Browse Tag: Retail

New Supermarket Arrival Lidl Promises To Be Big

Retailing industry analyst Kantar Retail this month released an impact study on the US supermarket sector that highlights a new entry from Europe. Lidl, a no-frills grocery chain headquartered in Germany, is in business in 28 countries in Europe, is expected to enter the US market in 2018.

Similar to Aldi, another German supermarket competitor who have long since set up shop in the US, Lidl stores take a low-staff, no-frills approach to supermarket operation, displaying skids of product in aisles, letting customers take product from opened cartons. A lack of specialty areas, preferred by some other supermarket chains, creates store floor plans that are streamlined and configurations that demand less of basic space than does the average US supermarket.

The Predictions

Kantar sees Lidl as opening over 100 stores a year in the US, with a total of 400 up and down the east coast by 2020.  The chain’s operating efficiency is touted, as a single, fully mature store could generate $14 million, or , “a lot of volume packed into a 36KSF box”. Other highlights from Kantar:

  • Lidl could surpass USD2 billion in volume by the end of its second full year of operations
  • By 2023, we believe Lidl could approach USD 9 billion in sales, which is more than what Wegmans does today
  • Expect Lidl to have over 400 stores up and down the East Coast by the start of the next decade

East Coast Rollout Locations To Watch

The chain’s US corporate headquarters is announced as being located in Arlington County, VA. European press has put a location of the first wave of Lidl stores as Virginia Beach.  Its logistics network has already put down roots with two regional distribution centers, one in Alamance County, NC and Arlington County.

Boo Diligence: Evaluating The Halloween Industry

With over 4,000 haunted houses and horror attractions running across the United States, chances are there’s one serving your scarea. Ever wonder what goes into site selection for these specialty properties? Plenty of boo diligence.

The holiday’s economic impact is spooktacular: according to the National Retail Federation, Americans spent over $8 billion on Halloween in 2012. October brings not only p-eek foot traffic for haunted attractions, but also a wave of retail pop-ups to sell costumes and party supplies. Chopping center managers know: these seasonal pop-ups can produce a distinct upward pressure on NOI (net op-boo-rating income) for the fourth quarter balance sheet.

And why not?  Vacant commercial space screams out for an inexpensive solution, one without capit-owl expenditure. Landlords can cash in on the holiday, but must be careful to not leave themselves exposed on costs for CAM (cauldron area maintenance), especially for properties financed with steep groan-to-value terms or that that depend on high IRR, (interment rate of return). As always, sound business principles should win over witchful thinking.

List of haunted commercial sites

The haunting industry — yes, it’s actually called that — appears to have a nerve center online called Hauntworld.com.  There you can find a North American directory of haunted house operations, suitable for a quick dip of real estate market research as we find ourselves in the trick-or-REIT season. Use it to spot an opportunity: maybe you can put some of your vacant invent-eerie to work next year.

Cornstalks In The Big Box? Target To Add In-Store Vertical Farms

English: Logo of Target, US-based retail chain

Major metropolitan areas are making an effort to distance themselves from the traditional food supply chain. Cities, dreaming of achieving food independence from the farms that surround them, are increasingly turning to vertical farming projects that grow food in urban settings.  Thanks to giant advances in green engineering and sustainable agricultural technologies, these vertical farms are gaining industrial scale efficiency.

Marking this progress is news that Target stores will debut vertical farms inside some of their stores this spring.  According to Business Insider, the big box retailer will add vertical farms to some of its stores this spring.  Customers will be able to pick their own leafy greens — or have store staff take on the task. From the piece in Business Insider:

In January, Target launched the Food + Future CoLab, a collaboration with design firm Ideo and the MIT Media Lab. One area of the team’s research focuses on vertical farming, and Greg Shewmaker, one of Target’s entrepreneurs-in-residence at the CoLab, says they are planning to test the technology in a few Target stores to see how involved customers actually want to be with their food.

“The idea is that by next spring, we’ll have in-store growing environments,” he says.

During the in-store trials, people could potentially harvest their own produce from the vertical farms, or just watch as staff members pick greens and veggies to stock on the shelves.

Most vertical farms grow leafy greens, but the CoLab researchers are trying to figure out how to cultivate other crops as well.

“Because it’s MIT, they have access to some of these seed banks around the world,” Shewmaker says, “so we’re playing with ancient varietals of different things, like tomatoes that haven’t been grown in over a century, different kinds of peppers, things like that, just to see if it’s possible.”

