March 13, 2019
Casual Dining/QSR is a dynamic segment with continuous movement year after year, and 2019 will be no exception. Local restaurant operators will add new locations, regional restaurant chains will optimize their markets, and restaurant fleets that have outgrown familiar territories will expand into green fields. An LSU student developed the concept for Raising Cane’s in one of his classes and went on to open the first location adjacent to campus… hundreds of locations later, Raising Cane’s will continue to add new restaurants this year. Other fast-casual and fast-growing concepts like Chicken Salad Chick and Cava are on a similar path, and even mature restaurant fleets like McDonald’s, Burger King, Wendy’s, and Domino’s are constantly assessing their trade areas and evaluating prospective sites.
On March 11, Z Gallerie, a home furnishings and décor retailer, filed voluntary petitions to restructure under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware. Subject to Court approval, the Company expects to have access to a $28.0 million DIP financing facility from existing secured lender KeyBank. The financing, which provides up to $8.0 million in incremental liquidity, combined with the Company’s cash from operations, is expected to provide sufficient liquidity to maintain normal operations during the Chapter 11 process. Z Gallerie also filed a motion seeking Court approval to proceed with the closure of 17 of its 76 stores (click here to request a list of closing locations). It expects to complete the Chapter 11 process within four months. Z Gallerie previously filed Chapter 11 in April 2009 following a major sales slump, and emerged later that year after closing 25 stores.
The Court issued an order approving the asset purchase agreement between Things Remembered, DIP and Enesco Properties, LLC, under which Enesco will acquire the Company’s online, direct mail and B2B retail businesses, as well as at least 50 of the 422 stores, for $17.5 million.
Modell's Sporting Goods
Modell’s Sporting Goods has hired Berkeley Research Group to seek options for restructuring its operations. Approximately 47% of the Company’s stores are located in New York State, with 22.5% in New Jersey, 12.6% in Pennsylvania, 6% in Maryland, and 3.3% in Connecticut. Consolidation within the core territory of New York City and New Jersey may be a factor in the Company’s restructuring activities. Modell’s locations are displayed on our Store Concentration Map, below.
Levi Strauss & Co.
In a filing on Monday with the SEC, the 166 year-old denim company Levi Strauss & Co. disclosed plans for an IPO of 36.7 million shares priced at $14.00 – $16.00 per share. Levi plans to raise up to $587.2 million, which values the Company at about $6.17 billion. The date for the offering has not been set, but it intends to list as “LEVI” on the NYSE. Levi first went public in 1971 but was taken private again in 1985 by its majority owners, the Hass family, descendants of founder Levi Strauss. Levi has a global footprint of about 3,000 retail stores and in-store shops. Its products are also sold in more than 110 countries worldwide through chain retailers, department stores and online.
On March 8, A&G Realty Partners announced the results of the auction of the final department store properties formerly owned by Bon-Ton Stores, DIP. Additionally, A&G reported the completion of two private sales outside of the auction process. With stores ranging in size from 45,000 to 165,000 square feet, the assets offered during the sale included locations in Iowa, Pennsylvania, Michigan, Indiana and Illinois. They were formerly operated under the Bergner’s, Carson’s, Younkers, Elder-Beerman and Bon-Ton banners.
The following is a summary of the results:
· A home furnishings retailer that operates stores under several trade names acquired the Younkers store at Coral Ridge Mall in Coralville, IA (98,458 sq. ft., one-story, 9.1-acre lot).
· Mall owner Abbell Associates purchased the Younkers location at Merle Hay Mall in Des Moines, IA (165,000 sq. ft., two stories, 7.81-acre lot).
· Mall owner Brookfield Properties purchased the Carson’s store at Spring Hill Mall in Dundee Township, IL (128,000 sq. ft., two stories, 8.76-acre lot). The property is in the midst of a $40.0 million renovation.
· Mall owner Simon Property Group purchased the Bergner’s store at White Oaks Mall in Springfield, IL (125,000 sq. ft., two stories, 1.2-acre lot).
· The Economic Development Corporation of Wayne County purchased the Elder-Beerman location in Downtown Richmond, IN (freestanding 100,000 sq. ft., two-story building on 1.5-acre lot). “It is anticipated that the building will be part of a planned revitalization of Richmond's downtown,” said Michael Jerbich, a Chicago-based Principal at A&G.
· Mall owner Brookfield Properties bought the Younkers store at River Towne Crossings in Grandville, MI (150,081 sq. ft., two stories, 9.94-acre lot).
· HOM Furniture acquired the Bon-Ton store at Lewistown Mall in Lewistown, PA (46,660 sq. ft., one story, 0.83-acre lot, freestanding).
