2023’s Most Unexpected Headline: Macy’s and Neiman Marcus Are Getting Offers, and Sears Is Reopening Stores
Possible consolidation is afoot in the department store sector. After Saks Fifth Avenue offered $3 billion for Neiman Marcus this month and was turned down, the board at Macy’s Inc. is considering a $5.8 billion offer from private equity firms Arkhouse and Brigade Capital Management. Arkhouse-managed funds already hold a significant stake in the retailer.
Meanwhile, Sears owner Transformco is perplexing observers with its decision to reopen two Sears stores recently. The beleaguered chain reopened two levels of a three-level store at Burbank Town Center in Los Angeles County in mid-October and a store in Union Gap, Washington’s Valley Mall in November. The company currently operates 13 Sears locations.
7 More Retailers in the Headlines, Including a New McDonald’s Concept
McDonald’s Corp. will open 10 CosMc’s restaurants. The concept’s customizable drinks and snacks will target the afternoon snack market, and the parent company expects the locations to generate higher margins than traditional McDonald’s restaurants and to drive delivery sales. These smaller-format locations will complement, not replace, existing McDonald’s locations. The first CosMc’s will open near headquarters in Chicago, followed by nine more across Texas during the first half of 2024.
Walgreens Boots Alliance is reducing its reliance on large warehouses and instead using its 8,700 stores to fulfill delivery orders for nonpharmacy items. Store employees will pick and pack these orders for same-day delivery through third-party delivery apps like DoorDash and Uber Eats.
Uniqlo will open 20 stores across the U.S. and Canada in 2024, many of them at enclosed malls like Washington’s Tacoma Mall and New York’s Staten Island Mall. The Japanese fast-fashion chain opened its first North American location in the U.S. in 2005. The 2024 expansion gest the brand closer to its stated goal of 200 North American stores by 2027.
Following a significant investment from Kroger just over a year ago, Kitchen United has pivoted its business model. The company is abandoning its plan to establish ghost kitchens within Kroger stores and instead will focus on software solutions. The move marks a dramatic departure from Kitchen United’s original strategy around physical locations, but tech isn’t a new arena for the company. It and Simon launched a platform called Grab Go Eat in early 2022 to enable customers to order from multiple operators in one transaction.
Chicago-based food retailers Foxtrot market and Dom’s Kitchen & Market are merging to form Outfox Hospitality. Both concepts emphasize delivery and buy-online-pick-up-in-store channels. Foxtrot CEO Liz Williams will lead the company, whose 34 locations will span in Austin, Texas; Chicago; Dallas; and Washington, D.C.
Tex-Mex restaurant chain Chuy’s is using its healthy balance sheet to snap up prime restaurant buildings in the current high-interest-rate environment, according to CFO Jon Howie. Because buildout costs are 40% higher than before the pandemic, the company is buying properties rather than leasing and then is converting them to the Chuy’s brand. Then it will do sale-leasebacks on those properties when cap rates return to historically normal levels. Four of the eight new units Chuy’s plans to open in 2024 are such purchases, he said. The company currently operates 100 units.
Social media platform Pinterest brought its 2024 predictions to life in a five-day pop-up shop in New York City’s Meatpacking District. From Dec. 6 through 10, visitors to the Pinterest Predicts Shop on Gansevoort Street explored experiential displays and products embodying the 23 trends Pinterest has identified for 2024, including fashions, beauty and housewares. Brand-experience agency Amplify helped Pinterest develop the pop-up concept.
Arenas Are the New Hot Anchor
Athletic teams continue to inspire developers to move dirt. The NBA’s Washington Wizards and NHL’s Washington Capitals reached a deal to move from the District of Columbia to a proposed $2 billion development in Northern Virginia’s Potomac Yard. The complex would boast the state’s first professional sports arena, a practice facility, a performing arts center, a media studio, hotels, a convention center, housing and retail. Pending legislative approval, it will break ground in 2025 and open in late 2028. The owner of the two teams, Monumental Sports Entertainment, would serve as a developer.
Meanwhile, nonprofessional athletes are bringing a sports complex to North Las Vegas. Developer Agora Realty & Management will break ground in mid-June on the 73-acre Hylo Park and expects to deliver it in 2026. Champions Square arena, where local and traveling youth and amateur athletic teams will compete in tournaments, will anchor the complex. The development also will include office, hotel, 1,300 residential units, a grocery-anchored center, specialty shops and restaurants.
