Monday, June 30, 2008

$35M TIF Furthers $260 MXD Project

WASHINGTON, DC-DC developer Roadside Developer has closed on a financing package with the District that will launch a one-million-sf adaptive reuse project in the Shaw community. The city is giving Roadside $35 million in tax incremental financing. That money will allow the company to break ground on the $260 million project a year from September, Susan Linsky, project manager, tells The TIF, she says, "means CityMarket at O will actually happen now. Getting this financing was always crucial to our plan." There is $44 million of public infrastructure-related investment connected to the project, she explains. "That is what the city money will cover." CityMarket at O is a mixed-use project that will eventually deliver 100 units of senior affordable housing, 385 market rate rentals, 160 condos, a 200-room limited service hotel, 560 parking slots, 460 of which are below ground, 87,000-sf of retail, including a 71,000-sf Giant grocery store--the largest in DC, according to Linsky. These plans are still preliminary, she says, as the company is still in the schematic phase. As of right now, there will be five buildings all together: two multifamily buildings, a condo, the hotel and the Giant grocery store. It is the grocery store that is the adaptive use portion of the project. Roadside is restoring the O Street Market, a historic building, and incorporating it into the Giant. Built in 1881, the O Street Market served not only as a market but as a place for residents to meet and socialize.


American Eagle Merchandise Head's Departure Seen As Big Blow

NEW YORK -(Dow Jones)- Chairmen and chief executives may be the most visible faces of corporate America but, when it comes to the retail industry, the merchandising head plays just as integral a role.

"The retailers who do well have product that's different from what people already have in their closets," said Anne Brouwer, a partner at McMillan Doolittle, a retail consulting firm. "The chief merchandiser makes that happen."

That's why analysts have expressed concern about the near-term future of American Eagle Outfitters Inc. (AEO) after the company unexpectedly said its president and chief merchandising officer, Susan McGalla, won't renew her contract next year with the teen retailer, whose sales have been sagging in recent months along, largely, with the rest of its group.

McGalla has been with American Eagle for nearly a decade-and-a-half and has been chief merchandising officer for just over four years. She is credited with helping the company's turnaround in 2004 and its delivery of consistent results.

The head of merchandising is expected to be the company's visionary. This manager makes the final call on what's going to be presented to customers. And, in addition to setting the feel of the store, the merchandising chief steers a large staff and maintains relationships with vendors and suppliers.

"Having the right product in retail draws the line between fantastic success and just mediocre," said Britt Beamer, chairman of America's Research Group, a retail consulting firm. "Chief merchandisers make that magic happen. They bring customers into the stores."

There is no consensus from retail analysts regarding who can or will fill McGalla's position; whether the person will come from within the company or from outside. However, some expressed concern about the dearth of merchandising talent available for hire.

"Merchandising is about art and science," said Anne Brouwer, partner at retail consultant McMillan Doolittle. "It's easy to learn the science, but it's hard to learn the art."

If the right person is chosen, American Eagle could have a chance to rebound, once the economy becomes more favorable, Brouwer said.

A spokeswoman for American Eagle said McGalla wasn't available for comment, and that she didn't know what McGalla's plans were after her departure. In a statement, McGalla said it was "time to move on to new challenges."

Investors are certainly showing their concern, as a key internal position has been put in flux while, outside, a sagging economy still reigns. American Eagle's shares were recently down 14%, to $13.47, their lowest level in two-and- a-half years.

The stock has lost nearly half its value in the past year, one of the big losers in a teen-retail group that investors seem to either love, dislike or hate. Aeropostale Inc. (ARO) shares have gained 12% in the past 12 months, while Abercrombie & Fitch & Co. (ANF) has lost 10% and Hot Topic Inc. (HOTT) is down 50%.

In late May, American Eagle reported a 44% drop in fiscal first-quarter net income, citing increased merchandise markdowns amid weaker-than-expected sales.

McGalla's departure from American Eagle likely signals "the board's lack of confidence in the back-to-school assortment, and (her) ability to ultimately stem market share losses," said Lazard Capital Markets analyst Todd Slater, in a research note to investors.

Likewise, Slater predicts more trouble ahead for American Eagle, with same- store sales declines and margin contraction persisting "through the rest of the year." He sees "little near-term upside" for the company.

American Eagle said Chief Executive Jim O'Donnell will assume McGalla's responsibilities as president, and American Eagle will search for a new chief merchandising officer.

Until her contract expires Jan. 31, McGalla will work on the development of the company's newest brand, 77kids, as well as its concept for post-collegiate types, Martin + Osa.

Slater considered McGalla's interim position a demotion, saying "she will be relegated to a trivial role" and called Martin + Osa, a concept American Eagle first introduced in fall 2006 with 22 locations, a "money-losing" business.

Still, McGalla does have her fans. "Despite recent merchandising missteps, we believe McGalla is a very talented merchant and she will be difficult to replace," said Paul Lejuez, retail analyst at Credit Suisse. "We cannot construe a scenario in which this is positive."

Source: Morningstar

Wal-Mart to revamp logo at its US stores

LITTLE ROCK, Ark. - The familiar logo of the world's largest retailer is getting a makeover.

Wal-Mart Stores Inc. (nyse: WMT - news - people ) said Sunday the company will begin replacing logos on the front of its U.S. stores with a new design beginning this fall. Wal-Mart spokesman Kevin Gardner said the change would reflect changes customers already have seen in some store signs and advertisements.

"This logo update is simply a reflection of the refreshed image of our stores and our renewed sense of purpose of helping people save money so they can live better," Gardner said in a written statement.

Gardner said he had no other information about the change. However, The Wall Street Journal reported Saturday that the new look would include eliminating the hyphen in the company's name, now shown as a star at its more than 3,600 U.S. stores. The new logo would show company's name in white letters on an orange background, followed by a small starburst, the Journal reported, based on an artist's rendering filed with planning officials in Memphis, Tenn.

The revamped logo comes as Wal-Mart continues to tweak its image after facing criticism from union-led groups and local communities across the nation opposed to big-box store developments. In the time since, the company has launched a marketing campaign highlighting its environmentally focused practices and efforts to make health care more affordable for customers through a discounted prescription drug program.

Still, Wal-Mart's low-cost advantage remains what draws customers as questions persist about the strength of the U.S. economy.

Sam Walton started Bentonville, Ark.-based Wal-Mart in 1962, opening a single story in nearby Rogers. The company's logo once included lasso-like script, still seen on older tractor-trailers and distributing centers throughout Arkansas and elsewhere.

The company said it last tweaked its logo in 1992. Customers remain most familiar with its current incarnation, a white block-type logo lit against a deep blue background, red lines above and below.


S&P cuts AutoZone corporate credit rating

Standard & Poor's lowers AutoZone corporate credit rating to "BBB" CHICAGO (AP) -- Standard & Poor's Ratings Services on Thursday cut its investment grade corporate credit rating for AutoZone Inc. to "BBB" from "BBB+," following the auto parts retailer's announcement that it boosted its share buyback program.

The ratings service also affirmed the company's "A-2" short-term and commercial paper ratings. The outlook is stable.

"The rating reflects AutoZone's leading position in the stable but highly competitive retail automobile parts aftermarket along with its consistent operating performance and strong profitability measures," Jerry Phelan, an S&P credit analyst, said in a statement.

But the rating also reflects AutoZone's tendency toward aggressive share repurchase activity and expectations for continued flat-to-negative same-store sales resulting from a weak economy, S&P said.

Same-store sales, or sales in stores open at least a year, is an important measure of retail health because it measures growth at existing stores, rather than growth from expansion.

Source: Yahoo News

Terrified by Teen Retail

In large ways or small, teenagers often horrify us because they just don't do what we expect them to. Right now, these juvenile delinquents may be doing the last thing investors ever expected: not spending much money at the mall.

Gasp! How could it be possible? What's with these kids today? Do they hate America that much?

Teen angst
My Foolish colleague Todd Wenning and I took a trip to a local mall last Tuesday for a little recon. We figured that since school's out, surely we'd find some teens there, hanging out and maybe even buying stuff.

Instead, the mall was a ghost town. Most disconcerting, the mighty Abercrombie & Fitch (NYSE: ANF) was all but empty -- and entirely lacking actual teens -- despite its booming dance music.

Honestly, I was downright relieved to see a couple of warm-blooded, bona fide teenagers in American Eagle Outfitters (NYSE: AEO). Todd also spotted a few genuine young people there, as well as in Aeropostale (NYSE: ARO), and he was pleasantly surprised by foot traffic in long-struggling Gap (NYSE: GPS) and its Banana Republic unit.

However, with the exception of a few outliers, including a packed GameStop (NYSE: GME), the mall wasn't exactly teeming with spendthrift teens.

I intend to do a weekend check of a different local mall soon, to see whether teens are simply saving their mad shopping skills for Saturdays and Sundays. (I'd like to see how some of Urban Outfitters' (Nasdaq: URBN) stores seem to be doing, too, since I own a few shares of that stock.) However, I have a hunch a weekend trip might look strikingly similar.

