Smaller Retailers Destined For Former ‘Big Box’ Stores

March 27, 2017 in Latest News

These are dark days for the traditional “big box” retailer.

Sears cast doubt this week that it could stay open, and that followed recent announcements by other struggling retail stalwarts Macy’s, J.C. Penney Co. and Kmart that they would be closing stores across the country in response to the fallout from a consumer shift to online shopping.

Electronics and appliances retailer hhgregg said this month it would be closing all 11 stores in South Florida; the announcement came less than a year after Sports Authority went out of business.

The retailers are vacating spaces of 25,000 to more than 100,000 square feet, forcing shopping center owners to find new tenants or new uses for the buildings.

More yawning spaces could be opening up around South Florida if Sears and Kmart sink amid heavy financial losses. According to their websites, Sears operates 15 locations (14 department stores and an outlet store) in Palm Beach, Broward and Miami-Dade counties. Kmart has seven stores in all three counties.

“This certainly is at the top of [landlords’] minds right now,” said Robert Granda, director of retail investment sales for the Franklin Street brokerage across South Florida. “The challenge in this changing environment is that there are not that many retailers looking to take so much space. There are a lot more tenants looking for 10,000 square feet or less than there are looking for 30,000 square feet or more.”

Alan Esquenazi, a partner at commercial real estate company CREC, agreed that a “resizing” of retail is happening across the nation.

“Bricks-and-mortar retail is unequivocally not dead,” he said. “But you have to be really sharp, really competitive. You have to offer the customer an experience, like Apple does. The retailers that are closing offered nothing different, and they were destined to fail.”

Granda, Esquenazi and other retail observers say one of the best options for landlords is to subdivide the big box buildings into smaller spaces for two or three new tenants.

That’s the plan at former Sports Authority stores in Pompano Beach and Boynton Beach, though the new tenants have not yet been announced, said Katy Welsh, senior vice president of retail services at Colliers International.

The Related Cos. of New York, which owns CityPlace in West Palm Beach, has not announced plans for the two-story, 108,000-square-foot Macy’s that’s due to close this spring. But analysts say filling that space with multiple tenants is a strong possibility.

“My guess is that CityPlace will subdivide that space downstairs, and there likely will be a food and entertainment use upstairs,” said Alan Bush, CEO of Northlake Partners, a retail strategy company based in West Palm Beach. “That combination provides the best return on investment for the landlord.”

Welsh said retailers most likely interested in taking at least part of the space in former big box stores include discount clothing chains Ross, TJ Maxx and Marshall’s as well as Home Goods and Orchard Supply Hardware.

Another possibility is the grocery store chain group, including Trader Joe’s and Lucky’s Market, Welsh said. Lidl, a German grocer, is headed to Florida after expanding into the Carolinas, Virginia and Texas, she said.

Movie theaters are another possibility, but they wouldn’t be an ideal fit in smaller, older centers, analysts say.

Landlords are eager to find new tenants at a higher cost per square foot to replace the retailer-friendly leases signed by Kmart and other chains many years ago, according to Welsh.

As a consumer, she said it’s hard for her to accept that Sears and other former retailing powerhouses are struggling to survive. But as a retail observer, she’s intrigued by what’s ahead.

“From a landlord’s perspective,” she said, “we’ve been waiting for the other shoe to drop for a long time.”

 

Source:  SunSentinel

How Zombie Retailers Are Dragging Down The Industry

March 20, 2017 in Latest News

Zombie retailers—companies that are living on the edge of bankruptcy—such as Sears Holding Corp. (SHLD), Payless Shoesource Inc. and J.Crew Group, Inc. are undermining the margins of healthier companies such as Macy’s Inc. (M) by keeping significant amounts of uncompetitive, brick-and-mortar capacity alive while more traditional retailers struggle with their online competitors, according to The Wall Street Journal.

The fraction of retailers whose debt Moody’s Investors Service has rated as either speculative or worse—currently standing at 13.5% of the retailers it rates—has surged since the end of 2011, when it stood at 5.6%, and is currently nearing the figure of 16% reached during the financial crisis, the Journal reported.

