Retail News

Toys "R" Us

Last night, Toys “R” Us, Inc., DIP filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court in the Eastern District of Virginia. The case was assigned to the Honorable Keith L. Philips under case number 17- 34665. The company indicated that funds will be available for distribution to unsecured creditors. In addition, the Company's Canadian subsidiary intends to seek protection in parallel proceedings under the Companies' Creditors Arrangement Act (CCAA) in the Ontario Superior Court of Justice. Commenting on the filing, the Company said it “intends to use the court-supervised proceedings to restructure its outstanding debt and establish a sustainable capital structure that will enable it to invest in long-term growth.” The Company's operations outside of the U.S. and Canada, including its approximately 255 licensed stores and joint venture partnership in Asia, which are separate entities, are not part of the Chapter 11 filing and CCAA proceedings.

The Company received a commitment for over $3.00 billion in debtor-in-possession financing from various lenders, including a JPMorgan-led bank syndicate and certain of the Company's existing lenders, which, subject to Court approval, “is expected to immediately improve the Company's financial health and support its ongoing operations during the court-supervised process.” The Company filed a number of customary motions with the Court seeking authorization to support its operations during the restructuring process and ensure a smooth transition into Chapter 11 without disruption, including authority to continue payment of employee wages and benefits, and payments to vendors and suppliers in the ordinary course for all goods provided on or after the filing date.

Lidl

Lidl will open its first Alabama location in Decatur; although no timeline for the opening has been set. The location, in north central Alabama, puts Lidl in direct competition to recent Aldi expansion in the state. There are currently 20 Aldi stores in Alabama, all in the northern half of the state.

Last Thursday, Lidl opened its first store in Georgia, in Augusta, the Company’s 30^th store since debuting in the U.S. in June. Earlier this summer, the Company said it would build a regional headquarters in Cartersville, GA, from which it could presumably service stores in Alabama. Lidl currently services its stores from its distribution center in Fredericksburg, VA; a second warehouse in Alamance County, NC is expected to open before the end of the year.

Associated Food Stores

Associated Food Stores (Salt Lake City, UT) opened its first Honey Bee Produce Co. in Draper, UT on September 13. The 31,000 square-foot store stocks traditional grocery products; however, its focus is on produce, specialty and local. Honey Bee works with more than 30 Utah growers, producers and vendors. Honey Bee also has an in-store restaurant serving made-fresh meals, a fresh bakery and meat department, a beer cave, and mobile checkout. Prior to the opening, Associated’s retail assets included 42 stores in Utah and one store in Nevada under the Fresh Markets, Macey’s, Dan’s, Lin’s, Fresh Market and Dick’s Market banners.

Festival Foods

On September 13, Festival Foods entered into new agreements to purchase three Gordy’s Markets in Wisconsin, two of which are located in Eau Claire and the other in Tomah. In July, Festival Foods had announced plans to acquire the three Gordy’s Market locations, but those plans temporarily stalled in August when Gordy’s announced it would have a receiver appointed. Now that new agreements to purchase the three stores are in place, Festival Foods says it is “hopeful the court will approve them in the coming days.” After the court approves the sales and transactions are complete, Festival Foods says it will begin the processes of updating technology, hiring and training associates, and updating the stores. The Company hopes to open all three by December 1.

Festival Foods also recently announced a replacement store that will open in Holmen, WI on October 6. The Company operates 28 full-service supermarkets across the state of Wisconsin.

Amazon/Whole Foods

According to a study by One Click Retail, immediately following Amazon’s acquisition of Whole Foods, Amazon put about 2,000 items on its site from the Whole Foods 365 Everyday Value brand and sold out of almost all of the most-popular items. Web sales of Whole Foods branded products totaled about $500,000 in the first week.

Morgan Stanley is estimating that roughly 38% of Whole Foods customers, or about five million households, are not Amazon Prime subscribers. It expects Amazon’s acquisition of Whole Foods to result in roughly half those people (about 2.5 million) joining Prime. While Morgan Stanley concedes that “price cuts, Prime Now and other investment will pressure profitability,” the bigger picture suggests that this acquisition will drive sales and profits in the long run.

