Retailers open more stores than they close, with the help of cheap rent

For the first time in recent years, retailers across the country plan to open more stores than close.

From Ulta Beauty and Sephora to Dick, Five Below and TJ Maxx’s sporting goods, companies are recovering from the Covid pandemic and eliminating expansion plans that have been suspended. In the latest example, sportswear retailer Fabletics said on Thursday that it will open two dozen stores in the United States this year. Even Toys R Us, the beloved toy chain that went bankrupt in 2017 and eventually liquidated, has a new owner who wants to open stores before the 2021 holidays.

Retailers are eager to double the marks that have remained strong throughout the pandemic-induced recession. Or they are excited to test new concepts that can bring new customers. And less expensive rents make these opportunities irresistible.

To date, US retailers have announced 3,199 store openings and 2,548 closures, according to a study by Coresight Research. The company followed 8,953 closures last year, along with just 3,298 openings, while the pandemic outraged the retail industry and pushed dozens of companies into bankruptcy.

Looking back, there were a total of 4,548 openings announced by retailers in 2019 and 3,747 in 2018, Coresight said. So far in 2021, openings are already at their peak every year before, he said.

Following a tsunami of store closures in 2020, the retail real estate landscape is full of vacancies. Mall and mall owners across the country are looking for tenants to quickly fill that space. Meanwhile, some retailers are more optimistic, managing to get through the dark days of the pandemic. They try to take advantage of a market in which they have much more power over their owners when they sign new agreements or enter into negotiations.

“There is more space available and we can get better conditions today than we did two years ago,” Fabletics co-founder and CEO Adam Goldenberg said in an interview.

In the top retail markets, such as Manhattan – which are usually a mecca for tourists and commuters – the trends have been particularly pronounced. New York’s retail rents fell to an all-time low last fall, down 25 percent from 2019, according to a half-yearly report by The Real Estate Board in New York.

And rents were falling from the third to the fourth quarter. Average retail rents fell 1.6% quarter on quarter, commercial real estate services firm JLL said. The decline was more severe in some markets: along Lower Fifth Avenue from 42nd Street to 49th Street, for example, retail rents fell 7.6 percent quarter-over-quarter, JLL said. They fell 4.8 percent in the Madison Avenue neighborhood.

Meanwhile, empty shop windows remain a headache for homeowners. Job vacancy rates for New York’s retail real estate rose 21% year-over-year in the fourth quarter, according to a separate CBRE survey.

“After the pandemic, we can return to in-store training courses and special shopping days,” said Goldenberg, Fabletics. “There is a real sense of community that comes from physical presence.”

Many of the companies that planned openings this year focus on value. These range from General Dollar and Dollar Tree, to priceless retailers Burlington and Ross Stores, and Aldi and Lidl discount stores. However, specialty retailers are in the mix, including L Brands’ Bath & Body Works and Gap’s Old Navy.

These retailers were some of the best performing in the industry. During L Brands’ fourth quarter, for example, sales at the same store at Bath & Body Works rose 22% year-over-year, while they fell 3% at Victoria’s Secret. . At Gap, same-store sales for Old Navy rose 7% in the fourth quarter, while the eponymous brand fell 6%. Dozens of Gap and Victoria’s Secret stores will close this year, while both companies are investing in expanding their superior brands.

Some real estate experts say this growth is reminiscent of what helped the industry out of the Great Recession. The confidence of retailers is bright as they plan more stores: both inside and outside the malls.

“We’re very excited about the malls,” said Jay Schottenstein, chief executive of Eagle Outfitters, during a earnings conference call in early March. “This is probably the best opportunity for us to build new locations that are offered to us … at affordable rents for us.”

American Eagle plans to open about 60 locations this year under the Aerie banner, which is its brand of lounge clothing and lingerie for teens and teens. Twenty-five to 30 of these new stores will be called Offline de Aerie, a sports line that debuted last summer.

Part of the activity is an increase in experiments that take place in the industry. Take the Burlington stores. It opens up a handful of smaller format prototypes that he hopes to scale in the future.

It plans to open 75 new net stores this year, of which 18 were previously planned openings for 2020, which were delayed by the pandemic. About a third of the new stores will be smaller, at about 25,000 square meters, compared to its typical location of 50,000 to 80,000 square meters, the company said.

“This will be an important year for experimentation,” said Deborah Weinswig, founder and CEO of Coresight Research. “With landlords, there has always been this friction, because they have tried to extract as much rent as possible from the tenants. Of course, that is their job. But I think it has actually affected innovation.”

This year, Weinswig expects companies to test everything from smaller format stores to so-called dark shops that only serve as hubs for shoppers to take orders online. Experimentation could come in other ways. Nordstrom, for example, tests shows that can be bought and broadcast live.

“It’s a tenant’s market right now,” said Perry Mandarino, head of restructuring and co-head of the investment bank for B. Riley FBR. “We’ve seen examples of short-term leases with easy deals, and decent prices are absolutely available.”

However, not every retailer believes that Americans will return to stores so quickly.

“In two years, as the market looks back at me, I will either be considered visionary or slow,” Lands’ End CEO Jerome Griffith said in an interview. Today, Lands’ End has only 31 stores of its own and does not intend to increase this number, but instead directs investments in e-commerce.

“I don’t feel positive about pedestrian traffic back to the stores,” Griffith said. “People will do things, people will be outside, but there will be things like going to restaurants and bars and going to movies, sports events, concerts. But I take a very cautious approach in our stores. “

“We stopped expanding the store,” he said. “While, two years ago, I would have told you that it will be a big part of our growth strategy.”