REAL ESTATE

Discounting new discount concepts

BY Jason Baker

With off-price player like Marshalls, T.J. Maxx, and Ross Stores entrenched as favored anchors for shopping centers, traditional anchors like Macy’s are finding it harder than they imagined to get in on the act. There’s more to it, it turns out, than just slashing price tags.

The first several Macy’s Backstage stores to open 2015 and 2016 were freestanding locations, and they have proved to be the last. Macy’s last year opened nearly 50 more Backstages as store-within-a-store concepts, with plans to open 100 more in 2018. Was this a strategic shift? Or was it merely a financial decision made by a brand arriving late to the discount gold rush?

Macy’s is trying to elbow its way into a discount market where the standard-setter has long been Nordstrom Rack. Same-store sales at Nordstrom Rack grew 3.7% overall in the fourth quarter of 2017, contributing heavily to Nordstrom’s overall 2.6% increase across all stores. Nordstrom’s performance in recent years has been rocky, and the iconic department store brand has been relying heavily on Rack to fuel growth. In 2018, just one traditional Nordstrom opened in the United States compared to 12 new Rack stores.

Others, meanwhile, experiment with new value concepts. Kohl’s is opening up Amazon return centers and selling specialty Amazon products (the Echo line of electronics, for instance) at a number of locations. The early returns are positive, as Kohl’s posted strong first quarter numbers, and traffic at Kohl’s stores featuring Amazon was up 8.5%.

Experimentation in the discount sector is hardly a new phenomenon. When Mills Corporation came along in the 1990s and began developing the large outlet centers they have become known for, not every discount store was a hit. Many early concepts struggled, in fact. Neiman Marcus Last Call and Saks Off 5th were both early standouts, however, but it’s noteworthy that both of those brands had the added hook of offering what were traditionally luxury products at an accessible price.

Fueled at least in part by the recessionary cycle of the late 2000’s, discount concepts have increased traction in the post-recessionary period, appealing to households in a broad range of economic standing. Here in my home market of Houston, the highest-volume and best-performing Home Goods stores in the region are those located in some of the city’s wealthiest neighborhoods.

This raises two important questions, the answers to which may have less-than-optimistic implications for retailers and, by extension, retail real estate.

The first is this: How do retailers ever go back to full price? With discount now becoming the norm, and the majority of new concepts in recent years (especially in apparel) being discount formats, it is going to continue to become harder to buck the tide of consumer spending habits and expectations. Discount, once a rare and thrilling exception, is now the rule.

The second question is almost a corollary of the first: With so much more discount out there, how can new concepts hope to stand out? Already tight margins and a lack of differentiation in a crowded segment is a worrisome combination.

The reality is that discount isn’t a cure-all for troubled malls and shopping centers. Luxury at a discount is compelling. Deep discount is enticing. But standard products at a modest discount are mildly interesting at best. Ross and T.J.’s continue to perform as traffic builders for in-line retailers, but are they nearing their saturation points?

The bottom line is value retail is a segment that is watered down and cannibalizing its own ability to expand — at the same time making it harder for more traditional concepts to break through. If this is how things look now, with a strong economy and an abundance of quality real estate available, what happens going forward when conditions aren’t so favorable?

For discount retailers, these are hard questions, and they suggest that simply rolling out another iteration of a not-so-new discount concept may not be a formula for sustained success.

Jason Baker is a co-founder and principal at Baker Katz, a full-service commercial real estate brokerage specializing in tenant representation for national chains. Baker can be reached at [email protected].

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Fort Worth suburb remakes itself as Old Town

BY Al Urbanski

A post on the Old Town Burleson Facebook page throws down the culinary gauntlet to its more famous neighbor to the north: “The rest of DFW is catching on to what the locals already know; Old Town simply has the best restaurants around.”

Tagged to that is an article from Culture Map Fort Worth running down the specialties of eateries such as The Hickory Tree Grill, Old Texas Brewing, Co., Fresco’s Cocina Mexicana, and Grumps Burgers. Burleson’s resurgence as a foodie oasis has not been lost on retail real estate developers.

Old Town Station, a renovated office building with retail and restaurants on the ground floor, just lured a Fort Worth institution called Ol’ South Pancake House to its Burleson site. It’s the first new restaurant in 20 years for the 56-year-old restaurant renowned for its German pancakes.

Much like a master-planned mixed-use development, Old Town Burleson maintains an aggressive events calendar that includes the Hot Sounds of Summer concert Series, the Be Healthy Burleson 10K run, and Christmas in Old Town.

Bryan Dyer of The Woodmont Company represented Ol South Pancake House in the leasing of its 5,000-sq.-ft. space at Old Town Station.

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The Fresh Market trimming its store fleet

BY Marianne Wilson

The Fresh Market on Monday announced a round of store closings.

The specialty grocer, which was acquired in 2016 by private equity firm Apollo Global Management, on Monday said it plans to close 15 underperforming stores in Georgia, Illinois, Indiana, Kentucky, North Carolina New Hampshire, Tennessee, Virginia and Wisconsin.

The company said it made the decision following the completion of an organizational analysis and careful consideration of the overall growth strategy and long-term financial performance of the company. It doesn’t expect any additional store closings for the foreseeable future.

“Over the last eight months, our company has been executing a turnaround plan and we’ve seen great progress,” said Larry Appel, CEO, The Fresh Market. “However, for a variety of reasons unique to each retail location, that progress is not evenly distributed and, as a result, we have decided to close these long-term, underperforming stores. “Looking ahead, I am confident this move will better position The Fresh Market and enable us to continue delivering our great tasting meals, signature products and an incredible shopping experience.”

The Fresh Market Inc. operates 170 stores in 24 states.

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