A Republican proposal to tax imports could make the situation worse, according to CNBC. Stephen Sadove, who is on the board of the National Retail Federation, described this potential policy as “the biggest threat” that retailers have seen in years during a CNBC interview. The retail industry could also suffer should the United States pull out of the North American Free Trade Agreement (NAFTA).

Retailers on Life Support

Amid these treacherous conditions, some companies have been harnessing creative financing techniques, for example taking part in distressed-debt exchanges, the Journal reported. Investors, who take a haircut by agreeing to these exchanges, have simply refused to throw in the towel in some cases. Many of them are holding onto hope that the retail industry is suffering not as a result of secular decline, but because of more temporary factors.

By enabling troubled retailers, investors are contributing to the oversupply of brick-and-mortar locations that have been hurting the margins of stronger retailers such as Sears, according to the Journal.

Is This Only the Beginning?

While a large number of more traditional retail stores have been impacted by electronic commerce (e-commerce), the widespread impact that e-commerce has had thus far may only be the beginning, Tenpao Lee, interim dean and professor of economics at Niagara University, told Investopedia in an interview. He noted that while Amazon.com, Inc.‘s (AMZN) sales represent a small fraction of Wal-Mart Stores Inc.‘s (WMT) sales, Amazon could easily enjoy robust sales growth going forward.

Past that, Lee offered some broader trends. While 20% of retail sales are currently online and 80% take place through brick-and-mortar stores, this ratio could soon change to 40-60.

As for which large retailers suffer the most as online retail transactions proliferate, he specifically singled out Ralph Lauren Corp. (RL) and Michael Kors Holdings Ltd. (KORS). Lee emphasized that these luxury retailers can only reduce their price so much in the face of competition if they want to stay true to their brand. He said that in the current global economy, businesses are having a harder time distinguishing themselves.

 

Source:  Investopedia

Macy’s Taps CBRE To Help Offload Stores

January 9, 2017 in Latest News

macysCBRE will give struggling Macy’s a helping hand with plans to shutter about 100 stores, the global brokerage announced Thursday.

Macy’s announced plans earlier this week to close 68 stores across the United States between now and mid-2017 following disappointing holiday sales.

The locations represent about 15 percent of all Macy’s department stores. The move will save the company an estimated $550 million a year starting in 2017, Macy’s said.

CBRE’s Retail Advisory & Transaction Services business line will assist in further dispositions.

“CBRE has dedicated the resources and expertise to expand its dispositions business at a time when many retailers are optimizing their store portfolios to focus on their best-positioned, most-profitable operations,” Brandon Famous, CBRE’s senior managing director and retail specialist, said in a statement.

 

Source:  The Real Deal

Retailers: Ups And Downs Heading Into 2017

December 27, 2016 in Latest News

escalatorThe good news for U.S. retailers this holiday seasons is that revenues are expected to rise by about 4% and same-store sales are figured to increase by 1%. The less-good news is that profits for the fourth quarter (ending in January) are expected to fall 1.8%.

Heavy promotional pricing began earlier this year and retailers essentially faced a race to the bottom in an effort to maintain sales. But store traffic has not improved; in fact it’s weakened. And Amazon.com Inc. continues to take sales and profits from brick-and-mortar stores.

The result is likely to be that supposed and announced store closures will go ahead as planned and may even increase for some retailers. According to an estimate made last June from Green Street Advisors, about 25% of all U.S. department stores need to close in order for the industry to return to the sales-per-square-foot levels of 2006.

A total of 14 major retail chains have said that they will close at least 100 stores by the end of 2020. Most will reach that total by the end of 2017. In some cases, these numbers appear to be on the low side, given the difficulties some retailers are encountering.

Aeropostale. The chain filed for bankruptcy in May 2016 and said it would close 154 stores. Now it appears that the chain will close all but about 230 of its 800 or so stores.

American Eagle Outfitters Inc. (NYSE: AEO). The company plans to close 150 stores over three years.

Chicos FAS Inc. (NYSE: CHS). Planned to close 120 stores between fiscal 2015 and 2017.

The Children’s Place Inc. (NASDAQ: PLCE). Planned to close 200 stores between fiscal 2015 and 2017.

