Among the many retailers whose financial reporting quarter ended Oct. 31 and updated investors in quarterly earnings conference calls on their store expansion and contraction plans, a trend continues to emerge: mall-based retailers seem to be contracting, while center-based retailers seem to be expanding.
The distinction is not quite that black and white. Within each retail property segment there are examples of different chains that are growing and those that are shrinking.
However, stock prices for both retailers and REITs that own malls or shopping centers have moved in a similar tandem, driven by widely reported concerns over decreasing mall traffic, lower tourism spending and a so-far warm winter inhibiting sales of cold-weather clothing (at least on the East Coast.)
“Negative mall commentary from one retailer/manufacturer does not mean everyone is feeling the pinch,” Nomura noted in a recent report on the retail property sector.
“Stocks have ping-ponged as a group for the past several weeks, even though results have shown meaningful deviations, with true winners and losers forming for the first time in a while,” the market analyst noted.
“Although pitching mall-based retail has felt like a waste of time, we believe Express Inc. and American Eagle Outfitters remain on trend,” Nomura noted. “Further, Hanesbrand should benefit from a replenishment business generally protected from this noise. And lastly, we continue to expect L Brand to fundamentally outperform/benefit from the strength of the U.S. consumer.”
That said, the mall tenant mix is becoming much more fluid these days. Malls are no longer solely populated by the traditional tenants. Many retailers considered to be primarily “center-based” are appearing more frequently in new and redeveloped malls and lifestyle centers.
The International Council of Shopping Centers (ICSC) reports that 2015 mall inline tenant sales through September 2015 are up 1.0% over the same period in 2014. This trend may continue to drive demand in the mall sector despite the struggles of some traditional mall stalwarts.
Here is a round-up of the latest store expansion and contraction plans from retailers reporting earnings this month.
Repositioning Mode
Burlington Stores Inc.
Burlington Stores has been upping its overall store count but reducing overall square footage leased per store from an average of 78,000 square feet to about 52,000.
“As far real estate goes, we’re going to continue to reduce the size of our stores,” said Thomas Kingsbury, president and CEO. “We’re always evaluating our real estate portfolio and we’re always looking at our leases. And as they come up for renewal, we decide if we want to relocate into a smaller box or a different location. But if those two things cannot happen, and these are still very profitable stores, we’re not going to get out of them.”
Christopher & Banks Corp.
Christopher & Banks is shrinking its Christopher & Banks and CJ Banks store brands but expanding its MPW (Missy Petite Women) and outlets. In this quarter, the retailer plans to close 12 CB and CJ stores and convert 20 stores to its MPW store brand.
“We plan to end fiscal 2015 with approximately 519 stores of which 315 will be in the MPW format. At that point, we will have approximately 127 stores left to convert,” said Pete Michielutti, vice president, CFO and COO. “We plan to open nine new MPW stores and 32 outlet stores for the full fiscal year. The real estate action is collectively expected to result in the 3.2% increase in our total square footage in 2015. As you look to fiscal 2016, we will have considerably fewer new store openings. We believe the near-term opportunity lies with optimizing the MPW store base and optimizing the significant expansion into outlet and continuing the momentum of the growth in e-commerce channel.”
Kohl’s Corp.
Kohl’s is focusing more on outlets and also shrinking its store size to a smaller 35,000-square-foot prototype, which the company expects will open enable it to open stores in many smaller markets across the country. The retailer also said it could opt to downsize existing stores as they approach their lease expirations.
“Our brick-and-mortar business and our physical presence is a dramatic competitive advantage versus both virtual retailers and some of our brick-and-mortar competition,” said Kevin Mansell, Kohl’s chairman, president and CEO. “I don’t know necessarily that we’ll see fewer stores. They’ll probably look a little different and they’ll probably be smaller than they are now. But I actually think this strategy, effectively executed, will give us more presence — not less presence — than we have today.”
Expansion Mode
L Brands Inc.
L Brands, parent of Victoria’s Secret and Bath & Body Works, has been getting more aggressive in its expansion plans. From 2009 to 2014, net square footage growth after closures was only about 1%. It will end 2015 at about 3% growth and is forecasting 4% growth in 2016.
“We’re growing square footage and still improving sales per foot,” said Stuart Burgdoerfer; vice president and CFO. “That’s a very powerful thing.”
Dollar General Corp.
For 2015, Dollar General is on track to open 730 new stores and relocate or remodel a combined 875 stores.
“Looking ahead for 2016, our pipeline is full as we continue to plan for approximately 7% square footage growth or about 900 new store openings,” said Todd J. Vasos, CEO. “But more importantly we don’t see anything structurally that gets in a way of a 6% to 7% square footage growth rate as we go out into the outer years.”