Space And Indoor Agriculture

Does your property portfolio include a potential vertical farm? For ideas on vertical farming space configurations, these concept videos from architects help to visualize indoor farming on a profitable scale. To overcome the big spread between cost of land in urban vs. rural areas, most vertical farming has to emphasize the vertical and get more yield per ground square foot than traditional dirt.  In the case of a big box or supermarket devoting a portion of its footprint to vertical farming, that requirement might not apply, suggesting there’s a market developing for modular indoor farming operations that insert smoothly into traditional food retailing floor plans.  If you’re aware of developments in this area, leave a comment and let’s both keep an eye on this technology.

 

Kmart CEO: We’re Not Going Under

 

kmart_logo-svg

Kmart, granddaddy of the big box retail format, addressed fears yesterday that the brand’s recent struggles are fatal.  Kmart CEO Eddie Lampert took to the pulpit to deny “recent reports”  that the chain was near the end, a matter of great importance to hundreds of Kmart-anchored shopping centers across the US.

Reports have persisted over 2016 that the chain was in a free-fall, but Lampert took issue with the fears in a statement posted at Kmart parent Sears Holdings:

I also wanted to comment on the frequent false and exaggerated claims surrounding our Kmart business. Recent reports have suggested that Kmart will cease its operations. I can tell you that there are no plans and there have never been any plans to close the Kmart format. In fact, we’ve been working hard to make Kmart a more fun, engaging place to shop, powered by our integrated retail innovations and Shop Your Way. To report or suggest otherwise is irresponsible and is likely intended to do harm to our company to the benefit of those who seek to gain advantage from posting these inaccurate reports.

There are a few things that are very important for you to keep in mind. First, Kmart continues to operate over 700 stores. Second, a significant number of these stores are profitable and have been profitable for many years. Third, we have been clear that we are intent on improving the performance of our unprofitable stores and, if we cannot, we will close them. Actions to improve our store productivity, including reducing inventory stored in the stockrooms, are designed to make our stores easier to operate and to eliminate unproductive inventory and processes. Decisions to close stores are never easy, but we recognize that the way people are shopping is changing significantly. This is why we have made major investments in our online and mobile platforms and this is why our focus on serving members through Shop Your Way is so important.

Uber Partnership Touted

In what could become, if proven successful, a game-changer for shopping center parking space calculation formulas, the Shop Your Way customer-convenience program touted by Lampert leverages both Kmart and Sears brands and includes an innovative partnership with ride-sharing powerhouse Uber. Points and reward programs are used to tie ride-sharers and Uber drivers to the Kmart brand at the same time they shop among Kmart and Sears’s shelves.

Will the new customer-convenience programs rescue these troubled, venerable retail brands? Can Kmart and Sears innovate their way into the future?  Can a recipe of hundreds of millions in loans from its CEO plus new ideas rescue Kmart?  Answers to these questions are fast approaching, anticipated by landlords, managers and brokers from coast to coast.

 

When Chains Close, What Happens To Retail Rents?

A major problem with using statistics is that today it’s much easier to count things than it is to decide exactly what to count, or exactly why to count. The answers we obtain when analyzing economic and commercial real estate data may reflect the real world, but there’s no guarantee that a set of questions are the right ones. In data science or statistical analysis, the quality of an answer entirely depends on the quality of the design of the question asked.

The way they describe this problem in the computer science world is: garbage in, garbage out. And out it comes indeed: when you ask the wrong question (or a question lacking in the right detail) the answers you get will come pouring out just as plentifully and convincingly as when you ask the right question.

The Retail Closures Question

As e-commerce continues to radically reshape the retail ecosystem, disrupting decades of assumptions about physical space, parking and real estate value, it’s perfectly reasonable to notice that a growing number of once-venerable retailing brands have closed, or are threatening to close, or are pointedly denying they will close.

In such a world, it’s reasonable to wonder what effect all this change is having on retail rents generally. That’s a good general question to put to statistical analysis, but incomplete in its basic form — you have to define exactly what retail rents are, and you have to decide what makes a good relationship between closures and those rents.

This is what Barbara Byrne Denham, an economist in the research department of Reis, Inc. has done.  Her best effort to keep garbage out was to get a good handle on what rents were in metros across the country. She included data on rent growth, ranking metro areas by their growth in rent rates, such data coming from within her Reis data warehouse.  From her piece “Impact Of Large Chain Closures On Retail Rents” published last week in NREI:

Few, if any, have analyzed the impact of these store closures on real estate statistics. Having property- level retail real estate data, analysts at Reis have been tracking store closures for the larger, more high-profile brands across the country. In short, the Reis database includes 280 store closures in 59 of the 80 primary retail metros that Reis tracks, totaling 12.8 million sq. ft. of closed stores across the United States. The major brands include Wal-mart, Kohl’s, Sports Authority, Pathmark, Superfresh, A&P, Waldbaums, Haggen and Kmart. Many of these closures were concentrated in a handful of metro areas, including Chicago, Central New Jersey, Northern New Jersey, Philadelphia, Long Island, San Diego and Los Angeles—all of which had more than 400,000 sq. ft. of store closures from 2015 through July of this year.

