Putting the Brakes On

For the first time since 2001, another recession year, the Chain Store Age Big Builders Survey shows a decline in new-store growth. Our survey of 25 leading retailers, covering all categories, shows that those retailers estimate that they will open 778 fewer stores in 2008 than they opened last year.

Capital Expenditures
(000 omitted) TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Wal-Mart (U.S. discount stores and supercenters)$9,100,000$6,200,000
2Lowe’s4,400,0004,200,000
3Target Corp4,369,0003,800,000
4Home Depot3,600,0002,400,000
5CVS1,800,0002,000,000
6Walgreen1,700,0001,900,000
7Costco1,385,6991,598,571
8Supervalu927,0001,273,000
9Kohl’s1,500,0001,200,000
10Kroger2,060,0001,115,000
11Safeway1,768,7001,007,300
12J.C. Penney1,243,0001,000,000
13Macy’s1,105,0001,000,000
14Sam’s Club700,0001,000,000
15Delhaize America729,300775,000
16Best Buy797,000750,000
17Publix683,290658,300
18Limited Brands749,000600,000
19TJX526,987575,000
20Whole Foods Market530,000575,000
21Sears570,000570,000
22Gap682,000480,000
23Abercrombie & Fitch403,345410,000
24Staples470,377405,663
25Rite Aid336,728364,400
$42,136,426$35,857,234

New Square Footage

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Wal-Mart (U.S. discount stores and supercenters)26,000,00023,000,000
2Target Corp.20,532,00020,184,000
3Lowe’s17,748,00013,920,000
4Walgreen8,163,5007,975,000
5Kohl’s9,744,0006,525,000
6Kroger4,828,0005,440,000
7Best Buy4,185,3004,550,000
8Home Depot11,880,0004,428,000
9Dollar Tree2,712,5004,218,750
10Dollar General4,588,5004,140,000
11Costco4,200,0003,780,000
12Publix1,997,6003,150,000
13PetSmart2,645,0002,576,000
14Family Dollar2,822,0002,567,000
15Ross2,728,0002,395,000
16Bed Bath & Beyond2,400,0002,250,000
17Delhaize America3,325,8002,024,400
18Sam’s Club2,000,0002,000,000
19Dick’s Sporting Goods1,840,0001,760,000
20Aldi850,0001,700,000
21Staples2,040,0001,700,000
22Supervalu1,620,0001,700,000
23Tractor Supply1,468,5001,501,500
24CVS1,512,3201,479,680
25TJX1,350,0001,200,000
143,181,020126,164,330

New Stores

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Walgreen501550
2Dollar Tree342208
3Family Dollar300205
4Dollar General365200
5Wal-Mart (U.S. discount, supercenters, and grocery)218191
6CVS275186
7AutoZone163174
8O’Reilly Automotive190150
97-Eleven106130
10Best Buy164124
11Genesco229124
12Lowe’s153120
13Target Corp.118116
14Advance Auto Parts175115
15Gap214115
16PetSmart115112
17Abercrombie & Fitch99110
18Brown Shoe110110
19Aldi50100
20Staples120100
21Tractor Supply8991
22Chico’s14389
23Hibbett Sporting Goods8485
24Kroger7180
25Foot Locker11776
4,5113,733

In 2007, the 25 leading retailers opened 4,511 new stores. In 2008, plans call for opening 3,733. The difference of 778 stores translates to a 17% decline.

New square footage brought to market followed along, falling from 143 million new sq. ft. last year to an estimated 126 million sq. ft. this year, a decline of approximately 12%.

Capital spending fell also, from approximately $42.1 billion in 2007 to $35.9 billion in the estimates for 2008, a 15% decline.

The slowdown in expansion affected nearly the entire retail industry. Discount stores went from 1,632 new stores in 2007 to 1,192 stores in 2008.

The drug store category was not immune to the slowdown, with 772 new stores estimated to open in 2008 compared to 834 last year. CVS opened 186 stores in 2008 and 275 in 2007. Walgreens was poised to end 2008 with 550 new stores, compared to 501 last year. New York City regional chain Duane Reade opened 15 stores in 2008, compared to 10 in 2007. Rite Aid followed the pattern of the other categories, cutting its new-store openings virtually in half.

Only the supermarket category beat the trend, opening 555 compared to 424 in 2007. Aldi went from 50 new stores in 2007 to 100 stores this year. Kroger beat last year’s total of 71, with 80 new stores this year. Publix opened 70 stores this year, compared to 44 in 2007. Safeway opened 20 new stores this year compared to 13 last year. Supervalu’s total went up to 75 compared to 27 last year. Wal-Mart’s Neighborhood Markets added 23 stores this year, vs. 20 in 2007.

