December 5, 2019
2019 Holiday Preview Report
AggData has released the 2019 Holiday Preview to its Premium Subscribers. This detailed report outlines:
- Expectations for the holiday shopping season based on changes in consumer preferences
- Black Friday Weekend - A gift for digital
- Holiday trends to watch
- Updated retail strategies
Please click here to request more information on the content of the report.
Topgolf plans to close an underperforming location in Alexandria, VA by January 15, 2020, according to a Work Adjustment and Retraining Notification (WARN) filed earlier this month with the Virginia Employment Commission. The Company indicated that it is consolidating operations of Topgolf Alexandria with nearby locations at the National Harbor and Loudoun County, as well as its soon-to-be-opened venue in Germantown, MD. Topgolf Alexandria opened in 2005 but has suffered from traffic and parking complaints, along with an inability to expand (the store is much smaller than the newer surrounding locations).
Meanwhile, Topgolf is reportedly considering the Waco, TX market. Site plans pending with the city of Waco show Topgolf adjacent to a Cinemark (Plano, TX-based Cinemark and Houston, TX-based NewQuest Properties are collaborating to develop an entertainment complex in that area, with gaming, dining options, and retail). Reports suggest Topgolf may open a scaled-down version of its typical multi-story entertainment centers. Topgolf has 57 locations, comprised of 53 in the U.S., three in the U.K., and one in Australia. It recently signed a franchise agreement with Sports Entertainment Asia to expand into China. Click here to request a list of future openings and closings.
Tru Kids, which bought certain intellectual property of Toys “R” Us following its liquidation in 2018, opened a Toys “R” Us store in Paramus, NJ on November 27. A second location will open on December 7 in Houston, TX. The Paramus store is about 6,000 square feet, much smaller than a traditional Toys “R” Us, which averaged about 40,000 square feet. The store features about 40 brands and sells approximately 1,500 items.
Amazon is reportedly testing a new inventory storage service called Amazon Storage and Replenishment to help meet holiday demand and its next-day shipping promise, without overcrowding its warehouses or running out of products. The new service allows merchants to stage inventory close to Amazon’s delivery operation so products can be quickly replenished. Amazon is trying out the program in Ontario, CA, about 20 miles from its closest facilities and has plans to expand the program to other locations around the country.
Meanwhile, the Company announced yesterday that Cyber Monday was once again the single biggest shopping day in the its history, based on the number of items ordered worldwide.
The Fresh Market will open a new headquarters in Greensboro North Carolina through a $5.4 million investment. A grant of $500,000 from the One North Carolina Fund will help facilitate the expansion. The Company’s current headquarters is split between two locations in Greensboro. The leases on the two existing facilities expire this year, and the Company is securing a new 10-12 year lease for a new consolidated headquarters in downtown Greensboro. The Company currently operates 159 stores (21 of which are in North Carolina), and while operating results appear to be stabilizing, the Company remains challenged from its highly leveraged capital structure and increasing competitive pressures.
Lidl US has moved up the timetable for opening its first Long Island, NY stores from its acquisition of Best Market. It originally said back in April that it aimed to open its first stores by early 2020 but now expects stores in Center Moriches and West Babylon to open next week. Other Long Island stores have been announced for Plainview, East Meadow, Oakdale, Patchogue and Lake Grove. This brings the total number of announced openings on Long Island to eight. Of the 27 Best Markets Lidl acquired in early 2019, 24 are on Long Island, two are in New York City (Astoria and Harlem), and one is in Holmdel, NJ. A small Best Market store in Hicksville, on Long Island, was shuttered in September. Lidl currently operates 77 stores in the U.S. and plans to reach 80 before Christmas (click here to request a list of future openings).
Yesterday, Publix opened a 48,100 square-foot store in Northport, AL. The Company currently operates about 75 stores in the state.
Sprouts Farmers Market will open a new 28,000 square-foot store in Mesquite, TX on March 4, 2020.
