Jeff Green notes that department store spaces could be used for medical purposes or redeveloped into apartments or a limited-service hotel, lodging that would benefit mall restaurants. In yet another use, rumors have reportedly grown recently that the operators of Parx Casino in Bucks County are looking at a shuttered Bon-Ton store in Cumberland County for its planned mini-casino.Read More
Hoffman Strategy Group, a premier national commercial real estate advisory firm, announced today that retail and retail real estate industry veterans Dan Sheridan and Jeff Green have become Partners of the firm. Sheridan is based in Newport Beach, California with Green being located in Phoenix, Arizona.Read More
Hoffman Strategy Group, a premier national commercial real estate advisory firm, announced today that retail and retail real estate industry veterans Dan Sheridan and Jeff Green have become Partners of the firm.Read More
Gail Kalinsoki/Commercial Property Executive - Four months after Brookfield Property Partners came courting GGP Inc. and was initially spurned, Chicago-based mall owner GGP has accepted Brookfield’s offer to acquire the remaining portion it didn’t already own in a deal valued at about $15 billion.
“It was just a matter of time, they already own so much of it,” Jeff Green, a retail consultant and president & CEO of Jeff Green Partners in Phoenix, told Commercial Property Executive.
Brookfield, one of the world’s largest commercial real estate companies and the real estate arm of Toronto-based Brookfield Asset Management, is seeking to acquire the remaining 66 percent stake in GGP, the second-largest mall owner in the United States. The announcement of a definitive agreement comes after Brookfield made an unsolicited bid in November for GGP.
When GGP rejected that offer, Green told CPE it was “just the first volley” and predicted Brookfield would have to sweeten the deal. This week, Green said he wasn’t surprised about the proposed acquisition.
“I’m not sure if in fact it’s really a better deal as much as (GGP) waited for some time to pass to see if someone stepped up,” Green said. With no other suitors, “there certainly is more urgency to figure out a solution and Brookfield is probably the only solution as they already own so much of it,” he added.
A COMPELLING TRANSACTION
The deal, which still must be approved by GGP shareholders, calls for GGP shareholders to receive $23.5 a share in cash, or either one Brookfield unit or one share of a new U.S. REIT that will be formed for each GGP share owned. The offer is subject to proration based on aggregate cash payment of roughly $9.3 billion, up from $7.4 billion in the November offer that also suggested shares paid at $23.0 per share.
“This is a compelling transaction that enables GGP shareholders to receive premium value for their shares and gives them the ability to participate in the long-term upside of their investment,” Brian Kingston, Brookfield Property Partners CEO, said in a prepared statement. “We are pleased to have reached an agreement and are excited about combining Brookfield’s access to large-scale capital and deep operating expertise across multiple real estate sectors with GGP’s portfolio of irreplaceable retail assets.”
GGP owns about 125 high-quality retail properties comprising approximately 121 million square feet of space in 40 states. With a total enterprise value of $41.1 billion as of Dec. 31, GGP’s assets include Water Tower Place, Chicago; Tysons Galleria, McLean, Va.; Ala Moana Center, Honolulu; Perimeter Mall, Atlanta; The Woodlands Malls in Woodlands, Texas; and Fashion Show and Grand Canal Shoppes, both in Las Vegas.
A GLOBAL LEADER
The combined company would have an ownership interest in approximately $90 billion in total assets and an annual net operating income of more than $4 billion, making it one of the world’s largest commercial real estate enterprises. If approved by GGP shareholders, the deal is expected to close early in the third quarter.
GGP’s Special Committee, formed in November after receiving Brookfield’s initial proposal, reviewed the new offer along with input from its independent advisors and unanimously recommended shareholders approve the transaction.
Daniel Hurwitz, lead director & chairman of the special committee, said the special committee, “determined that Brookfield’s improved proposal, which includes an increase in the cash portion of the consideration and the ability to receive shares in a newly listed REIT entity, provides GGP shareholders with a certainty of value, as well as upside potential through ownership in a globally diversified real estate company.”
Weil, Gotshal & Manges LLP, Goodwin Procter LLP and Torys LLP are serving as legal counsel to Brookfield and PwC is serving as the company’s tax advisor.
Goldman, Sachs & Co. is serving as financial advisor and Simpson Thacher & Bartlett LLP is legal counsel to GGP’s special committee. Citigroup Global Markets Inc. is GGP’s financial advisor and Sullivan & Cromwell LLP is its legal counsel.
The Brookfield-GGP deal comes at a time of increased consolidation among shopping center and mall owners. In December, Unibail-Rodamco SE, Europe’s largest listed commercial property group, said it was buying Australia’s Westfield Corp. for nearly $16 billion to create a global shopping center owner with a gross market value of $72.2 billion and 104 assets across 27 of the world’s top markets. Westfield has interests in 35 shopping centers in London and the U.S. That deal is expected to close in the second quarter.
Jon Harris/The Morning Call - Some have described it as an apocalypse. Others prefer the term disruption. The more optimistic among us call it an evolution.
Terminology aside, the situation is pretty clear: The retail world is changing quickly, and its makeover won’t stop anytime soon.
Consider: E-commerce sales accounted for about 10 percent of all U.S. retail sales at the end of last year, up from around 6 percent in 2012, according to U.S. Commerce Department figures.
“It doesn’t sound like much, but it’s huge because of the effect it has on brick and mortar,” said retail expert Jeff Green, owner of Jeff Green Partners in Phoenix.
That percentage is forecast to grow quickly in the years ahead. Take it from research and advisory firm Forrester, which expects online sales to account for 17 percent of all U.S. retail sales by 2022.
It means the upheaval could just be getting started. In Outlook 2018, The Morning Call takes a closer look at the changing retail world. It’s a transformation that started gradually — the first purchase on the internet with a credit card was back in 1994 — but then suddenly, getting to the point where the once-dominant department store industry is shuttering hundreds of stores and turning to possibly its best remaining asset: its real estate.
Many sectors, however, have avoided the disruption. For example, home improvement stores still provide customers with in-person — and often much-needed — assistance, while off-price retailers such as Ross and T.J. Maxx remain one of the thorns in the sides of traditional department stores. In addition, even with Amazon’s purchase of Whole Foods Market last year, online grocery shopping remains relatively nascent, though experts expect that category to heat up in the next several years.
“Everyone is scared to death of Amazon, because they are a gorilla,” said Ron Friedman, a retail expert at accounting and advisory firm Marcum. As it is already, Amazon accounts for around one-third of all e-commerce spending.
As retail has evolved, so have the jobs.
Just look at the Allentown-Bethlehem-Easton metro area’s job figures from December, in the thick of the holiday shopping season. That month, the region’s retail trade sector had 40,800 jobs, down from 42,100 a year earlier, according to state Department of Labor & Industry. Meanwhile, the area’s booming transportation-and-warehousing sector had 29,400 jobs in December, up from 27,400 a year earlier.
The reason boils down to consumers increasingly trading brick-and-mortar for click-and-order. As online orders have surged, Amazon and Walmart have become two of the Lehigh Valley’s largest employers, each employing more than 2,000 workers across their area fulfillment centers. Its strategic location, close to major population centers, is one reason the Lehigh Valley is at the intersection of the retail changes, one where an in-store retail worker here could handle virtual orders at a fulfillment center instead and make more money — roughly $15 an hour in some cases.
With the boom in the sector, however, the pool of available warehouse workers has grown increasingly tight. The competitive job market has motivated many Lehigh Valley warehouses, where basic English is typically a requirement, to loosen some of those standards and tap into a plentiful supply of non-native speakers, though much work remains on that front.
