October 2, 2019
On September 29, it was reported that Forever 21, Inc. and collectively seven affiliated debtors filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of Delaware. Forever 21 has also started an insolvency proceeding in Canada. As of the petition date, the Debtors operate 549 stores across the U.S., while 251 stores are operated internationally by non-Debtor affiliates. Of the international stores, 181 are owned and operated exclusively by the non-Debtor affiliates, 54 are franchises, and 16 are joint ventures. The Company also maintains a substantial online presence, with its ecommerce platform accounting for approximately 16% of total sales. In addition to the 534 stores operated under the Forever 21 brand, the Company formed a beauty and wellness brand, Riley Rose, in 2017, which has 15 stores in the U.S. The Company also filed a motion seeking interim and final approval of a $350.0 million DIP Facility; the facility includes $275.0 million provided by the Prepetition ABL Secured parties, and $75.0 million in new capital from TPG Sixth Street Partners. The Company noted it seeks to wind down operations in up to 178 of its U.S. locations (click here to request a list of future closings), and the Company reportedly plans to exit most of its international locations in Asia and Europe but will continue to operate in Mexico and Latin America.
Sprouts Famers Market will be entering a new state, with its first store set to open in Virginia today. The Herndon store replaces part of a former Kmart and is in the same shopping plaza as one of its competitors, MOM’s Organic Market. This year alone, the Company entered two other new states, Louisiana and New Jersey, and in 2018 debuted in Pennsylvania, Washington and South Carolina. Sprouts continues to target about 28 net new stores for 2019 (click here to request a list); the Company opened roughly 30 new locations in 2018.
Wegmans entered its seventh state with the opening of its 100th store in Raleigh, NC on Sunday. The store stands at 104,000 square feet. The Company plans to open five more units there, including two in Cary and one each in Holly Springs, Chapel Hill, and Wake Forest. On October 27, it will open its first store in New York City, in Brooklyn. Click here to request the latest list of Wegmans future openings.
Wawa announced plans to open 40 stores in Northern Virginia, outside of Washington, D.C., over the next 15 years, the first of which is set to open in Vienna in April 2020. The Vienna store will be 6,300 square feet, with seating areas, and will feature Tesla charging stations.
Ross Dress for Less is opening a store in Kearney, NE on October 12. The 18,000 square-foot unit will mark the fifth Ross location in Nebraska, for a total of 1,543 locations. The Company operates more than 1,800 Ross Dress for Less and dd’s DISCOUNTS stores in 39 states, Washington D.C. and Guam. See below for Future Store Opening Map - click here to request a list.
On September 26, GameStop announced that it will sell all 41 of its Simply Mac locations for an undisclosed sum to Cool Holdings, an authorized distributor of Apple-based products through 16 locations under the OneClick banner. Simply Mac was a part of GameStop’s “other” segment (which includes PC software, figures, mobile and consumer electronics, as well as the Game Informer magazine), generating $334.4 million in TTM sales as of June 30. Following the announcement, Cool Holdings will operate 57 retail stores in the U.S., Argentina and the Dominican Republic. GameStop will operate 5,683 locations; however, that number will be lower going forward, as management commented that it will close 180 – 200 underperforming locations by year end, and more over the next 12 to 24 months.
H-E-B will close its stores in Killeen and Brownsville, TX on October 20, citing “changing market conditions and the need for extensive facility renovations” at the 60-year-old locations.
Burlington Stores is opening stores in National City and Oceanside, CA on October 25. The National City location will be over 45,000 square feet, while the Oceanside store is smaller at 36,000 square feet. Both are located in San Diego County. A third unit is slated to open later in the year in El Cajon, but the opening date has yet to be disclosed. Burlington currently has five stores in San Diego County and 80 locations throughout California.
Smart & Final announced that it will open a Smart Foodservice Warehouse Store in Kalispell, MT on October 12. The Kalispell store will be Smart Foodservice’s second location in Montana and 68th in the western U.S. The 23,500 square-foot store will carry more than 8,000 items.
