Friday, August 29, 2008

NRF study forecasts another year of slow sales

NEW YORK (Aug. 28) The National Retail Federation said it expects retail sales to remain slow well into 2009 with shoppers flocking to discount stores for lower prices.

During an Aug. 28 conference call with analysts, NRF spokesman Scott Krugman said high gas prices, inflation and the housing slump should continue to produce a tough environment for retailers. He said the NRF is forecasting a 3.5 percent increase in total growth for 2008 following a 3.7 percent increase in 2007.

“And those numbers aren’t as good as they sound because we’re coming off a year of easy comps,” said Krugman.

The NRF won’t release its holiday sales forecast until September but it’s not likely to bring good news. “We don’t see a turnaround until, at the earliest, the second half of next year and even that may be optimistic,” said Krugman.

The NRF also re-affirmed its forecast for back-to-school spending, which predicts families with children in kindergarten through 12th grade will spend $599.24 compared with $563.49 in 2007, with parents focusing on essential items. It forecasts a 7 percent drop in spending for back-to-college students with an average of $599 per student compared with $641 last year.

NRF data also shows the number of people shopping at discount retailers increased 7 percent this year, as shoppers hunt for lower prices.

Source: Drug Store News

Walmart Converts More Than 1,700 Garden Centers Into Game Time(SM) Headquarters

Retailer Huddles to Provide Savings on Local Team and Tailgating Necessities

BENTONVILLE, Ark., Aug. 28 /PRNewswire-FirstCall/ -- Walmart today announced its game plan to completely transform more than 1,700 of its Garden Centers into "Game Time(SM) Headquarters," customized for supporters of local college or professional football teams. Beginning this week and running through September 30, Walmart will feature everything from team merchandise and decor to favorite game-time snacks and beverages at unbeatable prices. According to, 42 percent of tailgaters spend more than $500 each season on food and supplies. Walmart can help tailgate enthusiasts prepare for six home games this season with enough food and gear for a "special team" of four for about $66 per game -- savings of more than $100 for the season. Suggested items* for the tailgate set-up include:

* 4 NFL® or NCAA® Hats (prices start at $5.00)
* 4 NFL® or NCAA® T-shirts (prices start at $6.00)
* 4 NFL® or NCAA® Armchairs ($19.88 each)
* 1 Uniflame® 18.5" Charcoal Grill ($17.00 each)
* 6 bags of Kingsford® Charcoal ($6.97 each)
* 1 NFL® or NCAA® 24-Can Softside Cooler ($13.88 each)
* 6 packs of Ball Park® Beef Franks (2 for $5.00)
* 6 packs of Tyson® Boneless, Skinless Chicken Breast ($6.00 each)
* 6 packs of Sara Lee® Hot Dog Buns ($1.97 each)
* 3 bottles of Hunt's Ketchup ($1.50 each)
* 6 Lay's® or Doritos® XXL Chips (2 for $5.00)
* 6 T.G.I. Friday's® Cheddar & Bacon Loaded Potato Skins ($4.88 each)
* 6 fresh Vegetable Trays ($9.88 each)
* 15 2-Liter Bottles of Pepsi® Drinks (5 for $5.00)

"With 36 million tailgaters in the U.S., the kick-off to football season is now one of our favorite all-American pastimes," said Janet Bareis, vice president of Walmart Corporate Marketing. "But we know our job on the team is to make sure tailgaters don't spend a dime more than they need to -- that's why we've put together some winning prices all in one place in the store."

For fans who want to watch the big game at home or celebrate while the team's away, on August 29, Walmart will launch the Game Time(SM) tailgate planner. This widget, created just for football enthusiasts, allows fans to download their favorite team's schedule, and create and send e-mail invitations to friends for game day events and tailgating parties. And for fans looking to coordinate a backyard gathering for a small group or for the entire neighborhood, is a great place to access free tools to help them manage their guest list, plan their menu, download a shopping checklist, and calculate costs for everything the perfect tailgate requires. The site also offers several recipes and tips for better organization.

Apple Stores Generally Mirror U.S. Population Density

The locations of Apple's U.S. retail stores closely track the U.S. Census Bureau for the highest density population centers, according to ifoAppleStoreon Thursday. However, there are a few notable exceptions.

"Apple claims that over 90 percent of the country's population is within 15 minutes of an Apple retail store, and a population analysis seems to confirm their statement," according to ifoAppleStore, a site that closely watches Apple's retail store activity.

However, there remains some notable exceptions: "Spokane (WA); Boise (ID); the eastern seaboard of Florida north of Miami; a large area of eastern Pennsylvania, Delaware and New Jersey; metro Cleveland; areas of Massachusetts and Rhode Island; and a corridor from central North Carolina south to Atlanta and Alabama."

Apple also looks at the overall wealth of the zip code and other factors when making a decision about store locations. That could explain the delay in the launch of certain locations in Idaho, North Carolina, and Alabama.

ifoAppleStore's map is large, easy to read, and offers an illuminating view of Apple's store location strategy. It may also explain why an Apple store isn't coming to your city any time soon.

Source: the Mac Observer

Thursday, August 28, 2008

Mid-Tier Retailers Try New Brands On for Size

Chains Look to Stand Out In Crowded Marketplace

This back-to-school season will go down as the Battle of the Brands.

Kohl's launched six new lines of clothing this summer with a star-studded advertising campaign featuring celebrities from Lenny Kravitz to Hayden Panettiere. JCPenney introduced another half-dozen labels, the department store's biggest crop of new brands, with looks including urban rock and all-American. And Dillard's is chasing soccer moms with a line designed by Sheryl Crow that hit stores this month.

It's all part of the no-holds-barred fight among middle-market retailers for consumers' hearts and wallets this back-to-school season, the second-biggest shopping bonanza of the year. Lacking the cachet of luxury stores and the discounters' trump card of price, mid-tier retailers have been struggling to stand out in an increasingly crowded field. Now, the economic downturn has raised the stakes, and the battle is likely to last well into the holiday season.

"In this environment, when consumers are more discriminating with their purchases, we've recognized the importance of ensuring that our merchandise is compelling," Ken C. Hicks, president and chief merchandising officer of JCPenney, said in a recent conference call.

According to research from NPD Group released this month, department stores ranked third as back-to-school shopping destinations. Discounters topped the list, with 81 percent of consumers planning to shop there. More than half of consumers listed value and necessity as driving their purchases.

Wal-Mart has been the big winner this season, with July sales at U.S. stores open at least a year up 3 percent and second-quarter earnings up 17 percent. The store also debuted its own lines this summer and purchased exclusive rights to the tween brand l.e.i., which was formerly found in department stores.

Meanwhile Kohl's same-store sales dropped 10 percent in July, while profit fell 12 percent during the second quarter. JCPenney was down 7 percent in July and earnings plummeted 36 percent. Dillard's posted a 2 percent increase in sales in July but yesterday reported a loss of $38 million during the second quarter, compared with a $25.2 million loss the previous year.

"They're in a tougher position because they don't compete on price," said Stacy Janiak, U.S. retail leader at Deloitte, a consulting firm. "But they also have other tools at their disposal to try and lure the consumer."

For Kohl's, that has come to mean branded, exclusive merchandise. The Wisconsin-based retailer once was a Wall Street darling posting double-digit sales increases with its no-frills stores and "racetrack" layouts that helped customers easily find what they were looking for -- proof that there was money to be made in the middle of the market. But in recent years, Kohl's has made some merchandising missteps and become hamstrung by mediocre inventory gathering dust on the clearance rack.

Now the economy is taking its toll even as Kohl's attempts to refresh its assortment of apparel. Nearly 43 percent of sales during the second quarter were of private-label products. Chief executive Kevin Mansell, during a conference call with analysts this month, called its Elle collection of clothes and accessories that debuted last year "an overwhelming success" and said he was pleased with initial sales of the new Abbey Dawn line for juniors inspired by pop-rock singer Avril Lavigne.

Mid-tier retailers are counting on such proprietary labels not only to create buzz, but also profits. Margins are higher for merchandise that they've developed, giving them more room to slash prices as needed -- a strategy Kohl's plans to use through the fall and holiday seasons.

The retailer has also decreased merchandise in each store by about 15 percent, which cuts down on both clutter and markdowns. Although Kohl's has identified more than 1,400 locations for new stores, the company said the credit crisis and weak consumer spending makes the future uncertainns Look to Stand Out In Crowded MarketplaceJCPenney has suffered this retail roller coaster for years, with a strong comeback last back-to-school season making this year's comparisons particularly tough. It is hoping to boost sales through a mix of fresh merchandise and aggressive promotions torn from discounters' playbooks.

This summer, it debuted a sporty line named Le Tigre from designer Kenneth Cole and diva urban-apparel Fabulosity by Kimora Lee Simmons. JCPenney developed private-label brands Decree, which focuses on denim, and two lines for young men: American Living, with trendy jackets and jeans, and White Tag, a rocker line of denim and arty T-shirts. Finally, it launched a collection of home decor for young adults called Dorm Life. Hicks said sales of these new brands were strong despite challenging sales overall.

To boost volume, the retailer has turned to discounts. Last weekend, the final days before Washington region students headed back to school, JCPenney rolled out a promotion for 88 cents on the second purchase of key items such as baby-doll tees, hoodies and cropped pants. "Lowest prices for back to school," boasted the advertising circular -- that is, until this week, when JCPenney returned with another clearance sale offering 75 percent off.

"While customers are choosing to spend carefully, when they are shopping, we're taking our share," chief executive Myron E. Ullman III said during the conference call.

Janiak said that retailers across the spectrum have likely benefited from shoppers seeking more bang for their buck, middle market stores included. At off-price retailer T.J. Maxx, which sells designer names from department store and manufacturer overstock, new shoppers have been walking through the doors as housing prices fall and gas prices rise, company spokeswoman Laura McDowell said.

