September 30, 2020
Amazon is reportedly bringing its new Amazon Fresh grocery format to Whittier, CA, occupying a shuttered Orchard Supply Hardware store. Nearby competitors include ALDI, Ralph’s, Trader Joe’s, and Target. As reported in last week’s issue of this publication, Amazon recently opened its first Amazon Fresh supermarket in Woodland Hills, CA to the general public after its late August debut to select local customers; the store offers competitive pricing and an assortment of national and private labels, including those from Amazon and Whole Foods (365 label). However, unlike Whole Foods, the format does not emphasize organics (though the stores carry organic foods) and is more value oriented; additionally, shoppers can locate items, track purchases and expedite checkout through Amazon’s Dash Cart smart shopping carts. The Company plans to expand the concept, with new locations already disclosed in Irvine, Northridge, and North Hollywood, CA. A not-yet-opened Amazon Fresh store in Naperville, IL is filling delivery orders, and two more Chicago-area locations in Oak Lawn and Schaumburg are planned. Amazon also acquired two Fairway Market store leases in Paramus and Woodland Park, NJ in March but has not yet disclosed plans for the locations.
After canceling its scheduled Prime Day earlier this year due to the COVID-19 pandemic, yesterday Amazon officially announced 2020 Prime Day(s) will occur on October 13 and 14 this year — just two weeks away. One change this year, part of efforts to help businesses impacted by the pandemic, is that customers who spend at least $10 between yesterday and Prime Day on items sold by select small businesses will receive a $10 credit toward items on sale on Prime Day. The event will occur in the U.S., U.K., U.A.E., Spain, Singapore, Netherlands, Mexico, Luxembourg, Japan, Italy, Germany, France, China, Canada, Belgium, Austria, and Australia, with two new countries this year, Turkey and Brazil. With the timing just six weeks ahead of Black Friday / Cyber Monday, customers face the decision of whether to purchase on Prime Day or wait for the later sales events. Click here to request a list of future openings.
In the Neiman Marcus Group bankruptcy case, the Court entered an order confirming the Plan of Reorganization; the order indicates that the effective date is September 25. The deadline for filing: (i) requests for payment of unpaid administrative claims is October 26; and (ii) claims in connection with the rejection of unexpired leases is the later of: (a) October 25 or (b) 30 days after the rejection of the lease.
Management stated, “The Company emerges with the full support of its creditors and new equity shareholders, now operating with a strengthened capital structure that eliminated more than $4.00 billion of existing debt and more than $200.0 million of cash interest expense annually, with no near-term maturities.” The new owners, which include PIMCO, Davidson Kempner Capital Management, and Sixth Street Partners, are funding a $750.0 million exit term loan facility that fully refinances the DIP Facility and provides significant additional liquidity for the business. The Company has also secured a $125.0 million FILO facility led by Pathlight Capital, the proceeds of which refinance existing debt and will provide liquidity to support the Company’s ongoing operations and strategic initiatives. The exit Term Loan financing and FILO facility are in addition to the liquidity provided by a $900.0 million ABL led by Bank of America and a consortium of commercial banks. Click here to request a list of store closures.
In the J.C. Penney bankruptcy case, there has been a lack of progress toward a potential sale of the Company’s assets, and some key dates have already been missed. Consider the following, based on our recent reporting:
- September 9 - Attorneys for the Debtors told the Court that a tentative agreement was reached with Simon Property Group Inc., Brookfield Property Partners LP, and first-lien lenders to purchase the Company’s assets. The agreement was incorporated in a letter of intent, which the Debtors planned to formalize into a stalking horse asset purchase agreement by September 19. The letter of intent included milestones requiring: (i) a bidding procedures motion to be filed by September 14, and (ii) an order on the motion to be issued by September 21; and
- September 15 - The Court directed counsel for the Debtors and two groups of lenders to participate in a settlement conference. The Court expressed concerns that “progress in the case has slowed” and warned that “only the judge may terminate the conference.”