In addition, Amazon announced plans to open a new fulfillment center in the Charter Township of Shelby, MI. The one million square-foot facility is expected to open in 2018 and will ship large items. Since 2016, Amazon has announced two other Michigan facilities in Livonia and Romulus, and a corporate office in Detroit. It also announced plans for a fulfillment center in the southwest Ohio city of Monroe. At one million square feet, the facility will pack and ship large items. The Company said it would open its third Oregon fulfillment center in Portland for packing and shipping large items. It also recently announced an upcoming fulfillment center in Troutdale and Salem, in addition to the existing sortation center in Hillsboro and Prime Now hub in Portland.

According to published reports, Amazon is preparing to open a one million square-foot warehouse near Mexico City, part of an effort to boost its presence there. Expected to be completed next year, the facility would triple Amazon's distribution space in Mexico, home to around 120 million potential customers. Amazon’s Mexico push comes amid talks to revamp the North American Free Trade Agreement, which could benefit Amazon if the U.S. persuades Mexico to raise a $50 limit on the value of online purchases that can be imported duty free. Amazon opened its Kindle e-books site to Mexican customers in 2013 and expanded into sales of physical goods just two years ago.

Meanwhile, at least 100 cities, states, provinces and counties in the U.S. and Canada have indicated they are interested in being the home of Amazon’s second North American headquarters. Amazon announced just last week that it was seeking bidders for the project. The deadline for filing formal initial paperwork is October 19.

Neiman Marcus

Neiman Marcus Group announced it is closing 10 Last Call stores (its off-price operation), representing 36% of those locations. These closures are on top of two locations shuttered in July, which brought its store base down to 28 stores. Despite an off-price sector that has been outperforming, Neiman Marcus has struggled with its concept. Management commented that shrinking Last Call’s footprint would differentiate the brand within the off-price sector by allowing its customers “access to a larger amount of merchandise sourced from the Company’s full-line channels.” The Company ended the third quarter with over $4.80 billion in debt as a result of its 2014 LBO and TTM interest coverage at only 1.42x. However, the Company has no debt maturities until 2020. The Company’s term debt is currently trading at $0.75. Although it was not officially announced, we expect Neiman Marcus to report fourth quarter results the week of September 25.

Southeastern Grocers

According to the latest updates on its websites, Southeastern Grocers continues to have four Winn-Dixie and one Fresco y Mas stores closed in Florida due to the hurricane. Local reports are indicating that while many stores have reopened, even a full week after the storm, fresh food offerings are not available, and there are shortages of basic items. For example, in one Orlando Winn-Dixie, produce, dairy and frozen food aisles were blocked off.

Nordstrom

Published reports indicate Nordstrom family members are close to choosing private equity firm Leonard Green and Partners to help fund a buyout of the Company. According to the reports, Leonard Green would provide roughly $1.00 billion in equity; other investors reportedly considered were Apollo Global Management and KKR & Co. The family, which owns 31.2% of Nordstrom’s common stock, announced back in June plans to consider taking the Company private, and that it was looking for a private equity partner for funding support. The family members involved include Co-Presidents Blake W. Nordstrom, Peter E. Nordstrom and Erik B. Nordstrom; President of Stores James F. Nordstrom; Chairman Emeritus Bruce A. Nordstrom; and Anne E. Gittinger, the granddaughter of co-founder John W. Nordstrom. Reports say the family is looking to raise $7.00 billion – $8.00 billion in debt to finance the deal and may submit a formal bid in the coming weeks. Nordstrom appointed an independent special committee to evaluate any offers from the family.

In other news, Nordstrom opened its third full-line location in Toronto, Canada, a 140,000 square-foot store. This location fulfills the Company’s plan to expand into Canada with six full-line stores; the other three are located in Calgary, Ottawa and Vancouver. It will now focus on expanding its Nordstrom Rack banner, with six Rack stores slated to open in Canada next year (in Toronto - 2, Calgary, Ottawa, Edmonton and Mississauga).

Target

Kaiser Permanente and Target Corporation announced they will launch 31 additional Kaiser Permanente-staffed retail clinics in Target stores across Southern California. Through this collaboration, Kaiser Permanente will provide care to its members and Target guests at the in-store clinics, branded "Target Clinic, care provided by Kaiser Permanente.” The two companies have been collaborating since 2014, and there are currently four Kaiser Permanente-staffed Target Clinics located in San Diego, Vista, Fontana and West Fullerton. Four additional Kaiser Permanente-staffed Target Clinics in San Diego (2), Orange County and Riverside will open this November, with additional clinics set to open in existing Southern California stores over the next three years. MinuteClinic, the retail medical clinic of CVS Health, has been providing administrative services to Kaiser Permanente at its four existing Target Clinics and will provide the same services to the new clinics.

