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Refreshing Retail - Issue #9

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

Holiday Sales Forecasts: Sluggish Season Ahead

  • Deloitte: +3.5% to +4.6% growth expected
  • Bain sees +3% growth
  • Adjusted for inflation, this will be the slowest holiday sales period since the Great Financial Crisis of 2008-09 Read More >>

Kroger & Albertson unveil plans to sell over 400 stores to get merger approval

  • C&S Wholesale who operates the Piggly Wiggly and Grand Union chains will acquire the portfolio of stores for $1.9 billion
  • The majority of the divestitures will be on the West Cost with additional sales in the Midwest and Mid-Atlantic regions
  • QFC, Mariano’s and Carr’s brand names will be controlled by C&S along with 5 private label product lines currently owned by Kroger  Read More >>
  • In other Kroger news, the company announced it is pausing the rollout of its Ocado automated fulfillment centers Read More >>

Kimco Announces Plans to Acquire RPT Realty

  • The all-stock deal is valued at $2 billion
  • Kimco will add 56 open air centers to its portfolio
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Sources: Retail Dive, Chain Store Age, Creditntell, QSR Magazine
Ace Hardware is on pace to open over 170 stores this year, with over 100 already opened. The company’s business model involves partnering with independent owners who can respond to local preferences while offering the scale and convenience afforded national hardware brands.
Chick-fil-A is testing a new off-premises restaurant concept called Little Blue Menu in College Park, Maryland. The brand will sell Chik-fil-A’s original chicken sandwich along with wings and hamburgers and offer side dishes such as sweet potato tots, onion rings, and brussels sprouts. Customers will place orders on an app and can have their orders delivered or picked up at the store, which will not have a dining room.
Dollar General continues to lead the retail sector with plans to reach 1,000 new stores this year still on track. While the company has recently experienced some financial headwinds related to bloated inventories, they remain committed to growth as consumers are increasingly drawn towards value-oriented retail.
The Fresh Market is growing again, with plans to open 22 stores in the US over the next 2 years. The company was acquired by a South American retail giant called Cencosud in 2022, after several years of struggling under public and private ownership.
JCPenney will invest $1 billion to improve its stores, with a focus on the customer experience. The “Make it Count” campaign will center on four core areas: making fashion accessible, a compelling loyalty program, supporting diverse cultural communities, and committing to positive change. The plan is to upgrade in-store technology and merchandising, while re-energizing a commitment to the beauty category after losing its partnership with Sephora to Kohl’s in recent years.
JoAnn Stores aims to cut $200 million in costs as part of a turnaround plan that will streamline supply chain operations by pushing back on vendor costs as both commodity prices and freight rates fall.
Sycamore Partners announced the formation of a new holding company called the Knitwell Group which will own and provide services to the former banners Sycamore acquired out of the bankruptcy of the Ascena Retail Group. Ann Taylor, Loft, Lane Bryant, and Talbots will form the core of Knitwell’s holdings, with Talbots CEO Lizanne Kindler heading the combined company.
Kohl's will open 45 additional Sephora locations in 2023, bringing its total to over 900 Sephora shops-in-shop (or, roughly 75% of the chain) by the end of the year. Kohls has reported its beauty division has seen sales increase 90% over last year and plans to have Sephora in all of its stores by 2025, at which time it expects the brand to contribute $2 billion in annual sales.
Sprouts has opened its 400th store, in Haddon Township, NJ. As part of its five-year plan, Sprouts is committed to a robust growth strategy, aiming to expand 10% year-over-year. The new store is Sprouts’ 23rd of 30 planned store openings this year. Kohl's will open 45 additional Sephora locations in 2023, bringing its total to over 900 Sephora shops-in-shop (or, roughly 75% of the chain) by the end of the year. Kohls has reported its beauty division has seen sales increase 90% over last year and plans to have Sephora in all of its stores by 2025, at which time it expects the brand to contribute $2 billion in annual sales.
Subway was acquired by private equity firm Roark Capital for a reported $9.6 billion last month. The company has the largest store footprint of any restaurant chain in the world with over 37,000 locations, with plans to add as many as 4,000 new stores in China in coming years. After a prolonged sales slump, Subway reported it has reached positive same store sales growth in past 8 consecutive quarters. Roark’s other brands under management include Cheesecake Factory, Auntie Anne’s, Cinnabon, McAlisters Deli, and Moe’s Southwest Grill..
Ulta has expanded its ship-from-store capabilities to an additional 276 store locations, for a total of 400 locations. The move helps Ulta expand same day delivery capabilities to “essentially every store.” 39% of Ulta’s digital orders are fulfilled from stores, up from just 28% in 2021.
Walmart now accounts for 36% of all US online grocery sales, up 500 bps from last year and now leading traditional grocery stores by 5.7%. Pickup in store remains the most popular delivery channel, accounting for nearly half of all digital grocery fulfillment.

In other Walmart news, the company has lowered its starting pay for new workers from $14 to $12 per hour, suggesting that the once tight labor market is loosening. No current workers received a pay cut, and many who were under the new minimum received raises. However, Amazon and Target both having starting pay at $15.