All these changes have led to ongoing transformations in retail real estate.
While downtown retailers are making changes to compete, they also benefit — in fully developed downtowns, anyway — from a healthy array of dining and entertainment options, which help drive foot traffic. Meanwhile, shopping center owners are adapting by making changes and, often, turning to grocery stores as anchors. Many shopping malls also are trying to adapt, diversifying their tenant mix, lessening their exposure to struggling department store chains and, in some cases, turning inside out to resemble a shopping center with more exterior entrances.
Friedman expects the mall of the future to look like Westfield Century City, a 1.3-million-square-foot mall in Los Angeles that received a two-year, $1 billion makeover. The refreshed facility features a plethora of restaurants, an outdoor event space and a health clinic. Following the redevelopment, about 90 percent of its stores are new, including an Amazon Books location.
While malls such as Westfield Century City are well-prepared for the future, there will be plenty of low-performing shopping centers that don’t make the cut, likely going the way of the shuttered Schuylkill Mall near Frackville. Roughly one-quarter of the nation’s malls could close by 2022, by one estimate.
The tough part for these centers: They’re trying to remake themselves in an over-stored environment, one in which brick-and-mortar must downsize to survive.
Consider this: There are about 2,360 square feet of shopping center space in the United States for every 100 Americans, according to CoStar Group. By comparison, that figure is about 550 square feet in the United Kingdom.
Even with additional contraction, the National Retail Federation is expecting a strong year in 2018. The world’s largest retail trade association expects retail industry sales to grow between 3.8 and 4.4 percent this year, compared with 2017. That forecast is boosted by anticipated online and other non-store sales growth of between 10 and 12 percent.
On the association’s Feb. 8 annual forecast call, NRF officials said they expect strong consumer confidence — and tax cuts — to help continue the momentum for the retail industry, coming off a strong holiday season. The association also pointed to a Wharton School analysis, which showed the retail trade industry will save more than $170 billion as a result of the Tax Cuts and Jobs Act. The savings should allow retailers to redirect capital to employees and other aspects of their business, they said.
“The retail industry, while continuing to transform, is alive and well,” NRF President and CEO Matthew Shay said on the call.
While these are uncertain times for retailers, Friedman also described them as “really exciting times.” Some retailers will seize new opportunities, while others will not.
Even though the day and age of the gig economy has begun, both Friedman and Green said there is still room for brick-and-mortar, though the industry needs to resize and know its customers better than it ever has. Some well-known brands are opening their own stores. For example, Montgomery County workplace furniture and textile maker Knoll Inc. in January opened a home design shop in Los Angeles, its second direct-to-consumer retail location following the success of its New York City shop.
In addition, some physical locations can be repurposed to serve e-commerce. In fact, Walmart is converting up to a dozen of the 63 Sam’s Clubs it closed into e-commerce fulfillment centers, a move that will boost the retailer’s delivery of online orders.
The digital world, however, is giving new life to defunct retailers, such as Circuit City. A New York businessman who bought the Circuit City brand has vowed to launch an e-commerce website, potentially followed by kiosks and showrooms.
So, moving forward, Shay said the NRF expects to see more of the same in the industry, with retailers finding ways to stay competitive by reallocating resources from nonproductive investments to more promising ones.
Sure, some doors will close, he acknowledged, but others will open.
One area of potential concern, Jeff Green noted, is the mall’s reliance on department stores, a retail segment in decline that many analysts believe is in need of a reinvention. In addition, department stores are large footprint anchors in malls — spaces that aren’t easy to replace if and when they close.Read More
Jon Harris/The Morning Call - A little more than a week ago, signs from the shuttered J. Crew store sat on the sidewalk behind a 1-800-Got-Junk? truck, waiting to be loaded and hauled away from Lehigh Valley Mall’s outdoor lifestyle center in Whitehall Township.
Just days later, a barricade in front of the vacant store was already rising, with a construction crew and lifts working behind a waist-level orange fence to get the spot ready for its next tenant.
Out with the old, in with the new.
This is not an unfamiliar scene at the area’s premier mall. While Lehigh Valley Mall’s performance remains strong, it has steadily been hit — as most malls have — with store closures in a rapidly evolving landscape in which many retailers are shrinking their brick-and-mortar footprint or going out of business.
But unlike many other shopping centers, the mall — backed by a strong ownership group that includes the country’s largest mall operator — has been able to fill its vacancies quickly, boasting an occupancy rate that easily exceeds the national rate of 93.1 percent recorded by the International Council of Shopping Centers.
“We, like everybody else, are not immune to everything that’s going on, but I think what we’re able to do is we’re able to recover,” said John Ferreira, Lehigh Valley Mall manager. “You have people come and go. You always have people come and go here, but we’re able to find replacements and the replacements that we find are retailers, they’re restaurants, and now they’re more experiential types of activities or stores that will attract today’s customer.
“And we’ve been pretty successful at doing it,” he said.
Fighting the headwinds
The situation won’t get any easier moving forward, however, as e-commerce continues to gobble up sales, causing a dramatically overstored U.S. retail climate to correct itself. The correction could be significant: One report last year from Credit Suisse said roughly one-quarter of the nation’s malls could close by 2022.
The centers most at risk, according to Green Street Advisors, are the low-performing malls, of which the Lehigh Valley has several that are trying to adapt by adding more exterior entrances, freshening up their 1980s-like appearance and bringing in tenants such as local restaurants, gyms or even a trampoline park.
Those malls, such as South Mall in Salisbury Township, Palmer Park Mall in Palmer Township and Phillipsburg Mall in New Jersey, face a tough road. While South Malland Palmer Park are now under the control of their own respective hands-on ownership groups, both count the bankrupt Bon-Ton as an anchor and South Mall’s other anchor, Stein Mart, has assembled a team to “identify potential strategic alternatives.” Meanwhile, the Phillipsburg Mall is in the midst of losing its Bon-Ton, putting it another anchor down and forcing its owner to weigh alternatives for the property.
The 1.18 million-square-foot Lehigh Valley Mall is far from a low-performing mall, though some of its numbers were slightly lower in 2017 than in years past. One retail expert believes those figures could decline further following the 2019 holiday shopping season as the retail disruption continues, but the mall is fighting those headwinds by looking at ways to diversify and weighing an expansion that would give it greater visibility from busy MacArthur Road and cement its position as the area’s top shopping hub.
As of Dec. 31, sales per square foot at the mall were $561, down from $570 a year earlier, according to a U.S. Securities and Exchange Commission filing from Pennsylvania Real Estate Investment Trust, which co-owns Lehigh Valley Mall with Simon Property Group. In addition, Lehigh Valley Associates — the formal name of the mall partnership between Simon and PREIT — reported revenue of $34.9 million last year, down from $36.9 million in 2016, according to PREIT’s annual report.
While the mall doesn’t discuss specific numbers, Ferreira said turnover in a mall can generally lead to downtime and push some figures lower. One number that isn’t declining at Lehigh Valley Mall, according to Simon’s annual report, is its occupancy rate. Its figure of 98.8 percent within the mall concourse is up from a year earlier, when it was 97.7 percent.
Getting to that point is a testament to the mall’s ability to backfill tenants quickly even as it has lost mainstays such as Delia’s, Wet Seal and Bebe.
To fill the gaps, the mall has brought in tenants such as women’s retailer Love Culture, family-owned business Windsor and Torrid, the last of which will open within weeks in the former Bebe space and offer apparel, accessories and swimwear to women sized 10 to 30.