Weis Markets has entered into an agreement to purchase two supermarkets — Thomas’ Foodtown, in Dallas, PA, and Thomas’ Food Basics, in Shavertown, PA — from Kingston, PA-based TCD Realty Inc. Financial terms were not disclosed. Weis expects to finalize the transaction in 4Q19. Once the purchase is completed, the Company will convert and reopen the Dallas store but will not reopen the Shavertown location, as the two are less than two miles apart. Weis Markets operates 198 stores in Pennsylvania, Maryland, Delaware, New Jersey, New York, West Virginia, and Virginia.
Sheetz is establishing a technology and innovation hub in Pittsburgh, PA that will focus on developing, testing and implementing what the Company calls “transformative products and services.” Sheetz operates more than 580 stores in Pennsylvania, West Virginia, Virginia, Maryland, Ohio and North Carolina. Click here to request a list of Sheetz future openings.
Strategic Sales Insights
Wawa operates over 860 convenience stores, as of July 2019, throughout New Jersey, Delaware, Florida, Maryland, Pennsylvania, and Virginia. Wawa’s fiscal 2018 estimated sales were up about 20%, reflecting the benefits of an increased store count (up 25 net to 815 at fiscal 2018 year end) and additional legacy stores offering fuel. The Company plans to open approximately 65 new stores and remodel 60 existing stores in 2019. 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.
Macy’s announced it is selling its landmark building in downtown Seattle, WA and closing the store in February 2020. Macy’s has operated the store, which takes up an entire city block, since 2003. Starwood Capital Group bought four floors in the eight-story building for $65.0 million in 2015, then bought another two in 2017, leaving Macy’s operating within the bottom two floors and the basement; Amazon has been leasing the top six floors from Starwood Capital since 2017. Macy’s will continue to operate four locations in the Seattle market.
UFCW Local 555, representing more than 10,000 employees in 54 stores in Oregon and southwest Washington, reached a tentative agreement with Kroger’s Fred Meyer over the weekend. The deal put an end to a boycott that the union called for a week earlier, which followed more than 15 months of efforts to negotiate better pay. Details of the agreement were not released, but the union commented that its bargaining team was “successful in addressing all of [its] concerns.” Union members must ratify the deal before it becomes official; ratification meeting dates will be determined over the next few days. The tentative agreement also covers Albertsons and its Safeway division in Oregon and southwest Washington.
In other news, Kroger opened a new 52,000 square-foot urban format store in downtown Cincinnati, OH last week, offering the Company’s first-ever food hall called On The Rhine Eatery. It features Cincinnati restaurants Django Western Taco, DOPE! Asian Street Fare, Eli’s BBQ and Queen City Whip, as well as a Kitchen 1883 Café and Bar, Kroger’s American food restaurant concept. The new two-level store also features expanded prepared and fresh foods to accommodate the city’s central business district. The store will offer grocery delivery with plans to add restaurant delivery. Click here for a list of the Company’s planned new locations.
Natural Grocers by Vitamin Cottage will open a store in Lafayette, LA on October 9, its first store in the state. The Company currently operates 154 stores in 19 states.
Fairway Market closed its Nanuet, NY store on September 25, following weeks of speculation driven by sparsely filled shelves. In a sign posted at the store, CEO Abel Porter stated, “…The decision was made due to the closing of other major retailers at the shopping complex and the resulting significant decrease in foot traffic at the mall. This is an isolated business decision as a result of the changes within The Shops at Nanuet.”
