Retailers open more stores than they close, helped by cheap rents

For the first time in years, retailers across the country are planning to open more stores than they close.

From Ulta Beauty and Sephora to Dick’s Sporting Goods, Five Below and TJ Maxx: businesses are repairing the Covid pandemic and scattering the expansion plans that have been suspended. In the latest example, sportswear retailer Fabletics said Thursday that it will open two dozen stores in the United States this year. Even Toys R Us, the beloved toy chain that filed for bankruptcy in 2017 and was eventually liquidated, has a new owner who wants to open stores before the 2021 holiday.

Retailers are eager to double brands that have remained strong through the pandemic-induced recession. Or they are excited to test new concepts that new customers can deliver. And cheaper rents make these opportunities irresistible.

According to Coresight Research retailers, retailers in the United States announced 3,199 openings and 2,548 closures. The business followed last year with 8,953 closures along with only 3,298 openings as the pandemic strengthened the retail industry and bankrupted dozens of businesses.

Looking further back, there were a total of 4,548 openings announced by retailers in 2019 and 3,747 in 2018, Coresight said. So far in 2021, the openings are already ahead every year, he said.

After a tsunami of store closures in 2020, retail real estate is full of vacancies. Shopping center and mall owners across the country are looking for tenants to fill the space quickly. Meanwhile, some retailers are more optimistic because they have weathered the dark days of the pandemic. They want to take advantage of a market where they largely have more power over their landlords when they sign new deals or bring negotiations to the table.

“There’s more space available and we can get better conditions today than two years ago,” Adam Goldenberg, co-founder and CEO of Fabletics, said in an interview.

In the leading retail markets such as Manhattan, which is usually a mecca for tourists and office commuters, the trends were particularly pronounced. Rents in New York tumbled to historic lows last fall and fell to 25% from 2019 levels, according to a biennial report from The Real Estate Board of New York.

And rents continued to fall from the third quarter to the fourth. Average retail rents fell 1.6% quarter-on-quarter, JLL said. The decline was more severe in certain markets: Along Lower Fifth Avenue from 42nd Street to 49th Street, for example, retail rents fell by 7.6% quarter-on-quarter, JLL said. They fell by 4.8% in the Madison Avenue district.

Meanwhile, empty store windows remain a headache for landlords. Vacancy rates for retail real estate in New York rose 21% during the fourth quarter, according to a separate survey by CBRE.

“After the pandemic, we can once again hold practice classes in stores and special shopping days,” Goldenberg of Fabletics said. “There’s a real sense of community that results from physical presence.”

Many of the businesses planning for openings this year are focused on value. It ranges from Dollar General and Dollar Tree to retailers Burlington and Ross Stores and the discount groceries Aldi and Lidl. However, specialty retailers are in the mix, including Bath & Body Works of L Brands and Gap’s Old Navy.

These retailers were among the strongest performers in the industry. During the fourth quarter of L Brands, for example, Bath & Body Works’ sales in the same store increased 22% year-on-year, while its Victoria’s Secret business fell 3%. At Gap, sales of the same store for Old Navy rose 7% during the fourth quarter, while its namesake fell 6%. Dozens of Gap and Victoria’s Secret stores are closing this year, while both companies are investing in expanding their excellent brands.

Some real estate experts believe the growth is reminiscent of what the industry saw from the Great Recession. Retailers’ confidence glows as they plan more stores: inside and outside malls.

“We are very excited about the malls,” Eagle Outfitters U.S. CEO Jay Schottenstein said during a conference call in early March. “This is probably the best opportunity for us to look for new places that are offered to us … at affordable rent for us.”

American Eagle plans to open about 60 locations this year under the Aerie banner, which is its loungewear and lingerie brand for teens and young women. Twenty-five to thirty of the new stores will be designated by Offline as Offline, a recreation line the company started last summer.

Some of the activities are a result of experimentation that is rippling through the industry. Take Burlington Stores. It opens up a handful of smaller-format prototypes that it hopes to scale in the future.

It plans to open 75 new stores this year, including 18 openings previously planned for 2020, which have been delayed by the pandemic. About a third of the new stores will be smaller, about 25,000 square feet, compared to the typical space of 50,000 to 80,000 square feet, the company said.

“It’s going to be a big year for experimentation,” said Deborah Weinswig, founder and CEO of Coresight Research. “The landlords have always had this friction because they tried to get as much rent as possible from the tenants. Of course, that’s their job. But I think it hurt innovation.”

This year, Weinswig expects businesses to test everything from smaller-format stores to so-called dark stores that only serve as a hub for buyers to upload online orders. Experimentation can also come in other ways. Nordstrom, for example, tests copyable, live programs.

“It’s currently a rental market,” said Perry Mandarino, head of restructuring and co-head of investment banking for B. Riley FBR. “I have seen examples of short-term leases with easy output, and decent prices are absolutely available.”

Yet not every retailer believes that Americans will return to stores so quickly.

“In two years, when the market looks back on me, I will either be considered visionary or slow,” Lands CEO Jerome Griffith said in an interview. Lands’ End today has only 31 own stores and does not intend to increase the number, but is investing in e-commerce.

“I do not feel positive about foot traffic in stores,” Griffith said. “People will do things, people will be outside, but it’s going to be things like going to restaurants and bars, going to movies, going to sporting events, going to concerts. But I’m taking a very cautious approach to our stores. . “

“We have stopped expanding the store,” he said. “While I would have told you two years ago that this is going to be a big part of our growth strategy.”