CoStar's Retail News Roundup: Oct. 19 to 25, 2008

CoStar Reports on Retail Expansion Plans, New Developments, Acquisitions/Mergers/Sales, Closings or Bankruptcies, Personnel, Sustainability and more…

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By Sasha M Pardy

October 20, 2008

This week in the Retail Roundup, CoStar reports on expansions or new concepts at Best Buy Mobile, Pizza Inn, Flip Flop Shops; new retail developments in FL, CA, TX, and NY; acquisition, merger, loan or sale activity at Equity One and Jack-in-the-Box; closings, cutbacks or bankruptcies at Circuit City, Mervyns and Shoe Pavilion; personnel announcements at Watt Commercial Properties and Steve & Barry's, sustainability at Woolbright, Giant Eagle, WS Development, and more.

Did you miss last week's CoStar Advisor national retail story, "No Sign of a Meltdown in Third Quarter Retail Stats", which included the vacancy, rent and construction statistics from CoStar's Third Quarter 2008 National Retail Report, as well as retail space per capita statistics? If so, follow this link to read the story.

Census Bureau and NRF's Perspective on September Sales
While ICSC reported a 1% increase in same store sales at chain stores for the month of September, the U.S. Census Bureau reported a 1.2% decline in retail trade sales over August and 1.4% decline as compared to Sept. 2007. The worst performing segments include furniture, electronics, department stores, and sporting goods.

The National Retail Federation said retail trade sales, excluding restaurants, decreased .7% over August, but were up 1.4% over Sept. 2007. “With economic concerns weighing down consumers, retailers are facing incredible challenges heading into the fourth quarter,” said NRF chief economist Rosalind Wells. “Retailers are cutting operating costs by whittling back inventory levels and trimming labor costs, but it is nearly impossible for companies to fully counteract a complete pullback in consumer spending.”

There were a couple bright spots, pointed out the NRF. "As consumers continue to focus on necessities, health and personal care stores’ sales remained solid, increasing 0.4% seasonally adjusted from last month and 6.3% unadjusted year-over-year. Grocery stores also posted strong gains, increasing 3.8% unadjusted from September 2007, while decreasing 0.4% from August."

CoStar's Third Quarter 2008 National Retail Market Report, which provides comprehensive statistics for national and local retail real estate trends, is now available to subscribers under the Analytics / Market Reports headline on the CoStar Control Panel. For non-subscribers, the report can be purchased soon via CoStar's Yahoo Store by following this link.

EXPANSIONS / NEW CONCEPTS

Best Buy Announces Stand-Alone Mobile Life Concept Stores
Last week, Best Buy Co. Inc. (NYSE: BBY) announced a intentions to open stand-alone stores in malls under its partnership with Carphone Warehouse. Dubbed "Mobile Life", the stores will sell mobile phones, laptops and other handheld devices. Best Buy has designed the Mobile Life prototype to appeal directly to women, tweens, and teenagers; a customer set that isn't typically attracted to the standard Best Buy store.

The stores will include "Experience Zones," spots where customers can try out the products; as well as machines made to personalize mobile devices with etching or photos. Stores will include small "kid zones" as well, making it easier for mom to shop. In addition, Best Buy will use the stores as satellite Geek Squad locations.

At 3,000 square feet, the new Mobile Life stores are double the size of the original stand-alone Best Buy Mobile stores, yet not as large as traditional Best Buy stores, which average about 40,000 square feet. Best Buy currently operates 30 stand-alone Best Buy Mobile stores and did not address whether or not it is abandoning that concept for Mobile Life.

The first two stores opened Oct. 17 at The Mall of America in Bloomington, MN and the Fair Oaks Mall in Fairfax, VA; another will open on Oct. 31 at Woodfield Mall in Schaumburg, IL.

Flip Flip Shops States 236-Store Goal for 2013
The idea for Flip Flop Shops, an extra-casual footwear retail concept, was conceived in 2004 in Las Vegas at an exhausting Trade Show; but the first store was opened soon after in Boston, according to BrandWeek. The store did well despite the cold New England weather and in early 2008, the company was sold to a group of experienced franchise entrepreneurs.

There are now five Flip Flop shops, on track to be 15 stores-strong by the end of this year. The new owners, which have had a hand in the growth of Cold Stone Creamery and Moe's Southwest Grill, have stated a lofty goal of 236 stores in 2013.

