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March 27, 2018

Southeastern Grocers

Today, Southeastern Grocers, LLC, DIP filed a petition for a voluntary prepackaged Chapter 11. The petition, as well as a Plan of Reorganization and Disclosure Statement, was filed in the U.S. Bankruptcy Court in the District of Delaware. The case has been designated as case number 18-10700. As we previously reported, in connection with the filing, the Company expects to close 94 stores, including 45 of approximately 430 Winn-Dixie stores (mostly in Florida and Alabama), 26 of approximately 80 Harvey’s stores, 22 of approximately 150 BI-LO stores and one of the 23 Fresco y Mas stores. 

Toys "R" Us

The Bankruptcy Court entered an order approving the and immediate orderly liquidation of Toys “R” Us, DIP’s U.S. business, including the closure of its remaining 735 stores. Liquidation sales began on March 24. Published reports stated that an investor group led by MGA Entertainment’s Isaac Larian may be interested in up to 400 Toys “R” Us stores.

The Court also authorized the Company to put its Canadian business up for sale. The deadline for bids is April 13, with an auction of the Canadian operations scheduled for April 18. The Canadian sale process includes the option to add on 200 U.S. stores, including the best-performing side-by-side Toys “R” Us and Babies “R” Us stores.

Meanwhile, as many as 26 of the weakest properties in a 2016 commercial mortgage-bond transaction secured by 123 Toys “R” Us stores may have little or no value, according to a report by Deutsche Bank AG. The report states that stores backing the $512.0 million had an estimated value of $618.0 million in 2016, but that amount could be one-third lower now because of the operational deterioration. 

AggData's locational data was recently utilized by CNBC to map Toys "R" Us' store concentration. The map can be viewed below. 

Supervalu

A proxy fight continues to play out at Supervalu, as Blackwells Capital, a New York firm that now owns about 4.3% of the Company, pushes Supervalu to change its board (nominated six candidates) and move it out of the retail business. It requested three board seats last month and pushed a plan to split Supervalu into separate companies and possibly seek a buyer. Supervalu rejected the plan and responded by saying the nominations are unfair to shareholders and that the increase to six board nominations is a sign that Blackwells “effectively seeks control of the Company.” Supervalu argued that a shakeup of the board is not necessary.

Just last week Supervalu announced its plan to exit its Farm Fresh business, which consists of 38 stores operating mostly in the Virginia Beach area. The Company indicated plans to sell 21 of the stores, including 18 to Kroger (10 to Harris Teeter and 8 to its Mid-Atlantic division utilizing the Kroger banner) and three to Food Lion. Farm Fresh is beginning to liquidate the inventory in the 38 stores.The following Store Concentration Map details the 38 Farm Fresh locations.

Amazon

Amazon continues to look for ways to expand its brick-and-mortar retail network. It is reportedly searching for bigger Whole Foods locations in cities that can serve as both grocery stores and urban distribution centers for more rapid delivery to online shoppers. The larger spaces would accommodate grocery aisles as well as storage for popular items purchased from Amazon’s website. Combining grocery and non-grocery warehouse space, which is currently maintained separately, could help cut costs and expedite delivery. The average Whole Foods store is currently 40,000 square feet, but the Company has been reportedly scouting 50,000 to 80,000 square-foot locations. It recently signed a lease for a 55,000 square-foot store in Long Beach, CA expected to open in 2019.

At the same time, Whole Foods is said to be working with landlords to convert a portion of their parking areas at existing stores into stalls for Amazon delivery contractors to load up their orders.

According to data advertising firm inMarket, Whole Foods has seen an 11% increase in short “micro” visits, defined at 3 to 5 minutes in length, to Whole Foods locations with Amazon Lockers. This compares to a 7% gain at stores that do not have the lockers.

Amazon is also looking for more urban markets to expand its two-hour Prime Now delivery offering, which is currently limited compared to other retail formats. Transitioning more orders to Prime Now would help Amazon reduce its reliance on package handlers such as UPS and DHL.

Whole Foods met with some of its suppliers in Austin, TX at a summit designed to relieve tensions over recently proposed new vendor fees related to its efforts to centralize its merchandising. Whole Foods began centralizing its purchasing processes before it was acquired by Amazon and has since required merchandising fees of between 3% and 5% of manufacturers’ total sales to pay for the program. The meeting was also a chance to discuss the Company’s new inventory management system, which got blamed for the higher level of out-of-stocks some consumers experienced this winter. Whole Foods’ president and COO, A.C. Gallo, commented that increased demand was behind some of the empty shelves, but that’s “not to say the system we put in place is perfect.”

