Retail News

Lidl

Lidl has appointed a new executive in Germany to oversee its operations in the U.S., a possible signal of distress over Lidl’s U.S. entrance, according to reports out of Europe. A German business trade newspaper, citing confidential sources, reported that Michael Aranda, the former CEO of Lidl Spain, would be appointed to a Lidl divisional board with oversight of the U.S. Mr. Aranda is said to be replacing Daniel Marasch in that role and is being succeeded by Claus Grande as CEO of Lidl Spain.

Though U.S. management publicly disputed that the reshuffle indicates “frighteningly weak” performance at some of the current 37 stores (a claim made in the German paper), it seems to be a signal the Company may be having more difficulty than expected gaining traction in the U.S. Other reports indicate that the Lidl stores are “too large, too overly-engineered and too costly to operate,” and rely too much on nonfood merchandise. If these reports are accurate, it may signal that the Company will need to make some adjustments to its store format. However, a Lidl U.S. spokesman not surprisingly stated it was “delighted” with its U.S. performance to date, saying performance so far has exceeded expectations: “We feel very confident with where we are as a Company and we’re proud of our launch to date.”

Metro Inc./Jean Coutu Group

Following last week’s report that the companies were negotiating an acquisition, Metro Inc. announced yesterday that it agreed to acquire The Jean Coutu Group for a total consideration price of C$4.50 billion or 15x TTM EBITDA, with 75% payable in cash and 25% in Metro stock. The cash portion of the deal will be financed with Metro’s C$3.40 billion bank facilities (which is expected to be paid down through future financing and asset sales). The deal, which is subject to approval by Jean Coutu’s shareholders is expected to close in the first half of 2018.

Kohl's

Kohl’s Corporation is relying more on its current employees for the upcoming holiday season, saying it has been increasing its permanent staff over the course of the year. The Company indicated that while it will hire some seasonal staff, it does not plan to reveal that figure. It is taking a similar approach to Walmart, which said it would rely more on its current employees for the season by offering them additional hours first. The decision to not reveal seasonal hiring breaks a trend within the retail industry where companies announce their seasonal hiring plans as a way to gauge anticipated shopper demand. Target, Macy’s and J.C. Penney have already announced their hiring plans, expecting to add 100,000, 80,000 and 40,000 seasonal workers, respectively. Last year and in 2015, Kohl’s added more than 69,000 seasonal workers; about 14,000 of these seasonal associates ended up staying with the Company to pursue full-time work.

Following an announcement over the summer, Kohl’s turned 1,000 square feet of retail space in 10 of its stores into an Amazon in-store concept, offering Amazon products, such as the Echo voice-activated device and the Fire tablet. In addition, as of October 1, the Company is now accepting Amazon returns at 82 stores across Los Angeles and Chicago. The Company will pack and ship eligible items back to an Amazon fulfillment center for free.

In other news, Kohl’s named Michelle Gass as its next CEO, to succeed Kevin Mansell when he retires in May 2018 after the next shareholder meeting. Ms. Gass currently serves as chief merchandising officer at Kohl’s and previously served as president of Starbucks’ EMEA region.

Nordstrom

In the latest published reports regarding the Nordstrom family’s potential buyout of Nordstrom, there is speculation that the family is struggling to generate the financing needed to complete the deal. The Nordstrom family first announced it was considering taking the chain private in June, in a move that would allow them to work on a turnaround plan outside of public scrutiny. Previous reports indicated the family was close to choosing private equity firm Leonard Green and Partners to help fund the buyout; those reports said Leonard Green would provide roughly $1.00 billion in equity. However, the latest reports Monday morning suggest the deal could require up to $10.00 billion and that the family has been struggling to secure financing since Toys “R” Us’ Chapter 11 filing. Furthermore, the family is reportedly worried a heavily leveraged deal could disrupt the Company’s turnaround plans and threaten the family’s fortune. On the news Monday morning, the Company’s stock price fell nearly 8% to $43.68.

Stage Stores

Stage Stores is closing its South Hill, VA distribution center by the end of the year and transferring operations to one of its three other facilities, located in Texas, Ohio and Nebraska. The Company said the move will streamline its distribution network and enhance efficiency. The Company operates 792 stores in 42 states.