"We believe that we're attracting a new customer in this tougher consumer environment," she said.

T.J. Maxx, whose parent company TJX also owns Marshalls, has the sales figures to prove it. Sales at Marshalls and T.J. Maxx stores open at least a year were up 3 percent during the second quarter and grew more than 6 percent for parent company. TJX also raised its forecast for annual sales. McDowell said she is confident the retailer can keep those customers even after the economy improves. T.J. Maxx is careful to emphasize quality and trends first in its messaging, she said.

"They know we're going to have low-price merchandise," she said. "But it's what the low price is actually on."

Despite the pressures on the middle, those retailers still claim a significant chunk of market share and their own loyal shoppers. They just have to work harder to find a winning formula, Janiak said.

"It might be tougher right now, but I don't think it's ever a bad time to be in that spot," Janiak said. "Otherwise, they wouldn't still be with us."

Mrs. Fields to Emerge from Chapter 11

2008-08-27 — Mrs. Fields' Original Cookies Inc. received bankruptcy court approval of all of its first day motions, including approval to:

* Continue to pay employee salaries, wages, and benefit programs;
* Pay vendors in the normal course of business for goods and services provided to the Company; and
* Maintain uninterrupted delivery of products and services to the Company's franchisees and customers.

Included in today's approvals was court authorization to access the necessary funds from the $90 million in previously restricted deal proceeds to fund business operations during the Chapter 11 process. The company also is pursuing a $10 million credit line that will be used, in conjunction with cash flows from normal operations, to support all of the company's go-forward operations and working capital needs upon emergence from Chapter 11.

"We were very pleased with the court's positive response to our first day motions. Receiving approval so quickly places Mrs. Fields in the best possible position as we move toward completing our restructuring. We fully expect to receive court approval of our reorganization plan at the scheduled October 2, 2008 Confirmation Hearing and to emerge from these proceedings a stronger, more viable company with a drastically improved balance sheet. With our first day motions behind us, we can now focus our attention on finalizing post-emergence plans leveraging our new financing and equity structures to drive results for our franchising, gifting, and branded retail businesses," says Michael Ward, interim Co-CEO.

On August 24, 2008, Mrs. Fields and certain of its subsidiaries filed voluntary bankruptcy petitions under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. As part of the filing, the Company has also filed its prepackaged Plan of Reorganization. The prepackaged bankruptcy will significantly improve the Company's balance sheet by exchanging approximately $195 million in bondholder debt for cash, new bonds and a controlling equity stake in the reorganized company.

Retailers Give It the Old College Try

Some Schools Open Campuses to Brands' 'Pop-Up' Stores, But Others Decry Commercialization

Despite pushback from some schools, fashion brands plan to sell directly on campuses this fall to reach the lucrative college crowd.

Starting in September, flip-flop maker Havaianas, a brand owned by Sao Paulo Alpargatas SA, plans to set up a temporary "pop-up" store on five campuses in the U.S. To generate buzz, the Brazil-based brand will run competitions involving its footwear, awarding trips to Brazil as prizes.

Victoria's Secret's Pink, a young women's clothing brand of Limited Brands Inc., this fall is opening its own pop-up store at about 12 schools, up from 10 last spring. The store opens for a day, selling merchandise, handing out promotional items and collecting used clothing for charity. Sustainable-clothing brand RVL7 is installing a bamboo-clad temporary ministore at six to eight campuses this fall, including the University of Colorado at Boulder and Arizona State University.

The race to introduce brands via these short-duration marketing and selling events is likely to accelerate. American Collegiate Intramural Sports, which sells sponsorships for college intramural programs and fitness centers, is seeking a fashion brand to sponsor fitness centers and host pop-up stores at 100 campuses in the next year.

Companies generally make a donation to the school, campus bookstore or student organization that sponsors their visits, which means hosting the stores can help raise funds for student groups.

Brands' growing presence has more colleges balking at these campus marketing events and stores. The University of Florida recently rejected a request from Pink to visit this fall. The university doesn't allow companies to do business on its campus. "There would be no end to it -- you would have the whole campus covered with them in no time," says school spokesman Steve Orlando. "We don't want our faculty and students overrun with commercialization."

The University of Minnesota and the University of North Carolina at Chapel Hill, meanwhile, have decided to quit allowing their names to be used on Pink's new line of college-themed merchandise. Pink sells fleece pants and hoodies, among other items, bearing the names of 31 participating schools and says it will add at least five more by year end.

College students have long been a target for marketers looking to build brand loyalty. But only in the past few years have companies set up these temporary stores on campus, recruited students for paid positions to aggressively promote their products and hosted their own campus events. In the past, they would buy ads in college newspapers, hand out fliers or freebies, or co-sponsor larger campus events. Stores generally were located off campus, in college towns or spring-break hangouts.

The focus on college campuses comes as both the number and spending power of students have grown sharply. Roughly 18.3 million students will enroll in U.S. postsecondary institutions this fall, up 26% from 14.5 million a decade ago, according to the National Center for Education Statistics. The discretionary spending of 18- to 30-year-old students is estimated to reach $53 billion this year, 10% more than last year and 29% more than in 2005, according to the latest College Explorer study by Harris Interactive for Alloy Media and Marketing.

While pop-up stores are primarily a brand-building tool, they also generate revenue. A Pink pop-up store at Penn State University rang up sales of about $20,000 in a single day during this past school year, a spokeswoman says. Kiehl's Since 1851, a skin and hair-care company owned by L'Oréal SA, says its college pop-up stores performed "on par with what our normal store would do" in daily sales per square foot, according to a spokeswoman.

Schools sometimes reject the pop-up stores for scheduling reasons or because they don't want the brands to compete with their own stores. San Diego State University recently said "no" to Havaianas because it didn't want to lose sandal sales at its own store. Pink, which visited the University of Alabama in February, was told it couldn't come back during the football season partly because its fleece clothing and sweats would compete with clothing sold by the school's store, though it could return in the spring.

Some schools allow marketers to set up temporary shops only when sponsored by a student group. Pink, for instance, got the nod for a pop-up store this past January at the University of Tennessee because it was sponsored by a sorority. "A lot of things get approved," says JJ Brown, associate dean of students. Many of the campaigns also have an educational or academic element, such as lessons about sustainability from RVL7 or interviews for internships at Pink, says H. Tony Berger, president of New York event-and-marketing firm Relevent, which helps organize campus campaigns. The result, he says, is that schools and students view the visits as having "added value."

Source: WSJ

Real Estate Recovery Expected in 2011

The nation is in for more than a year of stagnant job creation and tepid economic growth that will set the stage for marked improvement in 2011, according to two of academia’s respected authorities on the economy and commercial real estate.

In separate forecasts presented this month, economists in Georgia and Texas expressed dour expectations for national job growth in the coming year. Because commercial real estate depends on employment growth to drive the demand for space, the forecasts suggest that demand will be weak for the foreseeable future.

Dr. Rajeev Dhawan, director of the Business Economic Forecasting Center at Georgia State University, blames the credit crunch for pushing the economy into a recessionary state. In a forecast published Wednesday, Dhawan says the credit crunch has damaged the economy’s growth prospects until 2010.

“Some banks are on the brink of failure and it will be up to the FDIC to bail them out,” Dhawan says, expounding on the nation’s economic predicament. “Should they run short of funds, look for the government to bail out the FDIC, leaving taxpayers with the tab.” That’s why Dhawan is projecting real gross domestic product growth at a rate of 1.4% in 2008, decelerating to 0.5% in 2009 before beginning an anemic recovery to growth of 2.2% by 2010.

That lackluster economic growth means net job losses that have averaged 66,000 per month so far this year will grow to 90,000 losses per month in the second half of 2008. Expect less severe losses averaging 15,000 job cuts per month in 2009, Dhawan says. “The job market will emerge from the twilight zone in 2010, when the economy will add jobs at a monthly rate of 100,000.”

Recent and anticipated job losses are a serious challenge for the commercial real estate industry, according to Dr. Mark Dotzour, chief economist at the Real Estate Center at Texas A&M University. “In the real estate business we don’t care what GDP is,” Dotzour quipped in a forecast presented to members and guests of the Real Estate Council of Austin on Aug. 18. “All we’re interested in is job growth, and we’ve had negative job growth in the U.S. now for about eight months. I call that a recession.”

Dotzour says the credit crunch has begun to thaw for global banks and has become a balance sheet crunch for commercial real estate lenders. Investors are amassing funds to invest in real estate, he says, and the challenge now is for lenders to clear devalued loans from their books so they can provide financing for new deals.

Both economists harbor heartening expectations for relief from high oil prices, which Dhawan expects will drop to $89 per barrel in the fourth quarter this year and average about $107 per barrel throughout 2009. Oil prices have already retreated 25% from the summer’s record highs near $150 per barrel now that American consumers have stepped back on consumption.

Less expensive oil would help the economy regain its footing before the Federal Reserve clamps down on inflation by raising interest rates. The Fed would prefer to keep interest rates low to stimulate the economy until banks have had more time to recover liquidity, economists say, but persistently high oil prices could thwart those efforts to let banks heal. “If the price of oil does not retreat below $100 per barrel by October on a sustained basis, worries of inflation will cause the Fed to raise rates much earlier than expected,” Dhawan says.

Consumers and manufacturers may find their dollars buy more this fall, which would help the economy limp through the winter. Dotzour believes the prices on steel, cement and other materials vital to commercial real estate construction will come down this fall along with oil prices.

Why? Dotzour theorizes that China’s extraordinary efforts to prepare for the Olympic Games spurred that country to accelerate construction programs for transportation infrastructure and residential and commercial space, and to stockpile commodities such as diesel fuel. Now that the Olympics have ended, Dotzour expects China’s demand for those products and materials to slacken for several months, giving global producers an opportunity to catch up with demand and bring prices down.