Strategic Sales Inights Report
As the nation's largest membership warehouse club chain based on sales, Costco Wholesale Corporation sets the benchmark for the industry. Costco’s membership-based business model consists of selling items in bulk at low prices; this has helped the Company maintain growth during slow economic times, drawing in price-conscious consumers. Costco’s continued growth is evidence of its resiliency, especially in the face of Amazon’s emergence and the trend toward online shopping. Costco members pay a yearly fee, allowing the retailer to hold its own against competitors Amazon and Walmart. 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.
Ace Hardware franchisee Westlake announced plans to acquire three Ace Hardware stores operated by another franchisee, Haggerty, in Cooperstown, Delhi and Walton, NY. Westlake expects the deal to be completed by January. Westlake has been part of the Ace cooperative since 1959 and has operated as a wholly owned subsidiary of Ace Hardware since 2012. It owns and operates more than 130 stores in California, Illinois, Iowa, Kansas, Missouri, Nebraska, New Mexico, North Carolina, Oklahoma, Texas, and Washington. This represents Westlake’s first expansion into New York. Click here to request a list of future openings and closings.
Last month, Key Food Stores Co-Operative opened a new 12,000 square-foot SuperFresh location in Brooklyn, NY.
Vitamin Shoppe is deploying interactive digital kiosks to engage consumers and drive trials of new products. Each Vengo kiosk features an touchscreen and six product slots with physical products loaded in. The shopper views 15-second product videos that alternate with product images and a free sample promotional offer, and then touches the item they would like to try. Utilizing software from product location/brand activation platform Destini and wellness-focused solution company Spins, as well as Vengo’s proprietary technology, the kiosk tracks all physical product inventory and screen displays and interactions. The Vengo kiosk has been installed in the Company’s new store in Edgewater, NJ, and the Company plans to install more kiosks in at least 11 stores by year-end.
Best Buy launched order pickup services in 175 CVS and UPS locations in the New York market during the third quarter. The Company indicated it is “focused on expanding both our fulfillment options and in-home resources” in the region. New York was chosen due to the high density of consumers and lack of stores in certain areas. Management indicated it is aiming to expand the program nationally after the 2019 holiday season. Roughly 99% of Best Buy customers live in a zip code where next-day delivery is available, up from 80% last year. For customers choosing to buy online and pickup in-store, 80% of orders are ready in under 30 minutes.
Kroger launched a new healthcare initiative called 360care, which expands the Company’s healthcare services and allows hospitals and healthcare networks to use Kroger’s resources to provide greater access and lower-cost care. As an extension of 360care, the Company recently partnered with Tennessee-based hospital and healthcare network Ascension Saint Thomas Health to expand services to Kroger customers. The Company said similar partnerships will follow. Kroger, which has 2,759 stores in 35 states, already operates 215 Little Clinics in nine states.
In other news, Kroger is launching a partnership with ClusterTruck, a food-delivery provider, to deliver fresh meals on demand without fees. ClusterTruck operates “dark kitchens” used for delivery-only meal preparation; customers typically receive their food less than 30 minutes after ordering it. Kroger will roll out its Kroger Delivery Kitchen service in the Indianapolis suburb of Carmel, where Kroger and ClusterTruck will jointly operate a kitchen, as well as in Indianapolis and Columbus. It will also launch the service in Denver under the King Soopers Delivery Kitchen name.
On December 1, Destination Maternity, DIP, Marquee Brands, and a joint venture composed of Hilco Merchant Resources and Gordon Brothers Retail Partners entered into a Stalking Horse Asset Purchase Agreement under which Marquee will purchase the Company’s e-commerce business, intellectual property, store-in-store operations, and the right to designate the sale of certain inventory and related assets for $50.0 million in cash. As part of the agreement, the Company will close its remaining 235 retail stores where liquidation sales are not already in process. Following the bankruptcy filing on October 21, the Company initiated store-closing sales at about 200 units. Hilco and Gordon Brothers will sell inventory, fixtures, and equipment through store-closing sales at the 235 units and also wind down the Company’s leased department-store business (420 leased locations within department stores and baby specialty stores). The agreement provides for a breakup fee of $1.75 million if a transaction is closed with another bidder. Marquee Brands is owned by investor funds managed by the private-equity arm of Neuberger Berman, an employee-owned investment manager. A hearing to approve the stalking horse purchase agreement was scheduled for yesterday; competing bids are due December 5, and an auction, if necessary, is set for December 9. A sale hearing will occur on December 12, with closing anticipated by December 30.
