Retail News

April 10, 2018

Retail REIT Roundup

See How REITs Performed In The

2017 Fourth Quarter

Includes a comparison of key metrics (Occupancy Rates,

Tenant Sales Per Square Foot, Net Operating Income, Funds From Operations and more)

Lucky's Markets

Lucky’s Markets, a natural and organic chain that Kroger made what it termed a “meaningful investment” in April 2016, recently reported that it has signed up to 20 leases for new stores, as well as letters of intent for “a handful” of other stores. Sixteen of the new store leases are in Florida, two are in Colorado and one each are in Montana and Ohio. These locations are slated to open in the next 18 - 24 months. Lucky’s currently operates a total of 28 stores. The Company reported that its store count could exceed 40 by the end of 2018. The below map highlights the future store openings.

Supervalu

Last Friday, reports surfaced that Supervalu has been exploring a potential sale following pressure from activist shareholders, including Blackwells Capital. Supervalu representatives have reportedly stated that they are “running through a full strategic process.” They have already announced plans to divest the Farm Fresh banner with the rest of the retail business “available,” and we believe the Company was poised to participate in further consolidation in the wholesale arena, whether as acquirer or acquiree. According to the reports, Supervalu is working with investment banks Lazard Ltd. and Barclays Plc as it explores its options.

Golub Corporation

In a recent interview, Golub Corporation’s Executive Chairman Neil Golub said the Company is considering acquisitions to grow and remain competitive. Mr. Golub stated, “We’ve got a lot of people that would like to finance us. We’re not wanting for suitors to finance us to grow our business. We’ll do what we have to do.” Finding a suitable purchase is difficult because he said there aren’t many opportunities available. In terms of growth, Mr. Golub commented, “If there’s one thing that’s factual about all the stuff that’s going on, the larger the scale, the more leverage they put on margins. It really has become a margin issue…. As these other guys get bigger, they put more pressure on price, so making margins are what cover expenses, and expenses continue to grow.” A year ago, there were reports that Albertsons had pursued Golub, but nothing materialized. Mr. Golub insisted the Company isn’t for sale. He also said that he doesn’t know whether his Company will pursue buying any of the stores owned by Tops Markets, commenting, “They have to go through their bankruptcy first. They’ve got a lot of debris in their way. It remains to be seen.” While Mr. Golub states that his Company is not for sale, by bringing attention to the topic he may actually be trying to draw interest and see what the market may reap. He does admit they need scale.

Golub Corporation is now in its fourth year of rebranding and upgrading stores as Market 32, an investment that executives said was vital to respond to consumer demand and attract shoppers. Next week the Company will open its 17^th Market 32 store in Burlington, VT. Golub has been opening five to six of the stores annually, either through renovations or new construction, a pace it expects to continue. Mr. Golub said not every Price Chopper will be converted to Market 32, adding that the decision depends on the demographics of the market and other factors. For example, Price Chopper stores in Menands, Glens Falls and Lee, MA were closed rather than renovated.

Ahold Delhaize

Ahold Delhaize’s GIANT Food division will invest $70.0 million to construct six new stores, remodel two, and open five new fuel stations in Pennsylvania over the next two years, adding to its expansion activity in the region in recent years. In February 2018, a new Peapod wareroom was opened in partnership with GIANT in North Coventry, PA. The new facility was a response to expanding delivery and pickup demand, and according to the Company, will enable Peapod and GIANT to serve up to 25% more shoppers in the greater Philadelphia area. Peapod has experienced double-digit growth in the Philadelphia region for the last three consecutive years. Furthermore, GIANT has added its Beer & Wine Eateries to 59 stores in the state since 2011.

Giant Eagle

Plans are underway for Giant Eagle to install Ace Hardware sections in four of its Pennsylvania stores this year, the first of which will open this summer. The stores are located in Irwin, Allegheny Township, Ross Township and Shaler. A Company spokesperson commented, “It is imperative that we at Giant Eagle continue to innovate both within and outside of our supermarkets to succeed in our increasingly competitive food retail environment.” 

Nine West Holdings, DIP

On April 6, Nine West Holdings, DIP filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in the Southern District of New York. The Honorable Shelley C. Chapman was assigned to the case, which was designated as case number 18-10947. The Chapter 11 petition states that funds will be available for distribution to unsecured creditors. Management said the bankruptcy filing is intended to facilitate the sale of its Nine West and Bandolino footwear and handbag business and to right-size its capital structure around its profitable and growing businesses, including One Jeanswear Group, The Jewelry Group, the Kasper Group, and Anne Klein. The Company will have access to a $300.0 million DIP Facility. The Company entered into a Restructuring Support Agreement (RSA) with parties that hold or control over 78% of its secured term debt and over 89% of its unsecured term debt. Under the terms of the RSA, the Company entered into a “stalking horse” asset purchase agreement with Authentic Brands Group, and the transaction will be subject to a competitive sale process.