“It’s going to be interesting to see what happens to the price of copper and steel and all the construction materials,” Dotzour says. “If [China’s] demand does slow down, we’re looking at the possibility of a pretty dramatic decline in construction materials costs in the coming months.”

Dotzour points out a source of hope for commercial real estate investors, who would certainly welcome an unexpectedly stronger economy next year. Due to the credit crunch and economic uncertainty associated with the presidential election, Dotzour believes a number of U.S. companies and consumers have put off major decisions to spend or commit to space this year.

By March 2009, he says, businesses will have a better understanding of their financial standing and tax burdens under the new president, and may cut loose with a swath of business deals, leases and real estate purchases. “It’s possible we could have a very pleasant surprise around April.”

Source: National Real Estate Investor

Whole Foods asks FTC to not use official as judge

WASHINGTON, Aug 27 (Reuters) - Organic premium grocer Whole Foods (WFMI.O: Quote, Profile, Research, Stock Buzz) has asked the Federal Trade Commission, which is assessing whether its merger with rival Wild Oats is legal, to use an administrative law judge to hear the case, not a commissioner already on record as questioning the merger.

The FTC has named Commissioner Thomas Rosch to oversee the case, but Whole Foods said he should recuse himself, citing the fact that he was one of the commissioners who voted in June 2007 to investigate the merger as one that potentially violates antitrust statutes.

"The commission should recuse itself and appoint an independent ALJ (administrative law judge) to preside over the trial of this matter," Whole Foods said in a motion filed with the FTC on Aug. 22. It was posted on the FTC website on Wednesday.

The next hearing is a scheduling conference set for Sept. 8.

The commission had sought to challenge the merger last year, but Judge Paul Friedman of the U.S. District Court for the District of Columbia refused to issue a preliminary injunction stopping the merger. It was finalized in August 2007.

But the U.S. Court of Appeals for the District of Columbia ruled on July 29 that Friedman erred when he turned down an FTC request for an injunction to block the deal, essentially reviving the government's case.

Source: Reuters

Sears profit drops 62%, outlook weak

Sears Holdings Corp., citing the deteriorating economy's chilling effect on consumer spending, reported fiscal second-quarter earnings that were down by a worse-than-expected 62 percent.

The Hoffman Estates retailer's results would have been even gloomier had Sears not recorded a one-time gain related to a legal dispute.

In the quarter ended August 4, Sears earnings dropped to $65 million, or 50 cents a diluted share, down from the year-ago quarter's $173 million, or $1.15 a share. Per-share results benefited from a 15 percent decline in the number of diluted shares outstanding.

Revenues declined 4.1 percent to $11.76 billion from $12.26 billion a year earlier.

The second-quarter results "reflect the continued effects of a slowing economy, which contributed to the earnings declines we have experienced since the third quarter of 2007, said interim Chief Executive Officer W. Bruce Johnson.

While it was a "difficult quarter," Johnson said, the company has lowered its inventory levels by $500 million,which should lead to less promotional pricing, and improved profit margins, in the year's second half.

Sears' earnings were helped by the reversal of a pretax $65 million reserve the company had earlier been obliged to take in connection with a jury's verdict in a bond-redemption dispute. Without the help of that onetime item, earnings would have been 21 cents a share -- well below the 33 cents that analysts had been anticipating.

Both of the holding company's operating segments saw a decline in "comparable-store" sales, which measure sales at outlets open at least twelve months. At the parent''s U.S.-based Sears stores, comparable-store sales showed a punishing 6.7 percent decline; at the company's lower-end Kmart segment, comp-store sales drooped 6.2 percent.

As bad as they were, the declines were less damaging than the 9.8 percent dropoff Sears stores suffered in the first quarter, or the 7.1 percent first-quarter decline Kmart's stores experienced.The August quarter's results "reflect increasing competition and weakness in the general economy," the company said, and sales were off "across most major categories.

"Consumer electronics sales showed an upturn, Sears noted, but sales of home appliances and tools were down in response to the U.S. housing market's implosion. Sales were also pressured because consumers are being obliged to spend significantly higher proportion of their expendable income on staples such as food and gasoline.

In the latest quarter, Sears spent $437 million to buy back 5.6 million of its common shares; its share-buyback authorization has now dwindled to $206 million. Since the program was first instituted in late 2005, the company noted, Sears has spent a total of $4.8 billion to buy back 38.7 million of its shares.

Source: Chicago Tribune

Talbots' 2Q Loss Swells to $25 Million

Talbots Inc. said Wednesday it lost $25 million in its second quarter ending Aug. 2, nearly doubling year-ago losses as sales fell 8% and restructuring charges mounted. Talbots lost $13.3 million in the year-ago quarter. Excluding losses on its Talbots Kids, men’s and U.K. businesses and restructuring charges, the retailer would have lost $18.3 million in the latest period.
Revenue fell 8% to $528 million from $572.3 million a year earlier.

"This was a challenging quarter to drive top-line sales, predominantly due to the change in our Talbots brand annual June clearance strategy, coupled with a difficult macro environment," said Trudy F. Sullivan, president and CEO, in a statement.

"While a year-over-year shortfall in retail sales impacted the quarter, results were largely offset by the Talbots brand merchandise gross margin expansion," she added. "However, given the heavy inventory position of the J. Jill brand, we took aggressive markdowns during the quarter, which hurt gross margin and our second quarter total company operating performance."

Same-store sales fell 12% in the quarter. Sales for Talbots brand items fell 11.7%, and J. Jill brand sales fell 13.2%.

Borders Hits Store-Opening Goal

Borders Group’s new store openings for this year are essentially complete, as the company has cut capital expenditures to focus on strengthening its bottom line. But it will expand its new web site in-store, executives said at the company’s second quarter conference call. All but one of 14 new superstores (including two relocations) planned for this year have opened, said Ed Wilhelm, senior VP and CFO. All are in the company’s new concept, which reduces the space allocated to music, giving that space to children’s and bargain books. “We continue to be very pleased with the performance of our new concept stores,” Wilhelm said. “We will be applying what we learn from these to the rest of the chain where appropriate.”

The company opened four new Borders superstores in the United States during the period -- all of them new concept stores -- and ended the second quarter with a total of 518 domestic superstore locations. The number of Waldenbooks stores was reduced from 532 at the close of the second quarter 2007 to 468 at the end of the quarter. In coming months, the company’s new e-commerce site will be introduced via kiosks to the superstores to become a true “cross-channel retailer,” according to CEO George Jones. “We made a true decision to get back into that business.”

“There continues to be a lot of opportunity in that area, and it will be a key driver for cash flow for us going forward,” Jones said. Consolidated sales from continuing operations were $749.2 million, down 6.9% from the same period last year. At Borders domestic superstores, comparable-store sales decreased by 8.9%, in significant part because of exceptional sales in the second quarter of last year, when the last Harry Potter book was released. Excluding the Potter factor, comp-store sales would have declined 5.1%. Waldenbooks’ comps declined 7.0% factoring in Potter, 1.4% without. But profitability has improved: the company lost $11.3 million, down from a loss of $18.1 million in the same period last year.

The international segment continues to downsize: During the quarter, Borders completed the sale of its Australia/New Zealand/Singapore businesses. It continues to examine strategic alternatives for its London-based Paperchase business, Jones said. Three Borders superstores in Puerto Rico and the company’s franchise operations in the United Arab Emirates and Malaysia remain.

Borders Group operates more than 1,100 stores worldwide primarily under the Borders and Waldenbooks brand names.


Wednesday, August 27, 2008

Centro Takes Another Hit

A month after selling a 5.1-million-square-foot chunk from its U.S. portfolio, Centro Properties Group reported that one of its domestic units, Centro NP, experienced a second quarter loss of almost $300 million, rekindling questions about its viability as a going concern.

The Australian listed property trust has been trying to unload the bulk of the assets in its U.S. portfolio amid a sluggish market in order to repay $1.1 billion to its U.S. lenders by Sept. 30 and A$2.3 billion to its Australian lenders by Dec. 15. It also needs to repay $450 million to its U.S. private placement note holders by Dec. 15. The company took on billions of dollars in debt with its 2007 acquisition of New York-based shopping center REIT New Plan.

Centro had planned to raise cash through massive asset sales in both the United States and Australia. After agreeing to sell 29 of its choice properties from its 106.5-million-square-foot U.S. portfolio to a private real estate advisor for $714 million in July, it now has to dispose of its weaker assets in an environment that does not favor sellers. The properties sold in July, which came from the Centro America Fund, were purchased at a 10 percent discount to the assets’ previous book value.

“It’s already tough to sell assets in this environment, and having a weak portfolio is difficult,” says Rich Moore, an analyst with RBC Capital Markets. “I think it will affect their ability to sell.”

Last week, in a U.S. Securities and Exchange Commission filing, Centro NP, one of Centro Properties Group’s U.S. divisions, said it lost $299 million in the quarter ended June 30. The loss resulted in a $95 million impairment charge to its properties. With its asset value off almost 9 percent in the first half of the year, the report noted there is “substantial doubt about the company’s ability to continue as a going concern, given that the company’s liquidity is subject to, among other things, its ability to negotiate extensions of credit facilities.”

The news does not mean Centro NP faces imminent demise, notes Merrie Frankel, vice president and senior credit officer with Moody’s Investors Service, a New York City-based credit rating agency. Given that Centro is under constant scrutiny because of its credit problems, the firm had to include that statement in the report for accounting purposes, she says.

Centro MCS Manager Ltd., the entity responsible for Centro Retail Trust and Centro Retail Ltd., will report its 2008 results to the Australian Securities Exchange on Friday.