Hylo Park, North Las Vegas, Nevada
Commerce + Communities Today dug into the trend of arena-inspired mixed-use districts in May in New Sports Venues and the Master-Planned Districts Growing Around Them. Questions surround one of the projects mentioned in that story, however, now that PREIT has filed for bankruptcy again and handed its share of Fashion District Philadelphia to Macerich (see below). The proposed 76 Place arena for the NBA’s 76ers calls for part of that property to be torn down. 76 Place chair David Adelman posted on X, though: “This does not affect our plans or ability to deliver a $1.5 billion world-class arena and residential building.”
PREIT Seeks Chapter 11 Protection from High Interest Rates
Mall giant PREIT, squeezed by soaring debt costs and funding difficulties, filed for Chapter 11 bankruptcy protection. “Meaningful achievements on the operating front were met with inflation and rising interest rates,” said chair and CEO Joseph Coradino. The company’s reorganization plan, if approved by a bankruptcy court, would slash its debt by $880 million and delay debt-repayment deadlines, reducing interest payments and freeing up resources for other operations. “The restructuring will effectively take the public company private,” Pamela Danziger wrote in Forbes. PREIT’s lenders have approved the plan, which involves converting some debt to equity. PREIT, which has secured $135 million to fund ongoing operations, expects to emerge from bankruptcy protection by early February 2024. This is PREIT’s second recent bankruptcy, having emerged from Chapter 11 in December 2020.
Discount Stores Will Continue to Top the Market in 2024
Store openings have outpaced closures in 2023, thanks to discount stores — a category that includes Dollar General, Five Below, Big Lots and the like — according to Cushman & Wakefield’s 2024 U.S. Macro Outlook Report. The discount sector added nearly 1,800 net new stores in 2023, contributing significantly to the overall retail industry’s increase of more than 1,000 stores. The three names that opened the most stores — Dollar General, Family Dollar and Dollar Tree — accounted for 30% of all new store openings this year, accounting for more than 16 million square feet.
Discount’s share of retail leasing activity has risen several percentage points over its pre-pandemic level — the same goes for food services, medical, education and fitness sectors — at the expense of categories like financial services and apparel, according to Cushman & Wakefield.
Consumers’ focus on value likely will continue into 2024, as wealthy consumers spend on dining, travel and recreation and the less wealthy cut discretionary spending to pay for credit card debt, according to the report.
However, Cushman & Wakefield also expects net store closures in 2024, thanks to retailers’ debt levels and tighter lending standards. Nonetheless, rent per square foot growth is expected to slow down but remain positive, even in downside economic scenarios: from 4.3% this year to 3.3% in 2024 and to 1.7% in 2025. That’s slower growth than in past downturns, but the relatively low vacancy rate will blunt the impact.
Consumers Stayed Strong in November
U.S. retail and food services sales excluding gas and auto rose 0.6% from October to November and 5.2% year over year, according to the U.S. Census Bureau. The holiday shopping season started strong, the biggest month over month gains coming at food services and drinking places, nonstore retailers, health and personal care stores and furniture stores. “The resilience of U.S. consumers, plus a steady slowdown in inflation, has increased the probability of a soft-landing scenario,” said ICSC research manager Matthew Panfel.
2 Services Firms Diversify — 1 to Suburban Leasing and 1 to Private Capital
Suburban shopping centers need urban atmospheres to generate repeat visits. That’s why New York City-based l MONA has launched an open-air center leasing division designed to create city-like experiences for suburban retail properties. The division’s first assignment is to aid the redevelopment and repositioning of a portion of the Ridge Hill in Yonkers, New York, into a 47,500-square-foot restaurant row. North American Properties, Nuveen Real Estate and Taconic Partners own the 1.2-million-square-foot property. Construction on the redevelopment kicks off in January.
MONA CEO Brandon Singer and executive vice president and head of food-and-beverage Alex Turboff will lead the division and manage the Ridge Hill project. “We see tremendous opportunity to transform these open-air shopping centers by providing a metropolitan experience to visitors,” Singer said. “Lifestyle centers are one of today’s most undervalued and fastest-growing asset classes, and we’re excited to bring our expertise to these suburban lifestyle locations.”
Meanwhile, CBRE National Retail Platform’s Newport Beach, California, office launched a separate capital team to focus on private retail investors. CBRE vice chair Philip Voorhees and longtime partner John Read, a senior vice president, will lead the new team. Senior vice president Jimmy Slusher will lead institutional capital efforts in the region. Both teams will both be based in Orange County, California.
By Brannon Boswell
Executive Editor, Commerce + Communities Today