Removed from the auction were the Herberger’s buildings in downtown St. Cloud, MN and at Midway Marketplace in St. Paul, MN. In late January and early March, A&G completed private sales on two other store properties from the Bon-Ton portfolio. On January 29, the firm closed on the sale of the former Younkers building at Miller Hill Mall in Duluth, MN to Essentia Health. The regional healthcare system is reportedly converting a portion of the 141,000 square-foot building’s first floor into a fitness and therapy center, with plans for the balance of the two-level space to be announced at a later date. This was followed on March 7 by the sale of the 155,000 sq.-ft. former Carson Pirie Scott store at Edens Plaza in Wilmette, IL to mall owner Newport Capital. The two-story building sits on a 7.22-acre parcel.
Charlotte Russe, DIP will wind down its operations after failing to complete a going concern transaction. The Company filed a notification that SB360 Capital Partners, LLC was the successful bidder at the recently completed auction. No qualified going-concern bids were received at the auction. SB360, which is an affiliate of the Schottenstein Family of Companies, will liquidate merchandise at 416 of the Company’s stores. Store closing sales commenced on March 7 and continue through April 30. Store closing sales at the Company’s other 94 stores commenced February 7 and will continue through March 31 - click here to request a list of closing locations.
San Diego, CA Metro Area - Hot Market Report
The San Diego Metro Area, the 17th largest metropolitan area in the U.S., is home to about 3.3 million residents, and has experienced healthy population growth over the last decade, increasing 7.8% since 2010 compared to a 5.3% increase nationwide during the same time. With a population base that is wealthier than average, and has a high concentration of ethnic groups, San Diego’s grocery market has a strong mix of high-end and natural grocers, as well as value-oriented and Hispanic/Asian-focused supermarkets. The top three grocers in the San Diego market, Albertsons, Kroger, and Walmart, have remained relatively quiet in recent years, with Walmart the only chain to add stores in the last five years. The lack of significant growth from the top three players has given alternative format chains the opportunity to move in and grab a larger slice of the pie. Our report takes a closer look at the San Diego real estate landscape, and provides visual competitive analyses as well as key real estate metrics such as future openings, store count, market share, and demographics.
Kohl’s Corporation announced a partnership with Planet Fitness to open 10 workout centers adjacent to select Kohl’s stores in 2019, with the potential to open additional facilities in the future. The Planet Fitness facilities will be 20,000 – 25,000 square feet in size. Kohl’s will also expand its plus-size product options with Nike. These latest efforts in the health and wellness space follow the announcement of Kohl’s pilot program with WW (previously known as Weight Watchers) announced earlier this year. As part of that program, Kohl’s will open an in-store WW Studio at one of its stores in Chicago, IL. Kohl’s will also sell WW Healthy Kitchen products this summer in select stores and online.
Casey's General Stores
Casey’s General Stores has acquired the Fantasy’s Convenience stores and Ride the Wave carwashes located in the Omaha, NE metro area; terms of the deal were not disclosed. Casey’s said it plans to perform significant remodels at all nine of the locations, which will enable the stores to offer an assortment of freshly prepared foods. Casey’s also said it would leave the touchless tunnel washes in place and continue to use the Ride the Wave brand.
In the third quarter, a 5% drop in total fuel revenue pushed Casey’s top line slightly lower, to $2.05 billion. However, Grocery and Other Merchandise revenue was up 8% to $1.80 billion, and same store sales were up 3.4%, with total average gross margin of 31.9%. Prepared Food and Fountain revenue rose 6.5% to $256.1 million, and same-store sales were up 1.5% with total average gross margin of 62.3%. Despite the decline in total fuel revenues, fuel margin was sharply higher, at $0.221 per gallon, versus $0.186 a year earlier; same-store gallons sold were down 3.4%. In the absence of a prior-year tax benefit of $166.6 million, net income was $41.8 million, versus $193.0 million a year ago.
Since the start of fiscal 2019 (4/30/18), the Company has increased its store count by 50 to 2,123. The Company had 17 stores under agreement to be acquired and a new store pipeline of 133 sites, including 48 under construction as of January 31.
Looking ahead to fiscal 2019, the Company revised its fuel same-store gallons sold to (2.0%) – (0.5%), down from (1.0%) – 0.5%. It continues to expect same-store sales for Grocery and Other Merchandise to be 1.5% – 3%, and Prepared Food and Fountain to be up 1.5% – 3.5%.
Academy Ltd. announced plans to open seven new stores in 2019, including locations in Georgetown, TX; Buford, GA (in the Metro Atlanta region); Gastonia and Mooresville, NC (the 14th and 15th North Carolina locations); Ardmore, OK (the 13th Oklahoma location), and Terrell and Frisco, TX (the 24th and 25th Dallas-Ft. Worth-area locations). These locations are in addition to the one future closing and five future openings reflected in the map below. Click here to request a list of future Academy locations.