The development with Centro NP raises serious concerns about whether the firm will be able to sell the remainder of its U.S. assets for a sufficient amount of money to meet its loan obligations.

Centro, on its Web site, stated Monday it will not be able to meet those deadlines and has started talks with its bankers about a new extension. A statement from Centro company secretary Elizabeth Hourigan, reads: “Discussions with the lenders are at a preliminary stage and no assurance can be given that further debt extensions will be achieved beyond the expiry of the current debt extensions on September 30.”

Centro officials could not be reached for comment.

Even before the latest write-down, Centro was aware it would face some challenges in selling the rest of its U.S. properties. The firm chose and marketed the properties from its Centro America Fund as a portfolio because most of them continued to bring in solid results and were located in the Northeast, says Bernie Haddigan, national director of the retail group with the Encino, Calif.-based brokerage firm Marcus & Millichap Real Estate Investment Services.

Now, however, the firm is marketing most of the remaining assets on an individual basis, Haddigan notes.

“Centro America Fund properties were of higher quality than Centro’s [other] U.S. property [portfolio], which was valued in December 2007 on a 6.95 percent cap rate,” wrote Callum Bramah, analyst for Macquarie Research Equities, last month. “This leads to our belief that on any further U.S. asset sales, cap rate expansion of more than 70 basis points is likely.”

On Monday, Centro shares fell 9 percent to A$0.20.

Source: Retail Traffic

Urban Outfitters Fashions Growth Plan

Amid the worst consumer-spending slump in years, Urban Outfitters Inc. has been racking up big sales and earnings gains without putting much on sale.

The Philadelphia-based parent of Urban Outfitters, Anthropologie and Free People stores, which recently reported a 79% jump in fiscal second-quarter net income, has been attracting shoppers with an eclectic mix of full-price clothing and home goods in stores where employees create their own displays.

Now, Chief Executive Glen Senk faces the challenge of meeting the company's goal of at least 20% annual sales growth, at a time when the economy is battering many other retailers. The company plans to open 45 stores this fiscal year, ending Jan. 31, 2009, bringing its total to nearly 300 across its divisions. Mr. Senk plans to open the first Anthropologie stores in Europe as early as next year, will continue with an international expansion of the Urban Outfitters chain, and is rolling out new store and merchandise concepts domestically.

In its fiscal year ended Jan. 31, 2008, Urban Outfitters rang up sales of $1.5 billion, with healthy growth from both new and existing operations. Net sales in the fiscal second quarter ended July 31 rose 30%, including a 13% rise in same-store sales and a 42% increase in direct sales. Efficiency improvements also helped boost profit.

Rather than saturate the market with cookie-cutter stores, Mr. Senk plans to cap growth for each division at approximately 250 stores. The strategy is in keeping with a notion laid out by Chairman Richard Hayne, the company's founder, that "big is the enemy of cool."

Instead, he aims to expand through new retail concepts. In April, Urban Outfitters opened its first Terrain store, a gardening and antique center aimed at baby boomers. The company also launched a high-end women's apparel line this year called Leifsdottir that is now sold through stores like Bergdorf Goodman. Mr. Senk believes Leifsdottir may eventually have retail stores like the company's older wholesale brand, Free People.

Mr. Senk's expansion comes amid a broader industry move toward a faster rollout of new store concepts. Just a few years ago, retailers generally believed they could open between 800 and 1,000 stores without cutting into same-store sales growth, according to retail consulting firm TNS Retail Forward. Increased competition and slowing consumer spending, however, are causing retailers to revise planned store counts downward by the hundreds, TNS says.

A 14-year company veteran, Mr. Senk says Urban Outfitters needs to launch two to three stand-alone concepts in the next several years to continue its growth. "It would be easy to just keep opening up Anthropologie and Urban Outfitters, but we are not going to open up more than we believe is right for the we have to have new brands for the parent company to grow," he said in a recent interview at the company's headquarters, which are dotted with raw wood benches, sinks that serve as planters, and other touches similar to its stores.

Some investors worry that Terrain is "outside the realm of what they traditionally have done" because it involves selling perishable plants, notes Christine Chen, an analyst with Needham & Co.

Mr. Senk says Terrain is a concept that Mr. Hayne was behind and it diversifies and protects Urban Outfitters against what he calls a possible "fashion against fashion." The company plans to open two stores next year at the most.

Mr. Senk, a casual high-end dresser and competing equestrian whose homes have been featured in design magazines, must also stay ahead of competitors like J. Crew Group Inc. and Metropark USA Inc. that analysts say are adding merchandise flourishes and window displays, or carry merchandise that seems inspired by Urban Outfitters or Anthropologie. A Metropark spokeswoman had no comment and officials from J. Crew couldn't be reached to comment.

The 52-year-old Mr. Senk assumed the helm of Urban Outfitters a little over a year ago, after leading the expansion of Anthropologie from a single-store prototype to a 115-store division with a catalog and Web site, and helping transform Free People from a brand into a retail chain.

In previous years, Urban Outfitters had loaded up its stores with 1980s-style clothing like leggings too far ahead of the time the trend finally took off. Years of rapid expansion and a headquarters move also produced growing pains.

Mr. Senk put systems in place that allow buyers to track sales by color, sleeve type and other attributes so they can order new stocks more accurately. He made supply chains more efficient, created new jobs and hired new talent. Kimberly Greenberger, a Citigroup Inc. analyst, estimates that about 80% of the company's second-quarter profit growth was driven by improved profitability of existing stores and of direct and wholesale divisions.

Urban Outfitters could stumble if economic woes deepen sharply, particularly if a spike in unemployment occurs, making job hunting difficult for new college graduates who make up a significant portion of Urban's customer base, says Ms. Greenberger.

Mr. Senk says his best defense is to focus on improving the stores' shopping experience and products. While executives can't control the economy or oil prices, they can dictate what they sell, along with the shopping experience.

Still, he says, "I really do live in a constant state of terror that the shoe is going to drop."

Mervyns Receives Final Approval of Its Debtor-in-Possession Financing

HAYWARD, Calif., Aug 26, 2008 (BUSINESS WIRE) -- Mervyns, the leading mid-tier department store chain in California and the Southwest, today announced that the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") granted final approval of the Company's $465 million debtor-in-possession (DIP) financing facility. The DIP financing was approved by the Bankruptcy Court with the support of the Creditors' Committee and all objections were resolved or withdrawn. The facility is being provided by a group of lenders led by Wachovia Capital Finance Corporation (Western) as agent. The Company previously received interim approval of the DIP financing facility from the Bankruptcy Court on July 31, 2008.

The DIP financing and cash generated from operations will be used to continue to pay vendors and employees, as well as to provide operational and financial stability as Mervyns proceeds with its restructuring. The Company is currently in compliance with all of the terms and conditions of the DIP financing agreement.

"The Court's approval of our DIP financing is a significant step in our reorganization process and one we are pleased to have accomplished," said John Goodman, Chief Executive Officer of Mervyns. "Our DIP financing provides Mervyns with the liquidity and stability it needs to continue serving our customers and meeting our obligations to vendors. With this final DIP financing in place and our financial position now strengthened, we are able to maintain our operations while continuing our discussions with creditors as we focus on emerging from bankruptcy."

Mr. Goodman concluded, "We appreciate the ongoing support of our loyal customers, trusted vendors, and hard working employees as we progress through our restructuring."

As previously announced, Mervyns will close 26 stores by late October or early November this year, with closing sales scheduled to begin on August 28, 2008. Mervyn's LLC (which operates the Mervyns business), together with Mervyn's Holdings, LLC (parent of Mervyn's LLC) and Mervyn's Brands, LLC (subsidiary of Mervyn's LLC), filed voluntary Chapter 11 petitions in the United States Bankruptcy Court for the District of Delaware on July 29, 2008. The lead case has been assigned case number 08-11586.

Source: Plain Vanilla Shell

Logan's high-flying food courts

Upgrades help airport improve the bottom line as airline travel wanes

Think fancy food court is an oxymoron? Not at Logan International Airport.

After a $5.5 million upgrade of Terminal C's food court, its Dunkin' Donuts now is the largest one at airports nationwide - and the only one with a trendy lounge. Burger King displays its menu on wide-screen LCD monitors. And Au Bon Pain has arches that create sunflower-petal shadows on the terrazzo floor.

Designers persuaded seven restaurants - also including Currito Burritos Without Borders, Ryo Asian Fusion, Famous Famiglia, and Jerry Remy's Sports Bar & Grill - to splurge on expensive countertops and eye-catching architecture. The intent, the designers say, is to pique passengers' curiosity so they'll check out the concessions - and then stand in the checkout lines.

"Everyone's rushing through an airport. You want to grab their eye," said Steve Dumas, senior vice president of retail design for Westfield Corp., whose subsidiary manages Terminal C's concession program. The food court, with its airy architecture and open kitchens, has gradually unveiled its eateries since the spring and will be complete next week with the opening of Remy's, co-owned by the namesake sportscaster.

The additions helped Terminal C's concession sales rise 12 percent in June, to $3.9 million, from $3.5 million in June 2007. Airportwide, concession sales for the fiscal year ended June 30 increased 7.5 percent to $145 million, up from $135 million the year before. That's good news for the Massachusetts Port Authority, which runs the airport and pockets about 11 percent of concession revenues, or $15.9 million in the last fiscal year. Jack Hemphill, Massport's aviation business general manager, bets total concession sales will keep improving as food court renovations continue. Terminal B's upgrade was finished earlier this year, and a yearlong modernization of Terminal E's dining area will begin in October. Logan was the North American airport with the fourth-highest food and beverage sales per arriving or departing passenger in calendar 2007, according to the annual list that Airport Revenue News plans to release next week. Last year, each Boston flier spent $5.77 on food and beverages, on average, up from $5.50 in 2006.