Finish Line Inc. (NASDAQ: FINL). Has said it will close 150 stores by 2020.

Hancock Fabrics. The company filed for bankruptcy in February 2016 and will close all 255 of its stores.

Macy’s Inc. (NYSE: M). Plans to close 100 stores.

Men’s Wearhouse Inc./Jos. A. Banks. Parent Tailored Brands Inc. (NYSE: TLRD) plans to close 250 stores, primarily outlet stores.

Office Depot Inc. (NYSE: ODP). At the time of its merger with OfficeMax, the chain said it would close 400 stores by the end of this year, and that appears to be the case.

Sears Holdings Corp. (NASDAQ: SHLD). Between Sears and Kmart stores, the company plans 142 store closings, with more likely.

Sports Authority. Another bankruptcy, with 140 stores closing.

Walgreen Boots Alliance Inc. (NYSE: WBA). The company planned to close 154 stores. Last week the company announced the sale of 865 Rite Aid Inc. (NYSE: RAD) stores to Fred’s Inc. (NASDAQ: FRED) in an effort to win approval for the Walgreens-Rite Aid merger.

Wal-Mart Stores Inc. (NYSE: WMT). Has said it will close 154 U.S. stores and open 300 in the rest of the world.

Wolverine World Wide Inc. (NYSE: WWW). Expected to close 100 stores worldwide.

 

Source:  24/7 Wall Street

Potential Shuttering Of ’90s Retailer To Leave Vacancies In Malls

December 5, 2016 in Latest News

the-limitedAnother staple of 1990s mall-based retail is grappling with its future — and one option is shutting the company down entirely.

The Limited, which is based in Ohio, told employees in its corporate office last week that if a buyer isn’t found, it may shut down the chain, reports Columbus Business First, a sister news organization to SFBJ. For now, though, stores remain open.

The women’s apparel retailer has 250 stores throughout the U.S. and a significant footprint in Florida. In Southeast Florida, it has locations in Aventura Mall, Coral Square, Dadeland Mall, Miami International Mall, Pembroke Lakes Mall, Sawgrass Mills, The Falls and The Gardens Mall.

The company’s newer stores were between 3,500 and 4,000 square feet; some of its older stores were larger, in the 6,000- to 7,000-square-foot range.

The Limited is the latest in a long line of mall-based retailers that are struggling and considering closing stores in the face of declining sales and mall foot traffic. Jacksonville-based Body Central Corp. closed all of its stores in January 2015; Wet Seal closed 338 stores nationwide that same month.

Gap Inc. is struggling across all three of its brands — budget-friendly Old Navy, the more upscale Banana Republic and mid-market Gap stores.

The mall’s longtime anchors, department stores, are also suffering. Both Macy’s Inc. (NYSE: M) and Sears Holdings Corp. (NASDAQ: SHLD) are evaluating what to do with their massive real estate portfolios. Macy’s announced plans to close another 100 stores in August.

The headwinds facing The Limited are the same as those facing all retailers: Balancing online and brick-and-mortar lines of business and increasing competition from newer, trendier names.

“Limited Stores, like many of its peers, is facing ongoing challenges in the current retail environment,” the company said in a statement sent to Columbus Business First. “After a detailed and thoughtful review, management has made the difficult decision to separate a number of associates at the company’s headquarters in New Albany, Ohio.

 

“This action enables us to focus our resources on the operation of our stores and e-commerce platforms while we continue exploring options to address these challenges and provide greater financial flexibility, including discussions with a number of interested buyers.”

 

Source:  SFBJ

Macy’s Will Close 100 Stores Nationwide

August 15, 2016 in Latest News

macysDepartment store giant Macy’s said Thursday that it plans to close 100 stores, a dramatic step that is aimed at helping the chain get ahead of a potentially crippling problem: America, they say, has too many stores for the online shopping era.

Macy’s regularly prunes its store portfolio, often moving to close several dozen underperforming stores right after the annual holiday rush. But in dropping a summertime announcement that it will close 15 percent of its 728 locations, the chain appears to be adopting a more aggressive posture than many of its retail industry counterparts about girding its fleet for the reality of a fast-changing shopping environment.