Taylor Swift is quite the opposite of an “anti-hero” when it comes to boosting the US economy in 2023. Business Insider reports that Swift’s Eras Tour is estimated to generate almost $5 billion in consumer spending. As one economist observed, if Taylor Swift were a country, her GDP would be larger than 50 other sovereign nations. Michael’s stores reported a 40% increase in jewelry making kit sales as Swifties prepare for each concert with beaded bracelets. Even the Federal Reserve shouted out Miss Americana in their report noting that Swift’s shows in Philadelphia contributed to the best month for hotel revenue since the pandemic. Read more about just how big the Eras Era has become >>

Publix is practically an institution in Florida (see this month’s retail meme of the month for an example). As they’ve methodically branched out to other Southeastern markets, reaching as far north as Louisville, KY; more and more Americans are doing their grocery shopping at this legendary chain that puts customer service at the forefront and harkens back to a simpler, less tech-intensive time in American consumer life. Vox’s Emily Stewart spent several days in Florida to find out what all the fuss is about and whether Publix lives up to the hype. Read More >>

We all know REITs are a huge part of our business, but what exactly is a REIT and how is it different than other types of real estate holding companies? In this video from CNBC, find out just how REIT structures work and who the biggest players are in this $4.5 trillion segment. Watch here >>

As retail demand continues to outpace supply, it’s instructive to look at where net absorption is heaviest to understand where rents will grow fastest. Unsurprisingly, Sun Belt cities dominate the list while a select few Northeastern (Providence, Northern NJ) and Midwestern (Kansas City, Chicago) markets are starting to show increased strength. The weakest geographies continue to be high-cost coastal markets which have seen population growth stagnate in the post-pandemic environment. 

In the 1970s, President Gerald Ford inherited a shaky US economy that saw inflation spike to over 12% in the wake of the 1973 oil crisis. His much ballyhooed response was a public relations campaign reminiscent of the Great Depression and World War 2 eras: Whip Inflation Now. Citizens were asked to sign a pledge vowing to reduce their energy consumption and grow their own food. In exchange, people received a free “WIN” button to show their support. Other WIN merchandise was soon produced including earrings, footballs, duffle bags, sweaters, and more. Alan Greenspan called the program “unbelievably stupid” and skeptics would wear their WIN pins upside down, explaining that NIM stood for “Need Immediate Money” or “No Immediate Miracles.”

On the consumer front, Hamburger Helper marketed its product as “9 delicious ways to fight inflation” and margarine was erroneously promoted as a “healthy alternative” to butter when in fact, it was just cheaper to make. Food co-ops, antique speculation, baseball card collecting, powdered milk, and “freezer beef” all gained traction as consumers tried to stretch their dollars further, often creating bubble market crashes of their own.

Paul Volcker would take over the Fed during both the Carter and Reagan years and with his command of monetary policy and targeted interest rate increases, Volcker has been widely credited with getting inflation under control by the start of Reagan’s second term, no catchy slogans or “WIN gardens” needed. What was needed from the American people was patience as this battle took the better part of the decade, while the employment market went through serious upheaval in the early 80s. It was the most painful economic time in American history since the Great Depression.

Flash forward to the 2020s and over the summer, after over a year of inflation declines and with the Fed’s 2% target well within reach, the CPI number began to tick upwards again from a low of 3.0% in June to 3.7% in August (it remains notable that “core inflation” which strips out food & energy has continued to decline all year, reaching 4.3% in August). Today’s situation is in some ways very much unlike what we saw in the 1970s. For one thing, inflation rates of 3-5%, while not economically ideal are far easier to stomach than the 12% of the Ford years. Interest rates remain half of what they were in the early 80s and the job market has proven especially resilient as demographic trends and skills shortages has meant there are plenty of openings and higher wages for those willing to work.

So, is it time to break out our WIN pins and buy our meat from wholesalers again? I’m not sure I’d go that far yet. The Fed’s policies are having their intended impact, but with the low hanging fruit of the economic recovery largely picked from the tree, its important to remember the patience it took to get us to the good times in the past because this fight is not over yet.

Mike Jordan
Listen to the Song of the Month
The music world has lost several greats this summer and choosing who to pay tribute to among the likes of Tony Bennett, Peter Brotzmann, Sinead O’Connor, Randy Meisner, Gary Young, Charlie Robison, Erkin Koray, Brian McBride, Richard Davis, or Jimmy Buffett was not an easy task. However, only one of these legends was there for just about every major
development in popular music since 1959 – the Canadian guitarist, songwriter, and producer Robbie Robertson. As a sideman for early rock & roll star Ronnie Hawkins, to playing a key role in Bob Dylan going electric, to his years as the primary guitarist and songwriter in The Band; Robertson would have done enough to earn his status as a legend if he had retired in 1978. However, his searching spirit never waned as he went on to compose film scores for Martin Scorcese as well as scoring and narrating a landmark PBS series about Native Americans (Robertson was a member of the Mohawk nation and spent much of his childhood on a reservation), along with recording a string of highly successful solo albums with collaborators such as Peter Gabriel, U2, Bruce Hornsby, The Neville Brothers, DJ Premier, Trent Reznor, Steve Winwood, and Derek Trucks among many others. For this month’s featured song, here is Robertson in 1991 on The Late Show with David Letterman performing “Shake This Town” with members of the Neville Brothers and The Meters in a moving tribute to the musical legacy of New Orleans. Rest in peace, Robbie.

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