Increasing per-passenger concession revenue is important for Massport as fewer flights and travelers use the airport due to high jet fuel costs and concerns about the economy. Logan's yearlong dip in passenger traffic continued in July, with 152,277 fewer fliers, a 5.7 percent drop from the previous July, said Massport spokesman Richard Walsh. And airlines have scheduled 7.9 percent fewer seats for Logan flights in both October and November, compared to the same months last year. Seat capacity will rebound a bit in December, but still be down 1.2 percent compared to a year earlier, Walsh said.

Massport started envisioning Terminal C's eating options more than two years ago. Hemphill's mouth watered at the idea of establishing venues for cable TV celebrity chefs, including Masaharu Morimoto, Bobby Flay, and Emeril Lagasse. "My dream would be to have a Food Network food court," Hemphill said. One of Logan's concession management companies proposed the idea to Food Network, but it didn't pan out, Hemphill said.

Still, the Terminal C food court attracted impressive-looking tenants. Au Bon Pain built its only open-air eatery and topped it with a sunflower trellis. It was costly to construct, so the wavy arches soar above only part of the eatery, said Ed Frechette, senior vice president of marketing.
Dunkin's cafe features a warm cocoa-colored wall and softly glowing sandy-orange drop-pendant light fixtures that create a calming lounge for weary travelers, said Jimmy FitzGerald, the Canton-based chain's vice president of concept innovation. Its sign has brushed stainless-steel letters instead of plastic ones. The Dunkin' Donuts beckoned 18-year-old Jeremy Eichenlaub and his parents to unwind at a table on Monday, sipping coffee and nibbling English muffin sandwiches. It was a comforting place for the Needham family to recover - and even shed a few tears - after bidding Eichenlaub's India-bound twin brother adieu.

Eichenlaub, a Dunkin' loyalist who every week has eaten at the chain's store across from his high school, likes this venue's revamped look better. "It's warmer, more relaxing."

But Kenneth Zou, a Boston financial analyst, said the lack of a ceiling and four walls creates awful acoustics. "This is a little loud," said Zou, 44. He also wanted the planters bordering the seating area to rise to eye level to increase privacy and screen off the commotion at the airline counters.
Suddenly, his cellphone rang. His business partner was looking for him. Zou waved, making eye contact without getting up. "Maybe it's good it's open," he said.


Big Lots Reports Increased Sales and Improved Operations

The worst of economic times can yield the best of times for value-priced retailers, especially when the retailer has also improved operational efficiencies.

On Tuesday, Big Lots reported increases in net sales, same-store sales and income. In the second quarter, the close-out retailer’s net sales were up 1.9% to $1.105 billion compared to $1.084 billion for the year-ago period. Same-store sales increased 2.8%, which was on top of an impressive 5.2% increase in same-store sales for the same quarter in fiscal 2007. Net income for the most recent quarter was $26 million vs. $23.4 million last year, and year-to-date net income topped $60 million vs. $52 million in the previous year.

Additionally, Big Lots realized a 30% improvement in operating profit for the second quarter: $43.5 million, or 3.9% of sales, vs. $33.4 million, or 3.1% of sales for the year-ago period.
Big Lots attributed the gains to the 2.8% increase in same-store sales, improved margins and expense control resulting primarily from efficiencies in operations at its stores and distribution center.

The company reported significant improvements in inventory management as well, ending the second quarter with a 2% reduction in inventory, $698 million vs. $714 million last year, which resulted largely from a 1% reduction in average store inventory and a 1% reduction in store count.

At the end of the second quarter, Big Lots had 1,355 stores in 47 states, down from 1,375 stores at the close of fiscal 2006. The company’s total revenues in fiscal 2007 were $4.656 billion.

Chico’s Cautious on Growth

While expecting sales improvement in the second half, Chico’s FAS remains cautious about expansion, executives said at the company’s second quarter conference call. The company expects to open between seven and nine net additional stores in the third quarter, but it anticipates no net new store openings (only net closures of approximately seven to nine stores) in the fourth quarter, and to relocate/expand between eight and 10 stores over the balance of the year.

Chico’s will open eight stores, White House/Black Market (WHBM) will open 11 units and Soma will open one store. “I’m not hearing good news from many people, and it makes sense to be cautious,” said Kent Kleeberger, EVP, CFO and treasurer.

Net sales for the quarter decreased 7.1% from the previous year to $405.2 million. Net income was $6.7 million, compared to net income of $38.7 million in the same period last year. Same store sales decreased approximately 19% for the Chico's brand and approximately 12% for WHBM.

However, the company is optimistic, stressing the successful reintroduction of its signature Travelers brand in Chico’s stores, and other “notable improvements” in previously troublesome product areas. “We expect to see an improvement in trends and to be profitable in the second half,” said Scott A. Edmonds, chairman, president, and CEO. Chico’s operates 1,079 stores in 49 states, Washington, DC, the US Virgin Islands and Puerto Rico operating under the Chico's, White House Black Market, and Soma Intimates names.


More Stores to Close, But Vacancy Declines

Store closings are on the rise, according to a recently released survey from the International Council of Shopping Centers, but densely populated urban areas will continue to thrive, says real estate investment services firm Marcus & Millichap. The first half of 2008 saw announced closings of 2,831, compared with 1,522 announced closings in the first half of 2007. However, those numbers pale in comparison to 2001, when 7,041 store closings were announced. Not surprisingly, apparel stores represented 34.7% of the announced closings, followed by home entertainment stores at 28.8% of the total. ICSC projects that 144,000 establishments will be closed in 2008, a 7% increase from 2007. A recent spate of retail bankruptcies (including Boscov’s) should not be a major cause for alarm.

“Store bankruptcies are going to increase, but that doesn’t necessarily lead to store closings,” said Bernard J. Haddigan, managing director of Marcus & Millichap, Atlanta. And even those units that close stores continue to pay rent until the unit is re-leased. Still, expect more closings, Haddigan warned. “The food industry is softening, and small shop space is virtually dead,” Haddigan said. “Plus the industry is still developing new product.”

That has led to an increased vacancy rate across the country, according to Marcus & Millichap Research: at midyear, vacancy in the United States was 10.7%, up from 9.7% in 2007. The firm projects that at yearend 2008, vacancy will hit 11.1% nationally. More telling is where shops are staying open: Densely populated urban areas are doing well, as people seek to cut back on the cost and inconvenience of driving. “There’s a larger trend with the District [of Columbia] and Atlanta: people are tired of the long commutes and are moving to the urban core,” Haddigan said.

At mid-year, according to Marcus & Millichap, Washington, D.C. had a vacancy rate of 4.7%, well below the U.S. average, topped only by San Diego’s 3.6% vacancy. Philadelphia posted a 6.9% rate at midyear. Meanwhile, Sunbelt cities such as Orlando (9.5%) and Dallas/Ft. Worth (15.1%), and Chicago (9.5%) fared less well. Yet rents for the most part remained steady, increasing of the shuttered stores continue to pay rent, with major metro areas mostly reporting minor rent increases, the survey said. A comeback likely won’t occur until 2010 or 2011, Haddigan said. Until then, secondary markets and locations will struggle. “There’s been significant development,” Haddigan said. “If space is not pre-leased there will be issues.”


Tuesday, August 26, 2008

Consumer confidence bounces

NEW YORK (Reuters) - U.S. consumer confidence recovered more than expected in August as fears over inflation eased, while financial markets combed through housing data for reasons to hope the worst is over for the moribund sector.

Sales of newly built U.S. single-family homes in July were lower than economists expected but rose from a June pace that was the slowest in nearly 17 years, while the glut of homes on the market also eased, a government report showed on Tuesday.

Another report said U.S. home prices in metropolitan areas were down 15.9 percent from a year earlier, a record drop. Still, the monthly rate of decline slowed from May, which suggested the decimated housing sector may be stabilizing, according to the S&P/Case Shiller report.

The Conference Board said its index measuring consumers' mood jumped to 56.9 this month from July's 51.9 for the highest reading since May, while a decline in inflation expectations should please Federal Reserve officials worried about an unwelcome rise in price pressures this year.

The data by no means suggested the stagnant U.S. economy was vaulting to recovery, though some analysts said it showed embryonic signs of stabilization that could herald a slow turn for the better if maintained.

"Confidence is still quite depressed, but it's a glimmer of hope from the lows we saw in June," said Dana Saporta, economist at Dresdner Kleinwort Securities LLC in New York.

"I attribute the increase to the drop in gasoline prices, which offset a deteriorating labor market."

Stocks initially rose after the release of the consumer confidence data but lost momentum and were little changed from opening levels in late afternoon trading.

The dollar gained against other currencies while U.S. government bonds, which benefit from weak economic conditions, added to earlier losses.

The improvement in consumer sentiment came during a month when oil prices retreated further from July's record highs but consumers' evaluation of their present situation still fell to its lowest in five years in the survey.

Much of this may reflect job-market insecurity. The index of "jobs hard to get" rose to 32.0 from a revised 30.2 in July, pushing the gauge to its highest since October 2003.

"Consumer confidence readings suggest the economy remains stuck in neutral, but may be showing signs of improvement by early next year," Lynn Franco, director of the Conference Board Consumer Research Center, said in the report.

The Conference Board, an industry group, said its gauge of inflation expectations fell to 6.7 percent, its lowest since 6.1 percent in March, from July's revised 7.5 percent.

It hit a record high of 7.7 percent in May and June and was originally reported at 7.6 percent for July.

Source: Reuters

Starbucks whips up a better-for-you breakfast comeback

SEATTLE — Starbucks (SBUX) is on the brink of rolling out a serious reinvention of its breakfast food.

Details of the chain's long-anticipated move into better-for-you food — so hush-hush that it had its own code name, Morning Source — will be unveiled Tuesday. It comes as Starbucks' U.S. stores are struggling with drops in traffic and comparable sales growth as many cash-strapped consumers hesitate to shell out $4 for their java fix.