The report looks at the percentage of inventory that store closures account for and the change in rent growth rates by metro. The purpose of this analysis is to see if and how these store closures have affected rent growth rates. In short, the closures may have impacted these metros, but there is no overall conclusion that can be drawn from the data. It should be noted that this detailed data does not include details on whether or not the store spaces have been re-leased to other users. Some may have been in the interim.

[…]

The conclusions are carefully drawn in Denham’s work, as she meticulously spells out the limitations of the analysis, highlighting where and how it could differ from the real world.  It’s not glamorous or provocative to be complete and correct about what a study has found, nor to be scrupulously above board concerning the work’s assumptions.  The business world wants plain and actionable insights, validated by “crunching the numbers”.  This isn’t that.  Denham’s study suggests that the impact of sizeable retail closures on rent growth was one of many factors that contributed to declines in rent growth, and perhaps not even the strongest factor.

The study is a helpful look into a use of statistics to ask the right questions, to avoid garbage-in-garbage-out and to be scrupulous in never confusing correlation (stuff that happens nearby something else happening) with causation (stuff that happens because something else is happening).  In an age marked by oceans of “big data” and thousands of software tools to work through it, it’s of growing importance that we all focus on the quality of the questions before we accept the significance of the answers.

 Read the entire article at NREI here.

7-Eleven Plans Huge National Expansion

7-Eleven under a block of apartments

An article in the Japan Times reports that the familiar convenience store brand 7-11 is on track to become a lot more familiar and convenient. The chain currently operates 8,500 stores in the United States, but its Japan-based parent company has announced it plans to bump that number to 20,000.

The 11,500 new stores are part of an ambitious plan to increase not just the real estate footprint but the average daily sale at the stores:

Seven-Eleven Japan Co. expects to open thousands of new stores in the U.S., increasing its current tally of 8,500 to 20,000, President Kazuki Furuya said.

The unit of Japanese retail giant Seven & I Holdings took full control of 7-Eleven Inc. of the United States in 2005.

The U.S. unit is now prepared to expand its network after introducing Japanese-style product development and services through personnel exchanges with Seven-Eleven Japan, Furuya said.

He said whereas U.S. customers tended in the past to be lower-income people, increasing numbers of the middle-class are now using the outlets because the quality of goods has improved.

The U.S. unit believes it can boost its average daily sales per shop to between ¥800,000 [$7,969.00] and ¥900,000 [$8,965.00] from some ¥500,000 [$4,981.00] at present, he said.

US Real Estate Department

Commercial property professionals with ideas on how to facilitate the chain’s new goals can contact 7-11’s Real Estate department at its corporate website, which includes a form to submit property for consideration and a downloadable Development Market Map to highlight areas of priority to the corporation. Other contact can be made with the details below:

7‑Eleven, Inc.
Real Estate Department
P.O. Box 711
Dallas, TX 75221-0711
Phone: 972-828-5554
Email: [email protected]

(Photo credit: Wikipedia)

Where Is Commercial Real Estate Oversupply?

English: Welsh Assembly Office Construction De...

The national market for commercial real estate is a massive thing, a meta-market encompassing tens of thousands of localities, each with their own economies and histories, subject to their own internal logic — and illogic. When trying to take all of these in as a whole, it’s important to remember that the local stories always loom larger than might be apparent, and that effects are overwhelmingly driven by local needs, wants and preferences.

That said, some indicators are more easily acquired nationally than others. Construction delivery is one. More inventory arriving may influence performance for existing, surrounding inventory, but delivered construction always opens the door (when taken as an aggregate) to the possibility of overbuilding.

With that indicator’s strength in mind, Susan Persin’s piece in REITCafe (registration required) looks at national construction deliveries in the major sectors of CRE and finds where the numbers suggest demand and supply are growing out of balance, tipping toward supply.

In apartments, the high end of the market in NYC and SF get a jaundiced eye from Persin:

[…]REITs with significant investments in markets like Manhattan and San Francisco, such as Avalon Bay (AVB) and Equity Residential (EQR) have cut their revenue forecasts several times this year, citing weakness in these markets.[…]

Persin also noticed some developments in office markets in Dallas, Houston and New York that have the “o” word — overbuilding — rearing its ugly head. Quoting Sam Zell’s recent Bloomberg interview — a chipper affair otherwise — shows Zell concurring about a situation in NYC office that sees new construction as outpacing demand there.