No asset purchase agreement has been filed, there is no motion or order related to bidding procedures, and there have been no reports on the outcome of the settlement conference. These issues are crucial in moving the process forward. Click here to receive case updates.
Separately, documents in the case indicate that a financial expert made the following observations in support of a motion to appoint an Equity Committee, “The total enterprise value of the Debtors is within a range of $8.20 billion and $10.20 billion. The hard assets alone, consisting of real estate, cash, and inventory are currently valued at $6.60 billion. Assuming $7.00 billion of estimated debt and liabilities, the prepetition equity of the Debtors would equate to between $1.20 billion and $3.20 billion. The reorganization value of the Debtors is sufficient to show that they are not now and have not, at any time during these bankruptcy cases, been hopelessly insolvent. The Debtors are likely to harvest significantly more value through a reorganization (even if contested) than can be obtained through a distressed sale during a period of severe market dislocation. The Debtors have the value and resources to reorganize and successfully emerge from these Chapter 11 Bankruptcy Cases.”
It should be noted that the Creditors’ Committee filed an objection to the appointment of an Equity Committee, stating, “The reality of the Debtors’ situation is clear. The Debtors cannot refinance their first-lien debt, nor can they force their first lien creditors to take equity, and in any event, ultimately the market will determine which JCP stakeholders are in the money. All real-world indicia suggest that shareholders are not even close.” Click here to request a list of store closures.
Kroger has identified Romulus, MI as one of its sites for nine planned Ocado-powered automated warehouses to fulfill online grocery orders. The 135,000 square-foot customer fulfillment center (CFC) is expected to come online 18 months after the groundbreaking date, which has not yet been disclosed, and will support customers in Michigan, northern Ohio and Indiana. The Company broke ground on its first Ocado CFC in June 2019 in Monroe, OH. This June, Kroger announced it would build three new CFCs in the Great Lakes, Pacific Northwest and West; the Romulus CFC falls within the Great Lakes region, while the other two sites remain undisclosed. Other Ocado CFC locations announced by Kroger include Frederick, MD (350,000 square feet); Pleasant Prairie, WI (350,000 square feet); Groveland, FL (375,000 square feet); Forest Park, GA (375,000 square feet); and Dallas, TX (350,000 square feet). The Monroe CFC will be 335,000 square feet. Monroe, Groveland and Forest Park are expected to be up and running in 2021, while Dallas and Pleasant Prairie are slated to become operational in 2022. When announcing their partnership in May 2018, Kroger and U.K.-based Ocado said they planned to open 20 CFCs in the U.S. within three years.
On Monday, Southeastern Grocers announced that it has confidentially filed a registration statement with the SEC related to a potential initial public offering of its common stock. The shares in the proposed offering are expected to be offered by existing stockholders of the Company, in which case, no proceeds would go to the Company. Southeastern Grocers said this process will help enable it to make the decision to become publicly traded, subject to market and other conditions.
In other news, Southeastern Grocers has partnered with Uber to bring grocery delivery to customers across Florida, including the Miami, Orlando, Tampa and Jacksonville markets. This is Uber’s first major grocery retailer partnership after it integrated its platform with Cornershop, an on-demand grocery delivery service that it acquired last October. Cornershop is one of the largest grocery delivery services in Latin America, with service available in Mexico, Peru, Colombia and Brazil. It also has a major presence in Canada.
Publix Super Markets will open a new 48,100 square-foot store in Cumming, GA on October 10. The Company currently has 188 stores in the state. Click here to request a list of future openings and closings.
Academy Sports and Outdoors filed a preliminary prospectus in which it set the price range for the sale of common stock as part of its planned initial public offering. The Company plans to offer 15.6 million shares of common stock at a price of between $15.00 and $17.00 per share, or 12x – 14x the TTM net earnings. Management estimates it will receive net proceeds of $225.0 million (or $260.0 million, if the underwriters exercise their over-allotment option to purchase 2.3 million additional shares in full), assuming a midpoint price of $16.00 per share (after deducting underwriting discounts, commissions and estimated offering expenses payable by the Company). Academy anticipates having 90 million shares outstanding when it begins trading on the NASDAQ. At the mid-point of the offering price range, the Company would have a value of $1.44 billion, or about 3.2x TTM EBITDA.
