Announcements like the one Kohl’s made this month are a dwindling breed among retail chains. The headline from the retailer's press release read: "Kohl’s Department Stores Opens Nine New Stores."
That could be the highwater mark in terms of store openings as the department store chain has just three more stores scheduled to open this year.
Those numbers are down sharply from years past. Last year, Kohl’s opened 20 new stores and a new 951,000-square-foot e-commerce distribution center. In 2011, it opened 39 new stores. In 2007, it opened a record 112 new stores.
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The days of heady rapid expansion and real estate spending may be all but over for Kohl’s and many other retailers with extablished national platforms. Already reeling from growing competition online, with the 2008 recession retailers’ real estate departments had to change how they did business on a day-to-day basis. And that meant maximizing sales in their existing portfolios instead of opening new store locations.
Kohl's again proivdes a case in point. In 2011, Kohl's created a sub-department within its real estate department that's primary focus was on managing and maximizing the value of its existing portfolio. The unit was charged with disposing of excess space, renegotiating leases,
rightsizing store size initiatives, and working with third-party business partners to aid in solving real estate-related issues.
“As Kohl’s continues to grow, investing in our stores remains a priority,” Kevin Mansell, Kohl’s chairman, president and CEO, said in the company’s new store opening press release. “We are pleased to open nine new locations today and have plans to remodel 30 locations this year.”
But now in 2013, even the capital expenditure outlays for remodelings and renovations are being cut. Last year, Kohl’s remodeled 50 stores. And that money is going to technology.
“Our capex expenditures were $785 million for 2012, $142 million lower than 2011,” Wesley S. McDonald, Kohl’s CFO, told analysts in February. “The change reflects changes in our capital expenditure mix, including fewer remodels and new stores, partially offset by higher IT spending... Our projected capex for 2013 is $700 million.”
“We're spending a lot -- a hell of a lot of money on IT,” McDonald added.
McDonald readily aknowledges that the slowdown in new store openings is a function of the performance of its new stores over the last few years.
"As we've grown our e-commerce business, some of (the cost) comes out of the stores,” McDonald said. “By our best estimates, about one-third of the e-commerce growth has come out of the stores, and we're not getting the same kind of returns on our new stores like we used to. That's why we're bringing it down, and we're focusing more on IT investments to help make the existing stores more productive and focusing more on remodels.”
Cutting back spending on real estate in favor of e-commerce is a growing trend among major retailers. According to a new survey of 100 retail chief financial officers by BDO USA, LLP, retailers’ investment expectations clearly point to an “omni-channel” push.
When asked where they plan to invest the most capital this year, CFOs were split. Thirty-two percent said overall advertising and promotions would be their biggest investment, indicating they would be looking to entice consumers both online and in-stores. Twenty-nine percent of CFOs said they would invest the most capital in their e-commerce channel, and just about only one in four said redesigning/remodeling stores would be their top investment.
Big Lots said in its earnings conference call last month that it would be diverting some of its real estate capital to other tests or initiatives that could provide a better return.
“We've consistently said that we would not just open new stores to hit a number,” said Charles W. Haubiel, chief administrative officer and executive vice president of Big Lots. “We acknowledge the pool of available sites the last couple of years benefited from certain retailers failing or significantly downsizing. With the recent announcement of additional industry consolidation, we may be at the beginning of a new cycle. But it takes time for opportunities to develop and locations to become available, and when they are, we stand ready to pounce.”
Haubiel added that a major initiative for the firm last year was testing full-market store remodels in 16 stores in two markets: Miami, FL, and the Modesto-Fresno area in Northern California.
Staples, chairman and CEO Ronald L. Sargent told analysts that his company had made a lot of progress on reducing its real estate footprint but had more to do.
“In North America, we had a total of 31 net new store closures and an additional 30 relocations and downsizings for the year,” Sargent said. “All in, we took out over 1 million square feet or about 2% of our retail footprint, and we're on track to reduce our total North American Retail square footage by about 15% by 2015.”
“Last quarter, we announced a plan to achieve $250 million in annual pretax savings in North America by 2015. And during Q4, we developed a very detailed cost savings roadmap for the coming year,” he said. “We remain committed to improving productivity of our retail store network. Our plans call for 30 net store closures and another 45 combined downsizes and relocations during 2013. About half of the downsizes and relocations will be to our new 12,000-square-foot store format, and these actions will remove more than 1 million square feet from our North American store network for the year.”
PetSmart CFO Lawrence P. Molloy, said his company’s 2013 capital expenditures are expected to be between $140 million and $150 million.
“We plan to use approximately 25% of that capex to open 45 to 50 net new stores of our 12,000 and 18,000 prototypes. We will also be testing 12 micro stores this year, ranging from 6,000 to 7,500 square feet,” Molloy said. “The remaining 75% of our capex will be spent on store remodel type projects, supply chain, IT, maintenance and other infrastructure improvements.”
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