Macy’s has plenty of reasons to scramble to make a change: Many of its stores are located in small, regional malls, the kind whose foot traffic has been especially hard-hit by the rise of e-commerce. And the department store category has generally struggled as shoppers increasingly turn to off-price retailers such as T.J. Maxx and fast-fashion players such as H&M to buy their clothes.

These factors, along with short-term hitches such as decreased spending by international tourists and unseasonable weather, have left Macy’s a rough patch that has stretched for more than a year. On Thursday, the company said it saw a 2.6 percent drop in comparable sales in the most recent quarter, a weak performance that was nonetheless an improvement over the dismal 6.1 percent year-over-year decline it recorded in the previous quarter. The retailer’s revenue was $5.87 billion, down 3.9 percent from the same period last year.

Macy’s said the store closures would probably cost it about $1 billion in an annual sales. And at one time, such a large batch of store closures might have been viewed as a retailer’s concession of defeat. Yet the company’s stock soared 17 percent on Thursday, a sign that investors view the move as a proactive measure that portends a stronger future for Macy’s.

In some ways, it should not come as a surprise that Macy’s is slashing stores. Terry Lundgren, the retailer’s chief executive, has said before that the chain simply had too many stores. Executives have been saying for some time that they are embracing a strategy that puts particular emphasis on roughly 150 of their top-performing stores, trying to wring more sales out of those already-productive locations.

Jeff Gennette, the Macy’s executive who has been appointed to replace Lundgren in 2017, said in a statement that nearly all of the stores the company plans to close are ones at which sales volume and profitability have been sliding.

“We recognize that these locations do not yield an adequate return on investment and often do not represent a customer shopping experience that reflects our aspirations for the Macy’s brand,” Gennette said in a statement.

The company said it would offer a list of the stores that will close at a later date. Macy’s said it is still finalizing which stores it would shutter, and thus has not yet determined exactly how many jobs will be slashed. The retailer will not pull out entirely of any of the top markets where it currently operates stores, but will look to close stores that are in weak locations.

The move is likely unwelcome news to mall operators, who count on big tenants like Macy’s to attract and retain other smaller stores in their shopping centers.

Wall Street has also been closely watching as Macy’s explores potential spin-offs of its lucrative real estate portfolio. On Thursday, the chain said that it is “examining opportunities” for the real estate of four of its large flagship stores in major cities. Its second-quarter earnings report, which showed a slide in sales, nonetheless was rosier than analysts had forecast.

 

Source:  SunSentinel

Can Great Real Estate Make Up for Stagnant Sales?

August 17, 2015 in Latest News

macysTop department store-operator Macy’s has come under increasing pressure to get some value out of its real estate this year.

Recently, other department store chains, such as Sears Holdings have gotten huge windfalls from selling and spinning off their valuable real estate holdings.

Most notably, Starboard Value — a hedge fund known for its activist approach — announced last month that it had purchased a stake in Macy’s and started pushing for it to separate its real estate from the rest of the company. In the past, Macy’s had resisted the idea of spinning off its real estate.

However, with sales continuing to stagnate, a real estate spinoff — or some similar transaction — is starting to look more appealing. Starboard chief Jeff Smith estimated the value of Macy’s real estate at $21 billion last month — and that’s almost exactly what the entire company’s market cap is today.

Sales growth grinds to a halt
While struggling rivals like Sears have been doing big real estate deals for several years now, strong sales and earnings growth insulated Macy’s from the need to try this in the past few years.

M Revenue (TTM) Chart

MACY’S REVENUE AND EPS PERFORMANCE, DATA BY YCHARTS

As the chart shows, revenue and earnings per share bounced back strongly in the first few years after the Great Recession. However, sales growth slowed to a crawl starting in 2013. For a while, EPS continued to grow as Macy’s closed some underperforming stores and bought back stock to shrink its share count, but now EPS growth has also stalled out.

This week, Macy’s reported its second straight quarterly earnings miss. For the first half of the year, EPS declined 15% year over year, from $1.40 to $1.19. Due to weak sales in the first half of 2015, Macy’s cut its full-year guidance. It now expects comparable store sales to be about flat for the full year, compared to its original guidance for 2% comp growth.