Many of the mall’s retailers, Ferreira said, are now more experiential. For example, Pocono Oil and Spice Co., which took over the space vacated by Teavana, allows customers to sample dozens of selections, from garlic cilantro and spicy mango dark balsamic vinegars to blood orange and Parmesan, garlic and rosemary olive oils.
The mall is even experimenting with the virtual world.
Virtual reality gaming facility VR Cafe opened at the mall last year, filling the space left by Wet Seal, Ferreira said. VR Cafe, which opened its first location at Palmer Park Mall in September 2016, also has a cafe bar alongside its booths where customers immerse themselves in 360-degree virtual worlds.
The mall also this year filled one of its largest vacancies in recent memory, when Bob’s Discount Furniture opened in a more than 30,000-square-foot space in the mall-owned outparcel along Grape Street that previously housed HHGregg.
“To have a space of 35,000 square feet, and we backfill it within six months with a really good tenant, I think that really means a lot,” Ferreira said.
But more challenges could be on the horizon — in fact, just a stone’s throw from Bob’s.
Babies R Us, in the same building as Bob’s and Guitar Center, could be the next space to fill. Going-out-of-business signs were posted in the store’s entrance on Friday, eight days after the retailer’s parent company, Toys R Us Inc., announced it would liquidate its remaining U.S. stores.
Meanwhile, Claire’s, known for its tween jewelry and ear piercing, filed for bankruptcy Monday. It has stores at Lehigh Valley Mall, South Mall, Palmer Park Mall and the Promenade Shops at Saucon Valley.
Some of Lehigh Valley Mall’s turnover is simply a result of its size and depth of merchandise, scale that leads Ferreira to call the shopping center “this area’s King of Prussia,” referring to Simon’s massive mall about 50 miles south in Montgomery County. With more than 150 stores, it’s not that unusual for Lehigh Valley Mall to house a national retailer that decides to downsize or close shop for good.
Despite the turnover, retail expert Jeff Green, owner of Jeff Green Partners in Phoenix, said the mall’s $561 in sales per square foot is still strong, placing it as an A mall by that figure. Green estimated a further decline could occur after Christmas 2019 or early 2020, by which time Lehigh Valley Mall — and many other malls — could be transitioning from an A mall to a B mall, the latter of which has sales per square foot of $375-$550.
One area of potential concern, Green noted, is the mall’s reliance on department stores, a retail segment in decline that many analysts believe is in need of a reinvention. In addition, department stores are large footprint anchors in malls — spaces that aren’t easy to replace if and when they close.
For example, at Lehigh Valley Mall, Boscov’s space, leased through 2022, is nearly 165,000 square feet, while the Macy’s location, also leased through 2022, is 212,000 square feet, according to a PREIT public filing. Meanwhile, J.C. Penney owns its 207,292-square-foot store.
From Ferreira’s point of view, however, each of the three department stores offers a different type of merchandise and each caters to a specific kind of customer. In addition, he noted, it bodes well that neither Macy’s nor J.C. Penney has shuttered even as both chains have announced closures in recent years.
Green said Lehigh Valley Mall will still be the area’s dominant shopping center in the future even as retail headwinds continue to intensify. From a national perspective, Lehigh Valley Mall is considered a premier mall in a secondary market, a scenario Green said is preferable to being a secondary mall in a major market.
“Whether it be A or B+, it’ll still be the best mall in the [Lehigh Valley] market,” Green said.
In the future, Ferreira expects the mall will still be one retailers want to invest in. Starbucks and Express just finished remodeling their stores at the mall, while Swarovski is in the midst of construction.
Simon, as an operator, also has not hesitated to invest in good malls. For example, Simon opened a 155,000-square-foot expansion at King of Prussia Mall in August 2016 and, a little more than 10 years ago, opened a $40 million, 110,000-square-foot lifestyle center at Lehigh Valley Mall.
Even with the loss of J. Crew and the closure of Ann Taylor on Saturday, Ferreira said the lifestyle center is a strong performer, as those trying to park there can probably believe as they participate in a nonstop version of vehicular musical chairs.
The lifestyle center likely won’t be the last investment in Lehigh Valley Mall.
Since at least March 2016, the mall has been mulling an expansion on the 4.5-acre parcel at 1457 MacArthur Road, which hosts an office building, a Friendly’s and a former Wendy’s, the last of which recently moved to a newly constructed building at 2545 Mickley Ave.
Rumors have been rampant over the years, with past and current tenants saying the parcel had been discussed as a potential spot to construct the second phase of the lifestyle center. Some believe a Cheesecake Factory is on its way.
For his part, Ferreira isn’t tipping his hand. When it is redeveloped, however, he believes it will be a “really nice entry point” to Lehigh Valley Mall that shoppers will appreciate.
The questions at this point seem to revolve around when and what — not if the project will happen.
Said Ferreira: “It’s coming — sooner than later.”
Paul Gores/Milwaukee Journal Sentinel - If you want to illustrate just how much the brick-and-mortar retail landscape has changed, you could sum it up with this:
For the first time in more than 90 years, the Milwaukee metro area doesn’t have a full-line Sears department store.
The last Sears department store here closed a week ago at Brookfield Square.
Sears in Milwaukee dates to 1927, when it had a store at N. 21st St. and W. North Ave.
“It’s sad,” said Debi Damron, a 15-year Sears employee who rang up deeply discounted merchandise for customers at the Brookfield store on its final day in business last Sunday. “I can’t believe that they decided to pull completely out of a million-person city.”
Milwaukee isn’t alone.
Once the king of U.S. retailing, Sears has shuttered more than 300 stores in the last decade nationwide, including nine in Wisconsin, as shoppers have reduced visits to malls and are buying more online.
Sears also has been hurt by new retailers focused on a single category of what had been a department in Sears. Stores such as Home Depot and Ulta Beauty, for example, have scooped away market share from Sears' home improvement and cosmetics departments, respectively. At the same time, apparel retailers catering to every size and sense of fashion have popped up in storefronts all along the mall.
Today, Sears has fewer than 550 full-line department stores in the United States, down from 861 in 2007. Although some Sears stores that sell limited merchandise like appliances, hardware and mattresses still dot the Wisconsin map, only six full-line Sears department stores remain in the state. The closest to Milwaukee is in Janesville.
“It surprises me that a market your size doesn’t have a full-line Sears still operating, but that just means you’re ahead of the curve. It will happen elsewhere,” said retail industry consultant Jeff Green, of Jeff Green Partners in Phoenix.
The population of the Milwaukee metro area is just under 1.6 million.
Paul Gores talks about the the closing of the last Sears store in the Milwaukee area. Why it happened and what mall owners are hoping to replace it with.
The question for Milwaukee is, “Will Sears be missed?”
“I think some people will miss it. The Sears name, it’s a venerable name. I think of Sears and still think of the big thick catalog we used to get at Christmas and circle things we wanted,” said industry consultant Nick Egelanian, founder of SiteWorks Retail Real Estate Services in Annapolis, Md. “But I don’t think they’ll miss it from the standpoint of how they’re living their daily lives and how they’re consuming today. I think they’ll miss it more from a nostalgic standpoint — another kind of marker on the road that goes away.”
Consultant Dick Seesel, owner of Mequon-based Retailing in Focus, said the heyday for Sears came mostly in 1960s and ‘70s. The Sears store at Brookfield Square opened in 1967 as one of three anchors. The two other original anchors — J.C. Penney and Boston Store — still are there, although the parent company of Boston Store, Bon-Ton Stores Inc., filed for Chapter 11 bankruptcy in February.