Wegmans

Wegmans has announced it lowered prices on certain store-brand produce, grocery, dairy and items. The Company last visited prices on these items in December 2016, with most remaining unchanged. Wegmans’ list of reduced-price items now stands at around 130, including both fresh and private-label products. Wegmans said monitoring the competition’s prices and lowering its own is important to competitive.

The timing of the price cuts can also be regarded as a move to capitalize on Tops Markets’ struggles, as that company filed for bankruptcy about a month ago. Tops one of main competitors in its upstate New York operating markets. There are approximately 58 Tops stores within a three-mile radius of a Wegmans. The following Store Overlap Analysis highlights the overlaps.

In other news, Wegmans customers can order online for curbside pickup at three more locations, in Buffalo, Depew and Amherst, NY. Wegmans has been testing the concept at stores in Hamburg and Pittsford, NY.

Raley's

Raley’s announced that it is acquiring six of the eight remaining Scolari's Food & Drug Company stores in Northern Nevada. After the sale, whose financial terms were not disclosed, Scolari's will continue to operate two stores in Sparks and Sun Valley, NV. The transaction is structured as an asset purchase.

The acquisition follows the opening of two new stores by Raley’s in 2017, its first new locations in six years. The Company has three more new stores in planning stages, including a smaller, farmer’s market concept called Market 5-ONE-5, expected to open in downtown Sacramento this spring. In addition to the 11,000 square-foot Market 5-ONE-5 concept, most of the new stores are using a smaller footprint at 30,000 to 40,000 square feet, compared to the typical Raley’s store at 50,000 - 60,000 square feet.

Five of the purchased stores will operate as Raley's. The sixth, a Sak 'N Save, will continue to operate under that name as part of the Food Source division of Raley's. The transition is expected to be completed by late spring, 2018. The stores being purchased are:

Scolari’s Food & Drug: 3310 S. McCarran Blvd., Reno

Scolari’s Food & Drug: 4788 Caughlin Parkway, Reno

Scolari’s Food & Drug: 1400 U.S. Highway 95A North, Fernley

Scolari’s Food & Drug: 176 W. Goldfield Ave., Yerington

Scolari’s Food & Drug: U.S. Highway 95/Air Force Road, Tonopah

Sak ‘N Save: 1901 Blvd., Reno

Raley's President Keith Kopf said the Company would expand food categories (including health and wellness items, a major Raley's initiative), lower the prices on staples and, "over time, make improvements to the overall store decor and experience."

The Company operates 122 stores in Northern California and Nevada under four banners: Raley’s Supermarkets, Bel Air Markets, Nob Hill Foods and Food Source. In Nevada, Raley's currently operates 11 Raley's stores and one Food Source store, and two Aisle One fuel stations.

The below Store Concentration Map details the Raley’s and Scolari’s Nevada stores. 

Winn-Dixie

While many Winn-Dixie locations are dealing with potential closure because of the bankruptcy of Southeastern Grocers, a Winn-Dixie in Highland Park, FL reopened last week following a major remodel that included a new “Dollar Shop.” According to the Company, more remodels are expected.

Lucky's Market

Lucky’s Market, which is backed by Kroger, will open a new store in St. Petersburg, FL this summer in Tyrone Square Mall. The 29,000 square-foot store will replace part of a former Sears; Dick’s Sporting Goods, which also took a portion of the Sears space, recently opened. Lucky’s currently operates a total of 35 stores, 15 of which are in Florida; 13 of those Florida locations opened within the past two years. The below map displays recent openings/closings.

Mitchell Grocery

Mitchell Grocery has agreed to purchase three Winn-Dixie locations in Alabama from Southeastern Grocers LLC. The stores are located in Jacksonville, Oxford and Pell City. Mitchell Grocery said it is acquiring the Pell City store on behalf of The D’Alessandro Organization LLC and the other two for Johnson’s Giant Foods. Financial terms of the deal were not disclosed. Mitchell Grocery’s distribution center is located in Albertville, AL and currently supplies 175 independent supermarkets in Alabama, Georgia, Mississippi, Tennessee, Kentucky and Florida.