Amazon/Whole Foods

Amazon’s Whole Foods has suffered a data breach of credit card information used in taprooms and full table-service restaurants in some of its stores. Whole Foods noted these venues use a different point-of-sale system than the main checkout systems. Credit cards used at the main systems were not affected, and Amazon’s systems do not connect to those at Whole Foods.

According to recent data from analytics firm Thasos Group, Trader Joe’s and Sprouts Farmers Market have been hit hardest since the price cuts began on August 28. Thasos reported that on the first day, customer traffic spiked 31% from a year earlier. Traffic jumped 17% during the week after the price reductions and remained up 4% for the week ended September 16. Ten percent of Trader Joe’s regular customers and 8% of Sprouts’ customers visited Whole Foods between August 28 and September 16, followed by Target at 3% and Costco and Safeway at 2% each (this does not imply that they have permanently switched, just testing). 24% and 16% of new visitors were from Walmart and Kroger, respectively. Trader Joe’s and Sprouts provided fewer new shoppers, but the losses were larger relative to the size of their customer bases. About 15% came from Costco, 11% from Target and 5% from Sam’s Club. The survey suggests that the price reductions did not attract customers from outside of Whole Foods’ traditional upper-income demographic. They also did not convince consumers to drive longer distances to shop at Whole Foods.

Meanwhile, Orbital Insight, which monitors business at about 65% of Whole Foods’ locations, reported a 5% year-over-year increase in car traffic to Whole Foods’ stores in the month since the acquisition closed. Foursquare, which analyzed the mobile phone movements of more than 2.5 million Americans, said traffic to Whole Foods was up about 13% the first week after the price cuts and remained up 8%. However, other reports have indicated that Amazon lowered prices on only a few dozen popular Whole Foods products, while raising prices on others. According to market research firm Gordon Haskett Research Advisors, average prices at the chain dropped only 1.2% since the acquisition.

According to an analysis by One Click Retail, Amazon has sold about $1.6 million in Whole Foods’ beans, breakfast cereal and other store-brand products in the first month since taking over the chain. During the past month, 19% of Whole Foods’ sales on Amazon were of snacks and candy, followed by frozen fruit and vegetables.” One Click Retail also reported that roughly 85% of Amazon’s private-brand sales come from AmazonBasics, with the remaining 15% divided between 45 distinct labels.

Amazon.com will open a fifth Ohio fulfillment center in Euclid. The others are located in Monroe, North Randall, Etna and Obetz. The 650,000 square-foot Euclid facility will ship items like books, housewares and toys.

Since the beginning of the year, Amazon has revealed plans to open more than 20 additional fulfillment centers, as well as a $1.50 billion air sortation hub in Kentucky, where it keeps its fleet of Prime Air cargo planes. Combined, the new fulfillment centers will reportedly give Amazon an additional 18 billion square feet of space.

According to a French newspaper, Amazon has approached various French supermarket operators, including Casino, about setting up distribution deals or making an acquisition in the country. Amazon is said to have contacted Casino over its Monoprix division, but Casino had declined to pursue the matter. It also contacted supermarket companies Intermarche and Systeme U. Earlier this month, there was speculation that Amazon could be interested in bidding for Carrefour.

Publix

Last week, Publix began testing curbside grocery pickup at two stores, in Wesley Chapel and Valrico, FL. In addition, metro Atlanta stores will begin testing curbside pickup by the end of the calendar year. Publix says that it has been aggressively rolling out grocery delivery since July 2016. By the end of 2017, it expects Publix Delivery to be available at more than 90% of its stores.

Meanwhile, Publix continues to expand its meal kit pilot, offering the kits at another store in the Tampa Bay region. It is the third to sell the kits, with its Tampa and Orlando stores debuting the kits earlier this year. Publix has said that the meal kit sales have been “promising” but that the program is still in a test phase.

