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Hong Kong, anyone?

BY Katherine Boccaccio

If Hong Kong is part of your global expansion initiatives, be prepared to pay the freight.

The most recent retail rent report from CBRE Group labeled Hong Kong as the world’s most expensive retail destination, bettering New York City (No. 2) and Sydney, Australia (No. 3).

In fact, the Q2 2012 CBRE rankings of prime global retail rents saw little change year-over-year, as the top five remained in place. Hong Kong’s retail rents average $3,864 per sq. ft., followed by NYC at $2,475 per sq. ft., Sydney at $1,112, Tokyo at $1,025 and London at $956.

Both Hong Kong and New York experienced significant increases in rents quarter-over-quarter, according to the report.

“As Manhattan’s prime retail zones continue to top U.S. retail rents, we are also seeing consumer demand for higher-end market streets holding steady there, as well as in Los Angeles and Chicago,” said Anthony Buono, executive managing director, National Retail, CBRE. “Despite a still slow but improving economy, that consumer support has in turn encouraged investors to pay premium prices to buy into retail venues in these markets, as can be seen in the recently reported $700 million purchase by Vornado of the major retail space at 666 Fifth Avenue in Manhattan.”

A slow-to-recover global economy appears not to have dampened retailer appetite for prime space in the world’s major cities, but those prime spaces are hard to come by – suggesting that the activity could have been even higher.

Retail rents grew 3.4% in the Americas year-over-year, boosted by increased demand in cities such as Washington, D.C., Miami and Seattle, said CBRE. Growth was 0.5% in the Asia Pacific.

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Walmart alum missing magic at new employer

BY CSA STAFF

When Craig Herkert left Walmart a few years ago to become president and CEO of Supervalu the situation that unfolded earlier this week at the grocer was not what he had in mind.

Herkert, who served as Walmart’s president and CEO of the Americas until 2009, had the displeasure of watching the Supervalu shares tumble after the company reported earnings per share of 19 cents that were about half of what analysts expected. And if that weren’t bad enough, he also announced suspension of the company’s dividend and said Supervalu would no longer provide sales and earnings guidance. Then for good measure he threw in the revelation that the company was also looking at strategic alternatives.

The bad news was part of an earnings report that saw sales decline to $10.6 billion from $11.1 billion. The company said the decline was due to the disposition of a majority of its fuel centers in addition to a 3.7% decline in identical store sales at traditional supermarkets and a 3.4% decline in identical store sales at the low price oriented Sav-A-Lot division. Herkert’s solution: preserve liquidity, cut expenses and invest more in a pricing strategy called “fair plus promotion.”

“While our shift to a fair price plus promotion strategy is right for our business, it is essential that we move even more aggressively to lower prices, and anticipate and respond to competitor actions,” Herkert said. “We expect our business transformation to meet our customers’ demands for great quality at lower prices. We intend to do this while remaining profitable, continuing to pay down debt and investing the capital to maintain and enhance our stores and related assets.”

As a result, the company will pursue deeper and more structural cost savings initiatives and adopting more flexible financing facilities, reducing near-term capital expenditures and suspending the dividend, according to Herkert.

“As we proceed with these actions in an effort to drive more traffic to our stores and ensure we are the destination of choice in the neighborhoods we serve, we remain focused on maintaining our operational and financial strength,” Herkert said. “We are committed to generating operating cash flows of more than $1 billion annually and meeting or exceeding our debt reduction targets. And, to assure we are evaluating the full range of opportunities available to us to create value for shareholders, the company’s board and management, together with its financial advisors, are reviewing strategic alternatives for our business.”

He characterized the moves as bold and necessary to position the company for success, but history has shown that a retailer in decline tends to stay in decline. Supervalu may be able to buck that trend, but the competitive forces contributing to its weakness are not abating. The company is feeling the pinch from a variety of competitors. Among conventional grocers, Kroger remains on a role with eight, yes eight, consecutive years of identical store sales growth. Meanwhile, while such value players as Dollar General and Family Dollar continue to open and remodel stores at a blistering pace that contain large assortments of food and consumables. Walmart has regained its footing with core customers who are shopping its large stores more often and spending more per visit as evidenced by company resurgent same store sales growth. And the company later this year is likely to announce an acceleration of its small format store expansion. Target too has become more of a force in the food world as upwards of 1,000 of its conventional food stores have been converted to a concept called PFresh that features fresh food and groceries in just the past three years.

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New PetSmart DC to open in Pa.

BY CSA STAFF

PHOENIX — PetSmart is opening up a new distribution center in Bethel, Pa. in order to better serve its growing store base and increased demands on its supply chain.

According to the company, the new facility, operational by April 2014, will bring approximately 300 jobs to the area in its first year and an estimated 500 jobs by the end of 2016. PetSmart will add construction jobs this year and commence building on the $50 million DC in fall 2012, with completion expected in the first quarter of 2014.

“Bethel presented itself as an ideal location for our new distribution center, and we are excited to become an active part of this community,” said Eddie Burt, SVP supply chain for PetSmart. “The construction of this new facility and the jobs it’s creating is just the beginning of our vibrant partnership with the town of Bethel.”

The new, build-to-suit 870,000 square DC,to be located at Berks Park (78 Industrial Park) off of PA I-78, will serve eleven states and Eastern Canada, providing services to 170 PetSmart stores in 2014 and over 260 by 2015.

Once the Bethel DC is complete, PetSmart will vacate two smaller distribution centers located in Gahanna, Ohio and Hagerstown, Md, both of which are nearing capacity. The approximately 160 PetSmart associates affected by these closures will be offered opportunities in other PetSmart DCs.

“The talent of our associates is the primary reason PetSmart has continued to grow,” added Burt. “We are looking forward to building our DC team by providing growth opportunities for existing associates and adding team members from the Bethel community.”

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