According to a published report, Amazon is in talks to bring the cashierless technology used in its Go stores to Cibo Express convenience stores located in airports, Regal Cinemas movie theaters, and baseball stadiums. The move “would help Amazon grow its retail presence so the Company can lower its reliance on online shopping, but at a faster pace and at lower cost than building its own stores.” The Company is reportedly looking to begin installing Go technology in third-party stores in early 2020 and have hundreds of Go-equipped stores from other retailers operating by year-end. Sources said Amazon is considering various business models for the deal, including taking a percentage of sales or charging an upfront setup cost and monthly fee. The report also noted that the move could help the Company “form bonds with companies that would ordinarily consider Amazon the competition,” which could grow Amazon’s cloud business. The Company currently has 16 Amazon Go stores in markets that include Seattle, San Francisco, Chicago and New York. Though the format’s expansion has moved more slowly than initial Company projections, reports are trickling out detailing Amazon’s brick-and-mortar expansion. According to a Wall Street Journal story earlier yesterday, citing people familiar with the matter, Amazon has signed more than a dozen leases to open grocery stores in the Los Angeles metro area, with the first few stores likely to be in the dense suburban Woodland Hills and Studio City neighborhoods. The stores could open as early as the end of the year. Many of the proposed locations are outside urban centers and cater to middle-income consumers; they will reportedly stock prepared foods and mainstream grocery products. At the 35,000 square-foot Woodland Hills location, contractors hired by Amazon were granted permits to install a “substantial” amount of kitchen equipment, indicating that the store will offer prepared foods. Amazon is also reportedly looking at grocery spaces in the New York metro area, New Jersey and Connecticut, primarily in strip centers and open-air shopping centers offering 20,000 to 40,000 square feet of space. It is unclear what banner the stores will operate under or whether they will use a similar cashierless technology used by its Amazon Go stores.
In other news, Amazon reportedly plans to open a massive facility in Deltona, FL. According to city plans, the Company is proposing an 85-acre, 1.4 million square-foot warehouse. In Central Florida, Amazon also operates a 2.3 million square-foot robotics fulfillment center near Lake Nona and has plans to open an 115,280 square-foot logistics and distribution warehouse in Orlando and a facility in Daytona Beach. Bloomberg reports that the U.S. District Court in Arizona has ruled, in a case concerning hoverboards that caught fire, that Amazon is not responsible for problems with products sold by third-party vendors on its Marketplace. The insurance company in the case sued Amazon, saying that it was responsible under Arizona law. The judge ruled that “Amazon didn’t participate significantly in the stream of commerce that delivered the hoverboards to the consumer… Despite bearing some responsibility for third-party vendors’ products during transit, Amazon provides no warranty for them, doesn’t have a meaningful ability to inspect them for defects, doesn’t take title to them, derives only slight economic benefit from transactions involving them, exerts only indirect pressure on product design or manufacturing processes, and doesn’t foster significant consumer reliance by facilitating the transactions.” Despite that win, Bloomberg also reported that Amazon and other big tech companies are facing another Congressional probe, as Rep. Nydia Velazquez, chairwoman of the House Small Business Committee, plans to invite representatives from Amazon, Google and Facebook “to face questions from her committee on how the companies may be damaging the competitive landscape for small businesses.” The story notes that the hearing “would be the latest front in the government’s probe of the companies that already face investigations from the House Antitrust Subcommittee, the Federal Trade Commission and the Justice Department.”
Lululemon is planning to wind down its Ivivva kids business, which includes three stores in Canada and four locations in the U.S., by mid-2020. In 2017, Lululemon shuttered nearly 50 Ivivva stores and moved most of its business online, in an effort to shift investments to its core adult business. The wind-down also means that Lululemon will pull any remaining Ivivva merchandise out of the eight Lululemon stores where it has in-store shops. Meanwhile, Lululemon is working toward expanding its men’s business by doubling online sales and quadrupling international business by 2023. Click here to request a list of Lululemon future openings and closings.