The more nutrition-friendly food — fewer calories, more protein, fiber and fruit — will show up Sept. 3 on the breakfast menu at most of the 11,570 locations in the U.S. and Canada. Six new items include hot oatmeal, an energy bar and a whole-grain apple bran muffin with fruit pieces.

Starbucks plans to revamp its lunch and dinner menus, too, in 2009. The goal is to lure back core customers who are visiting its stores less often and spending less when they do.

"Food has been our Achilles' heel," says corporate founder and CEO Howard Schultz in an interview in his office. He calls better-for-you food, part of Starbucks' evolving health and wellness program, a "billion-dollar" idea. Says Schultz, "This is as big an initiative as anything we can do."

Even so, Starbucks is late to the better-for-you food trend. It's made modest efforts in recent years to bolster the nutritional value of its beverages and foods, such as removing trans fats from its foods and switching to 2% milk. But for the most part, the company has been content to sit back and rake in profits.

The effects of an ailing economy on its sales have left Starbucks little choice but to up the ante on food quality. The move also comes as more cities require fast-food chains to post nutrition information on menu boards.

This year has been a nightmare for Starbucks — and for Schultz, who forcefully took back the CEO job in January. Since then, he's overseen closing 600 U.S. stores, laying off thousands of store and corporate staff, shuffling top management and scaling back domestic growth plans.

Still, Starbucks' stock is down nearly 25% this year. Schultz hopes better-for-you breakfast food targeted at its core customers breaks the bad-news cycle.

But Schultz, 55, concedes to a second driver for the menu upgrade: his own health.
During a physical exam last year, Shultz was strongly advised to lose weight and lower his cholesterol. He immediately replaced his usual breakfast at home of a bagel with butter and black coffee with a homemade protein shake. (He still drinks several Starbucks coffees daily, he says.)

Also, because of achy knees, Schultz recently gave up the pounding of rough-and-tumble basketball for lengthy bike rides.

He's lost 12 pounds since February and looks svelte. His cholesterol is down. He says he feels great. He's also had private consultation with Dr. Mehmet Oz, known for his Oprah appearances. Schultz says that Oz has helped him to view pursuing health and wellness as less a chore than a positive way of life.

He says the menu overhaul will give folks a chance to make "healthier" decisions inside — not outside — Starbucks.

Wooing the regulars

Industry consultant Malcolm Knapp says, "Starbucks is following a fundamental trend: People want to eat better-for-you food that tastes good."

He says Starbucks' real motive is less about selling more food than it is about luring back core customers to sell more highly profitable coffee.

He says it also will help Starbucks better distinguish itself from McDonald's, which now sells premium coffee and plans to install McCafé coffee bars in many of its 14,000 U.S. locations in the next year.

Frequent Starbucks critic and New York University nutritionist Marion Nestle embraces the new menu: "This sounds groundbreaking. If it works, it will influence the whole industry."

For customers such as Lynn Schilaty, mayor pro tem of Snohomish, Wash., it comes not a moment too soon. On a recent afternoon, she took a homemade energy bar to Starbucks, where she sat with a friend drinking iced tea. She says she wouldn't mind paying for baked goods at Starbucks but doesn't find much that appeals to her.

"I come here because I love the coffee," she says. But she says she'd probably go more often if she also loved the food.

Jeff Pettit, a project manager for Boeing in the Seattle area, says he likes Starbucks' food — but not the high calorie count of some items. "I won't touch the doughnuts or scones," he says, noting he checked online and found one scone was close to 500 calories.

Starbucks has heard from lots of customers like these. On its website, better-for-you food is a top request, says Sarah Osmer, director of health and wellness.

Making the cut

Even before that website went live five months ago, Starbucks regularly heard the request from both customers and employees, says Schultz. The problem: Starbucks' options were limited because Starbucks relies on outside suppliers to make its food.

With more than 70 suppliers nationwide, inconsistent quality also was an issue, Schultz says. To get consistency in the new food, the supplier list has been whittled to fewer than 12, he says.

Before the cut-down, Starbucks challenged all suppliers to help create the new menu. Of 200 food items considered over two years, says Lesley Zavar, director of the food category, these six were selected:

•Oatmeal. The whole-grain Perfect Oatmeal is served hot in a cardboard to-go bowl. For $2.45, buyers also get to pick two of three mixes for the oatmeal (served in separate packs): dried fruit, nuts or brown sugar.

Executives expect the instant oatmeal to be the most popular new item. It will roll out with the promotional tag line: Make Morning Good Again.

Schultz says they "cracked the code" on oatmeal, and its aroma does not detract from the coffee aroma in stores.

Nestle, the nutritionist who's not a fan of Starbucks coffee, says she'll try the oatmeal. But she wishes it was served with fresh, not dried, fruit. "I don't see why they couldn't do that."

•Apple Bran Muffin. The $1.75 muffin with 330 calories is made with whole-wheat flour, oats, wheat bran, apples, cherries and honey. It replaces the current bran muffin.

•Multigrain roll. The $1.60 roll has 280 calories and seven seeds and grains. It's served with almond butter or strawberry preserves.

•Energy bar. The $1.75 Chewy Fruit & Nut Bar is made with oats, dried fruit, nuts, seeds and honey. It has 250 calories.

•Power Protein Plate. The $4.95 Power Protein Plate has a hard-boiled egg (from uncaged hens), a small whole-wheat bagel, a 70-calorie pack of peanut butter, a cheddar cheese wedge, apple slices and grapes. It will be sold at stores that have cold cases.

•Fruit pastry. The $1.75 Berry Stella started rolling out last month. The whole-grain pastry is made with seasonal fruits.

These will be offered in the same place that also still sells a 24-ounce Double Chocolaty Chip Frappuccino (with whipped cream) loaded with 670 calories.

Starbucks executives say it's about choices, which now will include better-for-you grub.
"One year from now, the entire food case will look different than it does today," says Michelle Gass, senior vice president over all Starbucks business categories.

It's working on new beverages, too. Out in July was Vivanno, a $4 fruit smoothie — Banana Chocolate or Orange Mango Banana. Based on early success, more flavors will come in 2009, says Schultz, who drinks two a day.

But organic food is not in the plan. Organic has not been a top request from patrons, Zavar says.

The Baby Boomer factor

The biggest market for the new food may be Baby Boomers "who want to extend their lives without sacrificing taste," Zavar says.

One such Boomer is Beth Hamlin of suburban Seattle. Though a frequent buyer of Starbucks coffee, "Breakfast at Starbucks hasn't been an option for me because of the choices."

Her husband regularly gets its breakfast sandwiches, but she won't touch them because she says they're "too fattening."

With some skepticism, she recently sampled oatmeal being tested at a Starbucks outside Seattle. She was surprised to find she liked it and says she'd buy it.

That's music to Schultz's ears. And, perhaps, future money in the till.

The way he sees it, the health and wellness program will let Starbucks act as a better-for-you food and beverage "editor" for customers. He says the company is being approached by many makers of high-quality foods that want to sell them at Starbucks.

If the new food is a hit, Schultz says, the day will come when he no longer will hear this most common of Starbucks complaints, one he visibly loathes to even say out loud: "The food's not as good as the coffee."

Source: USA Today

Towns recycle abandoned stores

Wisconsin Rapids, one of Wisconsin's old paper-mill towns, had never fought to keep Wal-Marts and other big-box retailers out. Quite the opposite. The city was so welcoming that it got a state grant to meet Wal-Mart's parking needs in the 1980s.

By the late 1990s, however, Wal-Mart outgrew the space and moved to the outskirts of town. Downtown Wisconsin Rapids was left with a 120,000-square-foot shell and a giant parking lot. A neighboring shopping center suffered.

Today, the old Wal-Mart has new life as the Centralia Center for senior citizens. "Had we not (done so) … today it would still be sitting there blighted," says Mayor Mary Jo Carson.
America's big-box experience is entering a new phase.

Some towns continue to block megastores because they object to their economic impact on local merchants and the traffic congestion they can create. But thousands of other towns across the USA that welcomed them face a growing challenge: What to do with the cavernous spaces left behind by retailers such as Home Depot, Wal-Mart and Kmart when they downsize or expand elsewhere.

Big-box stores leave huge spaces behind — many carry deed restrictions that prevent other retailers from moving in — and filling the space can be difficult. So cities have become creative and some are turning these hubs of capitalism into centers of civic life.

A Kmart in Hastings, Neb., is a Head Start Early Childhood Center. Kmarts in Buffalo and Charlotte and a Wal-Mart in Laramie, Wyo., are charter schools. After Hurricane Katrina's devastation in Louisiana, the St. Bernard Health Center opened in government trailers in the parking lot of a closed Wal-Mart.

Among the most unusual uses: An old Kmart in Austin, Minn., is the site of Hormel Foods offices and a museum dedicated to Hormel's famed meat product, Spam; the Peddlers Mall in Nicholasville, Ky., is a flea market and antiques mall where a Wal-Mart once was.

Profting from abandoned spaces

Julia Christensen spent six years documenting the trend in Big Box Reuse, a book to be published in November. She details how 10 communities turned vacant big-box stores into schools, a courthouse, church, museum and other civic organizations. "We have a bunch of empty buildings all over the country," says Christensen, an artist who teaches at Oberlin College in Ohio.

Most cities don't know what other cities are doing with abandoned big-box spaces, she says.

"I hope this project will give us a platform so that we can make informed decisions," Christensen says. An exhibit of Christensen's photos that appear in the book opens this week at the Miller Gallery at Carnegie Mellon University in Pittsburgh. "Hopefully, we can raise awareness," she says.

