Big VIP – Issue #16

Back to School Spending Expected to Drop in 2024

• Parents plan to spend $586 per child this year, down $11 from 2023
• Total school-related spending is expected to reach $31.3 billion, for a decline of -2%
• Low and middle income families will cut spending by double or triple the amount of higher income households
• Almost two-thirds of spending will occur in July, continuing the shift to earlier spending around major events Read More >>

Source:  Retail Dive, Chain Store Age, RetailStat

Ace Hardware celebrated it’s 100^th year in business by opening it’s 5,000^th store this month in Roswell, Georgia. The iconic American hometown hardware retailer shows no signs of slowing down any time soon. The company has opened 111 stores in 2024 and plans to reach 200 new stores by year’s end.

Big Lots has announced they are closing over 140 stores in the coming months. The announcement follows months of speculation after the company issued a “going concern” warning in their most recent earnings report. That report also disclosed that over 30% of Big Lots’ stores are unprofitable, hinting that there may be additional closing announcements to come.

Conn’s filed for bankruptcy this month and announced the closing of over 70 locations. The rent-to-own furniture and appliance retailer noted that a full liquidation may be necessary if a suitable buyer for the company cannot be found. Conn’s also owns Badcock Furniture which it acquired in 2023 and may sell as a separate entity.

Costco will raise its membership fees for the first time in seven years this September. Basic memberships will increase $5 to $65, while executive memberships will increase by $10 to $135. The company noted that over 90% of members renew annually and that the new fees would provide $350 million in incremental sales through the first half of 2026.

Darden Restaurants; owner of Olive Garden, Longhorn Steakhouse, and other casual dining brands; has acquired Chuy’s Tex-Mex Grill for $605 million. The deal marks Darden’s first foray into Mexican dining and the company plans to expand the Texas-based brand beyond its current footprint of 101 stores in 15 states. The average Chuy’s unit generates $4.5 million in annual sales volume.

Etsy has unveiled a new ad campaign emphasizing the human element of buying from the online marketplace which largely features items designed or handmade by its members. Etsy believes that in a world that increasingly emphasizes ideas like fast fashion and artificial intelligence, the experience of buying on Etsy is an alternative to the dehumanizing experience of “faceless commerce” from brands such as Temu and Amazon.

Following the departure of CEO Joel Anderson (see Petco story below), Five Below has announced the appointment of Kenneth Bull as interim CEO. Bull joined Five Below in 2005 and became COO in 2023. Company co-founder Thomas Vellios will step in as executive chairman and lead the search for a permanent CEO.

Jack in the Box is continuing to expand in the Midwest with the announcement of 8 new restaurants opening in the Chicagoland region by the end of 2025. The company noted that it sees the potential for as many as 125 locations throughout the Windy City in the coming years. The West Coast burger institution also announced plans for 5 locations in western Michigan earlier this year.

Macy’s has ended discussions with activist investors about a $6.9 billion takeover of the venerable department store retailer. Macy’s Board cited concerns over the financing structure of the bid, which was led by Arkhouse Management and Brigade Capital Management. Arkhouse was increasingly focused on monetizing Macy’s real estate assets without doing enough to transform its retail operations. 

Kroger and Albertson’s have paused their merger plans as they work through regulatory hurdles posed by the state of Colorado, which has sued to to stop the merger from happening due to

anti-competitive concerns. The companies will also make their case to the FTC next month in hopes to get the merger back on track.

McDonald’s has ended an experiment in using artificial intelligence to enhance its drive-thru experience after the program failed to meet customer’s expectations. The company launched the pilot in 2021 at 100 restaurants in conjunction with IBM. McDonald’s hoped to reduce the 15% order error rate over time, but after being swamped with social media posts showing how poorly the AI tool worked, it was clear that the technology was not ready for prime time and like most hyped tech “solutions” may never be.

Mod Pizza was acquired by Elite Restaurant Group earlier this month following months of rumors that the chain was facing liquidity concerns. Mod joins a family of brands that includes Marie Callender’s, Gigi’s Cupcakes, and many others. Mod was once one of the fastest growing fast casual brands in the country with over 540 locations at its peak. However, the company has recently been closing more stores than it opens, including 44 so far this year.