On September 24, Restaurant Brands International, the Canadian multinational fast food holding company that owns the Burger King, Tim Horton’s, and Popeye’s brands, issued $750.0 million of 3.875% First Lien Senior Secured Notes due 2028. Proceeds will be used to help prepay a portion of outstanding loans under the Senior Secured Credit Facilities and to pay related fees and expenses. On Friday, Burger King signed a deal with transport and cargo company Tallink Grupp to open restaurants in Estonia, Latvia and Lithuania. The three are among the few remaining countries in Europe where the Company does not have restaurants. According to the agreement, the term of each license will be 20 years; the Company plans to open its first Burger King in Tallinn, Estonia this winter and the first restaurants in Latvia and Lithuania in the first half of 2020. Tallink Grupp launched the first floating Burger King on a cruise ship in 2016 and has acquired the exclusive development rights for the Baltic countries. Tallink plans to open an unspecified but significant number of restaurants across the three countries.
The Court issued an order approving the sale of Kona Grill, Inc., DIP’s 24 remaining domestic restaurants to The ONE Group Hospitality, Inc. for $25.0 million, plus the assumption of $11.0 million of liabilities. The transaction is expected to close by early to mid-October. The ONE Group’s CEO Emanuel Hilario said that his organization plans to keep open all of Kona’s remaining restaurants. The Court also vacated the previous asset purchase agreement with Williston Holding Company, Inc., which was terminated by the Debtors because the agreement with The ONE Group yielded a greater amount of cash.
Multi-concept franchisee WKS Restaurant Group has purchased 94 Denny’s locations and two support centers, making it the largest franchisee, with a total of 127 Denny’s restaurants across 10 states. Financial terms were not disclosed. The previous owner, QK Holdings, LLC, had been Denny’s largest franchisee prior to the deal. WKS also franchises restaurants under the El Pollo Loco, Wendy’s, Krispy Kreme Doughnuts, Blaze Pizza, and Corner Bakery Café brands. As of June 26, there were 1,702 Denny’s restaurants, about 90% of which are franchised.
Inspire Brands has entered into an agreement to acquire Jimmy John’s Sandwiches. The Company’s board unanimously approved the deal; financial terms were not disclosed. Inspire is a multi-brand restaurant company whose portfolio includes more than 8,300 Arby’s, Buffalo Wild Wings, SONIC Drive-In, and Rusty Taco locations worldwide. Jimmy John’s has over 2,800 locations across 43 states. Following completion of the transaction, Inspire will be the fourth-largest restaurant company in the U.S., with more than $14.00 billion in annual system sales and more than 11,200 restaurants across 16 countries.
Sportsman’s Warehouse entered into an asset purchase agreement with DICK’S Sporting Goods to acquire all cash, inventory, furniture, fixtures, and equipment, and certain other assets related to up to eight of the 35 Field & Stream stores operated by DICK’S. The acquired stores are located in New York (2), Pennsylvania (3), North Carolina (2), and Michigan (1). The acquisition is expected to close on or around October 11, for a purchase price of approximately $28.0 million. The purchase price will be paid at closing, except for 50% of the inventory value, which will be paid within 90 days after the closing date. The acquisition is expected to be neutral to Sportsman’s Warehouse’s fiscal 2019 EPS and accretive to fiscal 2020 EPS. The Company will fund the acquisition in full through its $250.0 million secured revolving credit facility with Wells Fargo Bank. As of August 3, Sportsman’s Warehouse had $51.6 million in remaining borrowing availability under its revolver. Management noted the acquisition reflects the Company’s strategy to return to a more typical store growth pattern, following a period of investments in omnichannel and technology over the last two years. For DICK’S, the sale represents another move away from gun sales as it evaluates its hunting business. Earlier this year, the Company said it would remove hunting in 126 stores after seeing positive results in an initial 10 store test.
Bartell Drugs announced it will close its Seattle, WA store on Third Avenue and Union Street early next year, citing lack of profitability due to the neighborhood’s crime rates and burdensome Seattle regulations. The Company still has more than a dozen stores in Seattle, including two other locations within about four blocks of the closing store. Bartell has no other plans to grow its downtown Seattle presence, with the exception of a store opening in the Belltown neighborhood in the next two weeks, which was already in the works. Following the closure and new store opening, the Company will operate 68 retail locations and health clinics in Washington State.