Sports Direct/Finish Line

Published reports speculate that Sports Direct is in direct negotiations to purchase The Finish Line, with an announcement expected in the coming weeks. U.K.-based Sports Direct owns an 8% interest in Finish Line through a string of share purchases that eventually prompted Finish Line to adopt a “poison pill” plan in August to cap ownership at 12.5%. If Sports Direct does acquire The Finish Line, it would add 573 mall-based stores and 374 shops within Macy’s stores to its U.S. store base. The potential acquisition would follow Sports Direct’s purchase of 21 Bob’s Stores and 27 Eastern Mountain stores from Eastern Outfitters, DIP in May 2017, which provided the Company a footprint in U.S. retail. In June, it purchased the customer lists and intellectual property of Michigan Sporting Goods Distributors, DIP (dba MC Sports). In the U.K. and Europe, Sports Direct operates about 800 sporting goods stores.

Kroger

Shipt is adding delivery from Kroger throughout Nashville, TN; Huntsville, AL; Columbia, SC; and Savannah, GA, beginning October 5. Shipt currently offers grocery delivery to more than 25 million households in more than 70 markets across the country.

Meanwhile, Kroger is looking to add gas stations to Pick ‘n Save supermarkets in Wisconsin. The Company is already seeking approval to add the stations to stores in Menomonee Falls and Stoughton. Selling gasoline at supermarkets is a key part of Kroger’s approach to grocery retailing. As of January 28, 2017, 1,445 of its 2,796 supermarkets had fuel centers. The Company sold $13.98 billion worth of fuel in fiscal 2016, accounting for 12.1% of total revenue.

Sherwin-Williams

The Sherwin-Williams Company updated its guidance for the third quarter to reflect the impact of Hurricanes Harvey, Irma and Maria on operations in Texas, Florida and the Caribbean, as well as the two earthquakes in Mexico. The Company operates 706 stores in Texas, Florida and the Caribbean, and has 145 Company-operated stores and 387 dedicated dealers in Mexico. In the days surrounding the hurricanes, stores, manufacturing facilities and distribution centers suspended daily operations, and as a result, the Company expects third quarter sales and profit to be negatively impacted by the lost sales days, costs related to clean up and recovery efforts, and tightened supply propylene and ethylene based raw materials. Management indicated that the majority of Company-operated stores and facilities in the affected areas have reopened. The Company now expects third quarter sales to increase in the low single digit percentage range compared to the prior year period, down from previous expectations for sales to increase in the low- to mid- single digit percentage range. EPS is now projected to be $3.40 – $3.70, down from $3.70 – $4.10; last year’s third quarter generated EPS of $4.08. Management indicated that the sales momentum the Company is experiencing in unaffected regions of the U.S. and Canada should enable it to recover some of the third quarter earnings shortfall during the fourth quarter.

Sears Canada, DIP

Sears Canada, DIP announced it filed motion materials regarding an order it will seek from the Ontario Superior Court of Justice on October 4 in connection with a going-concern transaction for its subsidiary, Corbeil Électrique, a specialty retailer of major appliances headquartered in Montreal, Quebec. Under the asset purchase agreement, Am-Cam Électroménagers Inc. will purchase Corbeil and continue to operate the business, including Corbeil’s franchise network of stores. The transaction is subject to various closing conditions, including approval of the Court.

Sears Canada was granted an initial order and protection under the Companies’ Creditors Arrangement Act (CCAA) on June 22; the stay period was extended to tomorrow. Sears Canada received the Court’s approval of a Sale and Investor Solicitation Process (SISP) to seek out proposals for the acquisition of, or investment in, the Sears Canada business, assets and/or leases, and to implement one or a combination of proposals.

Stater Bros.

Stater Bros. recently opened its 171st store, located in Mission Grove, CA. The 45,000 square-foot store occupies a space vacated by a Ralph’s market that Stater Bros. spent several months renovating. The Company has plans for three more new stores in Tustin, Norco and Rancho Cucamonga that will each be built from the ground up.

Hy-Vee

Hy-Vee plans to expand its new Fast & Fresh convenience store concept to Altoona, IA near an outlet mall that will be opening soon. Construction on the 10,000 square-foot store could begin this year, pending city approval. The store could include fuel pumps, a Starbucks drive-thru, groceries, and a place to pick up online grocery orders. The Company also has plans for another Des Moines metro area Fast & Fresh for Davenport and another in West Des Moines. Hy-Vee said it expects to build more of the smaller footprint stores.