The small 500 to 900-square-foot footprint of a Flip Flops Shop is likely one of the reasons the company has received franchise application from more than 1,700 people since January. The stores are typically located in mall or lifestyle center settings.

Pizza Inn Opening New Prototype Restaurant in Dallas Area
Pizza Inn, a 325-unit pizza restaurant chain, unveiled a new prototype design Oct. 18, at the corner of Carroll Boulevard and University Drive in Denton, TX. Intended to have a nostalgic look and feel that brings Pizza In back to its roots, including its left-by-the-wayside JoJo the Pizza Man trademark. The new design also lowers costs for franchisees by about 10%, through a reduction in square footage. According to CoStar Tenant, the average existing Pizza Inn is approximately 2,300 square feet.

(Editor's Note: To keep up on happenings and trends in retail real estate, subscribe to CoStar's Retail News Roundup, a weekly column covering retailer expansions and new concepts, store closings, bankruptcies, cutbacks, acquisition, mergers, sales. new shopping centers, personnel changes, and sustainability. Follow this link for access to back issues of the roundup. In addition to appearing every week in the national news and retail news sections of our web site, you may also receive the Retail News Roundup for free via email by requesting to be added to the distribution list by contacting senior editor, Sasha Pardy at spardy@costar.com Also, click here to subscribe to CoStar's dedicated Retail RSS Feed.

NEW SUPPLY

Midway Companies To Open CityCentre April 2009
Houston-based Midway Companies continues construction on CityCentre, a $500 million mixed-use development located at the intersection of Interstate 10 and Beltway 8 in Houston. The project will eventually be 1.8 million square feet and include 540,000 square feet of retail/restaurant/entertainment space, 425,000 square feet of Class A office space, 375 apartment units, 250 urban lofts, 40 brownstones, and a 245-room Sorella luxury hotel that will include 22 upper-floor condo units.

The newest tenant, an 11,500-square-foot Anthropoligie, will join a 140,000-square-foot Lifetime Athletic center, Bailey Banks & Biddle, Brio Tuscan Grille, Studio Movie Grill, Eddie V's, Eye Couture, Potbelly Sandwich Works, Ra Sushi, Sur La Table, Wine Loft, Yard House, and more. Midway Cos. Is handling leasing for the project in-house.

A grand opening celebration is scheduled for April 2009.

LNR Property - Hopkins JV Breaks Ground on Boulevards at South Bay
On Oct. 14, 2008, Orange County, CA-based LNR Property Corp. and Hopkins Real Estate Group celebrated the groundbreaking for The Boulevards at South Bay, an $850 million mixed-use retail/residential project on located at the site of a former landfill in Carson, CA.

The project will be constructed atop 168 acres located along the 405 freeway between Avalon and Del Amo Boulevards and will include over 1 million square feet of retail and restaurant space, complete with a 16-screen theatre, more than 1,300 residential units and up to 300 hotel rooms when it opens in late 2011.

The site, which has been vacant since the former Cal Compact landfill closed in 1965, started the first phase of design and construction of the remedial systems in April 2008 and LNR plans to commence above-ground construction in 2010.

Pyramid Reveals Plans for Redevelopment of Medley Centre Mall
Syracuse-based Pyramid Cos. announced a major redevelopment project for the Medley Centre Mall in Rochester, NY. Pyramid, which bought the mall about 18 months ago, will soon start a $250 million project involving de-malling of the enclosed 1-million-square-foot retail center, as well as adding hotel, conference, office, and residential space.

While anchors Macy's and Sears, as well as an adjacent Target, will remain open throughout the construction process, Pyramid will clear out mall small shop tenants after the holiday selling season. Reportedly, 60% of the space is already committed, including a 66,000-square-foot movie theatre. Medley has been plagued by vacancy, including a closed Bon-Ton and Steve & Barry's.

Forest City / Goodman Company Opening Shops at Wiregrass Next Week
Forest City Commercial, together with The Goodman Company is on track to celebrate the grand opening of The Shops at Wiregrass on Oct. 30, 2008. The 800,000-square-foot open-air lifestyle center is located at SR 56 and Bruce B Downs Boulevard in Wesley Chapel, FL -- a suburb of Tampa.