On September 27, Published reports indicate that five potential buyers have sent letters expressing interest in all or part of Barneys New York, DIP. Two of the potential suitors reportedly want all assets, while the others are interested in just parts of the Company. At least one potential bidder is an investment firm with previous holdings in the retail industry. Other parties have reportedly indicated they would bid in the bankruptcy auction later this month but chose not to submit letters of interest that would be public before then. Barneys filed Chapter 11 in August and plans to close most of its stores. Management expects to sell a slimmed-down business and negotiate with its landlords through the court process. The Company has secured $218.0 million in financing and will continue to operate until it finds a buyer. The deadline for bidders to submit format offers for Barneys’ assets is set for October 24, with an auction no later than October 29.
Walmart’s Sam’s Club will soon begin testing a program that offers members bundles of health care services, including medical, pharmacy, dental and vision care, for a low annual fee. The program is called Sam’s Club Care Accelerator Together with Humana. Members will be able to choose from four health bundles ranging from $50 to $240 per year. The program will launch in Michigan, Pennsylvania and North Carolina starting in early October. Separately, the Company opened the first Walmart Supply Chain Academy at its distribution center in Sanger, TX to train its supply chain associates and provide them with a path to advancement. Areas of study include leadership, safety, supply chain foundations, and area-specific training. Walmart plans to expand the program to more distribution centers across the country during the next two years; each Supply Chain Academy will serve about 15 distribution centers. Click here for a list of the Company’s planned new locations. Click here to request a list of Walmart future openings and closings.
John Catsimatidis, owner of Red Apple Group which operates Gristedes supermarkets, recently indicated that Red Apple Group now has controlling ownership of the D’Agostino chain of grocery stores, with the D’Agostino family holding a small subordinated interest. Mr. Catsimatidis became involved with the D’Agostino chain in 2016, when he provided $17.0 million in financing to the then struggling grocer. Mr. Catsimatidis indicated that some Gristedes stores will become D’Agostinos and vice versa, with decisions made on a case-by-case basis according to the needs of the local community. The only announced transition thus far is the Gristedes on 1st Avenue in New York City; it will reopen shortly, following renovations, as a D’Agostino market. Mr. Catsimatidis added that he might also open more Foodtown stores, which he licenses to operate in the NYC suburbs but does not own. The new Foodtown in his Ocean Dreams development in Coney Island is slated to open by year end, with prices that are “more suburban” since he owns the property and does not have to pay city rent. CEO of the family-run D’Agostino’s, Nick D’Agostino, will continue his involvement with the Company. According to a published report, supermarkets represent less than 2% of Red Apple Group’s assets, while real estate, primarily in New York City, Pennsylvania, Ohio, and Florida, represents about 15% – 20%.
Chinese retailer Suning has signed a deal to purchase an 80% stake in Carrefour’s Chinese operations for €620.0 million (US$677.2 million). Carrefour’s brand and operations in China will remain independent. Suning has integrated its home appliance section into over 200 Carrefour stores and plans to add other sections like mother-infant, sports retail, and movie theatres. Suning Chairman Zhang Jindong commented, “With our smart retail capabilities, Suning can transform the Carrefour stores into fully integrated online-and-offline supermarkets to meet evolving consumer demands.” Mr. Jindong also revealed the Company’s plans to open 300 new stores under the Carrefour brand in tier 1 to tier 3 cities of China over the next five years. The deal follows Suning’s recent acquisitions, including Dia China and Wanda Department Stores, as the Company expands its brickand-mortar portfolio. Carrefour China currently operates 210 hypermarkets and 24 convenience stores across 22 provinces and 51 large and medium-sized cities.