The kids are all right ... aren't they?
In recent years, teen retail spending has been fairly well-insulated against macroeconomic factors. Kids don't pay mortgages or rents, worry about feeding the entire family, or fret about the phone, cable, and electric bills. Most of their spending is blissfully discretionary and often motivated by the desire to impress and outdo their peers.

Unfortunately, our current economic climate may be pinching the wallets of young and old alike. It stands to reason that with the high cost of living (food and energy) and the housing market's pains, many parents don't have as much discretionary income to give their kids.

Are babysitting and lawnmowing the lucrative options they used to be? With consumers pinched by rising prices on everything from gas to food, "nesting" and do-it-yourself may be summertime themes this year. Mom and Dad's generosity is likely reaching some limits, too. I wonder how many window-washings, tree prunings, and dishwashings make up an iPhone or an Xbox 360 in this day and age.

Meanwhile, the summer job market this year doesn't look good for teens who want to pad their wallets. Only 34.2% of teens aged 16 and older seeking summer jobs are expected to land one. This makes sense. Retailers and restaurants don't need to be so staffed up when fewer consumers are willing to spend on luxuries.

And of course, increasing unemployment and second-job seekers will put more contenders into the pool -- older applicants are likely snapping up the types of jobs teens usually take for granted during the summer months.

Maybe the kids aren't all right.

This awkward phase will pass
We'll have to keep our eyes on those scary teens -- and teen retailers -- to see whether this is an ongoing trend, at least for the near term. It may be a long, hot summer indeed.

Even if teens are the unthinkable and ratcheting down their spending, things won't always be this tough. Teens may end up learning to save for what they want -- an excellent lesson in the long run. Meanwhile, the current pressures will make some formerly pricey stocks very affordable for long-term investors.

As crazy as it sounds, the kids may be choosing carefully when they shop these days. Investors should choose carefully, too, shopping around for high-quality retail stocks worth holding for the long term. For now, though, I'm sure many investors wish our biggest worry about teenagers was more conventional, like whether those darn kids are huffing something from under the sink. Maybe those were somehow simpler scary times.

Source: Motley Fool

Friday, June 27, 2008

Best Buy Plans to Double Sales in 5 Years

Minneapolis (June 26, 2008) Best Buy Co. expects to double its sales to $80 billion in the next five years, president and COO Brian Dunn said at the company's annual meeting on Wednesday, according to the Minneapolis/St. Paul Business Journal.

Best Buy doubled its revenue from $20 billion in fiscal 2003 to $40 billion in fiscal 2008. The company expanded from 679 stores to 1,314 during that time.

Best Buy anticipates revenue of $43 billion to $44 billion in fiscal 2009. It expects same-store sales to increase 1% to 3%.

In May, Best Buy entered a joint venture with Carphone Warehouse, which has more than 2,400 stores in nine European countries. It anticipates opening its first European Best Buy stores later this year.

The retailer also plans to add stores in China and expand into Mexico and Turkey.

Source: Chain Store Age

Chico's FAS outlines strategic plan

Women's apparel retailer Chico's FAS Inc. on Thursday outlined its plan to improve results, including improving its merchandise selection and slowing real estate growth.

Chico's outlined the plan in a statement following its annual shareholder meeting.

The company plans to improve the "fit, fabric and quality" of its clothes.

At the same time, it plans to slow real estate square-footage growth until the weak retail environment improves.

It also plans to tighten control on inventory and cut expenses and capital expenditures.

Also during the meeting, the shareholders re-elected three directors, ratified an amended stock and incentive plan and appointed Ernst & Young LLP as its independent public accountant for the fiscal year ending Jan. 31, 2009.

Chico's FAS Inc. has suffered as consumers cut back spending amid a rising cost of living and declining home values. Women's apparel retailers have been among the hardest hit sectors in the retail industry.

In May, Chico's reported its first-quarter profit dropped 73 percent as sales of its core apparel brand dropped and expenses increased. Revenue fell 10 percent to $409.6 million.

Source: Business Week

Bed Bath & Beyond eager to grow

Union, N.J. –Bed Bath & Beyond opened its first international store in Ontario, Canada last December – and the $7.0 billion specialty retailer is ready for much more.

“We hope to expand aggressively in Canada, and to be the first choice for the home in Canada,” said BBB co-chairman Warren Eisenberg during last evening’s first-quarter earnings call.

Added president and ceo Steven Temares, “We believe the Canadian market has outstanding growth potential for us.”

Last month BBB followed up on that with a foray into Mexico via a joint venture with privately held retailer Home & More, which currently operates two stores in Mexico City.

How will future growth shape up? The plan for the current fiscal year is to open 50 to 55 new BBB stores in the United States and Canada. In addition, the 981-unit company has signed or is in the process of finalizing about 12 more sites in Canada and is in “active negotiations” for an additional dozen or so.

Still, Temares said the number of new BBB store openings is less than in prior years, as part of the company’s tactic to “afford us flexibility to take advantage of real estate opportunity that might arise from further retail consolidation, if we so choose.”

In results for the quarter ended May 31, BBB yesterday reported net earnings of $76.8 million or $.30 per diluted share. This was down sharply from $104.6 million or $.38 per diluted share in the year-ago period, however it beat analysts’ expectations by several cents per share, and BBB stock was trading about 6% higher today – counter to the retail sector’s general share price falloff of about 3%.

Quarterly net sales of $1.65 billion were up 6.1% from $1.55 billion one year ago; comps grew by 0.8%.

The company’s other nameplates are slated for expansion, too. BBB will “accelerate our growth” of the Christmas Tree Shops by 12 stores and buybuyBABY by a less precise “several” new units this year, and will open Harmon store concepts as departments within “a number of” BBB and Christmas Tree locations.

Also in the works is the addition of fine china to “a number” of BBB stores.

Overall, BBB’s long-term real estate goal remains to operate more than 1,300 stores, Eisenberg said.

Source: Home Textiles Today

Thursday, June 26, 2008

Bank of America to cut 7,500 jobs after Countrywide deal

Bank of America said Thursday it will cut about 7,500 jobs after it closes its acquisition of mortgage lender Countrywide Financial Corp. The job cuts amount to about 12.5 percent of the combined companies' mortgage, home equity and insurance businesses, after the purchase is completed next week. The Charlotte-based bank said the cuts will take place over the next two years in locations across the country "in instances where the two companies have significant overlap." The company will begin notifying affected employees in the third quarter.

Bank of America expects to close the deal July 1, having received the go-ahead from Countrywide shareholders on Wednesday. The all-stock deal, valued in January at about $4 billion, is now worth around $2.8 billion, reflecting a decline in Bank of America's stock price over the last six months. Earlier this month, the Federal Reserve cleared the way for the acquisition, which would give Bank of America control of 20 percent to 25 percent of the home loan market.
Countrywide had been the nation's largest mortgage originator before a spike in bad loans ravished its business. The deepening housing slump and lingering credit crisis have since fueled deep losses. Countrywide lost about $1.6 billion in the last six months of 2007 and another $893 million in the first quarter of this year. It also faces numerous investigations and lawsuits related to its lending practices. This includes a pair of lawsuits brought Wednesday in California and Illinois. Both cases accuse Countrywide of systematically deceiving borrowers in order to get them to take on risky loans they couldn't really afford, and name Chairman and CEO Angelo Mozilo as a defendant. The states both seek unspecified damages and for Countrywide to pay restitution to borrowers who lost their homes or loans.

Investors have worried that further deterioration in the mortgage market as home loan delinquencies and defaults rise could make it harder for Bank of America to manage Countrywide's loans. That could lead to costly write-downs, hurting Bank of America's profits.
Bank of America is expected to report its second quarter earnings July 21. Bank of America shares tumbled $1.80, or 6.8 percent, to $24.81 Thursday. Countrywide shares fell 16 cents, or 3.5 percent, to $4.42.


Wal-Mart plans fall opening for Marketside stores

NEW YORK, June 25 (Reuters) - Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research, Stock Buzz) has launched the website for Marketside, the small, community grocery store concept that the discount retailer is developing, and it plans to open the first locations this fall.

Wal-Mart will open four Marketside stores in the Phoenix area, and they will feature "a wide selection of complete meal solutions, fresh ingredients, and everyday favorites at affordable prices," according to the website.

Wal-Mart has stayed mostly quiet on its plans for Marketside. The new store concept comes after British supermarket rival Tesco (TSCO.L: Quote, Profile, Research, Stock Buzz) entered the U.S marketplace last year, opening Fresh & Easy Neighborhood Markets stores in California, Arizona and Nevada. Fresh & Easy will open its 62nd store on July 2.

At a briefing with reporters earlier this month, Wal-Mart said it is developing the Marketside stores to lure shoppers looking for a quick option to buy fresh groceries.

