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Refreshing Retail - Issue #6

May 2023
Mike Jordan, Big V Property Group Director of Research

Economic News: Inflation Cools, but Headwinds Persist

  • April came in at 4.9%, the lowest annual pace since 2021

  • Housing costs and rising gas prices presented the biggest obstacles to getting inflation closer to the Fed’s target of 2% Read more >>

  • Adobe: Online prices fell 1.8% annually

  • Kearney: US Executives see positives in current cycle Read More >>

  • NRF: Consumer spending remains robust despite inflation Read More >>

Bed Bath & Beyond Liquidates in Bankruptcy Filing

  • After stalling for months, the troubled retailer filed on April 23rd Read More >>

  • How Bed Bath’s soured relationship with suppliers hastened the downfall Read More >>

  • JLL’s Naveen Jaggi: Why Bed Bath stores won’t be empty for long Read More >>

Sources: Retail Dive, Chain Store Age, Creditntell
Aldi will open 120 new stores in 2023, bringing its nationwide store count to over 2,400 by the end of the year. The company recently opened a new distribution center in Loxley, AL that will help support growth in the region including its first stores in the Baton Rouge and New Orleans markets.
Amazon reported that e-commerce sales were flat in the first quarter, while physical store sales (including Whole Foods and Amazon Fresh) were up 7%. The company’s growth is now primarily coming from services, subscriptions, and advertising while it attempts to curb rising costs related to fulfillment expenses needed to support its e-commerce business.
Carter’s/Oshkosh will open 50 new stores in 2023, while closing 10. The company reported that over 70% of sales are made in its physical store locations. The new stores will enable the company to enhance the availability of same-day pickup for online orders.
Christmas Tree Shops has filed for Chapter 11 bankruptcy protection. As part of its reorganization, the company is seeking court approval to close 10 of its 82 store locations, with store closing sales to be completed by the end of June. The filing comes nearly three years after Christmas Tree Shops was sold by Bed Bath & Beyond to Handil Holdings.
Darden Restaurants (Olive Garden, Longhorn Steakhouse, etc) has agreed to acquire Ruth’s Chris Steakhouse for $715mm. Darden will operate nearly 1,900 locations once the deal closes and Ruth’s Chris’ 154 locations are added to its portfolio.
Jenny Craig has filed for Chapter 7 bankruptcy protection and ceased operations at all 500 store locations as of May 5th. The company was unable to find a buyer as it contemplated moving to an online only offering.
JoAnn Stores CEO Wade Miquelon announced his retirement. He has led the crafts retailer since 2018, during which time JoAnn went public after years of ownership by private equity. Miquelon cited a “challenging” fiscal environment at the company in 2023 as one reason he decided to exit the top post at this time. JoAnn reported a net loss of $201mm on a same store sales decline of -8.3% in its most recent annual report. Chief Customer Officer Chris DiTullio and CFO Scott Sekella will become interim co-CEOs while the company’s Board searches for a replacement.
Macy’s has five new small format stores planned to open in the coming months. While full details on all 5 locations have not been disclosed, the plans call for 4 of the stores to be opened under the Market by Macy’s banner; while Bloomie’s will open one store in Seattle, WA.
Mattress Firm has been acquired by its largest supplier – Tempur Sealy International – in a stock and cash deal valued at $4bn. Tempur Sealy will repay Mattress Firm’s $2.7bn in debt as part of the deal which will close in late 2024. Mattress Firm had been part of the South African furniture conglomerate Steinhoff International since 2016 and went through the bankruptcy process in 2018 as a way to shed over 700 excess locations from its store footprint.
Nordstrom has named Cathy Smith the company’s newest CFO to replace Michael Maher who had held the role on an interim basis. Ms. Smith was CFO at Target from 2015-2020 and most recently ran the financial operations at Bright Health Group. Nordstrom has been focusing its growth efforts on its Rack off-price business, while closing several full-line department stores including its entire Canadian business and both of its stores in San Francisco.
Simon Property Group announced that its retail holdings posted a Q1 operating loss of $54.5mm after generating over $25mm in profit at the same time last year. CEO David Simon said that he expects many of its retail brands (which include JCPenney, Forever 21, Brooks Brothers, and Aeropostale among others) to swing back to positive earnings in the second half of 2023, while also expressing optimism that the REIT could divest its holdings in the next 5 to 10 years. The company also reported that JCPenney remains profitable, even as net sales fell -3.4% in its most recent fiscal year.
Sweetgreen is opening its first store powered by automation in Naperville, IL. The pilot location debuts a new proprietary technology solution called Sweetgreen Infinite Kitchen, developed by Boston-based start up Spyce, which Sweetgreen acquired in 2021. Sweetgreen says the new technology allows for quicker pace, precise portioning and increased accuracy, while creating efficiencies that allow associates to focus on fresh prep and customer service.
Warby Parker announced plans to open 40 new stores in 2023 as the company continues to emphasize physical retail over its e-commerce roots. Store revenue increased 28%, while online revenue fell 8% as the company sliced marketing expenses aimed at online customer acquisition.
The rise of the direct-to-consumer channel (DTC) as a way for brands to reach customers has led many retail-watchers to wonder whether the trend is an existential threat to traditional wholesale channels. However, as many startups have found, the cost of customer acquisition online and in single-brand stores has an upper limit on the path to profitability. Nike is far from a startup, but their push into the world of DTC is part of a larger omnichannel strategy that includes an “all of the above” approach that includes both multiple branded store formats and stronger ties with vital retailers such as Dick’s Sporting Goods. Read More >>
As restaurant earnings roll in, you’d never sense the health of the consumer economy was at all in question this year. Typically, as recessionary headwinds begin to circulate, restaurant spending is the first thing to be cut out of the budget. However, that isn’t happening and this podcast from Nation’s Restaurant News looks at the how and why of dining’s resilience in the post-COVID era. Listen Here >>
In other restaurant news, the nation’s fastest growing coffee chain is spreading out across the map from the Pacific Northwest. No, I’m not talking about Starbucks, which has dominated the coffee market of the 21st century so far. Dutch Bros emerged out of Oregon with an IPO in 2021 and a plan to remake the coffee shop for Gen Z consumers on the road to over 4,000 locations. Can this upstart tackle the undisputed kings of Seattle? Read More >>
Video of the Month: The most anticipated recession in US history has still not arrived, despite the highest inflation in 40 years and an aggressive plan by the Fed to cool the economy with higher interest rates. How have we managed to stall what once seemed inevitable? And for how much longer will the US consumer prove to be resilient in the face of rising prices, a regional banking crisis, and a debt limit fight with no end in sight? Get the scoop in this latest video from CNBC >>
While many of us stocked up on “stuff” during the pandemic and then refreshed our wardrobes in the reopening period, recent data shows that spending is shifting once again – this time to experiences. Restaurants, travel, concerts, sporting events and more are on tap for Americans this summer as we continue to return to a more active lifestyle. Credit to JLL for the graphic.
Consumers Shift From Goods to Experience
Recently, CNN aired a special reflecting on the news and culture of the 2010s. While the nostalgia cycle seems to speed up as time goes on, we are now already 3 years into the 20s (next year will officially be the “mid-20s”!) and some might say that this decade feels unmoored from any kind of cohesive narrative which makes making sense of the past a difficult enterprise to say the least. In any case, maybe it is time to at least take a first pass at the last decade to figure out “what it all meant.” More than any other decade in my lifetime, the end of the 2010s was truly the end of an era, as a certain virus began having other plans for the world in the waning months of 2019.