Food Stores
Capital Expenditures (000 omitted) TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Supervalu$927,000$1,273,000
2Kroger2,060,0001,115,000
3Safeway1,768,7001,007,300
4Delhaize America729,300775,000
5Publix683,290658,300
6Whole Foods Market530,000575,000
7Winn-Dixie218,000250,000
8Harris Teeter205,500192,200
9A&P122,900125,000
$7,244,690$5,970,800

Food Stores
New Square Footage

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Kroger4,828,0005,440,000
2Publix1,997,6003,150,000
3Delhaize America3,325,8002,024,400
4Aldi850,0001,700,000
5Supervalu1,620,0001,700,000
6Wal-Mart Neighborhood Markets800,0001,000,000
7Safeway585,000900,000
8Whole Foods Market1,076,700790,500
9Harris Teeter874,000598,000
10A&P130,350100,000
16,087,45017,402,900

Food Stores
New Stores

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
17-Eleven106130
2Aldi50100
3Kroger7180
4Supervalu2775
5Publix4470
6Delhaize America6940
7Wal-Mart Neighborhood Markets2023
8Safeway1320
9Whole Foods Market2115
10A&P32
424555

But that’s it. Beyond the stores that sell necessities—grocery stores and drug stores—and the stores that sell at sharp discounts, there are no bright spots.

The Home Depot and Lowe’s together opened 161 new stores this year, compared to 263 in 2007. Specialty hard line stores, such as AutoZone, Hibbett Sporting Goods, Michaels and seven others, dropped from 1,100 new stores last year to 961 new stores this year.

Specialty Hard Lines
Capital Expenditures (000 omitted) TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Best Buy$797,000$750,000
2PetSmart294,437285,000
3AutoZone224,474243,594
4Circuit City242,000226,200
5Williams-Sonoma212,000220,000
6Bed Bath & Beyond358,210212,000
7Barnes & Noble196,500210,000
8O’Reilly Automotive282,700195,000
9Advance Auto Parts210,600190,000
10Tractor Supply83,986105,000
11Borders142,70080,000
$2,901,907$2,636,794

Specialty Hard Lines
New Square Footage

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Best Buy4,185,3004,550,000
2PetSmart2,645,0002,576,000
3Bed Bath & Beyond2,400,0002,250,000
4Dick’s Sporting Goods1,840,0001,760,000
5Tractor Supply1,468,5001,501,500
6Barnes & Noble806,0001,040,000
7AutoZone1,043,0001,024,000
8O’Reilly Automotive673,2001,020,000
9Advance Auto Parts1,295,000805,000
10Cabela’s1,300,000320,000
17,656,00016,846,500

Specialty Hard Lines
New Stores

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1AutoZone163174
2O’Reilly Automotive190150
3Best Buy164124
4Advance Auto Parts175115
5PetSmart115112
6Tractor Supply8991
7Hibbett Sporting Goods8485
8Bed Bath & Beyond7570
9Michaels4540
1,100961

The biggest loser: the specialty apparel category, which in our survey included Abercrombie & Fitch, Brown Shoe, Charming Shoppes, Chico’s and six others. The nine retailers in the category opened a total of just 744 stores this year. Last year, they opened 1,159 stores.

The same pattern holds true for capital spending.

The Truth May Be Worse Yet

Our survey was conducted during November, as retailers and retail real estate developers were trying to shake off the cataclysm that struck in October. Cataclysm? Think about what happened to retail real estate investment trusts (REIT) in October. Through the first nine months of 2008, the FTSE NAREIT Equity REIT Index, which tracks REIT stock performance, showed that retail REIT stocks declined by about 2.5%. People were worried, but then a 2.5% dip wasn’t all that bad.

Home Centers
Capital Expenditures (000 omitted) TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Lowe’s$4,400,000$4,200,000
2Home Depot3,600,0002,400,000
$8,000,000$6,600,000

Home Centers
New Square Footage

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Lowe’s17,748,00013,920,000
2Home Depot11,880,0004,428,000
29,628,00018,348,000

Home Centers
New Stores

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Lowe’s153120
2Home Depot11041
263161

At the end of October, however, retail REIT stocks had declined 40.6% for the year. That’s not a misprint. That’s what happened in October: Retail REIT stocks moved from 2.5% down for the year to 40.6% down for the year—in 30 days.

It wasn’t a fluke confined to retail real estate, either. Every real estate category took a beating.

Before October, multifamily REIT stocks had risen 17.1% for the year. During October, those stocks fell 27.6% and ended down 10% for the year by the end of the month. Office REIT stocks were down 2% for the year before October and 32.1% for the year after October. Industrial REITs got shellacked. Down 12.5% for the year before October, industrial REIT stocks ended down 62.8% after October. October, of course, also brought major declines to the general stock market.

After all of that carnage,Chain Store Age started the Big Builders Survey. It’s important to keep that in mind, because retailers made most of their estimates for the remainder of 2008 based on the slow going of the first three-quarters of the year, not after the October earthquake. In short, when retailers and REITs issue their annual reports covering 2008, the year may look worse than it does now.