Eduardo Castro-Wright, head of Wal-Mart's U.S. division, said Wal-Mart shoppers might shop at the company's large supercenters once a month and go to its grocery-based Neighborhood Markets once a week, but would use Marketside for quick trips to buy perishables.

He said the stores will feature a smaller assortment than a traditional grocery store and will focus on fresh goods.

Source: Reuters

New York clothing retailer opens at Liberty Tree Mall

Steve & Barry’s has opened a 24,000-square-foot store in the Liberty Tree Mall in Danvers, Mass. It is the chain’s first location in the Boston market. Steve & Barry’s is a New York-based casual apparel retailer men, women and children sold at discount prices.

Source: BBJ

Penney's Scales Back Expansion Plans

Once was not enough.

Reacting to the weak retail environment, J.C. Penney Co. Inc. Wednesday again reduced capital expenditures, this time cutting 2009 capex to $650 million from $1 billion and reducing store opening and renovation plans.

But Myron E. "Mike" Ullman 3rd, chairman and chief executive officer, told WWD plans for the rollout of Sephora in-store shops remain intact despite fewer new stores and said Penney's is still upbeat for its back-to-school season.

Investors snapped up shares of the retailer, sending them up 2.2 percent to close at $37.68 on the New York Stock Exchange.

As part of a midyear update, the retailer said it now plans to open or relocate 20 stores in 2009, down from the 36 in 2008, compared with the previous plans to open 50 stores each year through 2011. Plans for its first Manhattan store remain on track, and the company said that unit is "expected to be its highest sales volume location.

"Ullman said the capital expenditure cut to $650 million in 2009 would help the company maintain its "positive free cash flow" next year. The retailer's midyear update is part of its goal in maintaining a level of transparency with Wall Street, he noted. J.C. Penney is also scaling back its store renovation plans to between 10 and 15 units in 2009, down from 20 in 2008, compared with previous plans to renovate 65 each year through 2011. In April, Penney's slashed $200 million from its capex for the year, reducing new and relocated stores to 36 from 50 and renovations to 20 from 65.

Plans for Sephora's rollout haven't been affected, however. "The same number, 50 to 70, [is on track for] next year, except that more of our older stores will get a Sephora store now that we will have [fewer] new stores opening," the ceo stated. "We have 72 Sephora shops now and 20 more will open for the balance of this year. There'll be another 50 to 70 next year, with 20 [located] in the new stores.

"Ullman said Penney's hardest-hit markets coincide with the toughest markets in housing: Florida, Southern California, Las Vegas and Phoenix. J.C. Penney is adjusting by focusing its store opening program on where its customers are located, or at least where Ullman says the emerging community exists. "Most of our new stores are in the South, such as Louisiana, Tennessee, Alabama and five new stores in Texas. We'll open several more next year in Texas," he said.

Ullman doesn't expect additional modifications in the capex plan this year, noting it's still too early to make a call regarding 2010. As for the pullback on store openings, that initiative was taken in conjunction with requests from some developers that are looking to postpone a few projects of their own until 2010 and 2011 due to housing concerns, Ullman said.

Despite the lackluster retail environment and pressures on the consumers' household budgets, Ullman remains hopeful for back-to-school sales.

With seven years of strong back-to-school selling seasons, the retailer knows it is up against tough comparisons, and getting even decent results this year won't be easy, Ullman acknowledged.

"We feel good about our offers, good about our marketing and our pricing proposition....We're well prepared. It's the time of the year when mom has to shop. Most kids need new clothes for back to school," Ullman said.

Although the juniors category has been doing well, and the company will be launching Decree and Kimora Lee Simmons' Fabulosity juniors lines, Ullman said there are also high expectations for young men's.

"Our young men's in American Living has the biggest upside," he said. That category is hitting the sales floor in time for back-to-school, and the ceo said consumers will find the items "very sharply priced compared to the alternatives at the mall.

"Overall, the company is satisfied with early results from the American Living lifestyle collection produced by Polo Ralph Lauren Corp.'s Global Brand Concepts, which it believes could reach sales of $1 billion in three to four years.

"We are satisfied," Ullman said, adding the company expected it would be tougher to achieve the results it's seen so far.

While a few Wall Street analysts have criticized the higher price points for American Living, Ullman emphatically said the collection is "not inappropriately priced for what it is," adding that in a booming economy it likely would have been easier to get even better results.

Sales in apparel categories have been good, which "bodes well" for fall, Ullman noted, boasting too that the retailer had its best women's apparel business last fall. Women's apparel sales are doing very well this month, Ullman said. Casual sportswear was the top category in women's apparel, followed by the junior business and plus sizes. Career has also had a "positive" trend.

"We feel good about our women's business," Ullman said.Sales in the home business and fine jewelry categories have been difficult, but also usually entail higher-ticket purchases. The retailer expects total inventories to fall below 2007 levels by the back-to-school season, and plans to align inventory levels with sales expectations.

Penney's has endured declines in comparable-store sales in each of the first four months of the current fiscal year. May's were off 4.4 percent following declines of 1.7 percent, 12.3 percent and 6.7 percent in April, March and February, respectively.

When Penney's released first-quarter results in May, it said it expected comps to decline in the midsingle digits during the current second quarter. First-quarter earnings dropped 49.6 percent to $120 million as sales declined 5.1 percent to $4.13 billion, and dropped 7.4 percent on a same-store basis.

Reacting to the revised plans, Citigroup retail analyst Deborah Weinswig wrote, "This news was consistent with our expectations [and] demonstrates disciplined and prudent planning on the part of JCP's management team.

" She reiterated her "buy" rating on the retailer.The news from Penney's helped the Standard & Poor's Retail Index rise 1.4 percent to 374.46, while the Dow Jones Industrial Average remained steady, gaining 0.04 percent to 11,811.83. The S&P 500 rose 0.6 percent to 1,321.97.

In the department store sector, Macy's Inc. rose 3.2 percent to $20.02, Sears Holdings Corp. advanced 1.1 percent to $74.44 and Kohl's Corp. gained 2.3 percent to $42.05. Discounter Wal-Mart Stores Inc. jumped 1.4 percent to $58.12.

Among specialty retailers, The Talbots Inc. finished up 8 percent at $12.89 and landed on the New York Stock Exchange's list of top 30 advances. AnnTaylor Stores Corp. climbed 3.1 percent to $25.57, J. Crew Group Inc. jumped 4.1 percent to $34.59 and Gap Inc. rose 0.8 percent to $16.89.

Source: Women's Wear Daily

Wednesday, June 25, 2008

Private Label, Loyalty Programs Boost Kroger

A reliance on value products and promotions have led to record earnings at The Kroger Co., executives said at the company’s first quarter conference call. The expansion of private-label products and promotions to help cash-strapped customers led to net earnings of $386 million, compared with $336.6 million last year. Total sales increased 11.5% to $23.1 million. Identical-supermarket sales increased 9.2% with fuel and 5.8% without fuel.

“Kroger’s performance during the quarter demonstrates the resiliency of our ‘customer first’ strategy,“ said David B. Dillon, chairman and CEO. “Our latest customer research indicates the two biggest concerns on shoppers’ minds today are high gas prices and food costs. These two factors are driving some of the behavior changes we are seeing lately, such as shoppers combining trips and actively pursuing gas discount offers.”

The company has spent more than a year expanding its private label product line, and also has expanded its generic drug program to include 90-day supplies for just $10. Shoppers also can receive up to $120 in free groceries when buying Kroger gift cards, and discounts on gasoline as shopper rewards. Kroger is on track to open, expand or relocate 70 to 80 stores, and complete between 175 and 200 store remodels during fiscal 2008. Kroger operates 2,474 supermarkets and multi-department stores in 31 states under two dozen local banners, including Kroger, Ralphs, Fred Meyer, Food 4 Less, Fry’s, King Soopers, Smith’s, Dillons, QFC and City Market, as well as 778 convenience stores and 392 fine jewelry stores.


Circuit City CEO mum on buyout prospects at annual meeting

RICHMOND, Va. - Circuit City Stores Inc. stayed mum on Tuesday about whether a buyout is in the future for the consumer electronics retailer, but an activist investor expects an announcement of a possible sale within the next month.

Mark J. Wattles, whose investment firm holds a 6.5 percent stake in Circuit City, said three companies are in the late stages of conducting due diligence in regard to buying the Richmond-based company.

"The sniffing is over with," Wattles said after the company's annual shareholder meeting.

Wattles declined to identify the companies, but implied that one of those was Dallas-based video-rental chain Blockbuster Inc., which announced a more than $1 billion takeover bid in April with plans to create a chain that would sell electronic gadgets and rent movies and games.

Chief Executive Philip J. Schoonover gave no update to investors about the company's hiring of Goldman Sachs & Co. to explore strategic alternatives, saying there's no official time frame for any action.

Instead Schoonover defended Circuit City's turnaround plan, but acknowledged "some missteps in execution" and asked shareholders for time necessary to leverage the company's future.