Tenants include American Greetings, Aveda, Brass Tap, Brown Shoe Closet, Cacique, Cantina Laredo, Christopher & Banks, Hollister, Hot Topic, Juice Zone, Learning Express, Limited Too, Pottery Barn, Put a Cork in It, Stride Rite, Williams-Sonoma and Yamato Japanese Steak House. A JC Penney’s, which opened in 2005, as well as Dillard’s and Macy’s -- both of which are scheduled to open Oct. 30, anchor the project. Other tenants include Barnes & Noble, Brighton, Chico's, Coach, J.Jill, Talbots, White House/Black Market, Victoria's Secret, and GrillSmith.

ACQUISITION/MERGER/SALE/LOAN ACTIVITY

Equity One Closes $292M in Loans, Intends to Take Advantage of Investment Opportunities
Shopping center REIT, Equity One, Inc. (NYSE:EQY), closed a $227 million unsecured revolving credit facility with Wells Fargo Bank as administrative agent and sole lead arranger. The facility has a three-year term with a one-year extension option at 140 basis points over LIBOR, as well as an option to expand the loan to $400 million. Other lenders participating in the facility include Sun Trust, PNC Bank, Bank of America, Raymond James Bank, JPMorgan Chase, BB&T, and Israel Discount Bank of New York.

Also in the release, Equity One said it closed on a $65 million, 10-year, mortgage loan at 6.25%, secured by Sheridan Plaza, a 504,495-square-foot shopping center in Hollywood, FL.

These recent financings, combined with $54.7 million in proceeds generated from a recent common stock offering, bring Equity One to have more than $400 million in available liquidity. Equity One intends to utilize this position, "This enhanced balance sheet, full availability under our line of credit and our access to joint venture and other sources of capital should enable us to take advantage of a growing number of investment opportunities.”

Jack-in-the-Box Intends to Sell-Off Quick Stuff Convenience/Gas Chain
Fast food operator, San Diego-based Jack in the Box Inc. (NYSE: JBX), recently announced a plan to sell off its Quick Stuff division, a chain of 61 convenience/gas stations located adjacent to Jack-in-the-Box stores, primarily in Texas and California. The company has yet to secure a buyer and said there is no assurance a transaction would occur.

CLOSINGS/CUTBACKS/BANKRUPTCIES

Circuit City May Close 150+ Stores, Could Vacate 5+ Million Square Feet
The country's second-largest electronics retailer, Circuit City Stores, Inc. (NYSE: CC), is considering the closure of at least 150 stores in an effort to avoid filing bankruptcy during the holiday shopping season, reported the Wall Street Journal this morning, Oct. 20, 2008.

In early October, Circuit City reportedly hired Skadden, Arps, Slate, Meagher & Flom LLP as bankruptcy counsel - the firm is the same one that advised Kmart in its Chapter 11 reorganization. In addition, Circuit City has appointed FTI Consulting to create a turnaround plan and Rothschild Inc. to handle negotiations with banks in an effort to line up debtor-in-possession financing.

In its most recent quarterly report, which included a 14.4% decline in comparable store sales at U.S. stores, Bruce H. Besanko, executive vice president and chief financial officer of Circuit City said, "We continue to face challenges in our sales performance...driven by a significant decline in traffic, which we believe reflects the worsened macroeconomic environment, competitive pressures and a weakened brand position. While we have continued to gain traction in key areas...the progress we have made to date has not been sufficient to reverse our overall business results."

In early July, Blockbuster Inc. (NYSE: BBI) pulled its offer to acquire Circuit City for at least $6.00 per share in cash. According to Yahoo Finance, Circuit City's closing stock price on Oct. 17 (prior to the WSJ's report) was only 39 cents a share, down from a 52-week high of $8.35 per share.

If Circuit City does decide to shutter 150 stores, it would immediately commence liquidation sales, in hopes of generating $350 million in sales from liquidated inventory. In addition, the retailer is expected to use its position of distress to put pressure on its landlords to renegotiate lease terms of remaining stores.

According to Circuit City's most recent quarterly SEC filing, the retailer had already accrued $115.7 million in lease termination costs through Aug. 31, 2008, which consists of 98 already-vacated locations, only 37 of which Circuit City has successfully subleased. According to the company's most recent annual SEC filing, 71 of the retailer's store leases expire by the end of 2013, 338 expire between 2014 and 2018, at least 279 expire between 2019 and 2025.

