Shopping Centers Today -> October 2007
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CREDIT CARD FEES VEX CONVENIENCE STORES

Convenience stores are getting more customers than ever, but high credit card processing fees are keeping profits flat, according to the National Association of Convenience Stores. Total convenience store sales climbed 15 percent year on year to a record $569.4 billion in 2006, the trade group says. On average, each convenience store posted about $1 million in sales last year. But credit card processing fees, which make up the second-largest expense after labor, continue to bedevil operators by cutting into their profits, the association says in a report. Such fees cost the industry $6.6 billion in 2006, up 22 percent from 2005, the association says.

“The next time you stop for a fill-up, keep in mind that more of the money you are paying goes to the card companies than the retailer selling you gasoline will get to keep,” Hank Armour, the association’s president, told the House Judiciary Committee’s Antitrust Task Force in July in an attempt to spur legislation to limit the fees credit card companies charge retailers. Despite discount and supermarket chains’ introduction of loss-leading fuel pumps at their stores, the country’s 145,000 convenience stores continue to be the primary destination for gasoline consumers, the report says. Convenience stores accounted for about 80 percent of all fuel purchases last year.

AMERICAN EAGLE TWEAKS MARTIN + OSA

American Eagle revamped its fledgling Martin + Osa brand after initial customer feedback indicated that the merchandise was too expensive and not feminine enough for the 30-plus-year-old mall shoppers it was targeting. “The new collections are a major advancement from where we were,” said Susan McGalla, president and chief merchandising officer, on an earnings call. “We’ve added color and energy. Women’s is more feminine and distinctive. Additionally, we have a more balanced pricing strategy, with an important emphasis on key categories at appropriate opening price points. This will ensure we are an accessible brand.” American Eagle will alter the real estate strategy as well, CEO James O’Donnell said on the call.

The company now plans to test Martin + Osa units in second-tier markets with cheaper rents, instead of focusing exclusively on the top U.S. markets and A-class malls, as originally planned. “If we see that these types of malls in these types of small cities and mid-size cities are productive, we will attain profitability even quicker. That doesn’t mean we are going to eliminate some of the higher-profile markets we are in now and we’ve identified for the future, but I think if we can balance the portfolio out between some of the higher-end, a little more expensive markets versus countering with some of the mid-tier markets, we’ll have a very good business model.”

American Eagle sales rose 17 percent year on year in the second quarter, to $703.2 million. Same-store sales rose 2 percent. The company operates nine Martin + Osa stores and has plans to open 14 new ones this year.

NORDSTROM’S NEXUS

Nordstrom is boosting same-store sales by synergizing its store, catalog and Web site operations, executives said on the retailer’s second quarter earnings call. “A key factor in better full line store performance was that our sales people used our website more often to service customers than they have in the past,” said Blake Nordstrom, president. Total sales for the quarter grew 5.2 percent to $2.4 billion, and same-store sales increased 5.9 percent. “Our sales people viewed the inventory they have to sell as being not just their stores inventory physically in their four walls, but what's in our Cedar Rapids warehouses direct and what’s in our other 97 stores,” said Erik Nordstrom, the company’s president of stores.

“I have had a couple of experiences where I was sold in-store through the Internet,” said Richard Jaffe, a retail stock analyst for Stifel Nicolaus. “and it was fascinating the facility from which the salesman could shift gears from store-selling floor to stockroom, to other store stockroom, and then to Internet.” Nordstrom boosted its same-store sales growth expectation for the remainder of 2007 from 3-4 percent to 2-6 percent. The chain also expects sales per square foot to pass the $394 mark this year.

BARNEYS’ BIG PLANS

The new owner of Barneys New York will spend $100 million to open at least five new stores. “We can probably open three to five stores right out of the box,” Istithmar CEO David Jackson told the Dubai Eye radio program. The firm will expand Barneys in the U.S. before opening international stores and beefing up the department store chain’s Web operations, Jackson says. Istithmar agreed to pay $942.3 million for Barneys.

SPENCER’S TO GROW

The new owners of Spencer Gifts want to expand the company’s namesake chain and its Spirit Halloween division. Last week Acon, a Washington-based investment firm, bought Egg Harbor Township, N.J.-based Spencer, which operates about 1,100 stores, from affiliates of GB Merchant Partners, the private equity arm of Boston-based Gordon Brothers Group. Gordon Brothers will retain a minority stake.

HOUSING SLUMP HITS LOWE’S REGIONALLY

The U.S. housing slump hurt second-quarter sales at Lowe’s, but Chairman and CEO Robert Niblock said on an earnings call that the home improvement chain’s pain has been largely regional. Same-store sales fell 2.6 percent year on year for the quarter, though total sales rose 5.8 percent. “We see a profoundly disproportionate impact in those markets where housing was most stretched during the past several years,” Niblock said. “Our two operating regions in California had double-digit negative comps for the quarter.” Meanwhile, he said, “several markets in the Northeast, while still comping negatively, are showing signs of improvement. Our Northeast division comped above the company average in the second quarter and improved over 800 basis points versus the first quarter.”