Target plans to increase by 40% the number of temporary workers it hires for the key holiday selling season. The Company said it would recruit 100,000 seasonal employees this year and an additional 4,500 employees for its distribution and fulfillment centers.

7-Eleven

7‑Eleven is increasing its prepared food program, with 15 new locally prepared meals featuring Italian, home-style, Asian and Mexican recipes. 7‑Eleven stores in select markets began offering these on-the-go options September 11.

In other news, 7-Eleven has invested in KeyMe, a NY-based startup with locksmith kiosks in major retail locations. KeyMe closed on its $25.0 million series D financing, bringing the Company to more than $100.0 million funding to date. 7-Eleven is one of the investors of the Series D. Founded in 2012, KeyMe has smart kiosks in more than 1,000 retail locations that can copy keys in under 30 seconds, as well as a mobile application that enables customers to scan and save a digital copy of their key. By the end of 2017, KeyMe will have more than five times the number of kiosks than at the beginning of the year. 7-Eleven was KeyMe’s first retail partner via a pilot program in 2013.

Haggen, Inc., DIP

The Official Committee of Unsecured Creditors in the Haggen, Inc., DIP case filed a number of adversary proceedings for the recovery of preferential transfers; it filed 183 preference actions, representing in excess of $171.0 million in alleged recoverable payments. The Committee has now filed a motion seeking to extend the time it may serve original process in the adversary proceedings by approximately 90 days to March 7, 2018. In the motion, the Committee stated the large number of adversary proceedings were filed to preserve its rights to pursue avoidance actions prior to the expiration of the two-year statute of limitations, between September 5 and 8, 2017. To date, the complaints in the adversary proceedings have not been served upon the individual defendants. Currently, original process in these adversary proceedings must be served by December 4 through 7, 2017. With additional time to serve the complaints, the Committee will purportedly amend complaints to include the invoice application information before the defendants are required to respond. In addition, the Committee stated that some of the store asset sales included releases of preference claims for transactions involving those stores. With additional time to serve the complaints, the Committee will review the data to determine which store transactions should be excluded from any preference claim and amend its complaints accordingly. A hearing on the motions is scheduled for October 6. Finally, we have confirmed that the Debtors have not filed a motion to extend the exclusive period within which to file a Plan of Reorganization. The termination of exclusivity, which occurred on March 8, allows for competing plans to move toward confirmation (none have yet been filed).

Wholesale Sports Canada

In a letter to vendors, Wholesale Sports Canada Ltd. management announced the orderly wind down and eventual closure of its 12 retail locations in four western Canadian provinces. The Company is a wholly-owned subsidiary of United Farmers of Alberta Co-operative Ltd. Inventory liquidation sales, managed by Gordon Brothers, began on Friday and will continue through December 28, 2017. The Company stated that it is providing “notice of the termination of any and all agreements between Wholesale Sports and product supply vendors, effective as of November 15, 2017.” The Company further stated “Wholesale Sports is committed to and shall ensure that all invoices for products supplied and services rendered are paid in the normal course between the parties.” Management attributed its decision to wind down the business to “an increasingly competitive environment, the continued shift to on-line purchases, and an overall slowing of consumer discretionary spending as a whole, including the outdoor industry.”

Bodega

A startup called Bodega began a pilot test about 10 months ago of its five-foot-wide pantry boxes that contain non-perishable items typically found at convenience stores. There are currently about 30 Bodegas in operation in the San Francisco Bay Area, located in apartments, offices, dorms and gyms. According to published reports, Bodega’s goal is to make corner stores “a thing of the past.” To “open” the pantry, shoppers can unlock the unit with an app. Cameras powered by computers register what shoppers pick up and automatically charge their credit card. By the end of 2018, the Company hopes to have more than 1,000 Bodega units nationwide, possibly through partnerships with retailers.

