With Competitors Vacated, Retailers Eyeing Real Estate

National, Smaller Chains Betting Consumers Will Boost Spending This Year

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Opportunities for the marketing and media industries in an otherwise bleak year
NEW YORK (AdAge.com) -- Even in recession, there's an upside opportunity. And there might be billions of retail dollars up for grabs for smart marketers able to expand their footprint by taking advantage of cheaper leases.

The downturn that began in December 2007 has been disastrous for companies including Circuit City, Steve & Barry's, Linens 'N Things and S&A Restaurant Corp. (which owned Bennigan's, Steak & Ale and Tavern restaurants), which have all filed for bankruptcy. Others, such as Sears Holdings, Foot Locker, Quizno's and Ruby Tuesday, have shuttered locations. In total, retail sales declined 6% in 2009, according to the U.S. Department of Commerce.

Retailers and restaurants adding new locations in 2010
Dollar General 600
Zara 450
McDonald's 150
Chipotle 130
Sonic 125
Panera Bread Company 105
Rue 21 100
Edible Arrangements 87
Pizza Fusion 75
Darden Restaurants 55
Boost Mobile 50
Jamba Juice 50
Lowe's 45
Jos. A Bank Clothiers 40
Pep Boys 40
Qdoba 40
Kohl's 30
Aldi 25
Dick's Sporting Goods 24
Costco 23
Best Buy 22
HH Gregg 22
Whole Foods Market 16
Bruegger's 15
Stevi B's Pizza 15
99ยข Only Stores 12
Nordstrom Rack 12
Target 12
Charlotte Russe 11
Sam's Club 10
*Does not account for store closures.
Source: Buxton, Company statements

But in the coming year, economists surveyed by Bloomberg expect Americans will open their wallets once again and increase spending by 2%, the first gain since 2007. While not a stellar prediction, it's a start. And even though more retailers and restaurants will certainly close in the coming year, one retailer's misfortune could be the fortune of another able to snap up prime locations.

"There's going to be a lot of opportunity out there," said Charles Wetzel, president-chief operating officer of Buxton, a market-planning firm. "[Companies] are not as aggressive as they might have been in years prior, but, having said that, they're not being conservative either."

Prime real-estate and the ability to negotiate lease rates are attracting both national chains and smaller upstarts betting that better times are ahead (see chart). Kohl's, for one, is the "poster child" for gaining market share in the recession, said Bill Dreher, a senior retail analyst at Deutsche Bank. The retailer snapped up a number of Mervyn's locations after Mervyn's went bankrupt, solidifying its presence on the West Coast. Others growing their store base in a smart way are Target and Nordstrom, he said.

Local advantages
Mr. Dreher has been tracking what he calls "up-for-grabs sales" for over a year in the retail space and attributes about $21 billion in sales to retailers that have either closed or gone out of business. That breaks down to $6.4 billion in the apparel, footwear and department-store sector; $3.2 billion in the furniture and home-goods space and $11.8 billion in the electronics category.

Smaller operations are well-positioned, given that they can now entertain desirable locations that may have been out of reach just 12 months ago. "I firmly believe, if you're small and have a good brand that customers like, this is the year to exploit growth opportunities," Mr. Wetzel said.

Of course, there is still reason for caution. Darren Tristano, exec VP at Technomic, a Chicago food-industry consultancy, said he expects there to be more openings of limited-service restaurants, rather than full-service restaurants. Franchise organizations that are reliant on well-funded individuals also have more leeway to expand than company-owned operations.

Overall, Michael Niemira, director-research at the International Council of Shopping Centers, said he expects the vacancy rate could actually rise in the coming year. He said store closings are likely to moderate but store openings may be weaker, given that companies were faced with making those plans in the depths of the recession. The ICSC says 4,763 stores closed in 2009, much fewer than the roughly 6,913 closures in 2008 and on par with 2006 and 2007 closure rates.

"It has gotten a lot better, especially after a holiday season that was far more profitable [than a year ago]," he said. "But I don't think there will be aggressive expansion plans for 2010, industry-wide. At this point, retailers have to be innovative, nimble and continually rethink their strategy."

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