Twelve of the chain’s 22 regional divisions posted same-store sales gains for the quarter. “We also had 684 stores that had positive comps for the quarter, and 118 of those stores had double-digit comps, so, clearly, there are areas of the country that are delivering solid sales results,” said President and COO Larry Stone. “The center of the U.S., including Texas and Oklahoma, up through the Ohio Valley and some of the mid-Atlantic states, never experienced the housing-driven highs, and these areas continued to deliver solid comp performance. Unfortunately, many of the underperforming regions, like Florida, the Gulf Coast and California, had comps significantly below the average, which dragged down our overall comp.”

MACY’S: DUPLICATE STORES NOT CANNIBALS

Macy’s says the duplicate department stores it owns at some malls are not cannibalizing each other’s sales as much as it had anticipated, making the disposition of those stores less of an issue. “We will continue to run duplicates in some of the malls,” said CFO Karen Hoguet on a second-quarter earnings call. “Interestingly, the duplicates are actually performing quite well, which is sort of intriguing,” she said. “But we continue to try to work with developers to get us out.” Since buying May Co. in 2005, Macy’s has sold about 60 of the 88 duplicate stores it had marked for disposition.

One store, at Christiana (Del.) Mall, will become the first unit of Gordon Group’s new Epicenter Collection concept, which allows Internet retailers to showcase their goods in a brick-and-mortar venue. Hoguet says Macy’s will not consider sale-leasebacks on any of the roughly 400 stores it owns to raise cash, as other chains have done. “It’s cheaper for us to do unsecured debt,” she said. The company’s same-store sales dropped 2.6 percent year on year in the second quarter.

WAL-MART EXPLORES NEW TERRITORY

Wal-Mart is testing two new concepts in the San Francisco area, according to The Wall Street Journal. The paper reports that Wal-Mart is set to open a chain of stand-alone, health-care-oriented stores and a chain of small urban grocery stores stocked with upscale merchandise as early as next year.

CHILDREN’S PLACE TRIES ON SHOES

The Children’s Place is getting a toehold in the kids’ shoe business. “On July 10 we launched on schedule our new store-within-a-store shoe concept and are now currently operating it in 33 stores as well as online,” said Neal Goldberg, the company’s president, on a second-quarter earnings call. “Initial customer response has been positive. While we have a lot more to learn, we are confident that our concept of fashionable, high-quality shoes at a great value fills a big void in the marketplace.”

DIABLESS SAYS ‘ALLO’ TO EAST COAST

After opening a store in Los Angeles in April, French contemporary apparel brand Diabless is on a U.S. expansion drive. It opened its first store on the East Coast in August, in New York City. The store, a 1,500-square-foot unit on the city’s Upper East Side, shares the neighborhood with such big-name retail brands as Searle, Club Monaco and Lucky Brand Jeans, on what is becoming a growing retail corridor in the city.

The company hopes to open other stores in New York City’s downtown and then branch into the tri-state area, says Faith Hope Consolo, chairman of the retail leasing and sales division for Prudential Douglas Elliman, who brokered the deal. The retailer is also considering locations in Las Vegas, Long Island and Queens, N.Y., Miami and New Jersey for future stores. “They’re aggressive, and they have the wherewithal to do this,” Consolo said. “They feel it’s the right time and the right place for their product.”

The brand name, which translates to “female devil,” features young, risqué styles aimed at fashion-forward females. Diabless Holdings, a Los Angeles-based investment group formed this year, owns the brand in the U.S. The company’s Paris operations, which include three boutiques and the brand’s design studio, are owned by a separate set of investors. Diabless is a wholesaler to approximately 100 specialty stores in the U.S., something it has done for the past eight years.

KOHL’S BOOSTS SALES WITH HIGHER-PRICE MERCHANDISE

Traffic at Kohl’s stores declined during the second quarter, but the retailer managed to boost comparable-store sales by selling costlier items, a trend that will pick up as the chain introduces higher-priced, fashion-forward merchandise in coming months, executives said on an earnings call. Second-quarter same-store sales rose 1.3 percent year on year, while the value of the typical transaction rose 2.5 percent and the number of transactions per store fell 1.2 percent. Kohl’s expects the introduction of a line from fashion designer Vera Wang to boost third-quarter comps between 1 and 2 percent. “We still have room for sure to move our price points into better and best,” said Kevin Mansell,

CABELA’S IN CANADA

Outdoor-goods chain Cabela’s will pay an undisclosed amount to buy S.I.R. Warehouse Sports Store, a Winnipeg, Manitoba-based specialty retailer of hunting, fishing, camping and related merchandise. The S.I.R. Warehouse operations include a 44,000-square-foot store and a mail-order business. “This acquisition will allow us to accelerate growth of our retail, catalog and Internet business in Canada,” said Dennis Highby, Cabela’s president and CEO, in a press release. Cabela’s has already announced plans to open a store in Gordon Group’s Lac Mirabel development, which is to open in 2009 near Montréal.

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