“In the ‘70s when they started building their own shopping centers in some parts of the country, they were flying pretty high,” Seesel said of Sears. “But that was before there was Walmart. That was before there was Home Depot.”
'Everything under the sun'
Sears stood apart from other dry goods department stores in that it had almost everything a consumer might need.
“Sears was always all things to all people,” Seesel said. “They were selling appliances and lawn mowers and hardware and all sorts of things that were really meant to appeal to that customer moving to the suburbs.”
Seesel continued: “What happened long before Amazon is they started dealing with a lot of competition in various parts of their business. There was somebody like Home Depot able to chip away at Sears' market share in those kinds of businesses. You had Best Buy growing. You had a lot of category specialists in big box stores growing up that made that Sears model of everything under the sun under one roof somewhat obsolete.”
At the same time, he said, Walmart was on the march, starting in small towns and heading toward suburbia on its way to supplanting Sears as the world's largest retailer.
In 2005, discount retailer Kmart and Sears merged, creating Hoffman Estates, Ill.-based Sears Holdings Corp. But things didn’t get better for Sears, industry experts said.
“It’s a pretty common theme in retail that two weak players, when they merge, don’t necessarily end up with one strong retailer, and that’s part of the story of Sears right now,” Seesel said.
In 2002, Sears bought classic clothing retailer Lands’ End, of Dodgeville, to create a store-within-a-store concept. But Sears Holdings spun off Lands' End as a separate company in 2014.
Transformation in progress
Annual revenue for Sears Holdings in 2017 was $16.7 billion, down 25% from 2016 and only a third of what it was in 2007. The company lost $383 million last year, an improvement from a $2.2 billion loss in 2016. It hasn’t posted a profit from continuing operations since 2010.
Sears says it’s in the midst of a transformation that includes more digital selling.
“We are making significant progress in our transformation as a company,” said Sears spokesman Larry Costello.
He said Sears has made progress toward a return to profitability, and has significantly expanded its “Shop Your Way” loyalty program. Costello noted the company’s partnership with Amazon, in which Sears' Kenmore appliances and DieHard brand products will be sold on Amazon.com, and pointed to the company’s new DieHard state-of-the-art auto centers in Texas and Michigan.
Sears sold its Craftsman hardware brand in 2017 to Stanley Black & Decker.
“This year, we built on the success of the smaller-format stores we opened in 2016 by opening several innovative new store formats across the U.S. that highlight the power of our company’s integrated retail capabilities,” Costello said. “The Sears Appliance & Mattress stores in Texas, Pennsylvania and Hawaii showcase two of our strongest categories, while blurring the lines between the traditional brick-and-mortar and online shopping experiences.”
Costello said that for competitive reasons, he couldn’t disclose whether a smaller Sears selling appliances and mattresses will be part of the redevelopment of the Brookfield Square space where Sears had stood.
Plans call for most of the Brookfield Sears building to be demolished. In its place will be a 41,000-square-foot BistroPlex, operated by Marcus Corp., and a 45,000-square-foot restaurant and entertainment center that includes WhirlyBall, a game in which teams of players in bumper cars use hand-held scoops to pass a ball to one another as they try to score by hitting a basketball-like target. The Brookfield Square WhirlyBall facility also will have laser tag and bowling.
Many shopping malls in the U.S. are redeveloping with restaurants and entertainment venues as fewer people shop at brick-and-mortar stores.
“The fact that there are redevelopment plans behind these Sears stores is a great thing for not only the mall developer, but also the consumer,” said consultant Green. “They are going to put in other uses that are more relevant to the consumers than Sears was.”
He added: “I don’t see anything that’s bad about it other than it’s a little bit jarring to see the changes that are occurring in the retail industry.”
Benjamin Romano/The Seattle Times - The retail model of car-centered shopping malls and large, multibrand stores continues to crumble, as the merging of digital and physical sales channels exacts its toll.
Northgate Mall owner Simon Property Group recently revealed plans to transform the 68-year-old shopping center, first developed in an age when people drove their cars for a day of efficient purchases. It now envisions a mixed-use development with offices, residences and open space alongside a reduced retail footprint.
Simon appears to be following a course set by other major mall owners as they face the reality of changing shopping patterns and a retail real-estate market that’s vastly oversupplied — more so with each passing week as national chains give up the ghost. Toys R Us said Thursday it was closing all of its stores — some 735 locations across the country — after it struggled to compete with Amazon, Walmart and Target, and declared bankruptcy.
Mall owner Westfield poured $1 billion into its Century City mall in Los Angeles, reopening it last fall as a destination for dining out, health care and personal services, outdoor events and concerts, and also shopping — though only half the mall will be focused on fashion, including a new Nordstrom, which relocated from another L.A.-area mall. That would be Westside Pavilion, whose owner, Hudson Pacific Properties, said earlier this month it would be redeveloped for offices.
“All malls are going to have to be redeveloped and redesigned,” said Ron Friedman, partner and co-leader of accounting firm Marcum’s retail and consumer products group. “The 1970s-, ’80s-, ’90s-look, it’s history. People don’t want to shop in them anywhere.”
For well-positioned property owners in growing markets like Seattle, this change represents a potential opportunity. Northgate, with its light-rail stop set to open in 2021, is 55 acres of transit-accessible space in a city bursting at the seams and hungry for homes and offices.
While Seattle-area malls have outperformed the national average in sales per square foot in recent years, Northgate’s sales have been among the lowest in the region, not including anchor stores, according to estimates from independent retail location analyst Jeff Green.
“Obviously Northgate is struggling, the stronger U Village gets,” he said, referring to the more upscale, self-styled “open-air lifestyle shopping center” four miles away.
Simon’s nascent Northgate plans indicate 500,000 to 750,000 square feet of ground-floor retail, compared with a million square feet at the historic mall now. (It was one of the first to use the term mall when it opened in 1950.)
“This is good news for Northgate Mall to ‘right-size’ its retail while at the same time bringing in other uses,” Green said. “It is a great site for that.”
What about other retail property owners? “They’re in trouble,” Friedman said.
Howard Schultz, Starbucks’ executive chairman, thinks so too.
“We are at a major inflection point as landlords across the country will be forced (sooner than later) to permanently lower rent rates to adjust to the ‘new norm’ as a result of the acute shift (consumer behavior) away from traditional brick and mortar retailing to e-commerce,” Schultz said in a late-February memo to senior Starbucks executives.
He positioned this as good news for the coffee company as it looks to expand with new store formats.
On March 29, 157 Toys R Us stores — part of the first wave of closures announced earlier this year — will go up for auction. The company was paying lease rates ranging from $4.80 per square foot for a store in Albany, Georgia, to $26.62 for one in San Jose, according to a flier
from the real-estate firm handling the liquidation of the toy seller’s real-estate assets. A Babies R Us in Spokane was leased for $6.65 a square foot.
But it’s not all bad news for physical retail. While many retailers are closing locations, others are opening them. A survey of 77 retailers by Forrester and the National Retail Federation’s digital division found that 43 percent expect to finish 2018 with a net increase in stores, while 16 percent expect their companies to have fewer. (But those stores that are added likely will employ fewer people. The same survey noted a strong interest in automation technologies that — if implemented successfully, which is a big if — would reduce the average number of employees per store.)
Simon has yet to fill in the specifics of its plans for Northgate, saying it would be “a several-year transformation of the property” including a lengthy review process with the city. But it looks, at least in concept, something like The Bellevue Collection, which is a cluster of buildings — including the 72-year-old Bellevue Square mall — with hotels, restaurants, movie theaters, apartments, and offices. And, yes, retail too. A similar mixed-use plan is taking shape at The Village at Totem Lake in Kirkland.