The Company stated that it has no current plans to pay dividends on the common stock, and it reiterated that it intends to use the proceeds “for general corporate purposes, which may include the repayment of certain debt.”
After completion of the offering, stockholders of Kohlberg Kravis Roberts & Co. (the Company’s private equity sponsor) will beneficially own 70% of the voting power of the Company’s common stock.
While the Company plans to start opening 10 new stores a year starting in 2022, it sees potential for up to 885 new locations.
ALDI will open a new 20,000 square-foot store in Kansas City, KS in early 2021. It opened its 2,000th U.S. store in July; the Company operates in 37 states. ALDI plans to open 70 more stores by the end of the year and aims to be on track to become the third-largest U.S. grocery retailer by store count by the end of 2022. Amidst the COVID-19 pandemic, the Company has accelerated the rollout of its curbside grocery pickup service; it expanded the offering to six stores in the Cincinnati, OH area last week, so ALDI now offers curbside pickup at more than 600 locations. Click here to request a list of future openings.
Lowe’s Companies plans to install pickup lockers at all of its 1,700 U.S. stores by the end of March 2021. The self-service lockers are already in place in select locations in Charlotte, Philadelphia, New York, New Jersey, and Connecticut. In the coming weeks, the rollout will expand to Florida, Washington, and Texas. Lowe’s plans to have the lockers installed in most major metro areas by Thanksgiving. The Company indicated that more than 60% of online orders are picked up in-store.
Grocery Outlet will take over half of a 41,420 square-foot building previously occupied by Ralphs (closed in 2014) in La Quinta, CA. The store is expected to open in fall 2021. It will be Grocery Outlet’s third Coachella Valley location. The other two are in Palm Springs and Desert Hot Springs. Click here to request a list of future openings.
In the ascena retail group bankruptcy case, Sycamore Partners made a preliminary non-public offer to purchase the Ann Taylor, Loft, and Lane Bryant brands from the Company, according to reports. The offer is non-binding, and negotiations will continue before a final bid is submitted in Bankruptcy Court. On July 24, we reported that Authentic Brands Group and Sycamore Partners were among various parties considering buying the Company. Separately, the Company commenced store-closing sales at an additional 23 Justice stores located in 13 states, after closing approximately 600 of its more than 800 units. Click here to request a list of recent and future closures.
NPC International, Inc. is delaying a plan to auction off 900 Pizza Hut outlets after it expressed concern last week that the sale would prompt a “group of credit-focused hedge funds” to buy the locations. NPC agreed to extend the deadline for bids for its 900 remaining Pizza Hut restaurants from November 5 to November 20. An auction will be held on November 30 if multiple qualified bidders emerge.
Hy-Vee plans to build a new store on the site of a former Sears store site at Valley View Mall (closed in November 2018) in La Crosse, WI. An opening date has not been set. The Company has a store in Winona, which is about 30 minutes away. Click here to request a list of future openings.
Walmart will invest $600.0 million to build a 2.2 million square-foot fulfillment center, its largest in the U.S., in Hancock County just outside of Indianapolis, IN. The facility’s more than 200 acres will allow for expanded e-commerce operations for both its own online inventory and its third-party fulfillment arm, Walmart Fulfillment Services. According to a Walmart spokesperson, the facility is being designed to help smaller sellers scale up, whereby Walmart will pack, ship, and store third-party sellers' items and then ship them out to customers on their behalf. Construction is expected to begin this month, with fulfillment and distribution slated to begin in fall 2022, and a goal of reaching full operational capacity by spring 2024.
In other news, at the beginning of October, Walmart will remove the one-way aisles it imposed in U.S. stores at the start of the coronavirus pandemic. The Company will also reopen some additional store entrances that had been closed temporarily to control the flow of customer traffic. Walmart will keep in place other safety measures like plastic shields at registers, requiring customers to wear masks, and spraying shopping carts after each use.