"We're in a good industry despite headwinds in the economy," Schoonover said. "All this work is important and rational. We have significant opportunity to improve profitability in our core business."

Shares of Circuit City slipped 2 cents to $3.35 Tuesday after sinking to a 52-week low of $3.20 earlier in the session and tumbling more than 21 percent on Monday. Shares have traded as high as $15.99 over the past year.

Last week, Circuit City said its loss widened in the first quarter because sales at established stores fell more than 11 percent. It reported a loss of $164.8 million in the three months ended May 31 compared with a loss of $54.6 million a year earlier. Circuit City has seen only one profitable quarter since the second quarter of 2007.

Meanwhile, rival Minnesota-based Best Buy Co. reported a 7 percent drop first-quarter profits last week, saying net income dipped to $179 million from $192 million.

Circuit City also forecast a wider second-quarter loss than analysts were predicting and suspended its dividend to keep capital available for its turnaround efforts.

Shareholders on Tuesday voted overwhelmingly to expand the company's board to 15 in order to add three directors originally nominated by Wattles. Last month, Circuit City defused a proxy battle by agreeing to nominate the directors.

Those directors are: James A. Marcum, an operating executive at merchant banking firm Tri-Artisan Capital Partners and former chief executive at Ultimate Electronics; Elliott Wahle, chief executive of Toronto-based Rustique Home Furnishings; and Don R. Kornstein, a managing member of strategic management and financial consulting firm Alpine Advisors.


Pier 1 withdraws offer to buy Cost Plus

FORT WORTH -- Retailer Pier 1 Imports Inc. said Tuesday that it was withdrawing its offer to buy rival Cost Plus Inc. for $88 million.

Pier 1 said it was unlikely that it would be able to buy the company at a price that would make sense for its shareholders.

The company offered to buy Cost Plus this month in a stock swap transaction. In the proposal, Pier 1 said it would issue 0.6 of a share of its common stock for each share of Cost Plus common stock, implying a value of $4 a share.Last week, Cost Plus' board of directors rejected Pier 1's offer.

Pier 1 shares rose 3 cents to $4.03.

Copley Place seeks city of Boston’s OK for 47-story tower

Copley Place owner Simon Property Group Inc. is moving ahead with plans to remake the Back Bay skyline with a 47-story condo tower that will also expand the upscale mall’s footprint.

The mall owner, in a proposal filed yesterday with City Hall, details plans for nearly 800,000 square feet of new residential and Retail space at the corner of Dartmouth and Stuart streets.

Along with 280 high-rise condos, Simon is also banking on a significant expansion of Copley Place.

The proposal calls for adding 54,000 square feet to the existing 115,000-square-foot Neiman Marcus store, which would be renovated as well. Another 60,000 square feet of retail would be added beyond that, including space for a restaurant and a winter garden.

The condo tower will include a health club, luxury day spa, library and concierge service.

“The project will enhance the urban fabric of the neighborhood and be a striking addition to the city’s skyline,” said Carl Dieterle, executive vice president for urban development at Simon, in a statement.

But state Rep. Marty Walz (D-Back Bay) said there are still significant concerns about the shadows the new tower will cast across nearby Copley Square and the Commonwealth Mall.

“A building of that height will cast significant shadows on those two green spaces,” Walz said.

Rick Stockwood, a spokesman for the project, said the tower has been specifically designed to minimize the impact of any shadows it will cast. The impact itself, which he described as limited, is laid out in a report included in the project plans submitted yesterday to the Boston Redevelopment Authority.

The shadows that cross Copley Square, for example, are confined to the late fall and winter months, Stockwood said.

Source: Boston Herald

Tuesday, June 24, 2008

Eddie Lampert’s latest bid to lift Sears

Eddie Lampert used to be the smartest investor in retailing, if not the best investor of his generation. That was the case last summer when shares of Sears (SHLD) hovered above $170. In his recent letter to shareholders, Lampert presented a chart showing that even as Sears stock collapsed in the latter half of last year, his five-year return on investment in Sears Holdings, the combination of Kmart and Sears, exceeded 900%. His return, in fact, beat that of every other major retailer.

No more. Since May, as Sears stock has tumbled to $75, another retailer, Urban Outfitters, has risen to trump Lampert’s investment. Shares of the hot specialty retailer, at $33, are up more than eight-fold since 2003. Gamestop, the fast-growing videogame retailer that FORTUNE recently wrote about, is not far behind. “I guess you’re telling me I need to get moving,” Lampert said when I called him this morning.

Indeed. Lampert, who runs an $11.5 billion hedge fund called ESL Investments, owns 65.6 million shares of Sears Holdings, worth $4.9 billion. He is one of America’s most secretive investors - and to retail-industry veterans, a walking conundrum. While they criticize him for under-investing in Sears and Kmart, he cites the value of pruning until he discovers the right strategy to spend money on. “Only when you find something that leads to better results,” he says, “do you get behind it with a significant amount of capital.”

Lampert, 45, has made mistakes, as he readily admits. One error was ramping up inventory last year, while failing to anticipate a drop in consumer spending. Another mistake was buying back 33 million Sears Holdings shares at an average price of $132 between 2004 and 2007. (Ouch.) But Lampert, who made his billions by playing contrarian, refuses to let the rising chorus of critics distract him. “We’re the $50 billion company that people think doesn’t have any customers or relevance,” he says.

Even as Lampert loses customers to Wal-Mart and Target, among other rivals, Sears has lots going for it: plenty of cash, relatively low debt, vast real estate (now is not the time to sell, obviously) and maybe most important, its private-label brands. Kenmore appliances, Craftsman tools, DieHard batteries and Lands’ End, the clothing maker, are leaders in their categories. Since only Sears and Kmart carry them, however, these brands have serious distribution challenges. “We have to increase awareness and make them more accessible,” says Lampert, who operates out of a spare hedge-fund office in Connecticut but nonetheless is a hands-on Sears chairman.

A new strategy for the brands may be coming. In addition to searching for a new CEO (Russell Reynolds is conducting the Sears CEO search - and it’s slow going), Lampert disclosed that he is looking for an executive to oversee the company’s multi-billion bevy of private brands. He needs a brand ace to figure out how to innovate and distribute them more broadly. One option, actually, was debated at Yale professor Jeffrey Sonnenfeld’s recent CEO Summit in New York. There, brand experts from India - including a renowned professor and a prominent industrialist - said that Indian investors are eager to expand into retailing globally and would likely be interested in owning, or at least carrying, brands like Craftsman and Kenmore.

“Fascinating,” says Lampert. As for the opportunity, he uttered only that. As you read this, he is probably contemplating the possibilities.

Source: Fortune

Kmart tests concepts in out-of-way corners

As sales and profits sag, parent firm Sears Holdings is trying, in the quietest of ways, new layouts and ideas at two Rockford stores

ROCKFORD — For a glimpse into Kmart's possible future, take a drive down the main drag in Rockford's business district.Beyond Wal-Mart and past Target, the two competitors that long ago stole Kmart's thunder, a Big K store sits alone at the back of a vast parking lot facing an Old Time Pottery, a shuttered Value City Furniture store and an abandoned gas station.

It is here at this Big K, as many Kmarts are known, that parent Sears Holdings Corp. is experimenting with a new format aimed at turning around the brand, where sales and profits are declining at an accelerating rate.

The test store, one of two in this northern Illinois industrial town, has been operating in relative obscurity since November. Kmart has done little advertising to attract new customers to the store. There is also nothing on the outside to signal passers-by to stop in and look at the remodeled interior.

It's an unusually cautious approach by retail standards, but investors have long puzzled over Sears Chairman Edward Lampert's strategy. While he positions himself as a retailer, he doesn't operate in a conventional fashion, leading many to conclude he is more interested in his company's real estate value than its future as a retailer.

Lampert, a billionaire and Sears' controlling stakeholder, has explained it this way: He doesn't want to invest money in fixing up stores unless he is sure he will get a return on his investment.

And so far, it seems, Kmart has yet to decide whether it's time for a complete makeover.

"The worst thing you can do is send people into the stores when you're not ready," Maureen McGuire, executive vice president and chief marketing officer for Sears Holdings said in an interview at the company's Hoffman Estates headquarters. "It's like inviting someone into your home and it's like you never expected them. So we want to be prepared for our customers when they come in.

"From the outside, the gray single-story structure looks little changed from polyester palaces Kmart built in the 1960s and 1970s that transformed five-and-dime variety store S.S. Kresge Co. into one of the retail powerhouses of that era. But step inside the store and it's a different story.

"It looked really nice," said Enola Troxell, a frequent shopper at a Kmart in nearby Freeport who visited the Rockford store for the first time this month. "It looks cleaner and bigger and like they carry more stuff."Troxell was looking for women's safety work shoes. She didn't find them and left empty-handed.

A Kmart circular ad for a television at a bargain price brought Lotta Russey into the store, but she too left without making a purchase."The outside of the store looks dreary," said Russey. "It doesn't draw you in. It says cheap. You need to get people inside by what's on the outside.