Developers would be able to build as tall as 95 feet in the Northgate neighborhood under the city’s plan to increase density in its urban villages.
“They’re going to build housing, high-rises, office space — all built around malls, so that people can live work and play in the same area,” Friedman said. “That’s the new mall.”
Dan Eaton/Columbus Business First - Mall retailers such as Abercrombie & Fitch and Gap and department stores including Sears and Macy’s draw a lot of the headlines, but the issue of shrinking physical store count is broad. It’s impacted big-box sellers such as HHGregg, now deceased, and Gander Mountain, which cut about one-third of its shops last year. It’s hitting strip center-based shops with smaller footprints, too – the largest number of closings last year came from Radioshack and Payless ShoeSource.
To read more, visit Columbus Business First.
Benjamin Romano/The Seattle Times - PCC Community Markets, the regional chain of cooperatively owned organic-food stores, is joining the ranks of downtown grocers in a big way with a new location in the under-construction Rainier Square tower.
As in urban centers around the country, downtown Seattle’s residential population is growing, with developers building apartments and condominiums on top of and adjacent to the city’s office towers.
Residents of the downtown core have had few nearby choices for grocery shopping, but that’s been changing gradually over the last decade as stores follow people back into the city.
Another new grocer, H Mart, is on track to open downtown in the second half of this year.
PCC will be the anchor retail tenant on the ground floor of the 58-story Rainier Square project. With a mix of shops, restaurants, offices and apartments, it will be the city’s second-tallest building when it’s completed in mid-2020, according to the schedule of developer Wright Runstad.
In the floors above PCC, more than 3,500 employees of Amazon will toil for the retail and technology giant, which claimed all 722,000 square feet of office space in the project in one of the city’s largest leased deals, announced last fall. Above them, 188 high-end apartments are planned, part of more than 6,700 residential units under construction in the city’s downtown.
The development also includes a 12-story luxury hotel.
“Because of the juxtaposition of tourism, theater, sports, daily workers, residents — it is a unique location,” said PCC CEO Cate Hardy. “We’re from Seattle, and downtown is the heart of Seattle.”
More than 72,900 people live downtown, including close-in neighborhoods such as Uptown, South Lake Union and the west side of Capitol Hill, according to estimates from the Downtown Seattle Association (DSA). Almost four times that many work in the city core.
“Seattle is one of the strongest markets for new urban residential, because your economy is so good and because you’re a hub [for] young people who want to live downtown,” said Jeff Green, a retail-location analyst based in Phoenix. That’s what can make it viable for slim-margin grocers, who face higher rents and limited store footprints in dense city centers.
Operating a grocery store downtown brings a unique set of challenges, Green said. Grocers need to tailor store layouts and selection to office workers seeking a quick lunch, tourists looking for iconic Northwest foodstuffs and residents carrying home ingredients for dinner.
Hardy said PCC, with kitchens in each of its stores making scratch soups, salads and other hot and cold fare daily, is already doing a version of this at its Fremont store, serving a neighborhood that has grown dense with technology companies.
“We do a kickin’ lunch business five days a week over there,” she said. “I see the downtown store being a larger scale … more high-powered version of that exact same thing. More office workers, for sure, plenty of residents. We know how to do both.”
Green said walk-in traffic can offset the lack of parking at most urban grocery stores. Rainier Square will have a seven-story, 1,000-car below-ground garage with an undetermined number of free spaces available to PCC shoppers.
Customers can be expected to walk, on average, five blocks to get to a grocery store, Green said. Walk Score, a rating service of Seattle-based real-estate brokerage Redfin, awards maximum points for amenities that can be reached on foot within five minutes, a distance of about a quarter of a mile.
There are about 17,830 people living within a half mile of the planned PCC location, on Fourth Avenue between University and Union streets, according to the DSA. There will likely be more by the time it opens, given that nearly 2,500 residential units in the area are in some stage of development.
Green described a downtown grocery customer — “young, sophisticated, high-income … somebody who cares a lot about organics, supplements, vitamins” — who would seem to be a good fit with PCC’s target market. Through the first half of this decade, downtown’s affluent population — people earning more than $75,000 a year — grew 12 times faster than people earning less.
“Price is not going to be important,” Green said. “Quality is going to be important.”
Hardy expects shoppers to be drawn to PCC from farther away, including more densely populated downtown neighborhoods such as Pioneer Square and Belltown. “We believe we’re going to be the most convenient and by far the highest quality option that they have,” she said.
But PCC is not without competition for downtown shoppers’ grocery dollars. Whole Foods Market, among the first and largest, opened its store on Westlake Avenue in 2006. Kress IGA Supermarket set up two blocks from PCC’s new location on Third Avenue at Pike Street in 2008.
Another new entrant, Asian grocery store H Mart, is on track to open a 15,000-square-foot store at Second and Pine in the third or fourth quarter of this year, a representative said Thursday.
There are other players with long histories operating downtown or adjacent to it. Uwajimaya has been in its current Chinatown International District location on Fifth Avenue since 2000, but its presence in the city goes back generations. Smaller grocers and delis fill other niches.
And, of course, Pike Place Market is the longest-tenured downtown grocery purveyor.
For PCC the downtown store is one of five new or remodeled locations it plans to open in the next three years — including its Burien store, slated for May — a 50 percent increase.
“We aspire to be in all the neighborhoods in the Puget Sound region where we’d be welcome,” Hardy said. “The recognition for us is that downtown has been, and increasingly is, a neighborhood.”
Katie Burke/San Francisco Business Times - Morgan Stanley has enlisted Gensler to help transform the former Macy's men's store in Union Square into a retail magnet with six new stores, two floors of office and a restaurant at the rooftop level.
To read more, visit San Francisco Business Times.
Jon Harris/The Morning Call - Back in January 2013, Pennsylvania Real Estate Investment Trust unloaded the 577,000-square-foot Phillipsburg Mall for $11.5 million. Its anchors were J.C. Penney, Sears, Bon-Ton and Kohl’s.
Fast-forward to today. J.C. Penney closed in 2014, and Black Rose Antiques and Collectibles finally filled the space more than two years later. Sears shuttered there last month — but not before the store was featured as the lead example in a November story by The New York Times to show the challenges confronting brick-and-mortar retailers. In addition, Bon-Ton will close its roughly 65,000-square-foot store there sometime in the next few months.
Kohl’s is still there and does well, but the impending loss of another anchor has the mall’s owner, Mason Asset Management of Great Neck, N.Y., mulling over the shopping center’s future.
“We are considering all options at this point,” Mason Asset President Elliot Nassim said Tuesday. “We are looking at all alternatives, whether it’s us redeveloping it, a sale or a joint venture.”
Nassim said the company still believes the mall is well-situated with a great location, on the border of Pohatcong and Lopatcong townships and near Interstate 78. But soon having two vacant anchor spaces, he said, creates an opportunity for redevelopment, a wide-ranging term that could mean a host of things at this point. Nassim confirmed one option could involve knocking it down and rebuilding, but it’s far too early to know what will ultimately happen to the mall.
But this much is clear: Its future is up in the air.
The mall’s real estate, however, has value, noted retail expert Jeff Green, owner of Jeff Green Partners in Phoenix.
“The value of Phillipsburg Mall is the ground on which it is located, not the physical asset of the mall itself,” Green said. “Its strategic location on the interstate makes it a valuable piece of real estate.”