Meanwhile, Rouses Markets will replace a Winn-Dixie in Orange Beach, AL. The 40,000 square-foot store will be renovated and is expected to reopen by the end of May with expanded offerings. None of the four stores being sold to Mitchell Grocery and Rouses were listed among the 94 previously announced closures as part of the Company’s pending bankruptcy filing.

Rouses has a store in nearby Gulf Shores and is opening a second location in Mobile next month, occupying a former Gander Mountain location. In total, the Company said it plans to open six new stores in 2018. Rouses operates about 55 locations, 47 in Louisiana, and the remainder in Alabama (5) and Mississippi (3). 

Aldi

A new Aldi store in Cary, NC opened last Thursday and includes a more modern design. The Cary store is Aldi’s second in that town and ninth in the Triangle. In terms of competition, two Publix and two Whole Foods have opened in Cary, two Wegmans are currently in the works, and Lidl is reportedly exploring potential sites across the state.

Big Y Foods

Big Y Foods plans to open its 7th Big Y Express Gas & Convenience in Springfield, MA by mid-May. It will replace an Ultra Gasoline and offer eight gas pumps and a convenience store with an expanded prepared food selection. Big Y opened its first Express in 2013 in Lee, MA. 

H.E. Butt

H.E. Butt’s upscale grocery division, Central Market, plans to add at least two more stores to the five that already operate in the Dallas market, with one of them scheduled to open this summer. The Company is focusing on cementing its position in Dallas, where it is being squeezed by Safeway, Kroger Walmart. Meanwhile, in it has no immediate plans to expand beyond its sole Central Market location near Highland Village.

Walgreens

Walgreens purchased prescription files from 10 Pyramid Foods stores. The pharmacies, under the Company’s Price Cutter banners, primarily operated in the Springfield, MO, markets. is closing the pharmacies to invest in click-and-collect and home delivery as well as space for new retail services.

Sears

Published reports indicate that Sears is reentering the consumer electronics business, three years after exiting the category “due to low margins.” At the time, Sears thought it would make more sense to focus on selling “smart home” technologies. According to the reports, about 175 of Sears’ 570 stores now feature a wide selection of TVs, headphones accessories, and another 45 locations are expected to add the category by May. 

Walmart

Walmart plans to expand a car-buying service by opening 250 CarSaver Shopping Centers at its stores. The pilot program, which was announced early last year, is currently at 14 Walmart stores. The service uses a network of certified dealerships, banks insurance companies to support its car shopping and buying assistance to Walmart customers.

Meanwhile, last week Walmart filed a number of tech patents including “a shopping cart sensing device, a means for tracking customers through wearables, and systems that could be used for human-less picking, packing, and delivery.”

Walmart has begun testing intelligent robots that can combine artificial intelligence with autonomous movements to assess inventories on store shelves in some San Francisco Bay area stores. Walmart has deployed robots in 50 of its stores to determine what is on the Company’s shelves. 

Boscov's

Despite many of its peers like Sears, Macy’s and Bon-Ton closing their stores, Boscov’s continues to grow, primarily relying on an aging but loyal customer base, while other retailers attempt to attract younger customers who prefer to shop online. The Company also sells a mix of both high-end products as well as low-priced items, appealing to a wider range of incomes. The chain operates 46 stores, of which 55% are located in Pennsylvania (25) and the rest are located in Connecticut (1), Delaware (3), Maryland (4), New Jersey (8), New York (4) and Ohio (1). In October 2017, the Company opened square-foot store in Erie, PA, in a former Sears location. Looking ahead, it plans to open its 47th store in Milford, CT in October 2018. The Company generally opens one new store per year, a more conservative approach following aggressive store growth (10 new stores at once) that led to a Chapter 11 filing in 2008. 

Ross Stores

Ross Stores opened a 23,000 square-foot dd’s Discounts store in Wilmington, DE as part of its 2018 store growth plan to open 75 Ross stores and 25 dd’s stores this year. The chain offers brand-name apparel and other items at 20% – 70% off department store prices. The Company operates two Ross Dress for stores in New Castle and Dover, DE. As of fiscal 2017 year end, there were 1,409 Ross Dress for stores in 37 states and 213 dd’s Discounts stores in 16 states. The Company continues to express confidence that it can eventually reach 2,000 Ross and 500 dd’s Discounts locations. As troubled companies continue to close stores, including Toys “R” Us, DIP’s recent liquidation announcement, Ross Stores has been mentioned as a possible tenant for vacant retail space. 