Petco announced the appointment of Joel Anderson as CEO. Anderson had been the CEO of Five Below since 2014 before stepping down earlier this month. Anderson oversaw Five Below through its rapid expansion to over 1,600 locations in 44 states. Prior to Five Below, Anderson had run Walmart’s e-commerce operations in the pre-Marc Lore era. Petco has seen some choppy financial results recently as the wave of pet adoptions in 2021-22 has fallen back to pre-pandemic levels and the company increasingly shifts to a more service-based business model.

Target announced that it will no longer accept personal checks as a form of payment. The company noted that check payments have fallen to “extremely low volumes”, though some analysts noted that elderly customers may be more impacted by this than other age groups.

Walgreens was downgraded two notches by S&P Global Ratings to BB, putting the company in a “speculative” investment category. S&P analysts noted Walgreens guidance came in well below expectations while limited cash flow and looming debt maturities cast further doubt on the drug store chain’s ability to reinvent itself as a health care provider. Walgreens has $6 billion in debt slated to come due by 2027 if it is unable to refinance. Walgreen’s multi-billion dollar investment in VillageMD in 2021 is seen as significant drag on the company’s finances.

Brookfield bought GGP’s enclosed mall portfolio in 2018 saying that it saw value in the properties by being able to convert most of the 125 assets into mixed-used mini cities with the addition of residences, offices, and hotels. However, 6 years later only 4 of the GGP properties have seen this transformation gain any real traction. With entitlements often hard to come by and a global pandemic throwing real estate values into question, Brookfield has instead pivoted to smaller projects including the redevelopment of over 40 former department store boxes. Meanwhile, the company has also been exiting many of its weaker assets, having sold or surrendered 24 malls with many more in the divestment pipeline. Read more in this story from The Wall Street Journal’s Kate King >>

Lidl, the famed German discount grocer, entered the US market nearly a decade ago. And while the company’s ambitious plans to tackle the US have been scaled back significantly, Lidl has seen some success by establishing a growing customer base in its initial markets that span the East Coast from New York City to Atlanta. With a new leadership team in place, Lidl sees more “untapped potential” to come in America. Grocery Dive’s Sam Silverstein has more in this article >>

Video of the Month: Convenience stores have long been reliant on tobacco and gasoline sales for profits, but as Americans buy less of both the industry is looking at how it can reinvent itself for the future. Enter 7-11, an iconic American brand owned by a Japanese firm, where they’re known more for ready made foods and diverse snacking options. Will Americans embrace the Japanese style convenience model? Find out more in this Wall Street Journal video >>

While retail space demand continues to increase due to the lack of new supply and a growing list of expanding retailers and restaurants, looking at exactly where that space is in most demand, this decade has seen a shift away from primary (or “gateway”) markets towards smaller town and tertiary markets.

It’s not often that a major new retail concept debuts, and it’s even more rare when the first location is just a 15 minute drive from my house. However, that is what happened in May when Wayfair opened their first non-clearance brick & mortar location in the Chicago North Shore suburb of Wilmette.

For those who are unfamiliar with the brand, Wayfair is the leading online retailer of furniture and home décor. The company grew to $12 billion in revenue but has seen sales flatten since the pandemic home spending cycle ended.

The pivot to physical retail comes after years of planning and Wayfair hopes it will launch the company into a new era where it becomes a top tier destination across a wide variety of income brackets.

The Wilmette store is in a 150,000 square foot former Lord & Taylor department store box. The exterior of the store was renovated with plenty of windows letting in natural light that helps better highlight how furniture might look in someone’s home. The store also includes a café with healthy dining options, home appliances, lighting fixtures, pet furniture, mattresses, candles, and just about anything else you’d want to put in or around your house.  

One feature that we loved was the plumbing section where you could try out roughly 3 dozen different faucets and a shower wall that showed the spraying styles of a variety of shower heads. It’s an interactive an experiential element that was drawing the most crowds of any part of the store. Speaking of crowds, the store was packed on a rainy summer Sunday afternoon, so much so that it may have been hard to locate someone to help with any larger purchases. In addition, it could be hard to differentiate between sections that were more showroom-like and those more like a traditional retail store. We were interested in buying a new garbage can, but the one we liked was not on the shelves.