"Crushed by Wal-Mart on price and Target in design, Kmart has struggled for decades to find its niche. A trip through Chapter 11 bankruptcy in 2002 wiped out a lot of debt but also led the retailer to close hundreds of stores and sell some of its best locations.

The slimmed-down chain bought Sears, Roebuck and Co. in 2005 with ambitions of turning Kmart stores, which are located primarily in strip centers, into Sears, which are located primarily in malls. Consumers were driving past the malls to the more convenient big-box stores such as Best Buy and Target, a shopping pattern shift that Sears needed to address.

The experiment didn't work. Many of the converted stores, called Sears Essentials or Sears Grand, looked like a Sears stuffed into an old Kmart shell. There was little overlap between Kmart and Sears shoppers. The plan was suspended last year and Sears is "exploring its options," McGuire said.

With 1,382 Kmart stores, down from 1,416 at the time of the merger, the diminished but still sizable discount chain is faced with finding a way to generate enough sales in its existing stores to justify the cost of keeping them open.

"The problem is you're dealing with a very beat-up, old store base," said Kelly Tackett, an analyst at Columbus, Ohio-based TNS Retail Forward.

Borrowing a page

In what appears to be a nod to rival Target, Kmart has reorganized its test store in Rockford to make it easier to shop: painting the perimeter walls vibrant colors, installing lower shelves so customers can see across the entire store at once, moving dressing rooms from dingy corners to the middle of the floor, putting the toy department next to children's clothing and installing price scanning stations.

At the front of the store, two flat-screen televisions run promotions describing the newly remodeled store. Off to the side, a "Just Ask" help station set up to resemble a row of bank tellers is ready to recommend a handyman, book a delivery service, find a part or set up a baby or bridal gift registry.

So far, shoppers seem to be overlooking the TV screens, and the response to the service desk has been mixed, McGuire said. On the other hand the lower shelf heights have fared well and Kmart has rolled them out to 100 stores.

Making room in middle

Perhaps the most risky experiment is in the middle of the store where Kmart cleared space for a "marketplace" filled with constantly changing seasonal goods, such as beach towels and flip-flops for under $10. The merchandise is displayed on wheeled carts reminiscent of a farm stand with plenty of room for shoppers to stroll about.

The roomy displays look inviting, but they also take up valuable floor space that could be packed with more goods and increase sales per square foot, a measure of a retailer's productivity.

"Customers liked that place of discovery, that open area, so we're thinking about how do you take that to the average store, this place of discovery, while still balancing productivity," said Don Germano, senior vice president and general manager of Kmart stores.

Kmart already lags its peers on that score.The average sales per square foot at a Big K was $116 last year, compared with $308 at Target and $443 at Wal-Mart and $137 at Sears, according to Cambridge, Mass.-based retail research firm Management Ventures. Target and Wal-Mart figures exclude stores that sell groceries, which bring down average sales per square foot to $258 at Super Target and $425 at Wal-Mart Supercenters. Big K stores don't include groceries and make up 1,327 of Kmart's 1,382 stores.

Most of Kmart's sales volume is generated at roughly the top 300 to 400 stores, or 20 percent to 30 percent of its base, estimated Anne Zybowski, director of retail insight at Management Ventures."

A lot of the most profitable stores are ones where there isn't a Wal-Mart nearby," said Zybowski. "They're urban locations where people walk to the stores."Sears doesn't disclose sales per square foot, and Germano and McGuire declined to comment on analysts' estimates.

Lift was temporary

Initially, Kmart had provided some hope for Sears. Sales at stores open at least one year, a closely watched metric of a retailer's health, stabilized in fiscal 2006, declining a negligible 0.6 percent, while Sears' same-store sales fell 6.1 percent. That trend reversed last year when same-store sales fell 4.7 percent at Kmart and 4.0 percent at Sears. In the first quarter ended May 3, 2008, sales at both divisions plummeted dramatically, declining 7.1 percent at Kmart and 9.8 percent at Sears.Perhaps more troubling, according to Credit Suisse analyst Gary Batler, is that Kmart's same-store sales have declined even as Sears rolled out Craftsman tools and DieHard batteries at Kmart stores nationwide and introduced Kenmore appliances to about 280 Kmart stores.

"If one wants to get to the root of the problems at Sears Holdings, it is Kmart," wrote Credit Suisse analyst Gary Balter earlier this year in a report.

Sears officials declined to comment on sales of Sears products in Kmart stores.But McGuire and Germano are quick to point out that they are only little more than a year into a five-year plan to fix Kmart.

The first step was to improve the apparel offerings, high-margin goods that can boost overall profits. And clothing in the children's and juniors departments, which include new in-house brands Piper & Blue and Wckd, are well-made, stylish and often 100 percent cotton.Bill Stewart, the outgoing chief marketing officer of Kmart, boasts that last year Kmart held a blind casting call for women in New York and Los Angeles to be in a national ad campaign.

The women were put in a big room with Kmart clothing, belts, bags and accessories and told to put together an outfit without knowing the retailer was Kmart. When the women were asked where they think the clothing came from, they named retailers including H&M, Banana Republic, Macy's and Forever 21. The promotion ran from March through May and the TV ads aired in April.

"I think we really changed a lot of perceptions," said Stewart, who is leaving Kmart at the end of the month after two years to work for the campaign to promote gay marriage in California.

Several tests aheadKmart's next challenge will be to keep its home goods business, a key component of its stores, in good stead even if its longstanding contract with Martha Stewart ends in 2010. Kmart is developing new brand names for the home. And Martha Stewart already has a deal in place with Macy's.Kmart makes up a smaller piece of the company than Sears, but its profits are declining faster. Kmart generated $17.3 billion of revenue in fiscal 2007, while Sears' U.S. stores rang up $27.9 billion. Operating income for the same period fell 58 percent to $402 million at Kmart and dropped 41 percent to $784 million at Sears.

For now, Kmart has an initiative under way to clean up the stores, Germano said.On the outskirts of Rockford, a second Kmart test store sits across from a trailer park, sharing a parking lot with a thrift shop and shuttered auto center.

This remodeled store is already starting to show signs of neglect. The new, blue "Healthy Living" sign hanging over the pharmacy area is missing three letters.

"You have to get some things right before you get to the next level," said McGuire. "Uncluttering the stores, making sure the carpets are clean, as much as you can possibly do. So that's the first thing. We have to get that absolutely right."

Source: Chicago Tribune

Wall Street to Blockbuster: Lower bid for Circuit City or walk away

Wall Street is sending messages to Blockbuster about its bid for Circuit City.

Don't do it. But if you do, pay less.

Blockbuster Inc.'s stock declined 10 percent Friday, closing at its 52-week low of $2.52 a share.
Circuit City Inc.'s deteriorating performance and Blockbuster's shrinking stock price make Blockbuster's $6 a share bid for the consumer electronics chain ill-advised.

Richmond, Va.-based Circuit City on Thursday reported a first-quarter loss of $1 a share, a 12.2 percent decline in same-store sales and deteriorating cash position.

A leading Blockbuster analyst on Friday said he gives the $1 billion proposal a 5 percent chance of happening.

Arvind Bhatia, of Sterne, Agee & Leach in Dallas, said he bets Blockbuster will either lower its bid to $4-to-$5 a share or walk away.

Blockbuster will update its intentions for Circuit City soon, within two weeks, he said.

Blockbuster has been reviewing Circuit City's books, and the Dallas-based company continues to say it will pursue Circuit City only if the deal makes sense strategically and financially.

A lower bid could make shareholders more receptive to Blockbuster management's synergy argument. The movie rental chain is trying to become a home entertainment store, and Circuit City could benefit from Blockbuster's higher store traffic, says Blockbuster chief executive Jim Keyes.

Blockbuster investors will need to see more than synergy, Mr. Bhatia said, specifically, how Circuit's core business could be turned around. Blockbuster could walk away, but he sees a merger at a lower price as the more likely outcome.

Sterne, Agee & Leach has a buy rating on Blockbuster shares with a price target of $5.75 a share, based on future earnings estimates.

Source: The Dallas Morning News

Fast-fashion concept fuels Forever 21's expansion

Owners Don and Jin Sook Chang know what sells quickly, and they want to sell it to the world.

Most retailers are tapping the brakes as they navigate a rocky economy. Forever 21 Inc. has its pedal to the metal.

The fast-fashion retailer is expanding around the globe, increasing product lines and opening showy new stores. The largest yet, which at 90,000 square feet on three levels will be bigger than the size of the Rose Bowl playing field, is scheduled to open in Times Square next year. In South Korea, the birthplace of owners Don and Jin Sook Chang, Forever 21 is preparing to develop a mall adjacent to Inchon International Airport.

The Changs' recipe: Create a niche, and then blow it out.

