News feed - All Retail

There is at this stage so much written about each of the property sectors, that we have decided to stream line the feed by ‘sector’ and over the following months will be adding Hospitality, Multi-family, Industrial, Senior Living, etc.  All the other articles that fall outside these categories will simply fall into the general category.   We hopefully will start moving around articles that typically appear by date when it is relevant to do so.  We believe that this will be easier on the reader and add additional context.   The great unknown is what will the property market look like in 24-months (hopefully well clear to the current pandemic.)  Will the market recover to 2019 levels or will there be a new normal?  

 

Was there even a normal in 2019.  Alan Greenspan coined the term “irrational exuberance.”  What were we really looking at before the pandemic?  I don’t think we actually know yet.   But developing a Capitalization Rate mathematically for some transactions did lead us to the opinion that cash payers like REITs had indeed lost their way and while there was an annual return on their investments, the return of their investment meant that another buyer had to be found to take their potentially negative position.    Was there some “irrational exuberance.” going on?   The economists I believe will eventually answer that question.

U.S. Downtowns Yearn for Vaccine as Merchant Traffic Falls 70%

Bloomberg News analyzed foot traffic data for downtown merchants in five major U.S. cities and compared them to merchants in five nearby suburbs.

 

BY: Michael Sasso and Andre Tartar                   December 3, 2020,                         Bloomberg

 

The Chicago Loop Alliance, which promotes the downtown core, rolled out a Back-to-Work website in early October encouraging workers to put on slacks again and try returning to the office.

Its hope was short-lived. Covid-19 came roaring back in Chicago within weeks of the campaign’s launch, and the alliance quickly toned down the program. “The hard push to get people to come back has definitely softened, for now,” said Jessica Cabe, a spokeswoman for the group.

In recent weeks, foot traffic at downtown merchants was down by around 70% in U.S. cities including Chicago and San Francisco, according to smartphone data compiled by SafeGraph Inc. Suburban businesses are closer to normal, though still down from 2019.

One of the biggest shifts of 2020 was the flow of economic activity into suburban or rural main streets from urban downtowns. Many Americans abandoned commutes into cities or sought larger living spaces as they worked from home, a trend that looks to endure even after the virus-threat subsides. The transformation portends dire repercussions for metropolitan business districts.

 

Bloomberg News analyzed foot traffic data for downtown merchants in five major U.S. cities and compared them to merchants in five nearby suburbs for the period spanning mid-October through November -- a period that included Black Friday.

Downtown merchants in Lower Manhattan, Chicago, Atlanta, Dallas and San Francisco saw an average foot traffic decline of between 64% and 77% for the period, with downtown San Francisco suffering the most. Meanwhile, the suburbs saw a decline of between 31% and 45%, with the Chicago suburb of Schaumburg, Illinois faring the best.

Ripple Effect

In Atlanta’s urban center, restaurateur Alan LeBlanc is staying open despite losses in hopes of inspiring a ripple effect. “If you look out the window and everything’s closed, then you might say, ‘Let’s reconsider bringing people back at the next meeting,’” said LeBlanc, whose White Oak Kitchen & Cocktails, a staple of business lunches, is getting by on 15% of its previous revenue. “Maybe if they see open businesses, it will encourage them to bring people back.”

The pandemic seems custom-made to savage central business districts and their small businesses, with just 11% of Manhattan’s office workers back at their desks through September, according to real estate firm CBRE Group Inc. Nationwide, occupancy rates in downtown offices are easily below 20% and as low as 5% in some cities, said David Downey, president of the International Downtown Association.

Vehicles travel along a nearly empty highway in Atlanta, Georgia, U.S., on Tuesday, July 21, 2020. Georgia Governor Brian Kemp sued the mayor of Atlanta to stop her from enforcing a city mandate that people wear masks in public given a spike in coronavirus infections.

Meantime, the dearth of housing units in many city centers will push urban planners to rethink their commercial-residential mix, Downey said. In Atlanta, about 150,000 people work in the downtown area, but it has only around 13,000 residences, and a fair number of those are student housing, said Wilma Sothern, a marketing vice president at non-profit Central Atlanta Progress.

Down 90%

Around noon on a recent weekday, the swivel chairs were empty and the clippers quiet at American Haircuts in downtown Atlanta, a barbershop that caters to professionals in a subterranean mall. Co-owner David Alexander opened the shop two months before the pandemic hit and since then business has dropped 90%. More suburban American Haircuts units that he and his partners own in Kennesaw and Roswell, north of Atlanta, are down only 10% and 15% respectively.

