Bankruptcies, weak sales not slowing retailer growth

Bankruptcies, Weak Sales Not Slowing Retailer Growth

The retail industry may be tussling with some high-profile bankruptcies and weak sales growth, but demand for retail properties remains strong, according to a recent report from RBC Capital Markets.

Analyst Rich Moore’s research shows retailers have increased plans to expand and open new stores over the next 24 months compared to the outlook earlier this year. Planned store openings over the next 24 months have increased by 3.8 percent year-to-date, based on RBC’s retailer database of nearly 80,000 retailers. Those growth plans are in spite of sales growth that checked in at a meager 0.6 percent for the month of June.

“Media headlines have recently painted a difficult picture for the retail sector amid a backdrop of sputtering retail sales growth, struggling retailers, and high-profile bankruptcies. Despite the apparent headwinds, bad debt expense at the REITs remains below the historical norms, and strong retailer demand continues to drive occupancy and rental gains,” Moore says in his National Retail Demand Monthly report.

The “increasingly competitive” retail environment as shoppers have more choices that ever, including online stores, is expected to fuel more bankruptcies in the months ahead, RBC says.

In July, Anna’s Linens, a specialty houseware retailer, and A&P, the supermarket chain, filed for protection. RBC says retailers operate a combined 564 stores nationwide with 268 Anna’s Linens locations and 296 A&P locations.

“We expect that the increasingly competitive retail environment will lead to further bankruptcies which is likely to push bad debt expense back to historical norms,” Moore writes in his report. “Although bankruptcies may be disruptive in the short run, high quality retail space is limited, and retailer demand for vacancies due to bankruptcy appears solid as evidenced by the climbing number of planned store openings.”

Retailers in the crafts and supplies category, activewear, childcare, and salons showed the largest positive changes in planned store openings year-to-date through the first half of the year. Meanwhile, toys and hobby stores, laundromats, bookstores, and car care service centers slowed their growth plans the most, RBC says.

Top 30 Retailers 24-Month Growth Projections (as percentage of existing stores)

  1. Children’s Orchard (200 stores, 200% growth rate)
  2. Five Guys Famous Burgers and Fries (1,200, 160%)
  3. Penn Station – East Coast Subs (300 stores, 146%)
  4. Bed Bath & Beyond (140, 140%)
  5. Smashburger (200, 133%)
  6. Complete Nutrition (200, 129%)
  7. Subway (5,000, 122%)
  8. Quality Oil Company (145, 121%)
  9. Fresh and Easy (200, 114%)
  10. Aveda (200, 100%)
  11. Urban Outfitters (120, 100%)
  12. Menchie’s Frozen Yogurt (450, 90%)
  13. Robeks Fruit Smoothies & Healthy Eats (100, 83%)
  14. Golden Krust Caribbean Bakery & Grill (100, 83%)
  15. Villari’s Family Centers (400, 80%)
  16. Famous Famiglia (100, 80%)
  17. Sandella’s Flatbread Café (100, 80%)
  18. Crazy8 (160, 73%)
  19. Wing Zone (70, 70%)
  20. Mini Melts (200, 67%)
  21. Dunkin’ Brands Combo Stores (200, 64%)
  22. Torrid (90, 62%)
  23. Lee Nails & Spa (90, 60%)
  24. Charming Charlie (120, 60%)
  25. Red Mango (120, 57%)
  26. Kool Smiles (60, 57%)
  27. Five Below (110, 57%)
  28. lululemon athletica (80, 56%)
  29. Crocs (100, 55%)
  30. Francesca’s Collections (152, 54%)

Source: RBC Capital Markets July 2015 National Retailer Demand Monthly