Wal-Mart owns more than 3,400 stores among its Supercenter versions, Sam's Clubs and others, says Jennifer Evans-Cowley, a city and regional planning professor at Ohio State University who has written about how communities can prepare for the short life span of mammoth stores.

"Every year, Wal-Mart closes stores," she says. "There are 15 major retailers. Multiply that by 2,000 stores each with a 20- to 25-year life cycle. It's not unreasonable to expect that closure would happen during that time."

Cities adopt new standards

More communities are introducing policies that require big-box retailers to help redevelop the spaces they leave behind. Some require them to tear down the stores if they're empty more than a year. Others have introduced design standards that require landscaping and more than one main entrance so that the building can accommodate multiple tenants in the future.

A retailer the size of Wal-Mart can make or break a town like Wisconsin Rapids, which has about 18,000 residents. "It changed us," Wisconsin Rapids Mayor Carson says of Wal-Mart's decision to leave downtown and build a superstore on the edge of town. The move eventually helped, she says.

"We, as a city, now have a central location for our seniors that's better than having it on the outskirts of town," Carson says.

About 20,000 square feet of the old store were knocked down to make way for a community garden and benches. Inside, seniors now enjoy a library, meeting rooms, a walking track, pool tables and state-of-the-art kitchen and computer center. The center also holds aging and disability centers for two counties.

"Local officials today have to be problem-solvers to survive," Carson says. "It might help local public officials to think as far out of the box as they can."

Source: USA Today

Curtain will close on two cinemas

National Amusements Inc. said yesterday that it will shutter two theaters in the Boston area in September because the locations are no longer financially viable. The Dedham-based movie chain plans to close the Showcase Cinemas Lawrence 1-6 on Monday and the Circle Cinemas in Brookline will close for business after the last show on Sept. 7. The private company said it would try to find positions at its other locations for the 51 employees affected by the closings.

"We watch all of our theaters closely," Wanda Whitson, the company's spokeswoman, told the Globe yesterday, "and make every effort to keep them as viable operating businesses. Once they are no longer viable, we make the decision to close them."

The closings come at a time when many Massachusetts movie theaters are hurting as a result of competition from DVDs and the rise of home movie theater systems. According to the National Association of Theatre Owners, there were 112 movie theaters in Massachusetts last year, down from 117 locations in 2005. To attract moviegoers, some theaters are adding more amenities. For its part, National Amusements is trying to turn some if its theaters into entertainment complexes where people come to do more than just watch movies. Earlier this month, National Amusements opened the Showcase Cinema de Lux at Patriot Place, a 14-screen upscale theater in Foxborough that offers a lounge with a full bar and in-seat dining. Another theater following this same concept is being built in Dedham at Legacy Place and is slated to open next year. And a 12-screen theater is being built at the vacated Macy's building at the Westgate Mall in Brockton.

National Amusements, which operates more than 1,500 theaters worldwide, including 15 locations in Massachusetts, also plans to expand overseas. Employees at the two theaters that are closing received a short, four-sentence memo Friday about the closings. In the memo passed out at Circle Cinemas, Jose M. Perez, the theater's managing director, wrote with a "heavy heart" about the closing of Circle Cinemas.

"Please note that this decision is in no way a reflection of the hard work and dedication you have all shown over the years," Perez wrote. The six-screen Showcase Cinemas Lawrence 1-6 opened in June 1965, and is located a short distance from its counterpart, Showcase Cinemas Lawrence 7-14. The larger, eight-screen theater will remain open. Circle Cinemas, which has seven screens, opened in November 1965. Circle Cinemas employs 21 workers and Showcase Cinemas Lawrence 1-6 has 30 employees. "Our employees are very important to us, and this is not a decision we make lightly," Whitson said.


Starbucks tries brew with a more premium price

Chain testing new coffee machine in Dunkin's backyard

Starbucks Corp.'s luck could change with the help of a clover, but not the four-leaf kind. Instead, the Seattle coffee giant is seeking a boost from the Clover brewing system, a sophisticated machine that turns out customized cups of coffee at a premium price. The system is being tested in Boston and Seattle, but the company is expected to say today that it is rolling out more Clovers in the two cities and will introduce them in San Francisco.

About 30 Starbucks shops in the Boston area will get the machines, compared with 10 in Seattle and an undisclosed number in San Francisco. They will debut Sept. 9 in Boston and today in Seattle. The San Francisco date has not been finalized. The Boston market is of special importance because it allows Starbucks to test Clover against its major competitor, Canton-based Dunkin' Donuts, said Darren Tristano, executive vice president at Technomic Inc., a Chicago consulting firm. Starbucks has about 200 stores in Massachusetts, while Dunkin' Donuts has about 1,100. Dunkin' Donuts declined to comment.

"Everyone else is starting to offer better quality of coffee," Tristano said. Coffee made one cup at a time, he said, can help Starbucks stores distinguish themselves "through their experience and the barista and their knowledge and their ability to interact with the customer." Still, the move to promote a more expensive beverage comes as some consumers are cutting back on spending because of the shaky economy, and less than two months after Starbucks said it would close 600 underperforming stores, including seven in Massachusetts. If the company has any doubts about Clover's timing, however, it isn't making them known.

"We are making bold moves toward transforming our business for the long term and at the same time making the tough decisions to ride out this extremely challenging economic environment," said Joe Dallacqua, Starbucks' vice president of regional operations. "The Clover delivers a one-of-a-kind brewed coffee experience that fits with Starbucks' long history of coffee expertise."
Clover customers will be able to choose from a new collection of small-batch coffees, some of which may be rare and available for a limited time. It takes about a minute to brew a cup, depending on the type of coffee and customer preferences.

The price can vary from store to store, but the Starbucks at 1 Charles St. - one of the Boston pilot stores - charges $1.65 for a regular "tall" coffee and $2.25 for a Clover brew of the same size. In general, Clover coffee ranges in price from $2 to $4, the company said. Many independent coffee shops were using the system before April, when Starbucks acquired the Clover system's maker, Coffee Equipment Co. One of them, Velouria Espresso in Jamaica Plain, said the machines may actually boost his business. "I have an opportunity to compare my product, the coffee itself, to the Starbucks product," said owner Justin McCarthy. "I'm waiting for the opportunity for people to compare them and decide for themselves."

With a Clover machine, brewers can set the time and temperature of the selected coffee to accommodate the characteristics of the bean selected. Vacuum-press technology pulls the coffee through a 70-micron filter in which "every hole is like a hair's breadth," said David Latourell, formerly of Coffee Equipment Co. and now a Starbucks employee. The Clover "really brings coffee back into focus" for Starbucks, Latourell said. The Clover's "unique sort of extraction" allows flavors to come out of the coffee, said Anthony Carroll, who selects coffees for Starbucks.
"The flavor is already there. Clover really helps just accentuate them," Carroll said. "You're going to discover a whole bunch of different flavors in their coffees that you didn't know would or should be there."

Jess Torres, 26, a Starbucks customer who has tasted several Clover brews, said he doesn't mind paying a little more for "much better coffee. It's better than the way they usually brew their coffee," Torres said, "but if they had better and some lighter roasted beans it would be even better."


Ann Taylor Execs Banking on Loft Outlets

AnnTaylor Stores Corp.’s new Ann Taylor Loft Outlet units could be a major growth vehicle in the future, executives said at the company’s second quarter conference call. In July, the company opened 10 Loft Outlet units, with four more to open in the second half.

“While it’s still very early, initial indications are very favorable,” said President and CEO Kay Krill. "We expect this business to represent significant future growth for us."

For the year, the company expects to open 66 new stores, consisting of 25 Loft stores, 23 Factory stores, 14 Loft Outlet stores and four Ann Taylor stores. As part of its strategic restructuring program, it also expects to close 25 Ann Taylor stores and 39 LOFT stores. The company declined to comment on 2009 store openings. Overall, the company plans to close 117 stores over the next three years, including the 64 to close this year. Net sales in the second quarter of fiscal 2008 were $592.3 million, down from $614.5 million in the same period last year. Comparable-store sales for the quarter declined 10.8%, with Ann Taylor down 14.3% and LOFT down 8.6%. Net income was $31.2 million, or $0.54 per diluted share, in the second quarter of 2008, compared with net income of $32.2 million, or $0.51 per diluted share, in the second quarter of 2007.

Ann Taylor Corp. operates 959 stores in 46 states, the District of Columbia and Puerto Rico, consisting of 345 Ann Taylor stores, 519 LOFT stores, 85 Ann Taylor Factory stores and 10 LOFT Outlet stores.

Sammons' speech to Rite Aid associates very positive

BALTIMORE (Aug. 25) Rite Aid is looking up, Mary Sammons, Rite Aid chairman, president and chief executive officer, told Rite Aid associates last week at the 2008 Rite Aid Management Conference and Supplier Exhibition. “The momentum is with us to have positive comp sales in all of our stores in Q3,” she said, noting that the Brooks/Eckerd assimilation was nearly complete. All systems conversions were completed in May; each of the six distribution centers is online; and Rite Aid’s planograms have been ceded into all former Brooks/Eckerd store fronts.

And to help fuel that momentum going forward, Rite Aid has generated hundreds of thousands of new prescriptions out of its “Fill Up and Fuel Up” program—in shich customers transferring prescriptions receive a $30 Rite Aid gift card and a chance to win a year’s worth of gas.

And to entice even more seniors to shop Rite Aid, the chain is continuing to promote its Living More senior loyalty card program and will introduce a new health and wellness program in September.

Source: Drug Store News

Pharmacy drives higher percentage of grocery store numbers

FORT WAYNE, Ind. (Aug. 25) Drug stores are the traditional sources for all things pharmaceutical, but grocery stores are moving in to challenge their dominance, according to The Journal Gazette of Fort Wayne, Ind.