Having built a $1.8-billion business by focusing on trend-hungry, cost-conscious young women, privately held Forever 21 envisions its future as a comprehensive fashion department store chain, selling clothes and accessories for teens, women, men and children. The Los Angeles-based company has spent $47 million buying competitors -- Rampage and Gadzooks -- and has doubled its square footage over the last 2 1/2 years. The goal is to become a "global retail conglomerate," said Christopher Lee, Forever 21's senior vice president. "Where there's a flash of opportunity, we're stepping in.

"Don Chang, who pumped gas, washed dishes and cleaned offices after he and his wife arrived in the U.S. a quarter-century ago, has another way of putting it. "We are," he said, the "American dream.

"Forever 21 is known in the industry for its knack for spotting what sells -- or what will sell -- getting it into stores quickly and replenishing merchandise to keep up with what's hot. "Literally, you'll see something on a runway, and they get it into the stores in the next month," said Christine Chen, an analyst at Needham & Co. in San Francisco. "It's really unbelievable."

Critics have claimed it's something else. Forever 21 said it was working to settle what's left of a couple dozen copyright- and trademark-infringement lawsuits, and the company was embroiled earlier in the decade in a legal battle with employees of Forever 21 subcontractors who claimed they worked six days a week, sometimes 12 hours a day, for far less than the minimum wage. The matter was settled out of court and the company, which admitted no wrongdoing, agreed to take steps to ensure that its garments were not made in sweatshops.

Sales, meanwhile, continued to climb. The company has forecasted revenue of $1.8 billion this year, up from $1.3 billion in 2007. And for 2009? The projection is $2.5 billion.

Along with European competitors H&M and Zara, Forever 21 created the inexpensive fast-fashion concept, spurring other apparel sellers to pick up the pace.

"They run lean and mean," said Debra Stevenson, president of Skyline Studios, a consulting firm in Los Angeles. "They have a lot of young people working for them, and they do understand their culture."Chief Executive Don Chang has been working to understand shoppers since 1984, when he opened the first store in Highland Park. Business was slow, which helped him shape a strategy.

"The customer's always looking for the price," he said. If a purse didn't open, Chang asked questions. What's wrong? The fit? The fabric? "What kind of clothes do you want? I'll bring it for you.

"Ilse Metchek, executive director of the California Fashion Assn., remembers her first visit to one of the early stores, a "hole in the wall" jammed with merchandise. "They had no talent for display, none," said Metchek, who called a couple of manufacturers and suggested they come have a look. "They said, 'My God, he's selling at retail for less than we could have made it at wholesale.' "

And Forever 21's styles were "right on," Metchek said. Jin Chang, a former hairdresser who is now chief merchandise officer, had an eye for fashion that the company was willing to bet on.

While their business was growing, the Changs, who are in their 50s, were making a mark in other ways. With a partner, they built the four-story Oxford Palace Hotel in Los Angeles' Koreatown and co-developed the San Pedro Wholesale Mart in downtown's Fashion District. It was the city's first commercial condominium project and built when most people "didn't believe in downtown," said Kent Smith, executive director of the L.A. Fashion District Business Improvement District.

Anyone who has looked at the bottom of a Forever 21 shopping bag has a hint about another important aspect of the Changs' life. Each bag is inscribed with "John 3:16" -- the New Testament passage that says, "For God so loved the world, that he gave his only begotten Son, that whosoever believeth in him shall not perish, but have everlasting life.

"The inscription is "evidence of their faith and their commitment to God," Senior Vice President Larry Myer said.The Changs have given millions of dollars to the Ttokamsa Mission Church in Los Angeles, where they attend the 5:30 a.m. prayer meetings Monday through Saturday when they're in town, Pastor Ken Choe said. "They are prayer warriors."

The church is part of the Christian Reformed Church of North America and directs more than 70% of its budget for overseas missions. Jin Chang has visited China, the Ukraine and the Philippines to serve meals to missionaries and local pastors, Choe said.

Don Chang teaches at the church and, Choe said, has a "zeal for the Lord" that the preacher sometimes envies. "It's very rare," Choe said. "That's why I believe God has poured his blessing on him.

"The church has helped build schools in China, Afghanistan, Cambodia, Vietnam and the Philippines, and Chang gave $3.4 million to build an auditorium at Faith Academy in Manila, a school for children of missionaries.

The Changs' business is looking toward Asia as well. Forever 21 plans to open its first store in Seoul this year and hopes to develop more than five malls in South Korea and elsewhere in Asia. The first store in China opened this month near Shanghai and more are expected in that country over the next year. Forever 21 will debut in Thailand this year and open in Japan over the next two years.

Once the company has its "global infrastructure" in place, Senior Vice President Lee said, it may go public. But not now, Chang said. "If a company wants to grow, I think private is much better," he said.

If the retailer files an initial public stock offering, there should be no shortage of interest, said Frederick Schmitt, a principal at Sage Group investment bank in Los Angeles. Financial institutions and private equity firms have hovered in recent years, "waiting for them to go public, or trying to buy them," he said.

"It's sizable, it's growing, it's seen as a good operator and they're understood to be very profitable, so that makes it an attractive acquisition target," Schmitt said. Shoppers, and investors, are fickle, of course, and trends constantly change. But although "everybody's saying the economy's bad," Chang said, "we're doing better. We are strong."

Source: Los Angeles Times

Baby Boomers, Entitlements Fuel Walgreens Growth

The prescription needs of aging baby boomers and speedy approvals are fueling record new-store growth this year at Walgreens, executives said at the company’s third quarter conference call. But expansion will slow to more normal levels next year. Record quarter sales of $15 billion (up 9.6% over last year) will only grow as baby boomers hit their senior years, said Chairman and CEO Jeffrey A. Rein. Net earnings for the quarter rose 2% over the previous year to $572 million. Total comp-store sales rose 3.4%.

"In spite of the current environment, nothing will slow the impact of nearly 80 million baby boomers moving into their chief prescription-use years," Rein said. "This is a very good business to be in for the long term." Walgreens will open 550 new drugstores this year, with a net increase of more than 500, expanding its drugstore base by approximately 9% in fiscal 2008. This is higher than its more typical 8% growth, boosted by swifter-than-normal entitlement processes, and is unlikely to be repeated.

“Many of these sites were [contracted] approximately 24 to 36 months ago,” Rein said. “In future years we will see this growth [level] go down.” The company remains on track to meet its goal of operating more than 7,000 drugstores by 2010. In May, Walgreens announced plans to open its first stores in Alaska in 2009, giving the company a presence in all 50 states.
As of May 31, Walgreens operated 6,727 locations in 49 states, the District of Columbia and Puerto Rico.


Linens ’n Things Hires DJM Realty for Store Disposition

Linens Holding Co., the operator of Linens ’n Things, said Monday it hired DJM Realty to manage the disposition of 120 underperforming stores that the company had targeted for closure as part of its restructuring.

“We are pleased to announce our partnership with DJM Realty and look forward to a successful disposition of these stores. This is a great chance for retailers looking to expand their real estate," said Hugh Scullin, senior VP of real estate, store planning, construction and legal for Linens ’n Things. Linens ’n Things said it would close the stores when it filed for bankruptcy protection in May. The hiring is subject to bankruptcy court approval. DJM plans to hold an auction before July 1.

Source: Chain Store Age

EveryScape plans to put interiors on the map

The popular Internet service Google Maps can guide you to the Upstairs on the Square restaurant in Cambridge. Google Maps' Street View feature will even show you a picture of the street outside the restaurant. But Google Maps can't show you the interior. A new mapping service from EveryScape Inc. of Waltham does just that. With the click of a mouse, a user glides through the front door of Upstairs on the Square and gets a 360-degree view of the colorful decor. EveryScape chief executive Jim Schoonmaker thinks thousands of businesses around the world will pay for this kind of exposure, and millions of Internet users will want to use the service. That's why he says his company has a fighting chance against the Internet's most popular search service.

"I'm quite confident that if we have world coverage of interiors and exteriors, people will leave Google and come to us," Schoonmaker said. A host of venture capital firms, including Dace Ventures, Draper Fisher New England, and LaunchPad Venture Group are betting Schoonmaker is right. They've invested $11 million in EveryScape since 2004, including a $7 million infusion in March. Still, Randy Giusto, an industry analyst with IDC Corp. in Framingham, is skeptical about EveryScape's prospects.

"There might be demand for it in certain locations - government buildings, certain shopping malls," Giusto said, but unless a lot of companies sign up to have their interiors mapped, traffic to the site,, will be limited. "It's got to hit a critical mass for it to derive value for the consumer," he said. EveryScape might be better off selling its technology to established online mapping companies, Giusto said, such as Google, Microsoft Corp., or Yahoo Inc. A Google spokeswoman said the company won't comment on plans for its Street View.

