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Abercrombie & Fitch Shuttering 110 Stores, GM Shrinks Real Estate Holdings, More Retailer Right-Sizings

Lease Down (Aug. 22-28): A Weekly Column on Downsizings and Cancellations Creating Oppotunities in Commercial Real Estate
August 24, 2010

CoStar compiles news of consolidations, closures, layoffs and lease cancellations in the weekly Lease Down news report, a concise read keeping you updated on major corporate moves affecting commercial real estate. For news on corporate expansions, relocations and lease extensions, check out CoStar's weekly Lease Up report.

In this week's issue:
  • Abercrombie & Fitch shutters 110 stores

  • GM could continue to reduce real estate

  • Frederick's of Hollywood outsources and consolidates

  • Saks closes some stores

  • Fuddruckers cancels more leases

  • Closures & Layoffs

    Abercrombie & Fitch Shuttering 110 Stores

    Abercrombie & Fitch intends to close 110 of its domestic stores by 2012.

    The Ohio-based apparel retailer said in an SEC filing last week that its would be shuttering 60 locations by the end of the year, with the remaining 50 stores closing in 2011. The majority of these stores will be closed following natural lease expirations, Abercrombie said. However, buyouts and other closures prior to lease expirations are also expected.

    The company has incurred a $2.2 million non-cash, pre-tax asset impairment charge associated with the closures.

    Despite an overall increase in sales in the second quarter, Abercrombie's gross profit rate was lower than the previous year. This was due to a 15% drop in prices, the company said.

    Abercrombie has yet to reveal which stores will be affected. The company currently operates 1,098 locations in the United States: 339 Abercrombie & Fitch stores, 202 abercrombie kids stores, 509 Hollister stores and 17 Gilly Hicks stores.

    This is the second major string of closures for Abercrombie in a little over a year's time. Last July, the retailer announced it was discontinuing its Ruehl line and closed all 29 stores.

    Abercrombie is also narrowing some its expansion plans for Fiscal 2010. The company had been initially planning to open about 25 international mall-based Hollister stores, but has since amended that number to 20.

    The Incredible Shrinking GM: $12 Bil. in Lost Real Estate

    By Mark Heschmeyer

    General Motors Co. may have filed a registration statement to raise $6 billion to $8 billion in a new proposed initial public offering but don't expect the automaker to begin expanding its real estate footprint any time soon. In fact, it could continue shrinking but, nonetheless, the filing could be good news for Detroit.

    In its IPO filing, the company said it would continue to consolidate its U.S. manufacturing operations while maintaining the flexibility to meet increasing 2010 production levels.

    The new GM combined with Old GM that filed for bankruptcy protection in the summer of last year, produced 1.9 million vehicles last year. That represents a decrease of 44.5% compared to 3.4 million vehicles in 2008.

    However, in the six months ended June 30, 2010, the company had already produced 1.4 million vehicles. Yet even though auto sales have picked up this year, GM has met the increased demand by temporarily shifting production from North American plants to other countries and said it will continue to do so.

    As of June 30, GM had 117 locations in 93 cities or towns in the United States. Of these locations, 40 are manufacturing facilities. Of the remaining locations, 26 are service parts operations primarily responsible for distribution and warehouse functions, and the remainder are offices or facilities primarily involved in engineering and testing vehicles. The total book value of its real estate not counting manufacturing equipment was $8.1 billion.

    That is about a 60% drop in value from the old GM's peak in 2003 and 2004 when it had 370 locations in 220 cities valued at $20.41 billion.

    GM has also been cutting its network of independent retail dealers. As of June 30, there were approximately 5,200 vehicle dealers in the U.S. compared to approximately 5,600 as Dec. 31, 2009. GM said it intends to reduce the total number of its U.S. dealers to approximately 4,500 by the end of this year.

    The trimming aside, though, Detroit's real estate community is viewing the offering and increasing car productions as good things.

    "The slaughter is over," said Andrew E. Hayman, managing partner of The Hayman Co. in Troy, MI. "The offering can only be a good thing. The slate has been wiped clean and they can operate under a new healthy GM."

    Not that new leases will be signed anytime soon, Hayman said, but the market is beginning to see a pick up in supplier contracts being signed, which could mean good things in 2011 for the automotive industry and GM too.

    Frederick's of Hollywood Outsources, Consolidates

    Last week, Frederick's of Hollywood unveiled its new plan to achieve $2 million in annual savings by outsourcing the last of its manufacturing processes and consolidating its distribution operations.

    Production at the intimate apparel company's last production plant, located in the Philippines, has now ceased. The closure is expected to save the Frederick's $1.5 million annually.

    Additionally, the company is moving all of its retail and wholesale distribution operations to its 168,000-square-foot facility in Phoenix, AZ. As a result, its distribution center in Poplarville, MS, is set to close by the end of November. Frederick's estimates that the consolidation will save about $500,000 in operating costs per year.