His downtown shop has survived through generous rent concessions from its landlord, but Alexander isn’t sure it’ll stay open much longer.

“At some point, I realize the landlord has a mortgage or bills they need to pay too,” Alexander said. “I think it’s all going to depend on a vaccine sooner rather than later.”

As cold weather sets in, downtown merchants worry that outdoor dining and other pandemic workarounds will become impractical, and the mortality rate for shops and restaurants will grow.

So far, only 29% of the 1,140 retailers, restaurants and merchants operating in Lower Manhattan before the pandemic were closed in November, according to the Alliance for Downtown New York, although the group’s president is worried what might happen after Thanksgiving.

It isn’t known if or when the federal government will pass another small business relief package, such as the now-ended Paycheck Protection Program that distributed more than 5 million forgivable loans to small businesses.

Also, brick-and-mortar retail is off to a slow start this holiday season, with visits to physical stores in the U.S. down by 52% on Black Friday compared to a year ago because of Covid-19 and social distancing requirements, preliminary data from Sensormatic Solutions show.

Many retailers are spreading deals across the season this year, and in-store visits should improve in December as people make last-minute purchases, said Brian Field, Sensormatic’s senior director of global retail consulting.

Jim Mannos is debating whether he’ll need to shutter his Exchequer Restaurant & Pub in Chicago’s Loop district, until spring. Business is down 85% at the restaurant that boasts that Al Capone purportedly relaxed there. The Illinois governor’s recent move to ban indoor dining will make things harder.

“We don’t know really how the future’s going to be, because if it’s so bad that they’re not allowing any indoor seating, its going to be hard to stay open,” Mannos said.

For now, many in real estate are assuming that companies will shuffle their workers back into offices eventually, as evidenced by Facebook Inc.’s leasing of 730,000 square feet in Manhattan over the summer, said Bloomberg Intelligence analyst Jeffrey Langbaum.

“At this point, I think there is just a pause until a vaccine is widely distributed, before employers feel comfortable asking their employees to come back,” Langbaum said.

2020 Sets New Record As Retailers Announce Plans to Close More Than 11,100 Stores

Some Markets Appear Better Positioned to Weather Fallout From Contracting Retailers Than Others

By: Kevin Cody and Robin Trantham                   December 2, 2020                         CoStar Advisory Services

JSO Commentary

CoStar consistently produce excellent articles across all sectors of the built environment.  This one happens to be particularly good since it is incorporating different areas of the retail environment that tend to go under-reported or not-reported.  Without recapping the entire article besides the typical retail outlets, it touches on such topics as Experiential Retelling and how these have been shattered by the pandemic.  It also covers small Main Street retail businesses that are so often overlooked but in essence create the backbone of retailing within the United States.  Pandemic has decimated these businesses too, which generally do not have to deep pockets (not under capitalized as a rule) but also do not have the access to financing and loans that say the Macy’s, Stein Mart of the world have.  Over the next few months we will read about frontline malls and there future.  But here to this has been touched upon yielding an extremely well balanced article.   However in the end, I’m not sure there’s any good news within this sector.

With the traditional holiday shopping season upon us, retailers across the country are holding out hope for a surge in shoppers. Notably, October retail sales came in nearly 5% above pre-pandemic levels and 5.7% above sales levels in October of 2019.

And while the pandemic has accelerated the shift in shopping preference to e-commerce, physical retail sales in October were a rather healthy 1.5% above pre-pandemic levels. 

Although this was a positive sign for the retail market overall, every retail subsector has been impacted differently over the past several months. Some sectors have benefited from the pandemic, while others have struggled and, in many cases, have been forced to close stores. 

Year to date, more than 40 major retailers have declared bankruptcy and more than 11,000 stores have been announced for closure, totaling nearly 150 million square feet of retail space.

While the total number of stores announced for closure in 2020 is already a record, it is also nearing the record for store closings on a square foot basis set in 2018. The most impactful announcements have come from traditional retailers, including JCPenney, Macy’s, Stein Mart, Bed Bath & Beyond and Pier 1 Imports. Even before the pandemic, many of these traditional retailers were facing headwinds caused by the rapid rise of e-commerce. The pandemic has only accelerated that distress, ushering what some have described as a decade of changes in a year's time.