The Phillipsburg Mall’s predicament is far from rare nowadays, especially at a time when click-and-order continues to chew up a larger portion of all retail sales. For one, the department store chains that have long called malls home are scaling back and closing underperforming locations in an effort to right-size their brick-and-mortar footprint while attempting to grow online sales. That trimming in a dramatically over-stored environment usually hits the smaller malls in secondary markets first, such as Phillipsburg Mall. One report, released last year by Credit Suisse, estimated between 20 to 25 percent of U.S. malls will close by 2022.
The Lehigh Valley and the surrounding area already have seen some of the changes.
For one, the Schuylkill Mall near Frackville — another mall that PREIT unloaded — is being demolished to make way for a new use: industrial buildings. Other area malls are trying to adapt to survive. For example, the Palmer Park Mall is working to create more exterior entrances at the Palmer Township shopping center, and South Mall in Salisbury Township is under the control of a hands-on ownership group that is busy making improvements, adding local businesses and hosting community events.
Both Palmer Park and South Mall also were unloaded by PREIT, a company that has a strategy of weeding out the underperforming malls in its portfolio.
As for Phillipsburg Mall, it had a non-anchor occupancy rate of 66.1 percent and sales of $235 per square foot as of Sept. 30, 2012, one of the last public disclosures on the mall before PREIT sold it to Mason Asset, a company that has more than 90 properties across more than 20 states. Nassim did not have more updated figures handy Tuesday.
Suzette Parmley/The Philadelphia Inquirer - Speculation started last month that online juggernaut Amazon was considering Target Corp. for a takeover and adding “department store” to its list of conquests.
But Target may not be Amazon’s only target, say retail observers.
Last October, Amazon launched a pilot in 82 Kohl’s stores in Los Angeles and Chicago, where its customers can drop off online returns, which are shipped back to Amazon for free by Kohl’s employees.
“This is a great example of how Kohl’s and Amazon are leveraging each other’s strengths – the power of Kohl’s store portfolio and omni-channel capabilities, combined with the power of Amazon’s reach and loyal customer base,” said Richard Schepp, Kohl’s chief administrative officer, in a statement announcing the pilot partnership in September.
Kohl’s also announced a new “Amazon smart home experience” where 10 of the 82 Kohl’s stores will enable customers to buy Amazon smart-home devices and services directly from the online giant. Amazon will become a store within a store inside Kohl’s.
Do these dual efforts signal some future hookup?
“I, too, think Amazon is seriously looking at the `department store` space,” said Phoenix-based retail consultant Jeff Green, who counsels major retailers on strategy. “Though Target has been the rumored Amazon target – and that could be a possibility – might they also be looking at Kohl’s, which would be much less expensive to acquire?”
Amazon’s ambition continues to amaze. It is forming a new company with Warren Buffett and JPMorgan to lower health-care costs of their employees, a move that shook up health-care stocks last week.
Amazon also bought Whole Foods last year in a blockbuster deal worth $13.7 billion, giving it an additional 460 stores for its distribution network.
So making a play for a major department store such as a Target or Kohl’s – each with a huge customer base and more than 1,000 stores in the U.S. (Target 1,834 and Kohl’s 1,100 ) isn’t far-fetched, say analysts, especially as Amazon’s retail arms raceintensifies with Walmart, the nation’s largest land-based merchant with more than 4,600 U.S. stores alone.
While Amazon is expanding its brick-and-mortar firepower, Walmart has been on a buying spree of online companies, such as Jet.com and men’s clothier Bonobos, to help narrow the digital shopping gap with Amazon.
Some see Amazon’s pilot with Kohl’s as a prelude to more growth.
“It is a way for Amazon to provide more convenience for its customers,” said Moody’s senior retail analyst Charles O’Shea. “Amazon is trying to increase its brick-and-mortar position to better compete with Walmart, Target, etc., as U.S. retail sales remain heavily skewed toward brick-and-mortar at roughly 87 percent to 13 percent.”
The Amazon–Kohl’s pilot may lead the two companies to work more closely in the future, said Ben Conwell, head of Cushman and Wakefield’s eCommerce Advisory Group for the Americas.
“The store-within-a-store where Amazon employees are selling Amazon-branded goods, and the complementing Amazon returns acceptance pop-ups in-store by Kohl’s employees appear to be a win-win,” he said. “Kohl’s is enjoying the additional trafficdraw for both sales and returns. Amazon, in turn, enjoys the benefit of what could eventually grow to be 1,100 additional physical stores for use by both existing customers, as well as making Prime membership convenient for Kohl’s shoppers.”
Conwell knows a lot about Amazon. In his previous gig, he was Amazon’s head of North America logistics real estate. For four years he oversaw the expansion of 35 million square feet of Amazon fulfillment and transportation facilities.
“We should not be surprised if the initial pilot is expanded to considerably more locations,” Conwell said. “It is not beyond possibility that the relationship may expand to include offering Amazon order pick-up at Kohl’s locations. Kohl’s could offer Amazon up to twice as many additional physical pick-up points as it acquired with the Whole Foods acquisition.”
Successful retailers are using “physical locations to make customer pick-up more convenient and to minimize costly last-mile deliveries,” he said. Amazon could expand integration of services with more large physical retailers or make an even larger acquisition. “At just over $11 billion in market cap, Kohl’s trades today at less than the Whole Foods acquisition price.”
A sales clerk behind the online pickup counter at a Kohl’s in Bensalem said last week that the free Amazon returns program could be a harbinger of things to come.
“We don’t have it yet,” she said. “Depending on how well it does in California and Illinois, Pennsylvania and other states could get it, too.”
John Harris & Anthony Salamone/The Morning Call - Kutztown resident June Van Duren has remained a loyal Bon-Ton customer, often venturing to Trexlertown to shop even as the department store chain’s once-sprawling offerings began to dwindle in recent years.
“They just don’t carry the merchandise they used to have, the variety,” she said.
Her complaint is just one reason why Bon-Ton is struggling — and just one reason why the chain on Wednesday announced the locations of 42 stores it plans to close over the next few months as it tries to turn around its business.
The Trexlertown store, off Hamilton Boulevard, is one of eight that will close in Pennsylvania, a list that also includes the Bon-Ton at Stroud Mall in Stroudsburg. The beleaguered Phillipsburg Mall also will lose its Bon-Ton.
“I will kind of miss it, but it doesn’t have the feel of vibrancy,” she said.
That’s putting it lightly. The Bon-Ton Stores Inc., the department store chain co-headquartered in York and Milwaukee, is loaded with about $1.1 billion in debt, has deteriorating sales and appears headed for a restructuring.
The news Wednesday didn’t come as a surprise, consistent with Bon-Ton’s announcement in mid-November that it would close at least 40 stores in 2018.
“As part of the comprehensive turnaround plan we announced in November, we are taking the next steps in our efforts to move forward with a more productive store footprint,” Bon-Ton President and CEO Bill Tracy said in a news release.
Retail expert Jeff Green, owner of Jeff Green Partners in Phoenix, said Bon-Ton clearly had too many stores in a market the size of the Lehigh Valley. He also doesn’t think the closures are done.
In fact, in a filing Monday with the U.S. Securities and Exchange Commission, Bon-Ton disclosed a plan that suggests — in addition to closing the 42 stores — putting at least another 20 on a “watch list.”
“You can’t tell me that they don’t already have an idea of what’s going to happen with those,” Green said. “Those 20 are probably going to close. You’re alerting Wall Street to, ‘Guess what? There’ll be more.’ ”
As for the 42 closures announced Wednesday, closing sales will begin Thursday and run for about 10 to 12 weeks.