During the first half of fiscal 2008, Circuit City opened 21 incremental superstores, relocated seven stores, and closed two stores. Circuit City currently operates 712 full price and nine outlet stores in 158 U.S. markets -- it also has an international segment that consists of 800 retail and dealer stores in Canada.

While Circuit City established its go-forward "The City" 20,000-square-foot prototype store last year, the retailer's average existing store is about 34,000 square feet, according to CoStar Tenant. Thus, if the retailer announces the closure of 150 stores as expected, it could translate into more than 5 million square feet of retail space being vacated.

Mervyns Confirms Full Liquidation, 176 Closed Stores in 2008 = 13.66 Mill. Sq. Ft. Vacated
Late on Friday, Oct. 17, the Mervyns department store chain confirmed a plan to close its remaining 149 stores and "wind down" its business, under section 363 of the bankruptcy code. However, it debunked rumors of a Chapter 7 conversion, as it said it would retain an outside professional services firm to assist it in liquidating store inventory and real estate.

In the press release, Mervyns said it determined that holding going out of business sales during the holiday season is the best way to maximize value for its creditors. "We are disappointed with this outcome but the company’s declining liquidity position and the extremely challenging retail environment, together with the fact that we have exhausted all other possibilities, requires that we take this action,” said John Goodman, CEO of Mervyns.

When it filed Chapter 11 bankruptcy in July, Mervyns immediately announced the closing of 26 of its 176 stores -- it now has 149 stores left in the chain in CA (121), AZ (16), TX (7), UT (6), NV (3), NM (3). Hilco Real Estate is the firm charged with the disposition of Mervyns' first phase of closings -- those 26 store leases range in size from 52,828 square feet to 89,693 square feet.

According to CoStar Tenant, the typical Mervyn's is 65,000 to 85,000 square feet and serves as an anchor to regional malls. The company's headquarters building in Hayward, CA, is 432,000 square feet.

With an average store size of 77,600 square feet, a full liquidation of Mervyn's translates into approximately 13.66 million square feet of retail space being vacated in aggregate during 2008.

A full liquidation comes as somewhat of a surprise, as moderately priced fashion apparel retailer, Forever 21, recently said it had submitted an offer to acquire 149 of Mervyns' remaining stores for an undisclosed amount. Perhaps Forever 21 has been unsuccessful in obtaining financing required to close the deal.

Founded in 1949, Mervyns was acquired by Dayton Hudson Corp. (later known as Target) in 1978. In the late 80s, the retailer attempted to expand in the southeast (particularly in Atlanta and Florida) unsuccessfully, closing the stores by 1998. Mervyn's then turned its focus back to California and in late 2004 was sold to a private equity consortium including Sun Capital Partners, Cerberus Capital Management and real estate investment company, Lubert-Adler Management.

Another One Bites the Dust: Shoe Pavilion Fully Liquidating
Sherman Oaks, CA-based footwear retailer, Shoe Pavilion, filed for chapter 11 bankruptcy protection July 16, 2008. As of March 29, 2008, the off-price shoes and accessories retailer operated a chain of 113 stores in Washington, Oregon, California, Arizona, Nevada, Texas and New Mexico. At the time, the company listed $60 million in assets and $25 million to $27 million in liabilities.

Since filing bankruptcy, Shoe Pavilion has closed 49 underperforming stores, leaving it with 64 left in the chain. On Oct. 20, 2008, liquidation firm Great American Group, said Shoe Pavilion had commenced going-out-of-business sales at its remaining 64 stores in California, Washington, Oregon and New Mexico.

Great American is managing this last round of liquidation in cooperation with SB Capital Group, Tiger Capital Group and Hudson Capital Partners. The group plans to maximize the liquidation sales by staying open through the holiday shopping season and plans for the stores to be shuttered by Mid-January.

According to CoStar Tenant, Shoe Pavilion stores range in size from 2,000 to about 30,000 square feet, but the typical store is 15,000 square feet and serves as a junior anchor store in a power center or community center.

PERSONNEL ANNOUNCEMENTS

Watt Commercial Properties Appoints President
Santa Monica, CA-based Watt Companies, a commercial development, homebuilding, asset management and capital investment firm, recently appointed Susan Rorison as president of Watt Commercial Properties. This is a promotion for Rorison, as she has been with Watt since 2004. In this capacity, Rorison will lead the strategic development, leasing and management services for the company’s 60 retail, residential, office and industrial properties throughout the United States.