Experiential retailers, on the other hand, were a key source of demand growth for retail owners prior to the pandemic. However, these types of retailers have since been shackled by the social distancing and lockdown measures imposed to contain the spread of the virus. Gold’s Gym, 24 Hour Fitness and Studio Movie Grill, as well as numerous restaurants, are among the experiential tenants that have been forced to permanently shutter locations due to the pandemic.

It is important to note that the tracking of these store closures is limited to the announcements issued by major chains. It does not reflect the significant toll the pandemic has taken on small businesses as well.

 

According to Yelp, nearly 100,000 businesses were permanently closed by September, and more than 65,000 remained temporarily closed, indicating far more retail reckoning ahead than disclosed in the announced store closures.

Based on the store footprints of the retailers that have made announcements, we expect malls to be disproportionately impacted by the latest round of closures. This will ultimately lead to expanding vacancy rates for malls in the near term. 

To backfill vacant anchor space, malls owners may turn to creative solutions, including subdividing, demolishing or converting the space to other uses with stronger demand, including office, apartment, industrial or medical. However, these types of wholesale changes are more likely to occur in outdated malls. The owners of high-quality and well-located malls are still better positioned to weather the storm.

On the other end of the spectrum, announced store openings in 2020 have largely been driven by discount retailers, such as Dollar General, Dollar Tree, Family Dollar and discount grocers such as Food Lion, Lidl and Aldi. Notably, these types of expanding retailers generally target lower-income and/or lower-density areas and are not commonly found in malls.

While the pandemic will certainly have a drastic and wide-sweeping impact on the retail sector, every market is going to be affected differently over the next couple of years. Through examining two important retail metrics, foot traffic and forecast buying power growth, it is apparent that retail tenants in many major southern growth markets, such as Raleigh, Nashville, Charlotte and Atlanta, have generally seen retail foot traffic less affected during the pandemic, and are also poised for outperformance going forward. 

However, retail tenants in markets where projected demographic growth remains below average, such as New Orleans, New York and Honolulu, have seen their retail foot traffic significantly more affected so far, and may experience an outsized share of move-outs going forward.

Many major western U.S. markets are projected to experience relatively strong household and income growth over the next two years. However, some of these fast-growing markets, including San Francisco, Seattle, Denver and Portland, have also endured relatively dramatic declines in retail foot traffic over the past nine months, likely creating a longer path to recovery for their retail sectors. 

In contrast, other western markets, such as Phoenix, San Antonio and Dallas are projected to experience relatively strong demographic growth moving forward and have experienced a less-drastic decline in retail foot traffic.

Many retail investors will face pressure to maintain occupancies in the near term as these announced store closures materialize, leaving behind empty stores in their centers. Finding readily available replacements will be challenging as traditional retailers, which have announced the most store closures, have been unable to adapt quickly enough to the growth of e-commerce. And experiential retailers have also been at risk from the direct impact of stay-at-home orders and social distancing. 

Still, retail centers in select markets have been able to weather the pandemic relatively well, and retail centers in those locations are positioned to avoid, or backfill, store closures more efficiently than others.

Retail Cornerstones Fall in Britain, Pushed by Fast Fashion and Pandemic

Debenhams and Arcadia Group, the owner of Topshop, collapsed despite extensive government programs meant to shore up British businesses.

By Eshe Nelson and Elizabeth Pato                     December 1, 2020                      New York Times

LONDON — The British department store Debenhams can trace its history back 242 years to a shop on Wigmore Street in central London. On Tuesday, it finally succumbed to the pressures of 21st-century e-commerce. After more than a year of restructuring and several months of trying to find a buyer, the company said it wouldbegin shutting down.

Debenhams is the second big retailer to topple in two days, after Arcadia Group, which owns brands including Topshop and Miss Selfridge, filed for bankruptcy protection on Monday. The two are also linked because Arcadia’s brands have a big footprint in Debenhams, with sections set aside for their clothes. 

And so, as Christmas lights flicker above the sidewalks in Britain’s downtowns and as the busiest shopping period of the year begins after a monthlong lockdown in England, the nation is watching two of its largest retailers fall. They have about 25,000 employees between them.

More bankruptcies are expected, as the lockdowns have relentlessly exposed the retailers that have failed to pick up on customers’ willingness to shop online.

“The retail house of cards on the high street is in danger of collapse,” said Susannah Streeter, an analyst at Hargreaves Lansdown.