Bon-Ton spokeswoman Christine Hojnacki said the 42 stores together employ about 1,860 people, who will be offered the opportunity to interview for positions at other stores. A store-by-store employment breakdown was not provided.
In the Trexlertown store Wednesday, there was nothing posted about the liquidation sale. But the store saw a decent amount of activity, with one executive saying it had thrived on “day” customers. She declined further comment, referring questions to Hojnacki.
The departure of Bon-Ton will leave a sizable vacancy at the Trexlertown shopping center, referred to as Trexler Mall by owner Cedar Realty Trust. While Cedar Realty Trust’s corporate office in Port Washington, N.Y., did not return a call seeking comment, a brochure for the property indicates the space Bon-Ton leases measures 62,000 square feet — the center’s second-largest tenant after Kohl’s.
Meanwhile, at Phillipsburg Mall, the impending loss of Bon-Ton is just the latest blow. Sears in November announced it would close its department store there, a few years after J.C. Penney also pulled out of the mall. Mall owner Mason Asset Management of Great Neck, N.Y., did not return a call seeking comment. It was not known whether Bon-Ton leases or owns its space at Phillipsburg Mall.
The Bon-Ton stores slated for closure in Trexlertown and Phillipsburg are both in shopping centers that also have a Kohl’s. In an investor note Tuesday, analyst Randal Konik of the investment bank Jefferies suggested Kohl’s could be the biggest winner as Bon-Ton closes stores and restructures its fleet.
“Bon-Ton’s closures could be a cherry on top” for Kohl’s, Konik wrote in the note.
While the presence of Kohl’s in Trexlertown and Phillipsburg certainly didn’t help Bon-Ton stores there, retail expert Green believes the company’s decision came down to store performance and what it saw as the upside potential in each market.
In Trexlertown especially, the upside potential appeared limited — at least according to the observations of longtime Breinigsville resident Nelson Velez.
Velez said he noticed the Bon-Ton there appeared to be doing less business, and he pointed out its location in the shopping center between Kohl’s and Marshalls.
“I’m sorry to see it go, but they have to think of the bottom dollar,” Velez said.
Jon Harris/The Morning Call - Ailing department store chain The Bon-Ton Stores Inc. appears to be headed for a restructuring — sooner rather than later.
In a filing Monday with the U.S. Securities and Exchange Commission, Bon-Ton said it is engaged in discussions with debtholders regarding potential restructuring alternatives.
While the company, co-headquartered in York and Milwaukee, noted there are no assurances it will reach an agreement, Bon-Ton disclosed in the filing a plan to turn around its business and boost its total revenue by about 5 percent to almost $2.7 billion by 2020.
The filing comes about two weeks after Bon-Ton announced it entered into forbearance agreements with its lenders after missing a $14 million interest payment in December. Those agreements, however, expired Friday and bankruptcy speculation has been swirling.
“At the same time, we are also focused on executing the merchandising, marketing, cost reduction and store rationalization initiatives that are part of the comprehensive turnaround plan for the business we outlined in November. We are committed to pursuing the path that we believe is in the best interests of the company and its stakeholders.”
The company’s turnaround plan, which covers 2018 through 2020, says a “clear opportunity exists to enhance Bon-Ton’s performance and regain ground lost due to recent challenges.”
The plan’s initiatives were developed from four major business areas: a review of the existing store portfolio; key retailing strategies in merchandising, planning and allocation; necessary changes in marketing; and capital investment strategies within stores.
Retail analysts repeatedly told The Morning Call the most likely outcome for Bon-Ton is bankruptcy. A term sheet included with the filing Monday indicates a restructuring could occur through an out-of-court transaction or through a Chapter 11 filing as soon as Sunday.
“To me, those are just Band-Aids,” retail expert Jeff Green, owner of Jeff Green Partners in Phoenix, said after hearing of Bon-Ton’s turnaround plans.
One issue for the company is, according to its plan, its store portfolio includes a “sizable portion of poorly performing stores that contribute minimal value to the organization.” So about 100 of the worst-performing stores — the company has 260 locations — were selected for a financial assessment.
And this year the company is planning 42 potential store closures and three possible store sales, including one clearance center. That strategy is consistent with Bon-Ton’s announcement in November, when it said it would close at least 40 locationsthrough 2018. In addition, the plan suggests there are at least another 20 stores that should be considered for a “watch list” so Bon-Ton can monitor for “signs of future deterioration.”
With fewer stores, the plan states there’s an opportunity to reduce the company’s distribution center footprint — from three to two facilities — by removing the facility in Fairborn, Ohio. Bon-Ton’s leased distribution center in Whitehall Township would appear to stay open under the plan.
It remains unclear whether any of the Bon-Ton stores in the Lehigh Valley will close this year. In the area, Bon-Ton has stores at South Mall in Salisbury Township, Westgate Mall in Bethlehem, Palmer Park Mall in Palmer Township, on Hamilton Boulevard in Trexlertown, and near Quakertown and Phillipsburg.
In terms of retail strategy, the plan aims to boost Bon-Ton’s share of e-commerce, a segment the department store chain is “significantly underpenetrated in.” Based on its current 2017 revenue projections, the plan explains increasing Bon-Ton’s e-commerce penetration to 20 percent — from its current 12 percent — would boost revenue by roughly $200 million.
To hit those marks, Bon-Ton will need to increase its product assortment online, improve its site navigation and boost its digital marketing, the plan states.
The plan also includes something the debt-laden department store chain hasn’t been able to do in quite some time: Carry out capital expenditures.
The filing shows proposed capital expenditures of about $51 million in 2018, $42 million in 2019 and $52 million in 2020. In each of those years, more than $20 million will go toward the chain’s stores, aiming to drive a unified look and feel, improve customer experience and strengthen the brand name.
The plan also states there is an opportunity to open new stores, as Bon-Ton’s closest competitors, such as Macy’s, focus on larger markets and leave gaps in smaller areas. The business plan considers 14 new store openings for Bon-Ton over a three-year period.
“Bon-Ton stores in markets where Macy’s closures have occurred have seen a meaningful uptick in performance,” the plan states.
Bon-Ton’s stock was trading at about 17 cents on the over-the-counter market Monday.
Jeff Shaw/Western Real Estate Business - When Gene Munster, managing partner of Minneapolis-based venture capital firm Loup Ventures, predicted that e-commerce giant Amazon (NASDAQ: AMZN) would buy department store chain Target (NYSE: TGT) this year, he knew such a declaration would make waves. In a New Year’s Day post on the Loup Ventures website titled “8 Tech Predictions for 2018,” Munster admitted it was his “boldest prediction.”
“Seeing the value of the combination is easy. Amazon believes the future of retail is a mix of mostly online and some offline,” wrote Munster. “Target is the ideal offline partner for Amazon for two reasons: shared demographics and a manageable-but-comprehensive store count.”
Business websites and magazines were quick to respond with skepticism, authoring headlines such as “Stop The Insanity Amazon Will Not Be Buying Target” (TheStreet), “Amazon Buying Target Isn’t as Likely as One Tech Analyst Seems to Think” (Adweek) and “No, Amazon Isn’t Buying Target in 2018” (Forbes).
Garrick Brown, vice president of retail research for the Americas with Cushman & Wakefield, says “the rumor’s been floating around for a while” that Amazon is looking to buy Target. He estimates the odds of the deal happening at between 25 percent and 33 percent.
Jeff Green, president and CEO of Phoenix-based retail real estate consulting firm Jeff Green Partners, predicts similar odds.