In other news, Hy-Vee has partnered with St. Francis Regional Medical Center to set up health care clinics in its Shakopee and Savage, MN markets. The clinics will include two exam rooms, lab services, and self-serve kiosks. The Hy-Vee opening in Shakopee will take place in November, with the clinic opening at the same time. The clinic in the Savage store should be open by year’s end.

The Gymboree Corporation

On September 29, The Gymboree Corporation announced it successfully completed its financial restructuring, the Plan of Reorganization became effective, and it emerged from Chapter 11 as a new entity under the name Gymboree Group, Inc. During the Chapter 11 proceedings, the Company eliminated more than $900.0 million of debt from its balance sheet. Exit financing includes a new $85.0 million term loan from Goldman Sachs and a $200.0 million revolving credit facility from Bank of America Merrill Lynch and Citizens Bank. Gymboree Group's pre-petition term loan lenders, including Searchlight, Apollo Global Management, Oppenheimerfunds, Brigade Capital Management, LP, Marblegate, Nomura Securities International and Tricadia Capital Management, LLC, are the Company's new owners.

ALDI

ALDI is boosting its presence in South New Jersey, with plans to build stores in Voorhees and Winslow. The 20,250 square-foot Voorhees store is expected to open in the first half of 2018, while the opening date for the 22,700 square-foot Winslow store has not been announced. The Company is also is expanding stores in Evesham and Stratford.

DSW

DSW is testing a new store design with a warehouse aesthetic, creating a 70% increase in units through vertical product showcasing. The design is currently being tested at DSW’s “lab” location in Columbus, OH, and the Company expects to expand it to several other locations during 2018. In addition, a new location in Las Vegas, NV set to open in Spring 2018, will include the new format. The Company is also co-developing new proprietary store technology to increase operational efficiencies in store, and it is launching a new loyalty program in 2018. Meanwhile, DSW is evaluating several new services such as shoe rental and repair.

Sheetz

On September 28, Sheetz opened its fourth fuel-free, foodservice-oriented convenience store at the University of Virginia. Previous openings were near the West Virginia University campus in Morgantown, WV; State College, PA, near Penn State; and Indiana, PA, on the campus of Indiana University of Pennsylvania. Sheetz operates more than 540 stores throughout Pennsylvania, West Virginia, Virginia, Maryland, Ohio and North Carolina.

Woodman's Food Market

Last week, Woodman’s Food Market broke ground on its Buffalo Grove, IL store. It is on target to open by late summer 2018.

Pep Boys

Yesterday, Icahn Enterprises, dba Pep Boys, acquired American Driveline Systems from Transom Capital Group for an undisclosed amount. American Driveline Systems is a franchisor of AAMCO and Cottman Transmission & Total Auto Care service centers with 680 total locations. This acquisition of the transmission service center franchisor increases Icahn’s total store base by 50% (Company-operated and franchised) to approximately 1,900. Additionally, the transaction will support Icahn’s thesis that the auto parts’ industry is experiencing a paradigm shift towards the Do-It-For-Me segment as vehicle complexity increases. The additional service centers will ultimately benefit from Icahn’s already strong internal supply chain.

Freshii

Freshii updated its outlook for fiscal 2017 and through the end of fiscal 2019. For fiscal 2017, it now expects to open 90 – 95 stores, down from its prior projection of 150 – 160 store openings. According to the Company, the reduction in store growth results from the closure of 18 non-traditional Freshii stores within Target Corporation store locations, multi-unit franchisee opening schedule delays, and development delays. Through the end of fiscal 2019, Freshii now expects to have a system-wide store count of 730 –760 stores, down from a previous projection of 810 – 840 stores. The Company said it has revised its 2019 outlook in order to accommodate any additional unforeseen events that may occur between now and the end of fiscal 2019.

