Bright Spots
May 1, 2009 12:00 PM, By Jennifer Popovec
Amid retailer closings and bankruptcies, value-oriented chains shine.
On July 1, fashion retailer DownEast Basics, a seller of value-priced apparel, will open its first location in California. Located in the Central Valley, the new 1,400-square-foot store is one of five new stores the apparel retailer will open this year. In total, Salt Lake City-based DownEast Basics plans to grow its store footprint by more than 10 percent in 2009 and 15 percent in 2010 — a challenge few retailers are taking on in the midst of such miserable economic conditions.
A retailer opening that many stores 18 months ago would barely warrant a mention. But in a climate where expanding retailers have become a rarity, firms like DownEast Basics are hot commodities. They aren't alone. There are a handful of firms looking to expand modestly in 2009. The retailers run the gamut of selling categories. What they have in common is one major factor: They offer value to their customers.
“Any retailer with a value proposition that resonates with the shopper today is banking on winning market share,” says Keith Anderson, a senior analyst with RetailNet Group, a Waltham, Mass.-based retail advisory firm.
DownEast Basics, for example, is experiencing same-store sales growth of 10 percent or more, according to Jonathan Freedman, vice president of apparel. The chain's strong performance has not only encouraged it to open more stores, but also to expand its merchandise offerings to include clothing lines for young girls and men.
From heavy discounters like Dollar General and Big Lots to value-apparel chains such as DownEast Basics and H&M, retailers that stock merchandise at discounted prices are thriving in today's tough retail market and are taking advantage of expansion opportunities.
“The real estate market is very favorable today for retailers that are expanding,” says Charles Freedman, vice president of DownEast Basics. “Leases are very affordable, and landlords are offering fantastic incentives such as free rent. It's a fantastic time to exploit favorable terms and find prime locations.”
Measured growth
Even though retail sales and consumer confidence showed signs of strengthening in early spring, year-over-year retail sales continue to be anemic. In February, for example, total retail sales (which include non-general merchandise categories such as cars, gasoline stations and restaurants) decreased 12.3 percent over 2008, according to the U.S. Commerce Department.
As retailers struggle with slumping sales, they are being forced to shutter stores. In fact, estimates for store closings range from 10,000 to 20,000. Many retailers that rapidly expanded over the past several years are now letting their stores go dark. Other chains have already filed for bankruptcy and vacated stores.
However, nearly 65,000 new stores are projected to open across the U.S. during the next 24 months, according to the March issue of RBC Capital Markets' National Retailer Demand report, which tracks 2,000 retailers and their planned store openings. Typical mall store tenants expect to open 21,077 stores, while big-box retailers plan to open 4,324 stores (not including big-box chains such as Wal-Mart and Target). Over the next 24 months, food-related retailers will open the most stores, followed by salons/health, banking, and family apparel.
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