REAL ESTATE

Holiday Mediocrity a Sign of Things to Come?

BY Jeff Green

After taking a look at some of the post-holiday sales figures, it seems like maybe I was a little too pessimistic. While the overall 2013 holiday season’s sales aren’t particularly impressive, they aren’t flat, either — which is an outcome that I had worried about.

The best numbers came from the Department of Commerce, which estimated that U.S. retail growth during the holiday season came in at 4.1% over 2012 sales. Other organizations released estimates that were a bit less robust: the National Retail Federation (NRF) reported 3.8% growth, the International Council of Shopping Centers checked in with 3.0%, and ShopperTrak announced that sales that were up 2.7%. The biggest surprise to me was how successful the last week prior to Christmas was: consumers were apparently waiting and holding out for the best deals. In some respects, that big final week really made all the difference and “saved” the season. Because, to be honest, I think the season was fairly lackluster leading up until then, especially the first half of December.

As for patterns and trends, we really didn’t see any category standing out or outperforming expectations. Luxury and consumer electronics, two categories that have been fairly strong in recent years, didn’t have an especially great holiday season. That was a bit of a surprise, especially in the case of electronics. I can’t help but wonder if part of that lackluster performance can be explained by the fact that electronics are continuing to evolve away from a special end-of-year splurge type of purchase, and are instead becoming more of a necessity (or at least a perceived necessity).

Apparel was slightly better than expected, perhaps because people were buying winter weather gear at a slightly higher clip. The much-discussed Target credit card number theft/scandal was obviously unwelcome news for a retailer that was already lagging a bit in sales, and it may have helped some of Target’s competitors (most notably Wal-Mart) get a short-term boost, but there’s no reason to think it had an outsized impact on seasonal sales as a whole.

Taking a step back, however, it seems clear that most retailers aren’t going to be particularly excited about the big picture for 2014 — which is tepid, at best. Consumers were so sale- and value-focused that I’m somewhat dubious as to whether profits will reflect the modest bump in holiday revenue. We might be in for some disappointing earnings reports in the months ahead.

One underwhelming holiday season isn’t necessarily a bellwether, but I suspect that some of the underlying factors will continue to play a big role in retail and retail real estate in 2014 and beyond. While I think we’ll see continued incremental economic improvement in the national economy, it is likely to still proceed at a very modest pace. And looking ahead to the planned store openings for 2014 doesn’t really give much reason for optimism, either.

The latest National Retailer Demand Monthly report from RBC Capital Markets indicates that, as of December, new store openings were projected to be up 1.2%. By itself, that’s not terrible (although it’s nothing to write home about), but the report also notes that 2014 might see significantly more store closings than in recent years. J.C. Penney has already announced that it will be closing 33 stores, and Macy’s and Dillard’s are also closing a handful of locations. I’ve talked quite a bit about the troubles that Sears and Best Buy have been experiencing, and it should come as no surprise to anyone that both of those brands will likely face some tough decisions about store closings in the near future. Finally, it is rumored that Coldwater Creek may be closing some stores in the near future.

To figure out what retailers will need to do to turn this sluggish ship around, we don’t need to look any further than the one big holiday season storyline that was extremely positive: the explosive growth of mobile commerce and the continued strong performance from e-commerce. In fact, e-commerce sales were up 12% over the holidays, and nearly one-in-three purchases were made on a mobile device! Not coincidentally, foot traffic in brick-and-mortar locations was down significantly.

Unless more retailers can follow the lead of brands like Apple and H&M and boost the experiential quotient of the built environment for brick-and-mortar locations, e-commerce and mobile sales are going to continue to take bigger and bigger bites out of the retail market. I think it’s clear that shoppers are going to continue to want and expect more of an experience (and more excitement) when they put the smartphone or tablet down and head to the store. And with shoppers continuing to prioritize value- and convenience-hunting in the near term, that’s only likely to exacerbate that trend. If we don’t want to be having this conversation every January, retailers are going to have to evolve and adapt.

How much of an impact do you think the growing demand for difference-making retail experiences and environments will have on brick-and-mortar inventories and marketing/sales strategies? Let’s keep the conversation going — leave a comment below of email me at [email protected].


Click here for past columns by Jeff Green.

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REAL ESTATE

Whole Foods acquires seven Dominick’s leases in Chicago area

BY Dan Berthiaume

Austin, Texas — Whole Foods Market has acquired leases from Safeway Inc. for seven locations formerly operated as Dominick’s stores. Terms of the agreement were not disclosed.

Whole Foods expects the locations to remain closed for remodeling in 2014 and re-open as new Whole Foods Market stores in 2015. The transaction is expected to be slightly dilutive to earnings per share in fiscal year 2014, primarily due to the pre-opening rent associated with these new leases. The company has three stores in development in the Hyde Park and Englewood neighborhoods of Chicago and in Lake Forest with openings scheduled through calendar year 2017.

The leases are located in the neighborhoods and towns of Edgewater, Lincoln Park, Streeterville, Wet Loop, Elmhurst, Evanston, and Willowbrook.

"We are incredibly excited about this opportunity to quickly and significantly expand our presence in the greater Chicago area," said Michael Bashaw, Whole Foods Market Midwest regional president. "These locations fit well with our 19 existing stores as well as the three stores currently in development. We plan to remodel each store to reflect its community and look forward to offering fresh, natural and organic foods to a broader base of Chicago customers."

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Five Below to enter Tennessee

BY Dan Berthiaume

Philadelphia — Five Below will enter the state of Tennessee, with plans to open up to five new stores in the market by spring of this year. With this new market, Five Below will operate stores in 20 states.

Five Below’s 600,000-sq.-ft. distribution center in Olive Branch, Miss., which opened in spring 2013 and currently supports the company’s southern and Midwestern stores, will service the new Tennessee market. The company will provide further details on its 2014 store growth plans when it releases its fiscal 2013 fourth quarter earnings results in March 2014.

"After successfully opening 60 net new stores in 2013, including entering the new markets of Austin and Dallas, we are excited to begin our 2014 store opening program with this expansion into the Tennessee market," said Tom Vellios, co-founder and CEO of Five Below. "We see significant opportunities to continue to expand our reach in new and existing markets with our class of 2014 stores, drawing new customers to our concept while providing the brand name and trend-right merchandise that our loyal customers have come to expect from Five Below."

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