“I would say it’s about 30 percent,” says Green of the acquisition possibility. “It seems a little early for Amazon to try to digest Target while still digesting Whole Foods,” referencing Amazon’s recent acquisition of upscale grocery chain Whole Foods Market for $13.7 billion.
Although he agrees that an Amazon-Target deal is possible, Brown is quick to note that much of the speculation is based on the faulty premise that Amazon’s purchase of Whole Foods means it’s interested in brick-and-mortar retail.
What Amazon is really interested in, according to Brown, is affordable buildings in urban locations to increase its capacity to deliver fresh groceries to online buyers. Industrial real estate in urban areas is too expensive to buy and upgrade, but existing retail locations can serve the same function, he believes.
“Amazon didn’t buy a grocery chain; it bought 462 e-grocery distribution facilities,” says Brown, referring to the company’s acquisition of Whole Foods Market. “As long as Amazon can do deliveries [from Whole Foods locations], the company solved its biggest problem, which was e-grocery fulfillment center space.”
The Giants Get Bigger
Part of what’s fueling speculation of a Target acquisition is that Amazon, Walmart and Target have been on acquisition sprees in recent months. Walmart and Target have sought to expand into online retail (Target agreed to buy same-day e-commerce delivery service Shipt in December for $550 million), while Amazon has invested in brick-and-mortar stores.
“In 2018 it may seem like a giant retail duopoly of Wal-Mart versus Amazon. The question is whether Target will become a third player in this,” adds Brown. “If Target is looking to become a third major omnichannel player, the easiest way to squash that competition is to simply buy them.”“It certainly is a shrinking retail universe,” says Green. “This is especially true as Walmart begins to buy specialty [online] retailers such as Bonobos, ModCloth, Moosejaw and Jet.com.”
Since Amazon already accounts for 45 percent of all e-commerce activity, according to Brown, the company could even be in danger of being broken up by government anti-trust rules.
“The idea that Amazon wants to corner the market is what’s fueling this speculation, and you can’t rule that out,” says Brown. “Is there a tipping point where Amazon has to worry about the government stepping in and breaking them up?”
M&A Activity Poised to Soar
Brown suggests that, regardless of whether Target sells or not, expect mergers and acquisitions activity in the retail space to be “through the roof” in 2018. Even though many retailers are performing well, the general concept of a struggling retail sector leads to depressed stock prices, which in turn leads to “an awful lot of undervalued retailers out there primed for acquisition.”
“We saw a bit of an uptick for some retail concepts over the holidays, but now we’re going into the traditional store closure season,” says Brown. “There are going to be some big and notable bankruptcies. The ‘retail apocalypse’ story is going to be back with a fury this year. When that happens, it hurts the whole retail sector.”
Target’s stock price peaked at $84.69 per share on July 17, 2015, and hit a five-year low of $50.76 on June 23, 2017. Shareholders enjoyed a rebound in the performance of the stock price leading into holiday shopping season, with the price closing at $67.17 per share on Wednesday, Jan. 3. The company’s market cap currently hovers around $36.5 billion.
Amazon, meanwhile, has seen a steady increase in its stock price over the company’s entire history, recording a record-high closing of $1,204.20 per share on Jan. 3 of this year. The company’s market cap is approximately $580.3 billion.
Other retailers that are prime targets for acquisition this year include Nordstrom and Macy’s, adds Brown.
“It remains to be seen if any of these theories make any sense, or if it is just analysts talking out of turn,” says Brown. “But it’s interesting cocktail party fodder, for sure.”
Paige Yowell/The Omaha World-Herald - Holiday shopping comes to a close this weekend, and retailers may finally have a reason to celebrate: Sales for the season are expected to be up heftily over last year.
That’s after years of stagnant sales or nominal year-over-year sales growth.
Experts say a few things are behind that increased spending: One, consumer confidence nationally is at a record high, said Jeff Green, a retail consultant with Jeff Green Partners.
And, for the first time in at least a few years, the weather has been fairly typical for the season across the United States.
“It wasn’t too wet, it wasn’t too dry, wasn’t too hot or cold. It’s like the Three Bears: It’s just right,” said Glenn Fodor, a senior vice president and head of information and analytics at payment processor First Data, which tracks holiday spending data.
Holiday sales in November were up about 6 percent over the same month last year, according to the National Retail Federation. That’s more than the 3 to 4 percent growth retailers have seen in the holiday shopping periods of the past two years.
“The strength was so prominent we had to double- and triple-check the numbers,” Fodor said.
Another thing that won’t hurt: With Christmas falling on a Monday, there will be an extra weekend for the season, Green said.
“Every time we’ve had that, it has been a boon to Christmas sales,” Green said.
First Data, which employs about 5,000 people in Omaha, isn’t in the sales projection business, but Fodor said that unless something major happens — like a stock market crash — “you have the table continuing to be set for positive spending trends” through the end of the season.
While sales have been strong for brick-and-mortar and online stores alike, e-commerce spending for November was up 10.5 percent over the same period last year. E-commerce sales were about 29 percent of total sales, up from 25 percent last year, Fodor said.
“E-commerce is growing multiples ahead of regular commerce. That’s here to stay. I don’t think that’s going to slow down anytime soon,” he said.
Borsheims, owned by Berkshire Hathaway, is a testament to the trend. The jewelry store’s online sales are up 47 percent for the year so far, and sales in December are up 51 percent as of Monday, said Adrienne Fay, the store’s director of marketing, comparing the figures with last year’s numbers.
“There’s definitely a different feel this year,” Fay said. “We’re not a huge Black Friday destination, but we really did start to see our sales gain some momentum after that start to the holiday shopping season.”
The store has ramped up its digital marketing to capture new customers and has added some new products, including “Bling Box” value sets that range in price from $165 to $525. Each box includes several different gifts that are themed and match.
“That’s like Borsheims in a little box,” Fay said.
Sales at local bookstore the Bookworm have been on pace with last year, said co-owner Beth Black. But the store is expecting a few busy days this weekend, opening earlier than usual on Sunday, at 9 a.m., and could finish stronger than last year thanks to the extra weekend.
“The last two-and-a-half weeks have been crazy good, really crazy good,” Black said.
Sales at Nebraska Furniture Mart, also owned by Berkshire Hathaway, have been strong, said Mark Hamilton, director of marketing. The company doesn’t release sales figures.
Especially popular this year is the buy-online, pick-up-in-store option, which the Furniture Mart has offered for years, thanks to its pick-up lanes.
“It’s like ordering a sandwich at a fast-food restaurant,” Hamilton said. “It’s really efficient, and people, especially toward the end of the Christmas shopping period, recognize that and are using it.”
Hot items at the Mart this year: Nintendo Switch gaming consoles; home appliances, like air fryers and robotic vacuums; and recreational furniture, like pool tables and air hockey tables.
Angie Tumik of Omaha spent one afternoon this week doing some final shopping at Regency shopping center with her cousin, Kate Medic, visiting from Minnesota.
In line with national reports, Tumik said she thinks she spent a little more than she did last year on gifts. She planned to do more shopping today, and said she did most of her shopping in brick-and-mortar stores.
“I like going to the store and looking at and feeling stuff,” she said.
Her cousin, on the other hand, said she did most of her shopping online.
“I’m a stereotypical millennial, so I did all online except one gift,” Medic said.
She said she also spent a little less than last year — giving fewer gifts and focusing on experiences instead.
“I’m all about the experiences,” she said. “I don’t want presents, I want to go to New York.”