Staples

On September 12, Sycamore Partners completed its acquisition of Staples. The total consideration was $6.90 billion, excluding transaction fees and expenses, which was funded with $1.80 billion in cash, and $5.10 billion of debt, including: (i) $1.00 billion in 8.5% Notes due 2025, (ii) a $2.90 billion term loan from UBS AG; and (iii) a $1.20 billion ABL credit agreement from Wells Fargo Bank. Debt funding for the LBO will add interest expense, which could compromise cash flow, especially if operations continue to deteriorate. This could potentially cause difficulty making debt service payments in the future and could be aggravated by continued deterioration in operations within the troubled retail unit. In this regard, Sycamore reportedly plans to separate the retail and the commercial units, which may facilitate a sale of the retail part of the business and/or provide insulation if a standalone restructuring is ever necessary. Sycamore plans to cut costs, which it anticipates may improve EBITDA margin in the commercial unit by over 200 basis points to offset the unfavorable impact of the debt financing. Risk is inherent in this transaction considering the likelihood of continued deterioration in the retail side of the business, due to competition and falling demand.

Golub Corp.

Golub Corp. put plans on hold for a Price Chopper replacement store in Manchester Center, VT. The Company offered no additional details. Golub operates 134 markets in six states. It is in the process of updating its Price Chopper stores to its new Market 32 brand to make them more modern. In the past two years, it has closed two nearby stores in North Adams and Lee, MA.

84 Lumber

84 Lumber’s operating results for the first six months of fiscal 2017, ended June 25 included a total consolidated sales increase of 12.8%, or $17.0 million, to $1.50 billion, for the first half of 2017 compared to the same period last year. Top-line growth was attributed to a combination of the Company capturing additional market share, a higher level of activity in the real estate market, the addition of new customers, and higher prices. The Company operates a total ‘store’ base of 247 units plus six manufacturing plants. Management anticipates that 84 will open three additional branches in 2017. The Company does get some walk-in retail business, which comprises less than 2% of its total consolidated revenues. Management advised that the Company operates 13 total branches in the state of Florida, three of which are located in southern Florida. Those stores were closed on the Thursday before Hurricane Irma made landfall over the weekend. The 10 sites in northern Florida were closed on Friday. On the day of our discussion (Monday, September 11) none of the units had reopened. It was too early to determine if there was any damage to the branches or any expected amount of lost sales.

Yum! Brands

Yum! Brands’ Taco Bell chain plans to add 300 restaurants in urban areas by 2022. The Company said that it sees New York as the brand’s largest market opportunity, with about 50 planned for the city’s five boroughs. Five restaurants will be completed by early 2018. Four of them will be Cantina locations, which serve alcohol, and one will be an “Urban In-line” location that does not. In addition to New York, Chicago, Detroit and Boston are among the areas of focus. About 20 of the locations will be in Chicago, with eight Cantinas planned by the end of 2018. Both Cantina and In-line locations have opened nationwide since 2015.

The Tile Shop

The Tile Shop opened a nearly 15,000 square-foot store in Troy, MI, within the greater Detroit market. The Company currently operates 134 stores in 31 states and Washington D.C., and stores average 21,800 square feet. Within Michigan, there are seven Tile Shop stores, most of which are located near Detroit (one is in Grand Rapids).

Fiesta Restaurant Group

Last week, Fiesta Restaurant Group’s board concluded that the Company had impairment and lease and other charges relating to the September 15 closure of six Company-owned Pollo Tropical restaurants in south Texas, including two Company-owned restaurants in Houston that have not reopened after Hurricane Harvey, and four Company-owned restaurants in San Antonio. The Company expects to record total non-cash impairment charges of $7.0 million – $9.0 million and related lease and other charges of approximately $1.0 million – $2.0 million in 3Q17 with respect to the six closed restaurants, which will result in future cash expenditures.

Boot Barn

Boot Barn Holdings completed a transaction to acquire the four-store operations of Wood’s Boots, a family-owned retailer in Midland and Odessa, TX. Terms of the transaction were not disclosed. As part of the transaction, Boot Barn purchased the inventory, entered into new leases with landlords, and offered employment to all existing employees. Boot Barn funded the acquisition with cash on hand. Boot Barn operates more than 20% of its total store base in Texas, primarily in Dallas, Houston and San Antonio; there is one Boot Barn in the Odessa area, so this acquisition expands the Company’s West Texas presence.