Finally, Walmart is partnering with Quest Diagnostics and DroneUp to test a program that uses drones to deliver COVID-19 tests to customers. The pilot program will take place in North Las Vegas, NV. Drones will take off with COVID-19 diagnostic kits from the Walmart located there and deliver to single-family homes within a one-mile radius of the store. Once a customer receives their test kit, they will collect their own sample using a nasal swab, then seal it in a prepaid shipping envelope and mail it to a Quest Diagnostics laboratory for processing.
Walmart is reportedly in talks with Indian multinational conglomerate Tata Group for a potential investment of up to $25.00 billion in its new “super app.” The super app, which is scheduled to be launched in India in December or January, will bring together Tata's consumer business, including its watch and jewelry brand Titan and fashion retail chain Trent, under one channel offering a wide range of products. According to ongoing discussions between the two companies, the super app could be launched as a joint venture between Tata and Walmart, leveraging the synergies between Tata’s e-commerce business and Flipkart, Walmart’s Indian e-commerce unit, in which it has a 66% stake. Click here to request a list of recent and future openings and closings.
Dunham’s Sports opened a relocated store at the Markland Mall in Kokomo, IN on September 11; the store in a 60,000 square-foot space that has been empty since Carson’s closed in August 2018 after its parent Bon-Ton Stores filed Chapter 11. The new unit offers active and casual apparel and footwear, as well as an outdoor department, and a selection of boats and water sports equipment. The store also has a Fairway Center golf shop and a fitness department. Dunham’s was previously located in a smaller location at Southway Plaza, just three miles from the Markland Mall.
Fresh Thyme Market will close its last three stores in Nebraska on October 16, including two in Omaha and one in Lincoln. Last year, the Company closed two stores in Nebraska and one in Iowa, and in July closed a store in Menomonee Falls, WI. Fresh Thyme will operate 70 stores across 10 states following these latest closures. Despite some recent gains from COVID-19 panic shopping, the outlook for Fresh Thyme Farmers Market, similar to that of the broader natural grocery subsector, appears to have dimmed over the last few years. Earth Fare and Lucky’s both filed for Chapter 11 protection earlier in 2020 primarily due to the shift in natural demand to conventional grocers from pure play natural grocers.
Poshmark, an online marketplace for used clothing and fashion accessories, has filed for an IPO. The number of shares to be offered and the price range are yet to be determined. Based in Redwood City, CA, Poshmark was expected to go public last year, but plans were delayed, reportedly so it could focus on boosting sales and improving its execution. Poshmark reportedly has 60 million members.
Ulta Beauty announced that it would suspend its planned expansion into Canada, after announcing in 2019 that it would venture internationally for the first time with an initial launch in the country. The Company expects to incur costs between $55.0 million to $65.0 million from this decision, the majority of which will be recognized in FY20. Ulta will continue to prioritize U.S. operations and investments. These investments include expanding omnichannel initiatives, improving guest experience, growing key merchandise categories, increasing loyalty and personalization, and opening new stores.
On September 2, the Company repaid all outstanding amounts, or $800.0 million, under its $1.00 billion revolver, leaving full availability in 3Q20. Click here to request a list of future openings.
Allbirds, an online footwear retailer, announced a $100.0 million Series E funding round led by Franklin Templeton. Additional participants included T. Rowe Price, Baillie Gifford, TDM Growth Partners, Rockefeller Capital Management. The Company plans to use the funding for new product categories and to expand its international business and brick-and-mortar store base. Allbirds currently operates 21 stores in the U.S., Europe, Asia, and New Zealand. Allbirds has raised more than $200.0 million since its launch in March 2016.
Party City plans to open approximately 25 Halloween City pop-up stores this year, down from 255 opened last year. It also plans to hire 20,000 temporary employees, down from 25,000 in 2019. The Company expects to retain about 10% of the temporary hires following the Halloween season. In a recent survey by the National Retail Federation, more than three-quarters of Americans say COVID-19 is impacting their Halloween celebrating plans, with overall participation down to 58%.