    "The latest changes to our manufacturing and distribution capabilities are in line with the strategy we have implemented over the past 18 months, which is aimed at streamlining our operations and reducing costs," said Thomas Lynch, chairman and CEO. "Consolidating the distribution of our products to the Phoenix facility and fully outsourcing our manufacturing will allow us to dedicate more resources to the marketing and design of our products in order to strengthen our brand."

    Saks Pares Stores By Five

    By Mark Heschmeyer

    Saks Inc. closed its Saks Fifth Avenue store in The Shops at Willow Bend in Plano, TX, this past week and plans to close its Saks Fifth Avenue store in the Mission Viejo Mall in Mission Viejo, CA, in late October. The company closed its Saks Fifth Avenue stores in Portland, OR; San Diego; and Charleston, SC, last month.

    "In the ordinary course of business, we assess the productivity, profitability, and potential for each of our stores and may determine it is appropriate to close a store from time to time," said Sadove, chairman and CEO of Saks.

    Approximately 65 associates are employed in the Plano store, and approximately 60 associates are employed in the Mission Viejo store. All affected associates either will be offered transfer opportunities or will receive appropriate severance packages.

    The Plano store is approximately 121,000 square feet, and the Mission Viejo store is approximately 98,000 square feet.

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    Company Address Closure or Layoff # Affected Impact Date
    Abercrombie & Fitch Nationwide multiple closures unknown 2010, 2011
    Frederick's of Hollywood 100 Highway 11 N, Poplarville, MS closure unknown 11/31/2010
    Saks 2401 Dallas Pky, Plano, TX closure 64 09/18/2010
    Saks 27000 Crown Valley Pky, Mission Viejo, CA closure 60 09/18/2010
    Pfizer 401 N Middletown Rd, Pearl River, NY layoff 115 12/17/2010
    Pyrotek 30 Madison Blvd, Canastota, NY closure 34 11/18/2010
    Delaware North Cos. Travel Hospitality Services 1000 Colonel Eileen Collins Blvd, North Syracuse, NY potential closure 69 12/31/2010
    New Process Gear 6600 New Venture Gear Dr, East Syracuse, NY closure 107 11/15/2010
    RJ American Inc. 3611 14th Ave, Brooklyn, NY layoff 157 8/13/2010
    Wells Fargo 600 Penn St, Reading, PA closure 93 10/15/2010
    BAE Systems 2198 University Dr, Lemont Furnace, PA layoff 124
    Pathmark 2671 Durham Rd, Bristol, PA closure 109 10/13/2010
    Pathmark 30 Lawrence Rd, Broomall, PA closure 108
    Citigroup 14415 S 50th St, Phoenix, AZ layoff 272 8/30/2010
    Coach - Net Services Group 900 N Lake Havasu Ave, Lake Havasu City, AZ layoff 160
    Sperry & Rice Manufacturing 1088 N Main St, Killbuck, OH layoff 67 10/23/2010
    Northrop Grumman Technical Services 34200 Fulton St, Wallops Island, VA layoff 169
    Western Refining Yorktown 2201 Goodwin Neck Rd, Yorktown, PA layoff 225 8/5/2010

    Lease Cancellations

    Fuddruckers Cancels Six More Leases

    Fuddruckers is rejecting six more retail leases in connection with its April 21 bankruptcy filing.

    The restaurant chain has occupied most of these locations for a lengthy period of time; some go as far back as the 1980s and 1990s. Fuddruckers is selling off its assets at each location (tables, chairs, kitchen equipment, etc.), which it estimates will generate a total of approximately $300,000, or $50,000 per restaurant.

    All six leases were terminated as of July 30.

    Luby's Inc. recently acquired Fuddruckers' remaining assets for $63.45 million. The restaurant owner beat out a $40 million bid by Tavistock, announced back in April.

    Company Address Affected Parties Comment
    Fuddruckers 1587 Spring Hill Rd, Vienna, VA Sunburst Hospital Corp. Store # 225, 5,621 SF, lease dated 12/21/1993
    Fuddruckers 3149 Silverlake Village Dr, Pearland, TX Fidelis Realty Partners Store # 432, 4,400 SF, lease dated 5/18/2005
    Fuddruckers 7145 E Indian School Rd, Scottsdale, AZ PCL LLC Store # 98, 5,125 SF, lease dated 11/5/1985
    Fuddruckers 2320 S El Camino Real, Oceanside, CA Irwin Belcher Store # 434, 4,500 SF, lease dated 6/1/2004
    Fuddruckers 1510 8th Street Dr SE, Hickory, NC MSA Investments LLC Store # 306, 5,966 SF, lease dated 8/1/1996
    Fuddruckers 2180 Merchants Way, Duluth, GA Arch Properties Group LLC Store # 220, 5,902 SF, lease dated 12/30/1993

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