The Catalyst Capital Group has offered to buy Hudson’s Bay Company for C$11.00 per share. It is an attempt to outbid the C$10.30 per-share offer by HBC Executive Chairman Richard Baker and his group of major shareholders to take the Company private. Mr. Baker’s offer has already been accepted by the special committee of the board of HBC, and a shareholder vote has been scheduled for December 17. Catalyst, a Canadian private-equity investment firm specializing in distressed and undervalued Canadian situations, wants shareholders to vote against the Baker bid. The firm has also filed a complaint with the Ontario Securities Commission against Baker and his group, claiming that their actions are “contrary to the public interest, on the basis of misrepresentations in their circular (issued earlier this month) and other potential securities law violations and a deeply flawed process by which the Company accepted Baker group’s offer.” Catalyst said it exercises control or direction over 32.2 million HBC shares, representing 17.48% of the issued and outstanding common shares. Catalyst said its offer is a “bona fide, independently financed all-cash offer that can be completed in a timely manner by February 2020.” Mr. Baker’s group, referred to as the “continuing shareholders,” issued a statement saying, “Catalyst’s offer is in fact a highly conditional, non-binding and non-executable proposal that is not supported by fully committed financing and is intended to mislead HBC shareholders. We are confident that HBC shareholders recognize that our all-cash, fully financed premium offer of $10.30 per share provides them with immediate and certain value in a highly uncertain retail environment.” Recently, HBC had its 79-owned properties, including the Saks flagship, HBC’s most valuable property, appraised to help evaluate the Company in advance of the vote. The Saks Fifth Avenue flagship was appraised at US$1.60 billion, representing a huge drop from an appraisal in 2014 at US$3.70 billion. The lower valuation of the Saks flagship was attributed to a declining performance by the store and the retail landscape overall, particularly the department store channel, as well as the rise of e-commerce and the drop in market rents on Fifth Avenue.
CVS Health will acquire Centene’s Illinois health plan subsidiary, IlliniCare Health Plan. The transaction includes the sale of Centene’s Medicaid and Medicare Advantage lines of business in Illinois. The deal is in connection with the previously announced merger agreement between Centene and WellCare Health Plans, which will combine to create an enterprise focused on government-sponsored healthcare programs and a leader in Medicaid, Medicare, and the Health Insurance Marketplace. The transaction’s closing is subject to U.S. federal antitrust clearance, receipt of Illinois state regulatory approvals, as well as the closing of the Centene – WellCare transaction, which is expected by the first half of 2020.
Minneapolis, MN Metro Area – Hot Market Report
The Minneapolis-St. Paul Metro Area, also known as the Twin Cities, consists of 13 counties in Minnesota and two in Wisconsin. The area is home to 3.6 million residents as of 2018, making it the 16th largest metropolitan area in the U.S. Since 2010, the area’s population has grown 8.4%, including 11% growth in Minneapolis and 7.8% growth in St. Paul. The region also ranked 15th in total GDP for fiscal 2017 (the most recent year available) and between 2012 and 2017, Minneapolis’ GDP was up 21.6% to $260.11 billion. Food retailers that are headquartered in Minneapolis operate roughly half of the 351 stores in Minneapolis, and make up more than half of the area’s total market share. Our report takes a closer look at Minneapolis’ 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.
Earning Reports
J. Crew’s third quarter sales increased 0.6% to $625.6 million, reflecting a 3% comp rise, a 1% wholesale sale increase, and 28 fewer stores in operation compared to last year. Sales at the J. Crew unit (66% of total sales) decreased 4% to $415.8 million, as comps were flat following a 4% increase last year. Madewell sales were up 13% to $151.6 million (24.2% of total sales), and comps rose 10% on top of a 22% increase last year. Gross margin expanded 240 basis points to 40.7% due to fewer markdowns. As a result, EBITDA was up 47% to $78.8 million. TTM interest coverage improved modestly to 1.2x but remains at critical levels. Management commented that its cost-optimization program is on track and that it continues to expect that it will reduce expenses by $50.0 million over the next three years, including $10.0 million in fiscal 2019.