Aholid Delhazie's Albert Heijn chain is reportedly testing a 150 square-foot checkout-free store in the Netherlands, similar to the Amazon Go format. Customers need a debit or credit card to gain access to the store, they can then select the products they want and walk to the exit. Their purchase is displayed and payment processed automatically, then the door opens. The Company would not comment on whether or not it plans to expand the format to stores in the U.S. In the States, Amazon’s Go format has grown slower than the Company initially projected.
Gap plans to hire more than 30,000 seasonal workers for the upcoming holiday, lower than the 65,000 target the Company set for 2018. The Company said its total seasonal hiring is lower this year to give current employees the opportunity to pick up more hours.
On Monday, McDonald’s launched a 12-week test of a new plant-based burger called the P.L.T., which stands for Plant. Lettuce. Tomato., in 28 restaurants in Southwestern Ontario, Canada. The P.L.T. is made with a Beyond Meat plant-based patty that has been crafted exclusively by and for McDonald’s. Click here to request a list of McDonald's future openings.
Pier 1 Imports recorded a 14.3% drop in second quarter sales to $304.6 million, reflecting lost sales from 38 net store closures and a 12.6% decline in comps (on top of an 11.4% comp decline last year). The comp decrease was driven by lower average customer spend due to changes in the Company’s merchandise mix and ongoing traffic declines. Gross margin deteriorated 960 basis points to 16.7% due to aggressive clearance activity coupled with 240 basis points of deleverage on occupancy costs. SG&A margin increased 170 basis points due to the deleveraging impact of lower sales on fixed costs and ongoing investments and professional fees associated with the Company’s turnaround initiatives; ultimately, EBITDA loss stood at $78.6 million for the period and $190.1 million on a TTM basis. Despite the poor operating trends (we continue to maintain our F1 credit rating), the Company anticipates its merchandising and marketing initiatives will start to gain traction during the second half of fiscal 2020, and it expects to demonstrate year-over-year improvement in comps and gross margin beginning in the fourth quarter. It also indicated that it “remains on track to achieve its previously outlined benefits of $100.0 million – $110.0 million, including about $90.0 million of SG&A savings this year.” The Company’s board continues to evaluate strategic alternatives, though no formal conclusions have been drawn yet.
Additionally, Pier 1 said its transformation costs are “quickly winding down as planned,” and the Company has largely exited its consulting relationships. Regarding the rise in tariffs on products from China, which represent about 60% of inventory, Pier 1 has taken actions to reduce its exposure through price increases, cost reductions with vendors, and sourcing from other countries; however, “some margin impact is a certainty.” On the store optimization front, the Company continues to work with A&G Realty Partners to lower rent expense and “determine an ideal footprint.” Thus far, Pier 1 plans to close approximately 70 stores in fiscal 2020, an increase of 13 stores from previous guidance of 57 planned store closures for the year. The Company reiterated that if it is unable to achieve its performance goals, sales targets and reductions in occupancy and other costs, it could close up to 15% of its portfolio. Pier 1 also added that it reduced its planned capex for the year from $30.0 million to $20.0 million.
Rite Aid announced results for its second quarter and 26 weeks ended August 31. Revenues for the second quarter decreased 1% to $5.37 billion. Retail Pharmacy Segment revenues decreased 1.6% to $3.85 billion due to a reduction in store count, partially offset by an increase in same store sales. Pharmacy Services Segment revenues increased 1.1% to $1.58 billion, continuing the favorable trend in Medicare Part D membership. Same store sales from Retail Pharmacy for the second quarter increased 0.4%, consisting of a 1.5% increase in pharmacy sales and a 1.8% decrease in front-end sales. Front-end same store sales, excluding cigarettes and tobacco products, decreased 0.6%. Pharmacy sales were negatively impacted by approximately 276 basis points stemming from new generic introductions. In the second quarter, the Company remodeled 24 stores, bringing the total number of wellness stores chain-wide to 1,805, representing roughly 73% of its total 2,464 stores as of August 31. Additionally, Rite Aid relocated one store and closed two stores during the quarter.