Pier 1 Imports

Pier 1 Imports reported second quarter sales inched up 0.4% to $407.6 million, and comps were up 1.8%. E-commerce sales represented 27% of total sales, compared to 20% in the prior year period. However, net loss widened 92.3% to $7.8 million; excluding $6.6 million ($3.6 million net of tax) in expenses for legal and regulatory costs relating to a California wage-and-hour matter and an ongoing Consumer Product Safety Commission inquiry, adjusted net loss was $4.2 million. During the quarter, the Company closed four stores, on top of three stores closed during the first quarter, as part of its plans to close 20 – 25 stores during fiscal 2018. CEO Alasdair James commented, “We achieved solid top-line performance and year-over-year improvement in merchandise margin in a challenging retail environment. However, this level of performance does not reflect our expectations for the business. We believe there is far greater potential ahead to optimize the Pier 1 Imports brand and improve our long-term profitability.” Looking ahead, the Company updated its full year financial outlook to reflect the anticipated impact of Hurricanes Harvey and Irma on its third quarter results. The Company now expects comps to be down 1% to up 1%, down from its previous outlook of 1% to 2% growth. Sales are expected to be flat to up 2% from the prior year, down from 1.5% – 2.5% growth. GAAP EPS is projected to be $0.31 – $0.41, down from $0.46 – $0.52.

Wingstop Restaurants

Wingstop Restaurants is expanding into France through a franchise agreement with a newly created entity under Brescia Investissement SAS. During the next 12 years, it expects to open more than 70 restaurants across France with the first Wingstop set to open in Southern France by mid-2018. Openings in France will mark the 13th international market outside of the U.S. for Wingstop and the eighth new market announced during the past 12 months.

Rite Aid

Rite Aid’s stock price dropped over 10% last week, after it reported disappointing second quarter results, that included a 0.9% drop in front-end comps and 4.6% drop in pharmacy comps. EBITDA was also lower, due to the lower sales and continuing pressures on pharmacy pricing, which impaired gross profit. At quarter end, the Company had $2.20 billion in borrowings and $59.0 million of letters of credit outstanding under a $3.70 billion revolving credit facility. Rite Aid said following the sale of 1,932 stores to Walgreens Boots Alliance (WBA) it expects to make changes to its capital structure, and at a minimum will refinance the revolver to both extend the maturity and to right-size the facility, given the smaller store base. Reflecting the sale of stores and $96.0 million in cost cuts, the Company reported adjusted net income of $172.0 million, adjusted EBITDA of $674.0 million and debt to EBITDA of approximately 4.5x.

On an analyst call discussing its results, management said its top priority is regaining momentum of the core business “that got a little bit stagnant while we were suffering through the review process.” Specifically, the Company is looking to get back on track with remodels, script file buys, private labels as well as the EnvisionRx business, which were impaired due to the distractions during the sale process. Management noted it is concerned about the growing threat from Amazon and other online competitors, and is focused on developing its digital and loyalty programs as well as its delivery business but did not disclose details. Management is also in negotiations with McKesson over its current supply contract, which runs through March 2019. As part of the sale agreement, the Company has an option to purchase generics through an affiliate of WBA through May 2019.

IKEA Group

IKEA Group is acquiring TaskRabbit, an on-demand services platform that connects customers with workers to handle furniture assembly, moving and packing, general handyman repairs and home improvements. Terms of the transaction were not disclosed; the acquisition is expected to close in October. Based in San Francisco, CA, TaskRabbit will operate as an independent business within IKEA, and it will continue to partner with other retailers and commercial enterprises. The acquisition allows IKEA to offer customers online access to freelance furniture assembly workers, and it tightens competition with Amazon, which offers its own marketplace of service providers called Amazon Home Services. IKEA and TaskRabbit have been partnered since November 2016 to offer IKEA customers furniture assembly services. IKEA operates 357 stores in 29 countries, while TaskRabbit has a presence in 40 cities around the U.S. and in London, U.K.

CVS

Last week, CVS Pharmacy opened a new flagship store in New York City located in Times Square. It features the Company’s new store format, announced earlier this year, that offers new health and beauty services. The 13,000 square-foot store spans across two floors.

BJ's Wholesale Club

On September 26, The New York Post reported that private equity firms CVC Capital Partners and Leonard Green & Partners intend to sell BJ’s Wholesale Club rather than pursue an IPO, according to unnamed sources. The sources said that private equity firms hope to sell the Company for $4.00 billion – $4.50 billion. The firms are reportedly pre-marketing the Company, including to other private equity firms such as Kohlberg Kravis Roberts. CVC Capital Partners and Leonard Green & Partners acquired BJ’s in September 2011.