Kroger

Kroger is abandoning its plans to build a 123,000 square-foot Marketplace store in Fishers, IN, opting instead for a “multi-million dollar” remodel of an existing store across the street that is roughly half the size of the proposed store. The Company signed a lease in early 2017 to anchor the Fishers Station shopping center. A Kroger representative commented, “In today’s business climate, refreshing the present building is the most logical decision and will still allow Kroger to provide even better service to our customers.” The Company has not yet released a timeline for the remodeling. The site previously housed a 57,000 square-foot Marsh Supermarkets store, which closed in 2015 and has since been demolished. It was one of the 26 Marsh stores sold last June as part of that Company’s bankruptcy filing; Kroger subsidiary Topvalco was the successful bidder for the location.

Separately, Kroger announced last week it will open its second Kitchen 1883 full-service restaurant, following the successful launch of its first location under the format in Union, KY in November. The new unit, currently under construction, will open in the Anderson Township neighborhood of Cincinnati, OH this fall. It will be a standalone restaurant with a patio (unlike the first unit which is attached to a Kroger Marketplace store) and will serve lunch and dinner daily as well as brunch on the weekend. Kitchen 1883 features “a made-from-scratch menu inspired by American and international flavors, hand-crafted cocktails and a community-centered atmosphere.” VP of Culinary Development Daniel Hammer commented, “Since opening our pilot restaurant five months ago, we’ve discovered new ideas that will help to shape our future dining concepts and in-store fresh food experiences. Kitchen 1883 is just one way Kroger is redefining the customer experience through innovative concepts, as we outlined in Restock Kroger.”

The change in plans in Fishers, IN and the new Kitchen 1883 restaurant are considered part of the Company’s Restock initiative. Announced in October, Kroger’s Restock consists of strategic plans involving reducing investments in new stores and using technology to improve assortments and enhance customer service at existing locations.

Natural Grocers by Vitamin Cottage

Moving ahead with its expansion, Natural Grocers by Vitamin Cottage plans to open its 5^th Portland-area store and 11^th in Oregon on April 18. During fiscal 2018, Natural Grocers said it plans to open 8 - 10 new stores; it opened 14 in fiscal 2017 and 23 in fiscal 2016.

Fresh Thyme Farmers Market

Fresh Thyme Farmers Market will open a 28,000 square-foot store in Muncie, IN on May 17. The Company currently operates 67 stores throughout the Midwest that focus on fresh and affordable groceries. It plans to open 10 stores in 2018, including its first stores in Pennsylvania. This is down from 20 stores opened in 2017 and down from previous announcements to open 20 stores in 2018. The Company recently announced a target of 100 regionally situated stores by 2020.

Sprouts Farmers Market

Sprouts Farmers Market announced that 13 new locations are scheduled to open during the third quarter of 2018 across nine states. Included in those openings are its first stores in Pennsylvania (Philadelphia) and Washington (Mill Creek). Sprouts opened 16 stores during the first half of the year, including its first locations in South Carolina and Maryland. It operates about 300 stores throughout 19 states.

Shoppers Drug Mart

Shoppers Drug Mart opened its second store under the Wellwise banner in Etobicoke, in the Toronto, Canada metro area, on Saturday. The location has “full-sized lifestyle vignettes,” where shoppers can access model rooms to try products and see how they would fit into their everyday lives. Other features unique to the location are “an innovation space where consumers can try out new products that have not yet hit the market” and a community room for education events. The Company launched Wellwise in fall 2017, opening a standalone 2,500 square-foot store in the Leaside neighborhood of Toronto; the concept offers specialized products and expert advice to promote activity and wellness for aging consumers including travel accessories, mobility products, low-impact fitness tools, compression socks, physiotherapy products as well as supports and braces. In February 2018, Shoppers Drug Mart launched the wellwise.ca e-commerce website.

Variety Wholesalers

Variety Wholesalers is closing its underperforming Maxway store in Rocky Mount, NC in the next 60 to 90 days (no exact date was given). Variety Wholesalers operates more than 360 stores in the Southeast.

Best Buy

On April 6, Best Buy issued a warning that some of its customers’ payment information may have been compromised in a data cyberattack that involved a third-party operator of its chat services, a company called (24)7.ai. The breach is believed to have occurred between September 27 and October 12, 2017. The Company stated that only a small fraction of its online customers could have been affected, whether or not they used the chat function. Several companies have been affected by cyberattacks this month, including Delta Airlines, Sears Holdings, Panera Bread, and Hudson’s Bay.

In other news, Best Buy is opening a 36,000 square-foot store in Farmington, a suburb north of Salt Lake City, UT, this fall. This is the Company’s first big-box store opening in the U.S. in seven years, and it joins 10 existing stores in Utah, primarily in the Salt Lake City area. The Company did not indicate whether it has any other new stores in the pipeline. In recent years, the Company has been downsizing, most recently announcing it would shutter its remaining 250 mobile phone stores in the coming months. Last year, it closed 18 underperforming stores, on top of 11 in 2016 and 13 in 2015.