Sephora announced a new partnership with Instacart to offer same-day delivery from nearly all Sephora stores across North America. Sephora became available on Instacart in select store locations in California and Canada on September 24, with the program to expand to more than 400 stores over the coming weeks. The Company joins a growing number of non-grocery businesses partnering with Instacart, including Staples and Big Lots, both of which launched delivery offerings with Instacart in June. Click here to request a list of future openings.
Local reports claim BJ’s Wholesale Club is planning at least two new sites near Pittsburgh, PA. The Company reportedly presented before the South Fayette Township, PA planning board last week to build a new store in Newbury Market, a developing mixed-use project about 17 miles southwest of Pittsburgh. The same new outlet reported earlier this year that BJ’s was eyeing a vacancy at The Block Northway, a redeveloped former enclosed mall near Ross Township, just north of downtown Pittsburgh. If the developments proceed, these would be the Company’s first units in the Pittsburgh metro market, where it would encounter competition from longtime grocery leader Giant Eagle, as well as Costco and Walmart’s Sam’s Club, Walmart Supercenters, and ALDI. The Company operated 17 units in Pennsylvania as of February 1, though none further west than Harrisburg. BJ’s entered Michigan last year and has at least two new stores under construction in New York. At an investor conference earlier this month, CEO Lee Delaney said BJ’s would be looking to add at least “one whole new market with a couple of stores in it,” as part of its expansion plans in 2021. He anticipates BJ’s will open six new clubs in 2021 but said, “We’d love to grow the Company at 10 or more clubs per year, and that’s certainly what we’re setting our sights on.”Click here to request a list of recent and future store openings.
Vallarta Supermarkets recently opened its 51st store on September 23 in Madera, CA. The 60,000 square-foot unit includes the Company’s La Cocina (authentic Mexican Taqueria and Kitchen) prepared foods section, a full-service floral department, and an expanded liquor/wine selection.
On September 28, Charming Charlie opened a new store at the Cumberland Mall in Atlanta, GA, selling apparel, handbags, jewelry, gifts, shoes, and scarves. The Company plans to roll out additional retail locations in markets across the U.S. during late 2020 and early 2021. The next opening is slated for October 2 at Towson Town Center in Towson, MD. Charming Charlie previously filed Chapter 11 in July 2019, its second filing in two years, and subsequently shuttered its 261 locations and e-commerce site. Company founder Charlie Chanaratsopon acquired the chain’s trademarks at a bankruptcy auction last fall, with plans to revive Charming Charlie as an omnichannel retailer. The Atlanta store opening is on the site of a former Charming Charlie.
On September 23, It’Sugar filed Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Florida, citing the effects of the pandemic on sales and consumer behavior, as well as “the recessionary economic environment.” The filing has been assigned case number 20-20261. The Company is owned by BBX Capital Corp, which acquired the candy business for $57.0 million in 2017. A subsidiary of BBX Capital is expected to provide DIP financing so that the chain can continue operating its roughly 100 stores during the bankruptcy process. Roughly 60% of the Company’s annual sales come from travel and tourism, which have been hit hard by the pandemic, and the Company was unable to negotiate concessions with landlords and vendors. It has received notices of default from the landlords of 49 of its locations. It’Sugar generated $19.5 million in sales during the first half of FY20, including just $3.6 million in 2Q20 when stores were closed. At the time of the filing, It’Sugar had $0.5 million of cash, $6.2 million of secured debt, and $10.4 million of unsecured liabilities, including unpaid rent.
In the Tuesday Morning bankruptcy case, the Debtors filed a preliminary Disclosure Statement and Plan of Reorganization, as well as a motion to sell substantially all of their assets. This is part of a dual-pronged strategy, in which the Debtors are considering both: (i) a traditional Plan of Reorganization, in which the assets are retained (other than a possible sale-leaseback of owned real property), and (ii) a potential sale of the business. Click here to request a list of store closures.