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CONTINUED: Retailers Say Developers Share Blame for PullBack in New Store Openings
<br />About a year ago, Wal-Mart announced an initiative to scale down the size of its new stores, as well as
<br />significantly pullback on new store openings. Lee Scott, Wal-Mart's chairman and CEO said, "It turns out
<br />our move to a capital efficiency focus this past year was absolutely the right thing to do. What we're
<br />seeing worldwide is those stores closest to the customers seem to be doing the best. In the U.S., we're
<br />finding our 100,000-square-foot supercenter in the metro areas being very successful and the 175,000-
<br />square-foot store, versus the 190,000-square-foot store, is doing very well."
<br />Walgreens decided to pair down its new store opening pipeline from 550 net new stores opening this year
<br />to 360-375 new stores annually through 2011. Still a massive number and "far more openings a year than
<br />the rest of the industry combined," said the retailer. Jeff Rein, chairman and CEO said, "Continuing to
<br />expand our footprint and grow market share is a key strategy, but we're going to be more strategic in our
<br />store openings as opposed to just spreading peanut butter across the U.S." While most of the stores will
<br />likely be opened within existing markets, the drugstore retailer said it will "on occasion picking up a very
<br />good site in a small town" -- it seeks "A locations, right on the corners, easy in, easy out, on the going
<br />home side of the street," said Rein.
<br />Bob Sasser, Chairman and CEO of Dollar Tree said, "This year we are a little behind on our new store
<br />target, not because we've pulled back, but because of the state of the market and we've had some
<br />developments that were being driven from other retailers that have fallen through that we were a part of."
<br />Dollar Tree targets "where Middle America works and shops -- lower to midd-e income customers." Dollar
<br />Tree currently has 3,500 stores and plans for U.S. capacity of 5,000 to 7,000 stores.
<br />At the conference, executives of retailers that do continue to actively seek out new store locations, were
<br />not shy to share the position of leverage they feel they have with developers and landlords.
<br />"We're taking a very conservative approach to our real estate strategy. We're putting our real estate
<br />development program through a more difficult filter than we've had in the past and making sure that
<br />we've got absolutely the right piece of real estate at the right price. There's been several deals that we've
<br />walked away from because we don't believe in the growth rate that's associated with that particular trade
<br />area, the rent structure, or whatever issues that developer may have," said Dick's CEO.
<br />"We're at any one time working real estate deals that are 2-3 times more than we plan on opening in an
<br />given period -- that's just smart real estate planning. We have quite a bit of flexibility. There are not a lot
<br />of people out there that are growing at the rate we're growing and there are not that many people out
<br />there that can come into a developer's situation with the kind of balance sheet and credit we have. We're
<br />not seeing a huge benefit in terms of real estate pricing because we're looking to go at the corner of main
<br />& main in almost every location, but we're not seeing it go up," said Kohl's CEO.
<br />Kohl's had to scale down its pipeline in choosing the 50 stores to open in 2009. "As we pick the 50 stores
<br />we want to open out of the 120-125 we have in development, it's all about where you're going to get the
<br />biggest market share and the best ROI -- what kind of deal you can strike and who your developer is sort
<br />of fits into all that," said Montgomery. He added that Kohl's is being tough on stores it chooses in some
<br />states hit hardest by the residential fallout -- AZ, CA, and NV. "Developers and landlords are looking for
<br />somebody like Kohl's to come into their developments because of the kind of traffic we drive and the
<br />credit we have, compared to some of these regional guys that are having issues today," said Montgomery.
<br />"We're working really hard in this market of declining real estate prices -- at least they need to be
<br />declining right now -- pressure is downward. So we're being more selective," said Dollar Tree's CEO.
<br />PetSmart, currently a 1,075-store chain, recently decided to slow capital spending in 2009 and beyond
<br />and will funnel more money into its existing asset base. The pet care retailer expects to have opened 100-
<br />108 new stores in 2008, plans for 60-65 new stores in 2009 and 50-60 in 2010. Phil Francis, chairman &
<br />CEO, talked about the company's process in pairing down its huge new store pipeline, "When we decided
<br />to make a change, we had a pipeline that was too big, so we had to wash our hands. We set hurdles they
<br />had to pass. We started saying to people [developers and landlords] 'looks like you don't make the list,
<br />Copyright (c) 2008 Costar Realty Information, Inc. All rights reserved.
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