Britain’s fashion retailers enjoyed a golden period and were seen for a time as a source of national pride. The Debenhams evening wear department was a middle-class destination for all of life’s major celebrations. Marks & Spencer, which announced plans during the summer to lay off nearly 8,000 workers, was a byword for quality for decades, with its cotton underwear and cashmere knits a staple of British households.

 

 

In the 2000s, Topshop — once considered the jewel in the crown of Philip Green’s Arcadia Group — was a genuine style authority thanks to sellout collaborations with the model Kate Moss and a vast Oxford Street emporium laden with catwalk-inspired knockoffs. 

But these brands have suffered for years. Fast-fashion giants from overseas, like Zara from Spain and H&M from Sweden, started selling cheaper, trendier clothes. They were followed by online-only upstarts such as Boohoo and Pretty Little Thing (similar to the American brand Fashion Nova). Geared toward young women and powered by social commerce, they offer low-priced fashion products designed to be browsed, bought and worn on social media.

The pandemic has hastened the demise of brands found in Britain’s high street shopping districts. For about a third of the year, clothing stores and other nonessential retailers have been shuttered to comply with lockdowns, accelerating the move to e-commerce. Since February, online clothing sales have grown 17 percent in Britain, while in-store sales have slumped 22 percent.

The old guard retailers and department stores that were too slow to invest in their online operations have found themselves grappling with the costs of real estate empires visited by fewer and fewer people. Even accounting for scores of closures in recent years, Debenhams has 124 department stores, while Arcadia has 444 stores for its brands in Britain. 

“Like Arcadia Group, Debenhams might have stood a better chance had its footprint of retail stores been smaller, but they were stuck with too many shops, on long leases they could not wriggle out of,” Ms. Streeter said.

Many fast-fashion retailers continue to thrive throughout the pandemic because they have few or no brick-and-mortar stores. Boohoo and Pretty Little Thing generally source from British-based manufacturers in cities like Leicester. Clothes can be produced quickly and distributed faster within the country.

“If you are a high street shop, you have to sell a considerable amount in order to just break even,” because of high business property taxes and rents, said Stewart Perry, a partner in the insolvency and restructuring practice at Fieldfisher, a European law firm. “They are competing with a warehouse in the back-end of nowhere.”

This summer, Boohoo came under intense public scrutiny after reports that its suppliers in Leicester were paying workers as little as 3.50 pounds, or $4.40, an hour. (The national living wage in Britain for ages 25 and above is £8.72, or $10.93.) But investors had already placed their bets on Boohoo. Its share price is up 7 percent this year, while the benchmark stock index in Britain has dropped 15 percent. In the past five years, Boohoo’s share price has risen more than 800 percent.

Retailer Pet Valu to Shut Nearly 360 Stores, Warehouses in US

By Linda Moss                                                       November 5, 2020                                       CoStar News

In yet another casualty of the pandemic, pet-supply retailer Pet Valu plans to shutter all its nearly 360 U.S. stores and warehouses. 

The chain said it is winding down its operations, its brick-and-mortar sites in the Northeast and Midwest, as well as closing its corporate headquarters in Wayne, Pennsylvania.

Pet Valu U.S., operating for more than 25 years, licenses its name and contracts for services from Pet Valu Canada, a separate company headquartered in Markham, Ontario. The Canadian business, a chain with about 600 stores, is not affected by the U.S. move.

"The company's stores have been significantly impacted by the protracted COVID-19-related restrictions," Jamie Gould, Pet Valu's recently appointed chief restructuring officer, said in a statement. "After a thorough review of all available alternatives, we made the difficult but necessary decision to commence this orderly wind down."

Pet Valu joins a long and seemingly ever-growing list of brick-and-mortar retailers that have been put out of business amid the COVID-19 outbreak, including Lord & Taylor and Pier One Imports.

Pet Valu is owned by Roark Capital Group, a private equity firm based in Atlanta. The retailer operates small-format stores that sell premium pet food and supplies.

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Men's Wearhouse, Jos A. Bank Owner to Emerge From Bankruptcy By Late November

Landlords Take Major Hit in Tailored Brands Bankruptcy Plan

 

By Marissa Luck                                               November 13, 2020                                           CoStar News

Tailored Brands is expected to emerge from bankruptcy later this month as a leaner company with a smaller real estate footprint and a greater focus on digital offerings to augment its brick-and-mortar footprint.