Maybe its also time to take stock of where we are 30% into this decade as well. The pandemic came to an “official” end from an administrative standpoint this week, just over 3 years after it started and I think its safe to say that we are still trying to unpack exactly what that spiky little protein has done to change so many things about our way of life. You see, the thing about major global events is that they don’t just change the one thing that they were about, there are downstream impacts that go above and beyond what anyone could have reasonably foreseen. Nowhere has this been more evident in the changes to the way we work.

While most businesses have returned to some form of office work, for many people, working from home is a part of their routine on an occasional, weekly, or even permanent basis. Meaning, less and less of us are in the same place at the same time for 40-50 hours every week. We can debate all we want on whether this is a good or bad thing for workers and companies, but one thing that is abundantly clear is that it has changed commercial real estate forever.

In the office world, skyscrapers sit mostly vacant. A recent New York Times story calculated that New York City has 26 Empire State Buildings worth of empty office space. Chicago has nearly 16 Sears Towers (sorry, it will never be Willis) of vacancy. Go to Houston, Los Angeles, San Francisco, and other major cities and the story will be the same. This has led to a crisis in the regional banking sector, which holds the loans for many of these properties as well of a hollowing out of downtown restaurants and retail.

But while urban cores are now left to figure out how they will reinvent themselves in the remote work era, all those workers (or, as the Japanese call them “salarymen”) are still hanging out somewhere during the daytime. It turns out working from our home offices is no different than our downtown ones – sometimes you just need to step out for lunch. And so, downtown’s loss is the suburbs’ gain. The Wall Street Journal recently wrote about this phenomenon by looking at the record-setting leased rates of retail REITs, where even the enclosed mall portfolio at Simon sits just under 95%. Fast growing urban eatery Sweetgreen recently closed several downtown locations and has seen its percentage of suburban shops go from 35% to 50% since 2019.

Having written about retail real estate since the Great Financial Crisis, its feels somewhat vindicating that our sector is finally having its moment in the sun after being written off for dead by techno-utopianists hailing the great (unprofitable) e-commerce era. But on a more conciliatory note, the thing about real estate is that they aren’t making any more of it. Great locations will draw great tenants in any era, though sometimes the names and business models of those tenants need to change with the times. Perhaps the 2030s will tell the tale of the great office building renaissance.

Mike Jordan
From her days with 10,000 Maniacs to a successful solo career, Natalie Merchant has aged gracefully over 40 years in music and yet she’s never given up on seeking and telling the truth as she sees it. This month’s song comes from her new album Keep Your Courage. “Tower of Babel” is a dark, yet danceable Latin-soul groove with a message for these confusing times. For those of us who grew up in the 80s and 90s to songs such as “Like the Weather”, “These Are Days”, and “Wonder” – Natalie’s voice is a salve which has only grown more resonant with time.
Listen to the Song of the Month

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