Sportswear retailer Fabletics plans to open two dozen stores in the U.S. this year, bringing the total to 74.
Source: Fabletics
For the first time in years, retailers across the country are planning to open more stores than close.
From Ulta Beauty and Sephora to Dick’s Sporting Goods, Five Below and TJ Maxx, companies are recovering from the Covid pandemic and dusting expansion plans that have been put on hold. In the most recent example, sporting goods retailer Fabletics announced Thursday that it will open two dozen stores in the United States this year. Even Toys R Us, the popular toy chain that filed for bankruptcy in 2017 and eventually liquidated, has a new owner looking to open stores before the 2021 holidays.
Retailers are looking to duplicate brands that have remained strong during the recession sparked by the pandemic. Or they look forward to testing new concepts that can attract new customers. And cheaper rents make these opportunities irresistible.
According to a recording from Coresight Research, US retailers have announced 3,199 new openings and 2,548 closings since the beginning of the year. The company recorded a whopping 8,953 closings and just 3,298 new openings last year as the pandemic weighed on the retail industry and bankrupted dozens of businesses.
Looking back, there were a total of 4,548 openings announced by retailers in 2019 and 3,747 in 2018, Coresight said. So far, the openings in 2021 are well on their way to reaching the top every year before.
After a tsunami of store closures in 2020, the retail real estate landscape is tainted with vacancies. Shopping center owners and malls across the country are looking for tenants to fill this space quickly. Meanwhile, some retailers are more optimistic after weathering the dark days of the pandemic. They want to seize a market where they have more power over their landlords when they sign new contracts or bring negotiations on the table.
“There is more space available and we can achieve better terms today than we did two years ago,” said Adam Goldenberg, co-founder and CEO of Fabletics, in an interview.
A woman walks into a store in New York City on February 22, 2021.
John Smith | Corbis News | Getty Images
The trends are particularly pronounced in top retail markets like Manhattan, which are usually a mecca for tourists and commuters. Retail rents in New York City fell to historic lows last fall, falling as much as 25% from 2019, according to a semi-annual report by the Real Estate Board of New York.
And rents were still falling from the third to the fourth quarter. Average retail rents fell 1.6% quarter over quarter, said commercial real estate services company JLL. The decline was more pronounced in certain markets: For example, along Lower Fifth Avenue from 42nd Street to 49th Street, retail rents fell 7.6% quarter over quarter, JLL said. They fell 4.8% in the Madison Avenue district.
Meanwhile, empty storefronts continue to be a headache for landlords. New York City retail property vacancy rates rose 21% year over year in the fourth quarter. This is evident from a separate follow-up by CBRE.
“After the pandemic, we can again host training courses in stores and special shopping days,” said Fabletics’ Goldenberg. “There’s a real sense of community that comes from being physically present.”
Great recession pattern repeated
Many of the companies that have new openings planned this year are focused on value. They range from Dollar General and Dollar Tree to the inexpensive retailers Burlington and Ross Stores to the discounters Aldi and Lidl. However, there are specialist retailers in the mix, including Bath & Body Works from L Brands and Gap’s Old Navy.
These retailers were some of the top performing in the business. For example, during the fourth quarter of L Brands, sales in the same store at Bath & Body Works rose 22% year over year, while at Victoria’s Secret they fell 3%. At Gap, Old Navy’s fourth-quarter sales rose 7% in the same store, while the brand of the same name saw a 6% decrease. Dozens of Gap and Victoria’s Secret stores will close this year as both companies invest in building their superior brands.
Some real estate experts say the growth is reminiscent of what the industry saw from the great recession. Retailers become more confident as they plan more stores, both inside and outside of malls.
“We’re very excited about the malls,” said Jay Schottenstein, chief executive of American Eagle Outfitters, during an earnings conference call in early March. “This is probably the best opportunity for us to find new locations that are offered to us … at affordable rents for us.”
American Eagle plans to open around 60 locations this year under the banner of Aerie, the loungewear and lingerie brand for teenagers and young women. 25 to 30 of these new stores are referred to as offline by Aerie, a sports line that the company launched last summer.
Time to experiment
Part of the activity is a result of experimentation that runs through the industry. Take Burlington Stores. It opens a handful of smaller prototypes that are meant to be scaled up in the future.
It is planned to open 75 new Netto stores this year, 18 of which were new openings planned for 2020 that have been delayed by the pandemic. About a third of the new stores will be around 25,000 square feet smaller than a typical location of 50,000 to 80,000 square feet, the company said.
“This is 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 have tried to take away as much rent as possible from the tenants. Of course, that’s their job. But I think it harms innovation.”
This year, Weinswig expects companies to test everything from smaller stores to what are known as dark stores that serve solely as hubs for shoppers to pick up online orders. The experimentation could also be done in other ways. Nordstrom is testing live stream shows that can be bought, for example.
“It’s a tenant market right now,” said Perry Mandarino, head of restructuring and co-head of investment banking at B. Riley FBR. “I’ve seen examples of short-term leases with easy-outs, and reasonable rates are perfectly available.”
Still, not every retailer firmly believes Americans will be returning to stores anytime soon.
“Two years from now, when the market looks back on me, I will be seen as either visionary or slow to transition,” Lands’ End CEO Jerome Griffith said in an interview. Lands’ End only has 31 stores of its own today and has no plans to increase that number but instead is investing in e-commerce.
“I’m not positive about the foot traffic in the stores,” Griffith said. “People will do things, people will be outside, but it will be things like going to restaurants and bars and going to the movies, going to sporting events, going to concerts. But I am very careful in our stores in front . “
“We have stopped expanding the branch,” he said. “Two years ago I would have told you that this will be a big part of our growth strategy.”