To get his pictures, Schoonmaker will count on independent contractors to drive the world's highways. "Destination ambassadors" will be given "ownership" of geographic areas, and will be paid by the mile for creating new photo maps, he said. For example, the Baltimore area belongs to David Franklin. He recently completed the required training course for destination ambassadors. In a couple of weeks, he will start laying claim to his new domain by driving its streets, snapping pictures on the way. It's a two-person job. One ambassador drives, while the other operates a quartet of digital still cameras mounted on the roof of the car. Franklin, 50, and his assistant will be paid about $10 a mile. There are 2,000 miles of streets in Baltimore and Franklin estimates another 5,000 miles for the suburbs, so he could earn up to $70,000.

"That's kind of neat - driving around, getting paid to drive," said Franklin, who described himself as an affluent former computer entrepreneur who doesn't need the money. He signed up as a driver because he likes the idea behind EveryScape. "I saw it as a really neat business model, as a progressive company, and a cool product," Franklin said. Once an area has been mapped, EveryScape will pitch local businesses on the benefits of having their interiors photographed by a freelance professional photographer. Both interior and street photos are relayed to Waltham, where banks of server computers stitch the still digital shots into seamless panoramic images. Much of the underlying software was developed by EveryScape founder and chief technology officer Mok Oh, who holds a doctorate in computer graphics from the Massachusetts Institute of Technology. Once the computers have done their work, users can cruise up and down a street by moving a mouse. Businesses that offer interior tours are marked with special icons, which users can click for a quick look around.

Mary-Catherine Deibel, co-owner of Upstairs on the Square, said about one-third of its business comes from private events like weddings and corporate dinners. Deibel said the EveryScape interior shots make it easier to show off the restaurant to potential customers.

"It was exactly what we were looking for and more," Deibel said. Deibel won't say how much she paid for her panoramic advertisement. "Let's just say it was definitely nominal," she said. Schoonmaker said the cost of panoramic ads will vary from hundreds to tens of thousands of dollars, depending on the business's size. While Upstairs on the Square is a small venue, EveryScape has also shot panoramic interiors at larger locations like the Sir Francis Drake Hotel in San Francisco and the Breakers resort in Palm Beach, Fla. Despite the sentiments of observers like Giusto, Schoonmaker believes the world is large enough to support many online mapping companies, including his own. "We don't believe one company, even if it's Google or Microsoft, or even one country, is big enough to take on this challenge," he said.


Monday, June 23, 2008

Steve & Barry's Faces Cash Crunch

As one of the country's fastest-growing store chains, Steve & Barry's LLC was billed as the future of discount retailing. It boasted of massive expansion plans, built on the back of fire-sale prices of clothes and shoes promoted by the likes of actress Sarah Jessica Parker and professional basketball player Stephon Marbury.


That future now looks bleak.

The closely held retailer is racing to find rescue financing of about $30 million. If it is unable to secure backing, it could seek protection from creditors sometime in the next month, say several creditors, bankruptcy lawyers and retail experts familiar with the matter. Steve & Barry's has hired Goldman Sachs Group Inc. to seek out financing and hired a bankruptcy lawyer to advise it on a restructuring, say these people.

A spokesman for Steve & Barry's declined to comment. Its attorney, New York-based retail-bankruptcy veteran Paul Traub, also declined to comment when reached Thursday.

The cash crunch comes even as Steve & Barry's expands across the country, with stores already in 40 states hawking exclusive fashion lines endorsed by tennis player Venus Williams and actress Amanda Bynes. Since May 15, it has opened nine stores, from upstate New York to Kokomo, Ind., and San Jose, Calif.

Steve & Barry's is just the latest retail player hurt by the economic downturn, and its demise would be a big blow to struggling mall owners. An ailing economy and $4-a-gallon gasoline have wreaked havoc upon the retail landscape, pushing the likes of Sharper Image Corp. and Linens n' Things Inc. into bankruptcy protection.


With fashionable clothes priced below $10, Steve & Barry's deep-discount model was built to thrive in such an environment. In a 2006 interview with The Wall Street Journal1, co-founder Barry Prevor said the U.S. market could support 5,000 stores. Its founders have dubbed their effort the "Google of retailing."

The company currently has 270 stores and projected 2008 revenue approaching $1 billion, with earnings before interest, taxes, depreciation and amortization of roughly $20 million, said two people familiar with its finances.

But some of the forces pushing Steve & Barry's growth were not tied to end-consumer demand, but the needs of mall owners in a softening commercial-real-estate market. Much of the company's earnings came in the form of one-time, up-front payments from mall owners. Those payments were designed to lure the retailer to take over vacated sites, say several people familiar with the company.

Without these payments, the stores are barely profitable, if at all, people familiar with the company's finances say. In recent weeks, the retailer has been seeking at least $30 million to fund operations through 2008. It has approached a number of financing sources, say these people.

Without additional capital, the company's fate will largely be determined by the commercial-lending unit of General Electric Co. It provided the company with a roughly $200 million credit facility in March, and the company is already in default on that loan, said three people familiar with the matter.

Steve & Barry's closing would be another blow for owners of malls and shopping centers, who have struggled to cope with the 6,500 store closures predicted for this year by the International Council of Shopping Centers.

Steve & Barry's eagerly snapped up big-box sites vacated by consolidating chains like Macy's Inc. At a shopping-center conference in May, several mall owners said Steve & Barry's was one of the answers to the industry's problems filling vacant space.

"They should be able to see through this," said Anthony Cafaro Jr., a vice president at Cafaro Co., a large Youngstown, Ohio-based mall developer that leases 10 sites to the company. "They still have that sensational 'wow' factor in terms of their prices—it's a great concept."

Part of the chain's attraction has been its low prices. Everything from sweatpants to jeans to down jackets cost less than $10. The chain has a miniscule advertising budget. Mr. Prevor is also considered a master "tariff arbitrager," carrying an encyclopedic knowledge of tariff codes so the business can reduce costs by manufacturing products in such far-flung locales as Lesotho and Malawi.

Steve & Barry's has received much attention for its celebrity-branded products. In 2006, it signed National Basketball Association star Mr. Marbury to endorse a line of $14 sneakers called Starbury, which were hailed as an antidote to the prices for Nike and other basketball shoes. It also made a splash with a line of clothing designed by Ms. Parker, who named the line Bitten because she was "bitten by the Steve & Barry bug," she has said.

Last year, Ms. Parker and Mr. Marbury appeared on the Oprah Winfrey Show to promote their lines and the trend toward "cheap chic."

Mr. Prevor and Steven Shore were childhood friends from Long Island, N.Y., and opened their first store in 1985 in Philadelphia, selling discount University of Pennsylvania apparel and undercutting the campus bookstore. They slowly opened outlets in college towns across the country before transforming Steve & Barry's into a big-box-mall retailer.

In 2005, the International Council of Shopping Centers honored the chain with its "Hot Retailer Award," given each year to stores considered by mall managers as the best at generating buzz and bringing more shoppers to the shopping centers they occupy.

Later that year, the duo fueled those ambitions with investment capital obtained during the credit boom. Private-equity firm TA Associates Inc. paid $320 million for roughly half of the company. About half of that went into the company, with the balance -- about $170 million -- being paid to Messrs. Prevor and Shore.

Source: Wall Street Journal

Friday, June 20, 2008

Pembroke Launches Development's Phase II

MELROSE, MA-Pembroke Real Estate, the corporate real estate arm of Fidelity Investments, is pushing into its second phase of construction on Oak Grove Village here. The 16-acre neighborhood when complete will have 550 apartments and 15,000 sf of retail space. The second phase of the development will add 201 apartments and single-level, underground parking beneath five of its buildings. The projected completion for this phase is the spring of 2009. Pembroke would not comment on the estimated cost of the second phase.

The first phase of development entailed 349 apartments, a fitness center, media room, swimming pool and a great room for residents. The apartments vary one to two bedrooms that range in size from 615 sf to 1295 sf. The rent for single-bedroom units are $1690 to $1960 while two bedroom units go for $2175 to $2500. Officially, the development is considered to be in two different towns as neighborhood is bisected by the border of Malden and Melrose at the final stop of the Orange Line. The first phase of the development officially completed in August of 2007, although Pembroke began opening the development to tenants in 2006. Oak Grove Village is 97% leased to date. Pembroke is hoping the addition of retail shops to the neighborhood will attract tenants, recently opening three retailers in their development.

"We've taken special care in the design and development of this community, including our selection of retail amenities, to ensure it meets the needs of both Oak Grove Village residents and the surrounding neighborhoods," says Tom Walsh, development director of Pembroke Real Estate, in a prepared statement. The retailers--Bobby C's Ristorante, Forever Young Day Spa and Sal's Custom Dry Cleaning--total 6,000 sf with the fourth--Beauty Nail Design--opening later in the summer. Pembroke has been shopping the other three available stores at $14 per sf to lease up their entire retail space.

"We are very pleased with the response to the first phase of development and expect it to continue," says Walsh.