Get the full article — with commentary on all the major CRE sectors of retail, hospitality, industrial  — at Trepp REITCafe for a free registration.

Photo credit: Wikipedia

Target Shifts To Smaller, More Urban Store Footprints

Illinois Target Store

Recent new store layouts at Target are leading some to ask: has the big box retail model finally come full circle, understanding that the local retail flavor and small operations it so often replaced might be the secret sauce it needs to survive?

The average size of a Target store has fallen, possibly for the first time in the company’s history. The New York Post reports:

With 20 smaller stores already open, the Minneapolis-based chain expects to roll out 14 more this year — including one in the New York City neighborhood of Forest Hills, Queens, which will open on Wednesday.

The store is 21,000 square feet.

There will be only one large-format store opened in 2016.

As a result, the average size of a Target store fell last year — to 133,700 square feet — for probably the first time in its history.

The store in Forest Hills, along a busy commercial strip, opened in a space previously occupied by a Barnes & Noble.

Target is looking beyond its core customers in the burbs and scooping up attractive real estate abandoned by other struggling retailers like grocers, Barnes & Noble and OfficeMax, a Target rep said.

“We can get into great locations now that we have smaller prototypes,” said Tony Roman, senior vice president of Target and head of the greater New York market area.

Neighborhood Niches

The big-box giant is relying on understanding of local community makeup to tailor its offerings; in its new smaller-format store in the majority-Jewish enclave of Forest Hills, products catering to local tastes include local sports jerseys and food that carries the kosher mark.  New smaller Target stores whose operations are similarly tuned to local needs are coming in Tribeca, downtown Brooklyn and Elmon, Queens are in the pipeline.

The big may be hearing the call of the small after all.

 

Oil Prices Continue To Fall, Effects Felt In CRE Sectors

Harristown_Township_Illinois_Oil_Wells

As reporting about the world’s oil markets increasingly features terms like “glut” and “supply overhang,” property prices directly related to US oil extraction are widely taking a beating. At the same time, other indirectly related property sectors such as retail are benefitting from low gas prices.  In the wake of the latest drop in oil prices, here’s a quick roundup of the recently reported ripple effects in commercial property:

Beauty Battles: Sephora And JCPenney Deepen Partnership

Rows of lipstick

With revenue expected to exceed $62 Billion in 2016, the US cosmetics industry is a retail powerhouse. While $17B of that amount generated online in 2013 suggests this brick-and-mortar retail segment is susceptible to online pressures just like most retail sectors are, the growth in the overall market segment — plus the product discoveries customers need to make — seem to ensure that foot traffic and customer time spent with new product offerings will remain a key factor driving space needs going forward.

In fact, one struggling anchor retailer is doubling down on the power of the makeup counter to help address its own foot traffic declines. This November, JCPenney’s flagship store in Salinas, CA’s Northridge Mall will open 3,000SF of its space for a new Sephora store-inside-a-store. 3KSF comes in at double the usual space outlay for Sephora stores within JCPs. As Donna Mitchell at NREI writes:

Larger than the typical 1,500-sq.-ft. location, the store is one of 60 new Sephora inside JCPenney locations that are set to open this year. The move is big because it marks 10 years since the Plano, Texas-based fashion retailer began opening Sephora units inside JCPenney stores in 2006. It means expansion in one of the few retail categories that post consistent sales increases through bricks-and-mortar locations, and it exploits an important competitive advantage over Amazon.com, according to industry observers.

“Take companies like Ulta Beauty or Sephora. They are insulated from Amazon.com,” says Howard Davidowitz, chairman of Davidowitz & Associates, a national retail consulting and investment-banking firm headquartered in New York City. “Amazon can’t put makeup on you. They are doing something Amazon can’t do. That is a very big deal.”

Both Ulta, which plans to open 100 stores in fiscal year 2016, and Sephora pamper shoppers with complimentary consultations and mini-makeovers. Those services are not just tertiary in the battle to stay competitive. Ulta Beauty, for instance, posted a same-store sales increase of 15.2 percent for stores and e-commerce, along with a 23.7 percent increase in net sales.

Beautiful Numbers

The U.S. make-up market is expected to maintain positive growth through 2018, with an anticipated compound annual growth rate of 3.8% for the five-year period of 2013-2018, reaching $8.4 billion. Similarly, the global fragrances and perfumes market is expected to experience positive growth through 2019, with a compound annual growth rate of 2%.

The largest category in the cosmetics industry is skin care, accounting for nearly 35.3% of the global market in 2014. The products in the global skincare segment create a $121 billion industry. Hair care products represent a large segment of the beauty market too, with sales reaching $11.6 billion in the U.S. in 2014.