Costco Wholesale Corp.
Costco has opened 23 net new units this year — a 3.5% square footage growth. It plans to open 32 stores this coming year (22 of them in the U.S.) – an increase in square footage growth of 5%. The number of stores planned to open in 2016 could come down a little bit based on timing as some of those planned for the second half of the year could be delayed, said Richard Galanti, executive vice president and CFO.
Ulta Salon Cosmetics & Fragrance Inc.
Ulta Salon is on track to open 100 net new stores to end 2015 with 874 stores. “In addition, the real estate pipeline continues to look very healthy,” said Mary Dillon, CEO. “We’ve approved almost all the sites for 2016 and we continue to have access to high quality sites as our unit growth and ability to drive traffic to centers gives us an excellent standing with landlords.”
Approximately 25% of the new Ulta Salon stores will be in new markets, while about half will be in new or redeveloped shopping centers within existing markets.
New York & Co.
New York & Co. only opened four new New York & Co. stores this year, but it is doubling that pace with its outlet channel, having opened three new outlets in the third quarter, for a total of eight new outlets this year.
“As it relates to outlet conversion stores, year-to-date we have converted 12 New York & Co. locations into outlets,” said John Worthington, president and COO. “As we evaluate our real estate portfolio, we expect to now convert approximately 50 addition al New York & Co. stores to outlets in February of 2016. We believe that with new outlets and conversion, the outlet channel could grow to between 160 and 180 locations, with increased margin and sales productivity.”
Shoe Carnival Inc.
During the third quarter, Shoe Carnival opened six stores, including its first two in small markets (Blytheville, Ark., and Marion, Ind.,) It closed two stores. Shoe Carnival ended the quarter with 404 stores in 34 states in Puerto Rico.
“Our store growth plan continues to focus on strong trade areas within our current footprint and to take our underperforming stores that have minimal opportunity to improve, and either renegotiate lease, relocate, or close the stores,” said Cliff Sifford, president, CEO and chief merchandising officer.
Downsizing Mode
American Eagle Outfitters Inc.
American Eagle Outfitters said it is on track to close 150 stores by the end of 2016. In addition, the company said it currently has 145 stores on short-term leases on which it needs to make decisions.
Chico’s FAS Inc.
In the past quarter, Chico’s FAS has upped the number of stores it planned to close by about 30 to a total of 175.
“As leases are coming towards term or kickouts, we continue to evaluate overall markets, continue to evaluate what I would call our flow of customers to understand where the sales are going to, and then also look at how that compares to rate increases that we’re seeing from landlords,” said Dave Dyer, president and CEO.
“In a lot of cases, we’re seeing rate increases that far outstrip anything that we would have expected and that causes us to maybe change course a little bit here and there.”
Aeropostale Inc.
Fashion retailer Aeropostale originally planned to close 50 to 75 stores in 2015, but said closures will be in the low end of that range. It still may close 20 to 40 stores next year, while planning only one new opening.
bebe stores inc.
bebe store’s strategy is to grow its international, outlet and online businesses, while shrinking its domestic boutique portfolio. It is planning to close up to 30 bebe and outlet stores this fiscal year, reducing square footage by 8%. Over the next two years, it may close as many as 50 stores.
Men’s Wearhouse Inc.
Men’s Wearhouse just reported a 2.8% decrease in sales for its third quarter and a loss of $36.4 million, prompting it to undertake a serious review of its store portfolio.
“While we continue to be very proud of the performance in our long-standing core businesses, especially our largest brand, Men’s Wearhouse, we were obviously very disappointed in the Jos. A. Bank business, which has caused a steep decline in our earnings this year,” said Jon Kimmins, executive vice president and CFO. “This brand is going through a challenging transition to a more sustainable promotional model. We’re working diligently to reset the cost structure of this business including store rationalization, but these efforts will not bear fruit until next year.”
The chain said it will be looking at its entire store portfolio for consolidation opportunities, not just the ones coming up for lease renewal.
Tilly’s Inc.
Tilly’s, a Southern California chain of surf- and skate-inspired clothing, has decided to slow down new store growth.
“We have evaluated our real estate portfolio and realized that a number of stores opened in recent years haven’t matured at what we feel as an acceptable rate and many of these stores are in very good malls,” said Ed Thomas, CEO. “I believe some of this under-performance is self-inflected and we can do a number of things to get these stores back on a good trajectory.
“There is no major surgery that has to be done. It’s more some tiny stuff that I think we can tweak to drive sales and drive the productivity in those stores up.”