On December 2, J. Crew entered into a transaction support agreement (TSA) relating to a series of transactions with an ad hoc group of the Company’s existing creditors. In connection with the transactions, the Company will separate its J. Crew and Madewell businesses into two standalone independently managed companies, enabling a potential IPO of the Madewell business. The TSA also contemplates the formation of a special purpose vehicle limited liability company that will be the ultimate parent and hold any common stock of Madewell not sold to the public. The Company expects to exchange a portion of its outstanding term loans for new A-1 senior secured notes issued by Chinos SPV and Chinos common stock. The TSA terminates if the transactions, including the IPO, have not closed by March 18, 2020.
Dick’s Sporting Goods reported stronger-than-expected third quarter sales, which increased 5.6% to $1.96 billion due to a 6% increase in comps. This led management to raise its full-year guidance. The comp improvement reflected increases in both average ticket and transactions, and represented the Company’s strongest quarterly comps since the 2013 fourth quarter. E-commerce sales growth slowed to 13% and represented 13% of total sales, up from 12% last year. Quarterly EBITDA increased 18.7% to $145.2 million, and EBITDA margin rose 80 basis points to 7.4%, reflecting higher gross margin, partially offset by higher operating costs. TTM EBITDA margin of 8.6% exceeded our monitored industry average of 7.3%.
It’s worth noting these strong results came as the Company continued to deemphasize its hunting business (during its peak season), replacing it with higher-margin alternatives such as team sports, footwear, and apparel. Management commented it has not yet seen much pricing pressure as a result of tariffs, although pressure could increase next year. During the quarter, the Company opened six new Dick’s Sporting Goods stores and one new Golf Galaxy store, completing its 2019 store development program. The Company also exited eight Field & Stream stores, which were subleased to Sportsman’s Warehouse, and closed one Golf Galaxy store. As of November 2, the Company operated 733 Dick’s stores, with 38.8 million square feet, 95 Golf Galaxy units, with 2.0 million square feet, and 27 Field & Stream stores, with 1.2 million square feet. Click here to request a list of future openings and closings.
Abercrombie & Fitch reported third quarter sales increased 0.3% to $863.5 million, and comps were flat. Both Hollister and Abercrombie delivered positive U.S. comps, resulting in U.S. comps increasing 3%, but this was offset by international comps falling 8%. By brand (both U.S. and international), comps at Hollister (60% of total sales) were down 2% while comps at Abercrombie (40% of total sales) were up 3%. Gross margin was down 120 basis points to 60.1%, and operating expenses were up 3%. As a result, operating income fell 63.5% to $14.5 million, and operating margin was down 290 basis points to 1.7%. CEO Fran Horowitz said, “We achieved another quarter of constant currency revenue growth and positive U.S. comps across brands, while maintaining tight expense management. Continued U.S. momentum was offset by challenges across several of our key international markets as well as a complicated global operating environment, which weighed on overall results. Despite these challenges, we ended the quarter with a balanced inventory position and have seen good response to our new assortments as weather has turned more seasonal, giving us confidence in our product and messaging for the important holiday period.”
Village Super Market reported first quarter sales growth of 1.5%, to $407.4 million, driven by the acquisition of Gourmet Garage on June 24, 2019 and 0.1% comp growth. Comps increased due to continued sales growth in the Bronx, NYC store, which was opened on June 28, 2018, recently remodeled or replaced stores and continued growth of ShopRite from Home including expansion to four additional stores. These increases were partially offset by the impact of two competitor store openings, decreased promotional spending in Maryland and reduced sales at its store in Stroudsburg, PA leading up to its closure. The Company expects fiscal 2020 same store sales to range from a 2.0% decrease to flat. Net income was $2.6 million, down from $6.3 million last year, negatively impacted by pre-opening costs related to the Stroudsburg, PA replacement store of $594,000 and charges to write off the lease asset related to the old Stroudsburg store of $191,000.
Village Super Market is a member of the Wakefern cooperative and operates a chain of 30 supermarkets under the ShopRite name in New Jersey, New York, Maryland and northeastern Pennsylvania and three specialty markets under the Gourmet Garage name in New York City.