As prescription sales grow in proportion to overall sales, supermarkets have begun positioning themselves as health shops, as well. Cincinnati-based Kroger, for example, hopes to edge itself into the market with a cholesterol-reducing milk sold under its Active Lifestyle private label while also selling anti-cholesterol medication.

According to the Food Marketing Institute, drug sales at supermarkets increased by 3.4 percent, to 9.4 percent, between 1997 and 2007. Also, between 1996 and 2006, the number of supermarket pharmacies increased from 6,155 to 10,163, according to the National Association of Chain Drug Stores.

Source: Drug Store News

Monday, August 25, 2008

Online sales continue to set the growth pace in the first half

How much faster are online sales growing than offline sales? Recent numbers reported by the Census Bureau of the U.S. Department of Commerce don’t tell the entire story.

The Census Bureau reports that online sales reached $34.6 billion, on a seasonally adjusted basis, in the second quarter, up 9.5% from $31.6 billion in Q2 a year ago. Total retail sales were $1.034 trillion, up 2.5% from $1.009 trillion a year earlier. By that measure, online sales grew at about four times the rate of offline sales.

But the disparity in growth between online and offline is greater when gasoline and food sales are subtracted from the Commerce Department numbers, analysts note. Prices have been going up rapidly for gasoline and food, and gas is never bought online and food only rarely, so those price increases result in higher offline sales.

An analysis of retail spending minus food and gasoline shows first half growth in total retail sales of 0.35%. If fuel sales, which represent home heating purchases and also are unlikely to occur online, are further subtracted from the Commerce Department numbers, retail growth was an almost non-existent 0.06%.

Meanwhile, e-commerce sales were up 11.2% in the first half of the year, to $68.25 billion from $61.35 billion a year earlier. By that measure, online sales are growing far more rapidly than offline. In fact, growth in total retail sales minus food and gasoline was $6.25 billion in the first half, while growth in online sales was $6.90 billion.

“Inflation is occurring in categories not bought online, namely food and gas,” says Gian Fulgoni, chairman of web measurement firm comScore Inc. “You’ve got to eat and drive, and you’re going to make those purchases offline. So inflation is holding up that offline retail number.”

Consumer spending on gasoline was up 20% in the first half from a year ago; on fuel sales, 23%; and on groceries, 5.7%.

Source: Internet Retailer

S&B Holdings to acquire Steve & Barry's

PORT WASHINGTON (Aug. 25) Steve & Barry's LLC announced that BHY S&B Holdings LLC, a newly formed affiliate of investment firms Bay Harbour Management and York Capital Management, has received Court approval to acquire to acquire substantially all assets of Steve & Barry’s. The acquisition is scheduled to be completed on Aug. 25.

Under the terms of the $163 million purchase agreement, the majority of Steve & Barry's 276 stores will continue to serve customers nationwide. BHY S&B Holdings has made no decisions concerning which Steve & Barry's stores will close or when, although an announcement is anticipated in the next week, the company reported.

In addition to acquiring merchandise inventories and transfer rights to Steve & Barry's store leases, BHY S&B Holdings will acquire all Steve & Barry's intellectual property rights, including its celebrity and brand licenses, and the company's key facilities, including its Port Washington, New York headquarters, Columbus, Ohio distribution center, and certain overseas offices.

Source: Retailing Today

The war on drugs

Pharmacies on front lines as supermarkets fight to draw customers

You’re already at Kroger to pick up a prescription to lower your cholesterol, so you pick up some cholesterol-reducing milk.

At least that’s how the supermarket giant hopes it goes. The milk, released last year, is sold under an expanding in-house brand, Active Lifestyle, and is part of a growing industry effort to reach health-conscious consumers.

As prescription sales grow in proportion to overall sales, supermarkets and superstores are increasingly positioning themselves as one-stop health shops.

Almost half of food retailers provide health seminars, disease management programs, health-focused store shelf tags and tours featuring healthy products in at least some stores, according to an industry survey released last month.

The portion of supermarket business that comes from drug sales increased from 6 percent in 1997 to 9.4 percent last year, according to annual surveys by Food Marketing Institute. The trade association surveyed 55 food retailers operating 4,978 pharmacies for its most recent report. Its surveys found sales per pharmacy have increased, boosting overall store sales.

But not everyone is getting medication at the same place they’re buying groceries. Standalone pharmacies, which outnumber supermarket pharmacies by a 4-1 ratio, tout their focus on medications as an asset to customers. Independent pharmacies, in particular, market their superior customer service.

As a group, stand-alone drugstores – chains and independents – have seen drug sales rise at a faster rate than supermarket pharmacies.

But supermarkets are working hard to sell themselves as an advocate for the health-conscious consumer, and their in-store pharmacies are central to that strategy.

“Pharmacies are strategically essential to food retailers,” Catherine Polley, the institute’s vice president of pharmacy services, said in a statement. “The health and fitness initiatives that many supermarkets emphasized are anchored in the pharmacy. Pharmacists bring expertise and credibility that help these initiatives succeed.”

The traffic pharmacies attract spills over into other departments.

Scott Lahren, pharmacy district manager at Wal-Mart, said he’s seen total prescriptions and store traffic increase since the superstore launched its $4 generic drug program, which expanded into Indiana in 2006. Lahren declined to provide specific figures on prescriptions filled or total pharmacy customers.

In May, the discount generics program expanded to offer 90-day supplies of prescriptions for $10 and several women’s health medications, including drugs to treat breast cancer and hormone deficiency. The store also lowered the price of more than 1,000 over-the-counter drugs.

The Bentonville, Ark.-based retail giant reported record earnings last quarter, a net income of $3.45 billion for the period ended July 31. That was up 17 percent from $2.95 billion a year ago.

Superstore and supermarket officials say being a one-stop destination for everything from medications to banking (offered through in-store tenants) is appealing to consumers who want to spend less on gas. By the way, gas is also sold by many of these stores.

Food, fuel, pharmacy and financial services are the four retail anchors, Kroger spokesman John Elliott said.

“Pharmacy is a critical piece of that,” he said.

Pharmacists dispense medications and advice on healthy food choices for customers, Elliott said. Customers visit grocery stores often, making it easier for them to develop relationships with staff, he said.

Elliott said the supermarket chain has a dietician on staff in Indianapolis. The dietician reports through the advertising department and contributes pieces for publication, healthy recipes and nutritional advice.

In May, Kroger announced it was expanding its generics program, following Wal-Mart’s move to do the same.

Cincinnati-based Kroger added 11 prescriptions – six medications, some offered in varying dosages – including the cholesterol-lowering drug Pravastatin. Those drugs cost $4 for a 30-day supply or $10 for a 90-day supply. It also increased the number of women’s health medications offered at a discounted price.

Just like Wal-Mart, it saw increased traffic and prescriptions as a result. Elliott declined to disclose figures but called it “a very strong trend.”

In Kroger’s most recent earnings report, David Dillon, the company’s chairman and chief executive, touted its expanded generic drug and discount gas programs.

The supermarket chain reported net earnings of $386 million for the first quarter ended May 24, up 15 percent from $336.6 million during the same period a year ago.

Overall, U.S. prescription sales by food stores were $22 billion in 2007, according to IMS Health, a health care information company based in Norwalk, Conn. That’s down slightly, about 1 percent, from $22.3 billion in 2006, but up from $21.4 billion in 2005.

The number of total supermarket pharmacies has actually dropped somewhat in recent years, according to the Food Marketing Institute’s latest report. There were 9,859 last year, down from a high of 10,867 stores in 2004, according to information IMS Health provided for the report.

But a longer view shows strong growth.

The number of supermarket pharmacies increased 65 percent in 10 years, from 6,155 in 1996 to 10,163 in 2006, according to estimates by the National Association of Chain Drug Stores.
The estimates were based on data from IMS Health and the National Council for Prescription Drug Programs.

Polley, of the Food Marketing Institute, speculates that might be why the median number of prescriptions dispensed daily by supermarket pharmacies decreased from 139 in 1997 to 126 in 2007. It takes time for new pharmacies to build their customer base, she said.

Still, many consumers choose to get their medications at standalone pharmacies or through the mail.

In 2007, chain drugstores recorded $98 billion in U.S. prescription sales, up from $79.1 billion in 2003.

Mail-order services, which are known for deeply discounted prices, saw an even larger proportionate increase in drug sales from $28.9 billion to $44.6 billion during that period. Even independents pharmacies, which have been plagued by closures in recent years, saw sales rise as a group from $31.8 billion in 2003 to $38.7 billion in 2007.

Independents face stiff competition from supermarket pharmacies and larger chains, but they compete with service, said W. Howard Bell, owner of the Pharmacy of Canterbury.

The pharmacy on St. Joe Road is the only one in Fort Wayne that delivers medicines to sick and shut-in patients, he said. Those who come to the store are assured one-on-one attention, time to bond with their pharmacist, he said.

Bell gets complex cases from doctors who trust his work.

“We do a lot of specialty medicines,” he said.

Consumer Reports drugstore surveys conducted since 1998 show consumers consistently rank independents above other types of stores. Pharmacists at those stores get high marks for being accessible, approachable and easy to talk to and knowledgeable.

Though they don’t generally rate as high as independents, supermarket pharmacists should – in theory – have time to build close relationships with patients, Consumer Reports says. That’s because “druggists in supermarkets fill fewer prescriptions per day on average than in other types of stores,” the consumer publication reported.

Whether supermarket pharmacies will get a bigger piece of the pie remains to be seen. But industry insiders say they have the capacity to bring in more business for other store departments. And having other departments can offset hits from drug reimbursement changes and other variables that affect pharmacy profits.

Supermarket pharmacies have continued to post strong results despite pressures related to increased competition, including mail-order drug sales, and Medicaid and Medicare reimbursement rates, Polley said.

Source: Fort Wayne Journal Gazette