Data on construction spending collected by the U.S. Census Bureau show a pattern similar to the Big Builders Survey’s findings, while confirming that October was indeed a game changer. “The Census Bureau numbers suggest that someone slammed on the brakes abruptly,” said Kenneth D. Simonson, chief economist with the Arlington, Va.-based Associated General Contractors of America.

Specialty Apparel
Capital Expenditures (000 omitted) TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Limited Brands$749,000$600,000
2Gap682,000480,000
3Abercrombie & Fitch403,345410,000
4American Eagle Outfitters250,407250,000
5Ross236,100227,000
6Foot Locker148,000159,000
7Chico’s202,000125,000
8Pacific Sunwear106,00085,000
9Talbots85,00075,000
$2,861,852$2,411,000

Specialty Apparel
New Square Footage

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Ross2,728,0002,395,000
2Stage Stores846,0001,008,000
3Brown Shoe798,000798,000
4Gap2,568,000731,000
5Abercrombie & Fitch680,680703,120
6Charming Shoppes607,700265,500
7Stein Mart518,000222,000
8Chico’s286,000116,000
9,032,3806,238,620

Specialty Apparel
New Stores

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Genesco229124
2Gap214115
3Abercrombie & Fitch99110
4Brown Shoe110110
5Chico’s14389
6Foot Locker11776
7Talbots7546
8Charming Shoppes10345
9Christopher & Banks6929
1,159744

The Census Bureau categorizes retailers differently, but the trend is still unmistakable.

In the category of general merchandise stores, construction spending was up by one-half of a percent during the one-month period from September 2008 to October 2008. In short, October this year was a little better than September of this year. But spending for construction by general merchandise retailers in October 2008 plummeted by 29% compared to October 2009. Don’t forget, October is when new stores have to come online to catch onto holiday sales. So there should be a lot of spending in October, especially compared to September.

Discount Stores
Capital Expenditures (000 omitted) TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Wal-Mart (U.S. discount stores and supercenters)$9,100,000$6,200,000
2Target Corp4,369,0003,800,000
3Costco1,385,6991,598,571
4Kohl’s1,500,0001,200,000
5J.C. Penney1,243,0001,000,000
6Macy’s1,105,0001,000,000
7Sam’s Club700,0001,000,000
8TJX526,987575,000
9Sears570,000570,000
10Staples470,377405,663
$20,970,063$17,349,234

Discount Stores
New Square Footage

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Wal-Mart (U.S. discount stores and supercenters)26,000,00023,000,000
2Target Corp.20,532,00020,184,000
3Kohl’s9,744,0006,525,000
4Dollar Tree2,712,5004,218,750
5Dollar General4,588,5004,140,000
6Costco4,200,0003,780,000
7Family Dollar2,822,0002,567,000
8Sam’s Club2,000,0002,000,000
9Staples2,040,0001,700,000
10TJX1,350,0001,200,000
75,989,00069,314,750

Discount Stores
New Stores

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Dollar Tree342280
2Family Dollar300205
3Dollar General365200
4Wal-Mart (U.S. discount and supercenters)198168
5Target Corp.118116
6Staples120100
7Kohl’s11275
8Fred’s4522
9Sam’s Club2521
10Big Lots75
1,6321,192

Building-supply stores spent 2.7% more in October 2008 than in September 2008, but 29% less this October compared to last October. A category labeled “other stores” spent 9.7% less from September to October of this year, and 22% less in October 2008 than in October 2007.

Drug stores followed the pattern of most other categories in the Big Builders Survey. Spending on construction rose 9.2% from September to October this year, and fell 4.3% in October 2008 compared to October 2007.

What specifically happened in October? Who put on the brakes? Everyone. Lenders stopped lending and developers stopped developing.

“Developers either had the credit window slammed on their fingers or were rethinking assumptions about the probable success of a project,” Simonson said. “The dismal figures on consumer spending have to lead to a conclusion that a project started today would probably sit around unoccupied.”

Simonson went on to say that the consensus outlook among economists calls for further declines through the second quarter of 2009, with a rebound thereafter.

“There is no agreement about whether the pick-up will be sharp or gradual,” he added. “And keep in mind that what has happened to the economy is unprecedented, and I’m not sure that anyone really knows how to forecast a recovery.”

Is there any good news?

“The price of materials is dropping,” Simonson said. “There are lots of contractors available to execute projects. Anyone with cash will be well-rewarded in terms of lower costs and faster delivery times.”

Drug Stores
Capital Expenditures (000 omitted) TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1CVS$1,800,000$2,000,000
2Walgreen1,700,0001,900,000
3Rite Aid336,728364,400
$3,836,728$4,264,400

Drug Stores
New Square Footage

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Walgreen8,163,5007,975,000
2CVS1,512,3201,479,680
3Rite Aid609,600266,700
4Duane Reade75,000112,500
10,360,4209,833,880

Drug Stores
New Stores

TOTAL Source: Company reports/Chain Store Age research
RankCompany20072008
1Walgreen501550
2CVS275186
3Rite Aid4821
4Duane Reade1015
834772

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