| BOSTON, March 16
BOSTON, March 16 Bargain store chains are
flooding into North American malls and shopping centers like
never before, upstaging old mainstays like J.C. Penney and Sears
that are reeling from the one-two punch of an ailing economy and
competition from online stores.
"We're seeing a seismic shift in retail shopping centers,"
said Garrick Brown, director of research at real estate firm
Cassidy Turley. "The challenges of the weak economy are being
replaced by the challenges of e-commerce."
The shift may reflect some consumer pain, but it has brought
plenty of winners, too. Commercial real estate rents are rising,
and many retailers, especially bargain chains, are in better
shape than they have been since the Great Recession in 2008,
analysts say. Shopping center vacancy rates in 60 major U.S.
markets fell to 8.6 percent at the end of last year from 9.5
percent a year earlier, reflecting 38 million square feet of
occupancy growth, according to Cassidy Turley research.
As a result, price appreciation among retail assets led all
commercial property types in 2013, rising 23 percent, according
to Moodys/RCA CPPI.
[ Click here for a graphic on store closings and opening -]
J.C. Penney Co Inc and Sears Holding Corp
are retrenching and fighting for survival, raising a red flag
for malls where, as anchor tenants, they draw foot traffic to
nearby smaller stores.
Meanwhile, Staples Inc and RadioShack Corp
earlier this month hit the U.S. commercial real estate market
with plans to close a combined 1,325 stores. Analysts said they
were slow to react to declining foot traffic and the surging
amount of consumer shopping moving to the Internet.
U.S. shopping center owners say they have had no reason for
alarm. With new retail construction at historically low levels,
they are getting help from a stable of discount retailers.
Costco Wholesale Corp, T.J. Maxx, Marshalls, Dollar
General, Nordstom Rack and Ross Stores have been quick
to fill vacancies.
Many of those stores are in great shape. Shares of bargain
chain operators TJX Companies Inc and Dollar General
Corp have risen 36 percent and 19 percent, respectively,
over the past year as they open stores at a rapid clip.
The top five Dollar store brands together have opened an
average 2,000 new stores each of the past three years with
similar growth plans for this year, according to researchers at
"Dollar stores have just had insane, insane levels of new
growth," Brown said. Dollar General has more than 11,000 stores,
with plans to open several hundred more in 2014. The chain has
more stores than RadioShack and Staples combined, which have
about 4,300 and 1,900, respectively.
"I see a lot of companies interested in the space that
Staples would be exiting," said Peter Dixon, who runs the $1.1
billion Fidelity Select Retailing Portfolio. The
fund's 1-year return of 30.37 percent beats 96 percent of peers
while trouncing its benchmark by 12.5 percentage points,
according to Morningstar Inc data.
Senior executives at Kimco Realty Corp agree with
Dixon's assessment. Kimco, North America's largest owner and
operator of neighborhood and community shopping centers, says it
can absorb hits from consolidation in the office supply industry
by signing up tenants such as T.J. Maxx and Marshalls, and
specialty grocer Sprouts, for example.
TJX Cos, owner of T.J. Maxx and Marshalls and the operator
of 3,200 stores, said cash outflows for property additions
totaled $759 million for the nine months that ended Nov. 2.
Capital spending plans for fiscal 2014 will amount to as much as
$950 million, compared to J.C. Penney's plan for about $300
million, according to their financial reports.
Kimco Chief Executive Dave Henry recently told analysts and
investors at a Citi property conference that new store openings
are at a five-year high.
"So even as these retailers consolidate, the demand for
these bigger box (spaces) is good and strong, and rents are
beginning to jump," Henry said at the March 3 conference.
In 2013 nearly 10,500 new retail stores opened, compared
with about 2,600 closures, according to Factset research.