Bed, Bath & Beyond’s announcement last week that it plans to open 60 new stores in fiscal 2010 highlighted a change in attitude that’s slowly taking place among national retail chains. While most national retailers spent 2009 trying not to drown, a brighter outlook for U.S. economy and better pricing on available space has led to an increase in expansion announcements in 2010.
This year, leasing activity might rise 5 percent year-over-year, according to some experts. But the growth will be concentrated among a few key sectors, including discount stores, furniture sellers and fast-food operators.
“If you are a landlord, you’ve got to really focus like a laser beam on the strategies these companies have and the potential of these businesses,” says Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York City-based retail consulting and investment banking firm. “At the end of the day, this economy is not going to be good, so they really have to understand who’s going to be a viable [long-term] tenant.”
For example, Bed, Bath & Beyond, which reported a 4.4 percent increase in same-store sales for 2009 while the industry as a whole experienced a 0.5 percent decrease, seems like a strong bet, according to Davidowitz. During its earnings conference call on Apr. 7, the Union, N.J.-based retailer announced it plans to open 60 new stores in North America in fiscal 2010, including 30 namesake stores, 20 buybuy BABY stores and 10 Christmas Tree stores. Overall, the company believes it can support 1,300 Bed, Bath & Beyond stores in U.S. and Canada, according to Warren Eisenberg, co-chairman. As of 2009, it operated 958 namesake stores in the United States.
“We continue to apply our stringent standards of growth as we evaluate new store price, as well as continue to review our existing locations and lease terms for opportunities to relocate and/or right size our stores in response to changing market conditions,” Eisenberg told analysts.
Meanwhile, children’s apparel seller Gymboree has doubled the number of stores planned for its new off-shoot Crazy 8 up to 100 from previously announced 50. And Urban Outfitters Inc. decided to launch a new concept next year that will focus on the always popular bridal market.
Overall, U.S. retailers plan to open 65,257 stores in the next two years, according to a March 16 report from RBC Capital Markets and Retail Lease Trac. (The report includes data on 2,000 retailers, but does not follow expansion plans for some of the bigger U.S. chains, including Walmart, Target and Macy’s.) The March figure represents a 1.2 percent increase from the number of stores planned in December 2009. The sectors with the greatest number of planned openings include variety, with 2,839 stores; salons and spas, with 2,509 stores; and pet care, with 493 stores.
“We are going to have tremendous growth in the extreme value sector, big growth in food retailers and it looks like home [furnishings] is coming back after a five-year slump,” Davidowitz says. “In extreme value alone you’ll see thousands of stores.”
For example, Dollar General plans to open 600 new stores in 2010, while Family Dollar will open net 120 to 140 stores.
As a result of this revival in interest, there has been a 20 percent to 30 percent increase in leasing activity from this cycle’s low point in 2009, according to Alvin Williams, principal with Excess Space Retail Services Inc., a Huntington Beach, Calif.-based real estate disposition and lease restructuring firm. Williams, who works with retailers to dispose of surplus store space, attributes the increase partly to his clients’ greater willingness to compromise on deals.
“We are seeing more flexibility for what kinds of tenants they’ll expect, what kinds of deals they’ll do, they are much more open to splitting their spaces,” Williams says. “We have found what I would call a temporary new normal. There hasn’t been a month-to-month increase [in leasing activity], but we are off the low point.”
Most national players, however, are still not launching new concepts and those outside the extreme value sector are approaching expansion very cautiously, notes John Bemis, executive vice president and director of leasing with Jones Lang LaSalle Retail, an Atlanta-based third party property manager. He estimates that under the best circumstances, leasing activity this year might increase 5 percent compared to 2009. But if same-store sales remain in the high single digits for the rest of the year, this might position the nationals for growth in 2011 and 2012.