Struggling Talbots promotes three staff members

The Talbots Inc. announced Thursday promotions in leadership positions as part of the company's restructuring. John Fiske has been named executive vice president of human resources and administration, responsible for business development, corporate services and loss prevention in addition to his existing HR responsibilities. Fiske previously served as senior vice president, human resources for the Talbots and J. Jill brands. Julie Lorigan has been named senior vice president of investor and media relations. Lorigan joined Talbots in 1999 as the director of investor relations, and has served as vice president of investor relations since 2001. Carol Stone, a 22-year Talbots veteran, has been named senior vice president of finance. Stone, who joined Talbots in 1985, has held several positions within the organization, including vice president, corporate controller for the Talbots Inc. (NYSE: TLB).

"With a strong, seasoned executive team now fully in place, and operational initiatives successfully underway, we are well-positioned to drive profitable growth, deliver shareholder value and build on our legacy as the retail destination for the 35-plus customer," said Talbots CEO and President Trudy Sullivan, in a statement. The Talbots Inc. operates 595 locations under the Talbots brand name and 276 locations under the J. Jill brand name.

Source: BBJ

IKEA feels impact of housing slowdown

NEW YORK - Mobs of fans greeted the opening this week of build-it-yourself furniture chain IKEA's first store in New York City - but the fervor is masking shoppers' underlying frugality.

Even the most loyal followers of the Swedish leader in low-priced but sleek home decor are thinking twice about buying ready-to-assemble bookshelves or woodblock tables amid a housing slump that has lasted almost three years and the soaring costs of food and gas.

"I am definitely not shopping big items. And I am focused on sales," said Jewell A. Staley, a real estate investor who loaded her cart Wednesday at the new Brooklyn store with $10 lamps and a $29.99 bistro table. "I am spending $100 on gas every two days."

The man behind the company's global expansion, CEO and president Anders Dahlvig, told The Associated Press that the housing downturn has led to a global sales slowdown at IKEA as shoppers do less impulse buying and focus on price. And he doesn't see any economic recovery for another two years.

"A lot of things are going in the wrong direction," Dahlvig said, rattling off challenges like soaring inflation, the downturn in the job market and tighter credit. Global sales growth slowed to 11 percent in the fiscal year ended Aug. 31, compared to previous increases of about 15 percent.

The hardest-hit countries are the U.S., Germany and Britain, but Dahlvig said he's seeing business in Spain and other European countries starting to slow down as well.

Still, Dahlvig believes there are big opportunities for the privately held IKEA Group, which operates about 250 stores in 31 countries. He said IKEA has gained market share in the U.S. from home furnishings rivals like Levitz Furniture (other-otc: LVFIQ.PK - news - people ), which liquidated, and Linens 'n' Things Inc., which filed for bankruptcy protection in early May.

Instead of scaling back on overall expansion, the company is shifting its emphasis toward developing markets like China, Russia and Eastern Europe, while staying tough on prices and cutting expenses.

"Slowdowns in the economy are not forever," Dahlvig said. "It's better to stick with a strategy than panic."

The U.S. housing downturn has hit home furnishings retailers the hardest, however, as a decline in home sales stifle consumer demand to fill their new houses with curtains and new tables. The home furniture and furnishings category accounted for 27 percent of the total 4,600 store closings in 2007, according to the International Council of Shopping Centers.

"IKEA is not immune to the housing downturn, but they are in a sweeter spot than other retailers," said Shilpa Rosenberry, a senior consultant at WSL Strategic Retail. "Shoppers will spend on home given the right opportunity."

Janet Hoffman, managing partner of the North American retail practice of Accenture (nyse: ACN - news - people ), noted that the IKEA experience - along with its stylish low-price merchandise - sets it apart from other merchants. "You just don't dash in and out of the store," she said.

IKEA offers less-expensive furniture, in designs from modern to traditional, because most of what it sells requires assembly and is flat-packed, saving the company money in transportation and storage costs. Sofas range from about $399 in cloth to $1,400 in leather, while accessories include $20 mirrors, $7.99 woks and $3.99 throws in bright colors. The stores also feature cafeterias that serve Swedish meatballs and have Swedish food markets.

While IKEA faces increasing competition from discounters like Wal-Mart Stores Inc. (nyse: WMT - news - people ), which has freshened up its home furnishings sections, retailers can't match IKEA's breadth of offerings. A typical IKEA store features about 10,000 items. The Brooklyn store offers 49 room vignettes and three model homes, tailored to apartment living.
In the U.S., IKEA's second-biggest market behind Germany, sales increased a respectable 10 percent in its last fiscal year, but below the 21 percent pace of the previous year, according to Pernille Spiers-Lopez, president of its North America division. The U.S. market accounts for about 10 percent of total sales, which reached 21 billion euros, or about $32 billion, in its last fiscal year.

Spiers-Lopez said IKEA is seeing business lag in California, Arizona and Michigan - markets that have taken the biggest blow from the housing slump. But she noted that soaring gas prices are also affecting shoppers as well.

"The purchases are more planned," Spiers-Lopez said, adding that there's less impulse buying.
Shoppers are also choosing the least expensive offerings in a category, she said. For example, IKEA's lowest-priced couch, which sells for under $400, is faring well, while $79 bookcases are doing better than more expensive options. And while categories like lighting, cookware and tableware are sluggish, IKEA is seeing solid gains in furniture sales - indicating that people are careful where they shop for big items.

Alexandria Rosario of Brooklyn, who plans to move out of her parents' home, just spent $3,500 on a bedroom set at a small store, but saw an IKEA bedroom vignette that totaled $1,000 with accessories. She said she'll be back to buy.

"It's stylish, affordable, retro. It's perfect," she said.
But Aida Perez of Brooklyn was buying just a few big plastic organizers to store items for her three children.

"I'm buying stuff that I can use over and over," she said. "Maybe when I have some more money, I will come back to shop some more."


Thursday, June 19, 2008

Foxborough development signs on six tenants

VinCo Properties Inc. announced Thursday it has signed six tenants for its 10,000 square feet of retail space in Foxborough, Mass.

Supercuts, Sharon Credit Union, Tanorama, Reliable Dry Cleaners, Foxy Nails, and Mamouzellos Pizza have signed leases for space ranging from 1,000 square feet to 2,400 square feet at Chestnut Green, a mixed-use 93-acre campus.

The new tenants join Walgreen's, The Learning Experience, Waxy O'Connor's Irish Pub and Restaurant, and Babel's Paint & Decorating Store. American Commercial Real Estate, which is managing the retail portion of Chestnut Green, brokered the deals.

The retail and commercial office will be complete in the fall of this year.

Boston-based VinCo announced in March it had closed on a $21 million financing package with Wells Fargo that allows for the final phase of office and retail construction at Chestnut Green.

Source: Boston Business Journal

Retailers evaluate new shopping centers more cautiously

ADDISON – Rising construction costs are causing some retailers to back out of new shopping center projects, according to a panel of retailers speaking Wednesday at a shopping center industry luncheon.

Still, major retailers such as Home Depot, J.C. Penney, Michaels Stores and Toys R Us say they want to hear about future projects but are scrutinizing the details more closely.

"We need a cooling-down period," said Hunter Stansbury, senior real estate manager for Home Depot Inc., which recently said it was closing 15 stores for the first time in the Atlanta-based chain's history.

But the Dallas area's population growth will create shopping center sites that the home improvement store expects to be in, he said during the event sponsored by the International Council of Shopping Centers.

Panel moderator John Weber Sr., president of Weber and Co., said construction costs are rising mostly from commodity prices rather than labor costs. It's a tough sell to explain to investors and lenders that prices have gone up 20 percent to 25 percent this year alone, he said.

Two proposed Home Depot stores that had been approved in December were canned last week, Mr. Stansbury said, due to stricter internal investment requirements and higher construction costs.

Projects that are being built in phases with two- and three-year lead times are also losing tenants as financing tightens, Mr. Weber said.
Irving-based Michaels Stores plans to open 45 stores this year, the same number it has built in each of the last 10 years, said Karen Slayton, real estate manager for the largest U.S. arts and crafts retailer. But the company will back out of a project if it's the only one left, she said.

"We're all expecting you to bring deals to us for 2010," she said.

Viral Patel, real estate negotiator for Plano-based Penney, said the company is going back over previously approved projects and delaying them "if the growth isn't going to be there."

He said that's happened in Arizona, but at the same time Penney is looking to fill in existing markets. The company is planning 36 new stores this year instead of 50.

Regardless, all deals are going through a stringent screening, including asking other retailers if they are committed to projects, Mr. Patel said.

But Texas is getting a bigger share of new stores, at least from these chains.

"Texas is our growth state," said Home Depot's Mr. Stansbury. Its Texas stores are performing better than the chain as a whole, with comparable store sales increases or slight declines.

"I'm in Texas every month," said Toys R Us real estate director Bill Oughton. The chain has no plans to retrench.

This year, the New Jersey-based chain is building 20 combination Toys R Us and Babies R Us stores under the same roof and plans to put Babies R Us stores inside 25 existing Toys R Us stores.

Source: The Dallas Morning News