Retailers Expect Real Estate Trends to Continue in 2017
Growing retailers will continue to grow, shrinking retailers will continue to shrink.
This article was originally published on CoStar; view the original article here.
'To be continued' usually signals an exciting story twist is coming. But anyone hoping for a plot twist next year to the ongoing saga of shrinking apparel retailers won’t be happy with the comments by several top retailers in this segment during quarterly earnings conference calls this past week.
Clothing retail executives generally issued more dour projections calling for more of the same ongoing reassessments of existing store footprints as they make major business adjustments and invest in advancing online sales.
Nearly all apparel execs said they plan to continue closing unprofitable locations, pressing landlords for concessions, and pushing outlet strategies.
Commentary from retailers peddling other consumer goods offered more encouragement, however.
The strategies remain the same because the macro trends driving the sector are still in place. Consumers have not returned to the debt binging from before the Great Recession of 2008-’09, which killed off an era of excess. Not only have consumers become more cost-conscious and using rapidly changing technologies to guide their buying decisions, they are also rethinking priorities and re-assessing the value material possessions over the best use of their time.
Clothing Retailers Look Ahead
From the third quarter calls monitored by CoStar News, clothing retailers are still trying to find a merchandise mix that could reignite sales while cutting costs.
American Eagle Outfitters Inc. (NYSE:AEO)
Jay Schottenstein, CEO, said the company is rethinking its category mix and as other clothing retailers fall, while on the real estate side, the company is trying to better integrate its physical presence with online sales efforts.
“We are in the process of taking certain markets and localizing in those markets to figure out in those markets where the extra opportunity is,” Schottenstein said. In some markets that may mean sticking with a mall presence and in others a street presence.
Express Inc. (NYSE:EXPR)
Given the growth of its e-commerce business, David Kornberg, CEO, said the company is revaluating its real estate portfolio as it approaches the end of a program to close 50 stores.
"We are reassessing all of the leases, and while there is nothing now we are looking at it very closely, you need to be aware of that,” Kornberg added.
New York & Company Inc. (NYSE:NWY)
John Worthington, president and COO, is closely monitoring its real estate portfolio.
“As we move into 2017, we are expecting to continue our aggressive review of our real estate portfolio to further improve profitability through rent reductions, reposition to more economical locations and closures of underperforming stores,” Worthington said.
In the first nine months of the year, it opened two stores, closed nine and converted 50 lower-volume New York & Company stores to its outlet concept. It is expecting to close 18 to 20 more stores by the end of the year. That would leave it with 460 stores, of which 125 are outlets.
Tilly's Inc. (NYSE:TLYS)
Ed Thomas president and CEO, said the company is intent on restructuring leases for existing stores rather than opening new ones.
"We continue to work with our landlords to restructure existing store leases when natural lease expirations or kick-ups are available to us,” Thomas said. The company has nearly 60 total stores it wants to address in the coming year, representing over one-quarter of its existing store base.
Continued Expansion Seen Coming from Other Consumer Goods, Experience Retailers
Dollar General Corp. (NYSE:DG)
The omnipresent retailer is on track to open 900 new stores this year and relocate or remodel another 900 stores. And the company has no current plans to dialback on its plans to open 1,000 next year.
“We continue to see the stores opened as expected at 80% to 85% sales productivity,” said John Garratt, CFO. “We continue to see the returns above 20% of our target. We continue to see paybacks of less than two years. And given the low risk, low cost, high return opportunity we see here, we're proceeding but watching it very carefully and understand that this is something that we could dial back quickly if needed... but we don't need to do that thus far.”
Ulta Salon, Cosmetics & Fragrance (NASDAQ:ULTA)
Mary Dillon, CEO, said the company will meet of its goal of opening 100 new stores this year and expects more of the same next year.
“We have already approved all of the 100 stores planned for 2017 program, including a new store on Michigan Avenue in Chicago,” Dillon said.
Long-term, its goal is to rollout between 1,400 to 1,700 stores, with further penetration in existing suburban markets and expansion into smaller markets and urban markets.
Kirkland's Inc. (NASDAQ:KIRK)
Mike Madden, president and CEO of the home décor retailer, said the company is analyzing its penetration by market. It opened 42 stores this year and closed 14.
“We are aiming to open fewer stores than in 2016 and will likely close a few more stores still netting a gain in store count,” Madden said. “We will increase the focus on re-locations that are generating a favorable ROI. We are seeing growth opportunities and outlet centers having opened some very successful stores during 2016.”