Sephora plans to open 35 new stores in the U.S. this year, starting with a New York location opening this Thursday in Hudson Yards. The 35 openings will occur in 32 major cities, including Dallas, Houston, Washington D.C., Los Angeles, Seattle, and Charlotte. Nine stores will open in California. Sephora has more than 460 stores in North America as well as 660 locations inside J.C. Penney stores.
On March 6, Amazon announced that it will discontinue and shut all 87 of its existing Pop-Up stores. The stores average 300 – 500 square feet and are in locations from malls and Kohl’s stores to Amazon’s Whole Foods stores. Amazon plans to continue to expand its bookstores and its 4-star stores, which are larger and sell more merchandise. The Company also continues to experiment with the Amazon Go format.
Bass Prop Shops
Bass Pro Shops announced it is closing the Cabela’s distribution centers in Sidney and Oshkosh, NE by this spring. The Company indicated the Sidney facility handles the least volume of its distribution centers, and streamlining the return process eliminated the need for the standalone Oshkosh return facility. Cabela’s has five other distribution centers across the country, and Bass Pro plans to expand operations at those locations by adding more jobs and moving to seven-day work weeks.
Hy-Vee has decided not to move forward with a proposed one million square foot distribution center in Austin, MN. In September 2017, Hy-Vee said it was in the exploratory phase of plans to construct the facility. Citing changing initiatives for the Company, Hy-Vee AVP Pete Hosch stated, “We are stepping away from the project at this time, but not saying that we won’t ever revisit the facility in Austin.”
In other news, Hy-Vee plans to open a 5,300 square-foot Wahlburgers restaurant in Milwaukee, WI late this year. The location will be its second Wahlburgers in Wisconsin and fifth overall. A 6,000 square-foot Wahlburgers will open in Brookfield, WI, late this summer; its first three opened in 2018 in Bloomington, MN (inside the Mall of America); West Des Moines, IA; and Olathe, KS. In 2017, Hy-Vee unveiled plans to build, own and operate 26 Wahlburgers restaurants.
7-Eleven reportedly plans to open six new test stores around the U.S., the first of which opened in the Dallas metro area on March 4. It features a Laredo Taco restaurant, the brand acquired as part of its purchase of Sunoco LP’s retail assets in early 2018. 7-Eleven will use the concept stores to develop brands and ideas. Another Texas concept store is slated for Prosper.
Albertsons has opened its largest store, in Meridian, ID. At 110,000 square feet, the supermarket is 40,000 square feet larger than its current largest store. The new location is part of the Company’s next-generation format, called Albertsons Market Street. According to a Company representative, “The increased volume of products available on the store’s shelves sets it apart from any other.”
On March 20, Publix will open a new store in Clarksville, TN, its third in the city. The 45,000 square-foot store will have traditional grocery, dairy and frozen food departments, along with expanded produce, prepared foods, and pharmacy departments. It also features curbside pick-up and grocery delivery.
Fred's Inc. Strategic Sales Insights
Fred's is still struggling to find the right strategy to curtail its top line erosion, as third quarter comps decreased 5.3%, and revenue fell 5.5%, (restated for the sale of the pharmacy scripts) with eight fewer stores. Front of the house sales declined 9.5%, and pharmacy sales decreased 4.5%. The Company's top line initiatives included adding beer and wine to more locations, expanding private label offerings, adding closeout merchandise to all of its stores, and opening two new Closeout Bonanza stores. Our report takes a close look at the Company’s operational and competitive status, including market position, real estate and sales trends, and provides visual competitive analyses as well as key real estate metrics like store count, average sales per store and sales per square foot.
Rutter’s will open a new convenience store in Altoona, PA on March 21. The 8,200 square-foot store will offer 10 gas pumps, a quick-service restaurant with seating for 30, and a variety of fresh, packaged and general merchandise products. The store marks the Company’s third in Altoona, second store opening this year, and 74th location overall. Operating states include Pennsylvania, Maryland and West Virginia.
On April 3, Whole Foods will open its fourth store on Long Island in Commack, occupying about 75% of a former King Kullen that closed in March 2017. The store will include expanded fresh produce, and prepared items along with a fast-casual restaurant. Whole Foods also has plans for another Long Island store in Garden City next year.
CVS Health is reportedly closing its roughly 30 hearing centers. A Company representative said it made the decision to close the centers because the hearing-care market has evolved since CVS started piloting audiology services in 2015. Next year, the FDA will introduce regulations to allow hearing aids to be sold OTC, eliminating the need for CVS to dedicate store space for audiologists to conduct hearing tests and fit people for the devices.
This information contained in this newsletter is compiled from sources which Market Service Inc. does not control and unless indicated is not verified. Its contents are not to be divulged. Market Service Inc., its principals and writers do not guarantee the accuracy, completeness or timeliness of the information provided nor do they assume responsibility for failure to report any matter omitted or withheld because of their negligence.