s largest city in 1950 (and the 6th largest in the country), Columbus now has over 900,000 residents and is nearly triple the size of Cleveland due to a dynamic economy that includes banking, fashion, tech, and logistics hubs.

The story is much the same up north in Minnesota. Minneapolis-St. Paul has the 3rd largest economy in the Midwest, anchored by the headquarters of major companies such as Target, US Bank, Best Buy, General Mills, 3M, Cargill, and more. In a recent ranking I did of the top 50 metro areas for retail investment, the Minneapolis region was the only Midwestern city to make the top 10. Its population growth has consistently been several hundred basis points higher than the country as a whole and its economic growth is 5X that of my sweet home Chicago.

Finally, we come to Indianapolis and once again we see a similar recipe for success. State capital? Check (plenty of stable, high paying government jobs). Major university? Check (IUPUI, with over 30,000 students). Corporate headquarters? Check (Eli Lilly, Simon Property Group, Corteva AgriScience, Elevance Health).

While these cities may provide economic opportunities for young professionals who want to stay close to home, it begs the question: will they ever be able to attract cross-state migrants like their Sun Belt counterparts? Over the next decade, the answer may increasingly be “yes”, as the Midwest’s low cost of living and relative insulation from the worst impacts of climate change have started to turn heads among some savvy home shoppers.

Carmel, a city of over 100,000 people just north of Indianapolis (and home to Big V’s latest acquisition – Merchants’ Square), was recently written up in the Wall Street Journal as “The Internet’s Favorite Small City” – with the article highlighting families who chose Carmel after being priced out of places such as Los Angeles and Austin. And while Carmel’s recent notoriety has given it a Gen Z cache, the growth here has been sustainable, with Carmel’s population quadrupling since 1990.

So, if you’re planning on joining us here in “flyover country” – be sure to dress in layers, brush up on your cornhole skills, and start calling your soda “pop”. And ope! Just a fair warning, we don’t know how to say goodbye.  

Mike Jordan

 

SONG OF THE MONTH
Listen to the Song of the Month

February may be the shortest month, but it also can feel like a slog. The weather still tends towards the chilly and the sun sets too early. Some might call these the “In Between Days” and that vibe is captured with an effervescent beauty in this month’s musical selection: the deceptively upbeat, breezy 1985 single of the same name by The Cure. From their 6th studio album The Head on the Door. Listen Here >>

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