The Company also provided an update on its store base since Hurricanes Harvey and Irma. The impact of Harvey resulted in the temporary closing of 20 Houston-area stores. The map below shows the stores located in the affected area. All but two of these stores reopened within a week of the storm, while the two stores that remain closed experienced significant flooding and will be closed until repairs are complete. In Florida, the Company does not believe there are any significant storm-related losses beyond early closures and power outages. The Company operates just seven stores in Florida, and all are located in the northern half of the state, away from coastal areas.

Cracker Barrel

Cracker Barrel reported a fourth quarter revenue decline of 0.3% to $743.2 million. Comp restaurant sales fell 0.8%, including a 1.7% decrease in store traffic partially offset by a 0.9% increase in average check. The average menu price increase was approximately 1.4%. Comparable store retail sales decreased 4.4%. Net income rose 5.6% to $53.9 million. The Company opened two new Cracker Barrel restaurants during the quarter, bringing the combined Cracker Barrel and Holler & Dash store count to 649 locations at FYE.

During fiscal 2017, sales rose 0.5% to $2.93 billion, comps increased 0.2%, and net income rose 6.7% to $201.9 million.

Looking ahead at fiscal 2018, the Company expects revenue of $3.10 billion, reflecting the opening of 8 – 9 new Cracker Barrel stores and 3 – 4 new Holler & Dash stores, as well as a projected increase in comps of 2.5% – 3.5%, and comp retail sales flat to 1%. Cracker Barrel projects food commodity inflation of 1.5% for the year.

Walgreens Boots Alliance

Walgreens Boots Alliance received regulatory clearance to buy 1,932 stores, three distribution centers and inventory from Rite Aid for $4.38 billion. Once again, the Company has reduced the size of the deal in order to gain clearance. In July, Walgreens proposed to purchase 2,186 Rite Aid stores for $5.18 billion, after it failed to gain approval to take over the entire 4,600-store chain.

DSW

DSW opened its first location in the Kingdom of Saudi Arabia, a 15,000 square-foot store in Dhahran. This is the Company’s second location outside of North America, following a store opened in Oman in June 2016. Both stores are among 40 new locations DSW plans to open across the Middle East over the next five years through its franchise partner Apparel Group, based in Dubai, UAE.

CVS Health

CVS Health is acquiring six outpatient pharmacy locations in Ohio from the ProMedica health system. Financial terms of the transaction weren’t disclosed. CVS plans to convert two Toledo locations to CVS Pharmacy stores, both scheduled to reopen by November. The remaining four outpatient pharmacies will be closed and their prescription files transferred to nearby CVS Pharmacy stores, starting in mid-October. The ProMedica locations mark the fourth pharmacy acquisition that CVS has announced in recent months. In mid-August, CVS said it was buying 20 Fagen Pharmacy stores in northwest Indiana and northeast Illinois. CVS announced the acquisition of Doc’s Drugs, a chain of 14 drug stores in Illinois, in June and the purchase of the prescription files of Marsh Supermarkets’ 37 Indiana pharmacies in May.

Birdie's

Birdies, an e-commerce footwear retailer launched in November 2015, received a $2.0 million investment from a group of investors led by Forerunner Ventures. The Company plans to use the investment to accelerate brand growth through product expansion and increased marketing efforts. In addition, Birdies plans to open its first brick-and-mortar store in San Francisco, CA this fall. The Company was founded by CEO Bianca Gates, who previously led retail partnerships at Facebook and Instagram, and President Marisa Sharkey, a former group VP of strategy at Ross Stores. The Company specializes in fashionable house slippers, which sell for $140. Forerunner Ventures previously invested in Jet.com and Dollar Shave Club; the other investors include Slow Ventures, Graph Ventures, Social Capital and a few strategic individual investors.

Lululemon

Lululemon Athletica plans to open a store in downtown Detroit, MI on September 21. The Company currently operates six stores in Michigan, including five just outside Detroit (Ann Arbor, Novi, Rochester Hills, Birmingham and Troy) and one in Grand Rapids.

One of the Company’s most direct competitors would be Athleta, a banner owned by Gap that sells yoga and other sport apparel. Athleta operates three stores in Michigan, in Novi, Troy and Ann Arbor. There are 13 Foot Locker stores, one Lady Foot Locker and one Old Navy store within a 10-mile radius of the proposed Lululemon store; both Foot Locker and Old Navy have increased their yoga apparel offerings to better compete with Lululemon.