Rorison's 30 years of retail sector experience includes serving as national head of asset management for Centro Watt, where she helped direct the Trust’s shopping center portfolio to over $11 billion in assets and grew the Trust’s presence to 38 states. Rorison has also served as a director of national asset management for Burnham Pacific Properties and as a western regional vice president for Prudential Real Estate Investors, managing its regional mall portfolio.

A specific goal Rorison has pinpointed is to pursue the redevelopment of Watt's existing assets, making new investments in the company's portfolio. Watt's retail portfolio primarily consists of shopping centers located in high density, urban areas with diverse populations; most a grocery or drug store-anchored. “While these types of small retail centers are often overlooked by investors in good economic times, they provide much needed stability when overall discretionary consumer spending drops. My team and I have evaluated consumer needs at our centers, and pinpointed upgrades that will make a difference for local residents. At a time when many real estate developers are pulling back, we are moving forward with investments that can help secure the future of these urban shopping centers by providing a desirable mix of retailers and a clean, comfortable shopping experience for our customers,” said Rorison.

Steve & Barry's New CEO Says He Will Guide the Retailer to its Full Potential
Bay Harbour Management, the new owners of discount casual apparel retailer, Steve & Barry's, hired Harold "Hal" Kahn as chief executive officer, effective immediately. A 35-year industry veteran, Kahn's experience includes 10+ years as chairman and CEO of Macy's East, CEO of Macy's South and CEO of Macy's West; running his own retail consulting business; CEO of Abraham and Straus; and president of Montgomery Ward.

SUSTAINABILITY/ GREENING

Woolbright Supports ULI in Dream Green Awards
Woolbright Development, in partnership with the Urban Land Institute's Southeast Florida/Caribbean District Council, announced a new award promoting sustainable building.

The Dream Green Awards celebrates projects that make a positive contribution to the community, reduce environmental impact and improve the comfort and health of building occupants through demonstrating leadership in land use, utility consumption, materials, health and community through strategies such as reuse of existing structures, connection to transit systems, low-impact and regenerative site development, energy and water conservation, use of sustainable or renewable materials and improved indoor air quality.

The award has two categories: “Dream” for adopted master plans or projects that are in the conceptual through design development stages, and “Reality” for projects that will complete construction by December 31, 2008. Winners for the Woolbright Dream Green Awards, as well as the District Council’s Lifetime Achievement Award, Project of the Year and Young Leader of the Year Award will be announced on March 5, 2009.

Giant Eagle Earns LEED Gold Certification on Columbus-Area Supermarket
Giant Eagle supermarkets officially earned Gold-level LEED certification on a new supermarket in northeast Columbus, near New Albany, OH. The company said the certification is the first-ever Gold LEED award in the "new construction" category for a supermarket. The 75,000 square-foot New Albany Giant Eagle opened in August 2007 at 5461 New Albany Road West. Following an eight-month review process, the facility was awarded Gold LEED certification on September 29, 2008.

In December 2004, Giant Eagle opened the first LEED-certified supermarket in the world in Brunswick, OH near Cleveland. Since then, Giant Eagle also opened the first LEED Silver-certified supermarket in Pittsburgh in April 2007.

WS Development Building Legacy Place Sustainably
WS Development is under construction on Legacy Place, a 675,000-square-foot mixed-use development located at Route 1 and I-95 in Dedham, MA. The company is building the $200 million project sustainably, with elements including: the use of underground storage tanks to collect rainwater for irrigation; erosion and sedimentation control; innovative wastewater technologies; recycling and reuse of materials; the planting of more than 5,000 new trees and shrubs; use of regional materials; and transportation initiatives such as public transit access, bicycle storage and shared parking.

The open-air center, a joint venture of WS Development and National Amusements, is already 95% leased, with tenants such as Anthropologie, Victoria’s Secret/Pink, Ruth’s Chris Steak House, P.F. Chang’s, Clarks, Johnston & Murphy and Green Tangerine Day Spa & Salon joining Whole Foods, Border’s, Kings Bowling & Billiards, L.L.Bean and a 15-screen Showcase Cinema de Lux, National Amusements’ high-end entertainment concept. In addition, National Amusements' new corporate headquarters will be located on the project.

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