In spite of the weaker-than-expected sales performance, Macy’s maintained its guidance for full-year EPS to rise to $4.70-$4.80. The reason? You guessed it: real estate.

Real estate saves the day?
On the same day as its Q2 earnings release, Macy’s also announced plans to sell the upper floors of its store in Brooklyn and an attached parking garage to real estate company Tishman Speyer. It will net a gain of $250 million on the sale, bringing in total proceeds of $270 million: $170 million in cash and $100 million to fund a full renovation of the remaining 310,000 square foot store.

A month earlier, Macy’s had announced another real estate transaction, selling its downtown Pittsburgh store to Core Realty. In that case, the Macy’s store is being shut down.

These moves show that Macy’s is starting to take a more active approach toward monetizing its real estate. Both of these transactions were one-off deals that by themselves will have only a small impact on Macy’s value. However, the company has also started working with advisors to formulate potential strategies for maximizing the value of its real estate, according to CFO Karen Hoguet.

Sears has gone much further down the road of monetizing its real estate. In 2012, Sears sold 11 stores — including a highly desirable location in Honolulu’s Ala Moana Center — to General Growth Properties for $270 million. Between 2012 and 2013, Sears sold the leases for about a dozen high-profile stores in Canada back to the landlords for well over $0.5 billion.

To cap it all off, Sears created a REIT called Seritage Growth Properties, with interests in nearly 300 Sears properties. Sears executed a giant sale-leaseback agreement with Seritage — generating proceeds of $2.7 billion — and spun it off to shareholders last quarter.

These lucrative real estate transactions are almost certainly the only reason why Sears has managed to survive this long despite its terrible sales trends. Given that Macy’s doesn’t have a money-losing retail operation dragging it down, does this mean that by selling or spinning off its real estate, it could generate a big windfall that could be returned to shareholders?

Unlocking real estate value isn’t magic
To some extent, the answer is yes. However, investors need to recognize that there’s no magical way for Macy’s to get value out of its real estate. Its New York, Chicago, and San Francisco flagships are all extremely valuable buildings, but no matter how their ownership is structured, they will still generate the same amount of profit. The only question is how to divide that pie between Macy’s and (theoretically) a real estate company.

The way that retail real estate separations create real value is by converting properties to more efficient uses. That’s what’s happening in Brooklyn and Pittsburgh, where Macy’s is downsizing and closing its stores, respectively.

That’s also what Sears has done across the U.S. and Canada, vacating high-profile malls in favor of more successful retailers (primarily Nordstrom) that can afford higher rents. Insofar as Macy’s is already earning good returns on most of its stores, the upside from selling or spinning off its real estate is correspondingly lower than for Sears.

That said, there are tax benefits to separating the real estate as a REIT. And since a REIT would generate more stable earnings and cash flow than Macy’s, it could attain a higher valuation.

Macy’s ultimately may split its retail operations from its real estate in order to capture these tax and valuation benefits. However, the 70% stock upside that Starboard’s Jeff Smith touted last month seems like a stretch. The real value of Macy’s real estate is as a parachute to ensure a smooth landing for investors if its retail business eventually falters.

 

Source:  Motley Fool

Macy’s Poised To Beat Amazon In Same-Day Retail

September 1, 2014 in Latest News

macysMacy’s Inc. has been using its stores across the country as distribution centers for some time, and that model may be just what it needs to beat Amazon in the same-day delivery game, according to one analyst.

Belus Capital Advisors CEO Brian Sozzi said Macy’s is testing same-day delivery in four markets while it prepares it technology for a larger rollout.

Sozzi said the Cincinnati-based retailer is working with UPS, FedEx and eBay to get the program started.

Macy’s retail stores already ship online orders directly, so the same-day service would be a natural next step, and the change is likely to come sooner than Amazon’s delivery drones or Google’s plan to beat Amazon in its same-day delivery efforts.

Other traditional brick-and-mortar retailers are following suit. Best Buy offers online ordering with same-day pick-up at its store locations, the first step in merging web inventory and inventory in nearby stores.

 

Source:  SFBJ