The owner of Men’s Wearhouse and Jos A. Bank received approval Friday from a federal bankruptcy judge in Houston to move forward with its restructuring plan. The plan confirmation comes at a critical moment before the holiday shopping season, when many retailers are counting on Christmas shoppers to make up for lackluster sales in the pandemic. The retailer, with a split headquarters between Fremont, California, and Houston, had more than 1,400 locations in North America when it filed for bankruptcy protection in August.

As has become common in retail bankruptcy cases in the pandemic, landlords with rejected leases are likely to lose thousands of dollars where Tailored Brands has shut stores. The case is a reminder of just how vulnerable landlords are in the sea of bankruptcy cases washing over the retail sector.

“Landlords are essentially taking one of the largest hits in this case. They are not only losing a tenant, but now they are faced with having to refind a new tenant, which is an uphill battle in this enviornment,” said Eric Horn, a partner at the New York law firm A.Y. Strauss LLC, who represented a landlord with a rejected lease in the case.

A review of rejected leases by CoStar News shows that Tailored Brands is closing or already has closed at least 273 stores, many in high-profile locations and mostly under the Jos.A. Bank brand. A Tailored Brands spokeswoman declined to answer whether there would be any additional retail store closures after the bankruptcy is complete, but earlier this year, the company said it could close up to 500 stores.

Landlords who own the stores where leases were rejected will get a negligible amount compared to what they owed, said Horn. Under the plan, landlords with rejected leases, as unsecured creditors, would get a small percentage of what they are owed or they could take a small equity stake in the company, he noted, citing a disclosure statement filed in bankruptcy court. A landlord with a rejected lease who was owed $100,000 could get as little as $1,003 under the plan, Horn said.

Meanwhile, landlords of properties where Tailored Brands plans to keep stores open are in a much better position, Horn added, because the retailer must pay so-called cure claims prior to assuming a lease at those locations. However, even landlords where stores are expected to remain open often have to battle for the amount they believe they are owed. Several landlords have filed limited objections trying to protect how much they are owed in the case. These types of limited objections are common in bankruptcy cases and are usually settled outside court, though, and typically don’t stop the bankruptcy plan from proceeding, Horn said.

Some landlords have already reached deals with Tailored Brands. Simon Property Group, for example, said in court filings that it had reached an agreement with Tailored Brands to resume leases at dozens of locations — otherwise Tailored Brands could be on the hook for $4 million in cure claims plus attorney fees.

Simon Property Group had at least 55 leases with Tailored Brands at the time of its bankruptcy filing, according to the records. And now, Simon also is expected to be part-owner of a key competitor to Tailored Brands — Brooks Brothers — which it agreed to buy for $325 million out of bankruptcy in partnership with Authentic Brands Group. Brooks Brothers,Tailored Brands and the owner of Ann Taylor were all victims of the casualization of the workplace and canceled events cutting into sales of formal wear during the pandemic. 

In addition to shuttering hundreds of stores, Tailored Brands has spent the past several months reconfiguring many of its existing locations to support expanded e-commerce sales. The company implemented a new "buy online, pick up in store" offering and contactless payments. In September, the company unveiled a new “Next Generation Store” concept for Men’s Wearhouse outside of Houston, which includes a more modern store format, contactless tailoring and other digital offerings meant to appeal to a younger audience. The Next Gen concept could become a model for future Men’s Wearhouse moving forward, with another location planned to open in near Atlanta in December.

“These and other actions taken while in Chapter 11 are the continuation of a strategic transformation that started well before COVID-19 and will position us to compete and succeed for the long term,” Tailored Brands President and Chief Executive Officer Dinesh Lathi said in a statement.

The bankruptcy process is expected to wipe away $686 million of funded debt from its balance sheet. The capital structure of the reorganized company is expected to consist of a $430 million asset-backed loan facility, a $365 million exit term loan and $75 million of cash from a new debt facility to support ongoing operations and strategic initiatives, according to a statement Friday from Tailored Brands.

The company had 1,274 retail locations in the United States and 125 stores in Canada when it filed for bankruptcy, according to court documents. That encompassed 9 million square feet of retail space and about $416 million in occupancy costs, wrote Holly Etlin, Tailored Brands’ chief restructuring officer, in court filings. The retailer also owned 1.8 million square feet of distribution space and leased another 6 million square feet of distribution space, she said.

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