Macy's

On Monday, Macy’s completed the closure of its downtown Cincinnati, OH store, one of the 11 stores the Company announced back in January it would close in 2018. The Company’s lease was set to expire this year; it continues to operate six other Cincinnati-area locations. Macy’s previously announced its intent to close 100 stores in August 2016, then identified 68 stores at the beginning of 2017 and said the remaining 30 or so would close as leases expire. The closures are part of a wider real estate strategy to redevelop certain existing stores. Macy’s currently operates 825 stores across the U.S.

Four real estate companies (Towne Properties, Belvedere Corp., Duke Realty, and Madison Marquette), and a group of pension own the 225,000 square-foot downtown Cincinnati building. According to published reports, officials involved in courting Amazon’s planned second headquarters disclosed the Macy’s Downtown site in the bid. Other options for redevelopment include using the ground floor for retail space and turning the upper floors into offices, apartments, condos, hotel rooms or some combination of these options.

Academy Sports + Outdoors

On March 23, Academy Sports + Outdoors completed the relocation of its Abilene, TX store to a new 72,000 square-foot location from its previous 50,000 square-foot location. The Company operates 244 stores in the Southeast, with nearly half of its stores located in Texas. While trends did not improve much in 2017, margins should be stabilizing, as the Company has trimmed expenses. In addition, the Company said it would reduce its number of store openings this year to eight, after opening 16 last year. 

The Finish Line

On March 26, The Finish Line announced it entered into a merger agreement under which JD Sports Fashion plc will acquire all issued and outstanding shares of Finish Line for $13.50 per share in cash, representing an aggregate value of $558.0 million. JD is a European retailer of sports, fashion and outdoor brands. Terms of the agreement represent a premium of 28% for Finish Line shareholders compared to the closing price of $10.55 on March 23. Upon completion, the Finish Line executive team will continue to be involved in the business. The merger is subject to shareholder and regulatory approval. It is expected to close no earlier than June. 

Roots

Roots, a Canadian lifestyle brand that sells apparel, leather goods, footwear and accessories, is opening two stores in the Boston, MA area in June, as part of efforts to expand its U.S. presence. The first location will be in Natick, MA (a 4,000 square-foot store), and the second will be a 5,000 square-foot store in Lynnfield, MA. The two locations are part of the Company’s plans to open 10 to 14 U.S. stores by the end of 2019; the Company is targeting markets in New England, the Mid-Atlantic, and the Midwest. Roots completed its IPO in October 2017, priced at $12 per share, and it reported a 10.1% comp increase for the third quarter of fiscal 2017. At the time of its IPO, CEO Jim Gabel said, “Canada remains far from a mature market for Roots” and noted that the Company is looking at 30 new locations in the country, where it plans to open eight to 10 new stores by the end of 2019 and renovate up to 33 additional locations. Roots 116 stores in Canada and four in the U.S.; it also has licensed stores in Taiwan (109 locations) and China (29 locations).

Michaels Companies

On March 22, Michaels Companies reported it completed a strategic review of Aaron Brothers and decided to close 94 full-size locations and reposition Aaron Brothers as a “store-within-a-store” concept, providing framing services in all Michaels’ stores. Averaging just 6,500 square feet, Brothers stores are significantly smaller than Michaels’ units, which average 18,000 square feet. Aaron Brothers sells custom framing, art supplies kid’s supplies; it has no e-commerce presence. In 2017, Aaron Brothers’ net sales totaled approximately $110.0 million and had no material impact on Michaels’ operating income. Following this announcement, Michaels noted that it expects the after-tax cost of implementing these changes to be $37.0 million - $42.0 million due to the termination of remaining lease obligations, the write-off of fixed assets and employee-related expenses. The Company anticipates the vast majority of the cost will be recognized in the first quarter of fiscal 2018. Michaels previously announced that it was considering closing these stores back in June 2017. Additionally, having Aaron Brothers as a store-within-a-store concept in Michaels should benefit the Company overall, as it provides more value-added services to customers. In fiscal 2017, Michaels’ sales increased 3.2% to $5.36 billion, driven by 15 net new store openings and a 0.9% comparable store sales growth.