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Shopping Centers Today -> September 2007
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Wal-Mart finally gets access to India
Wal-Mart and India’s Bharti Enterprises have formed a 50-50 joint venture. Bharti Wal-Mart, as the venture is called, is a debut in India for Wal-Mart, which will provide cold-storage warehousing, inventory supply and trucking. Bharti Enterprises, one of India’s largest companies, owns the leading cell phone network. The company recently earmarked $2.5 billion for its Bharti Retail subsidiary.
Next year Bharti Wal-Mart is to open the first of about 15 wholesale centers that will supply food, footwear, stationery and other goods to retail chains, mom-and-pop stores and restaurants as well as Bharti’s supermarkets. The stores will measure between 50,000 and 100,000 square feet. The companies agreed in December to pursue opportunities together after Bharti’s talks with Tesco fell through. Indian groups representing mom-and-pops and others suspicious of foreign enterprises oppose the Wal-Mart deal. India’s foreign direct investment rules bar foreign multibrand retailers from setting up stores in the country, so Wal-Mart’s deal with Bharti is to supply infrastructure only, not merchandise. Single-brand retailers may enter India, but only through joint ventures with local partners, of which the foreign party may own no more than 51 percent. Interested retailers must apply through India’s Foreign Investment Promotion Board.
Mom-and-pops currently dominate the $350 billion Indian retail market, with “organized” chains accounting for just 3 percent. The Indian market could double by 2015, observers say. The U.K.’s Tesco, France’s Carrefour and other large retailers are still examining India for opportunities but have yet to announce any plans, sources say.
There is certainly a demand for improved retail supply networks. About 35 to 45 percent of Indian produce spoils before it reaches the market, experts say, because of poor transportation and a lack of cold-storage facilities.
Abercrombie tackles global expansion
Abercrombie & Fitch announced plans to expand in Asia and Europe. By 2009 the company will open its first Asia store in Tokyo’s upscale Ginza district. The retailer is also in the process of securing locations in Denmark, France, Germany, Italy, Spain and Sweden. It also plans to identify additional key locations in the U.K., having opened its first store outside the U.S. in London last year. The chain retained PBS Real Estate to help find the sites. “We have been evaluating the European markets for some time, and it is clear that the demand for the Abercrombie & Fitch brand is very strong,” said Mike Jeffries, the company’s CEO and chairman, in a press release. “We believe that now is the ideal time for us to execute our international growth strategy with expansion throughout Europe.”
Lucy finds a parent
VF Corp., owner of John Varvatos, North Face, Wrangler and other chains, announced plans to buy Lucy Activewear for $110 million and the Seven For All Mankind luxury denim brand for $775 million. The chains will form a lifestyle division to be called VF Contemporary Brands, which VF says it will expand with other brands. “The acquisition of these high-growth, high-potential brands marks another milestone in the continuing success of our growth plan,” said Mackey McDonald, VF’s CEO, in a press release. Portland, Oregon-based Lucy, with its apparel designed to appeal to active women looking for better design and comfort in athletic wear, has 50 stores. Lucy won an ICSC Hot Retailers award this year. Seven For All Mankind sells products in luxury stores and boutiques and has seen annual revenues of about $300 million. CEO Mike Egeck will continue to lead the company from its Los Angeles headquarters. Based on the chains’ performance so far this year, VF stands to gain $350 million in revenue from the acquisition. VF says it expects that to rise by nearly 20 percent annually over the next five years. VF posted $6.1 billion in sales and $533.5 million in net income last year.
Whole Foods to shrink size of some stores
Over the past five years, Whole Foods has increased the size of its average store about 20 percent. Going forward the company says it will reverse that trend on some of the new units it is building, particularly in the smaller markets. In a bid for efficiency, Whole Foods is reviewing the pipeline of the 94 new stores it plans to open between now and 2010 and is selectively “rightsizing” leases or trimming back on the selling square footage, executives said on a second-quarter earnings call. “We adjusted two leases and are in the process of adjusting another six leases, representing an average reduction of 9,000 square feet per lease,” said John Mackey, the supermarket chain’s CEO. “We believe the average size of our stores in development will probably be around 50,000 to 55,000 square feet for the near future.” Whole Foods’ new-store pipeline comprises 5 million square feet, or 70 percent of its existing square footage. The retailer had originally planned for 21 of the new stores to measure 60,000 square feet or larger, he says.
The 197-unit chain, whose stores measure about 36,000 square feet on average, operates 14 stores measuring over 60,000 square feet. Development costs per square foot averaged $282 for the chain’s existing portfolio and $258 for the stores it opened last year. These actions mirror those of other U.S. chains. The trend is especially evident in consumer electronics. Best Buy and Circuit City are shoehorning into spaces that are in some cases half the size of their usual superstore format. As late as 2004 Best Buy stores generally occupied 45,000-square-foot boxes. This year two-thirds of the 90 stores the chain is opening will measure 30,000 square feet or less. Similarly, about half of the roughly 65 domestic stores Circuit City plans to roll out by March will measure just 20,000 square feet, less than two-thirds the size of its 34,000-square-foot floor plate.
Farewell Façonnable
The upscale “lifestyle” stores Safeway rolled out in 2005 are doing well, the retailer said in a second-quarter earnings announcement. “Our positive sales and income trend continued in the second quarter, bolstered by strong performance from both new and seasoned lifestyle stores,” said CEO Steven A. Burd in a press release.
About 43 percent of the supermarket chain’s stores now boast the new format, which was designed to make the company more competitive against Wal-Mart and Whole Foods and which offers a wider variety of fresh produce and prepared meals than traditional Safeway stores. The company says it plans to spend about $1.7 billion this year to open 20 more lifestyle stores and to remodel 260 existing ones. Safeway’s second-quarter total sales rose 4.9 percent year on year, to $9.8 billion, while same-store sales grew 4.5 percent.
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