Retail Industry Brief
Rising wages and cooling inflation in the latter months of 2023 boosted retail sales, surprising many analysts that mistakenly thought consumers would curb spending at stores, markets, restaurants and bars, and online. Retail sales rose 5.6% in December, according to the U.S. Department of Commerce, and nearly matched the 5.8% increase in December 2022.
Holiday sales in November and December reached a record $964.4 billion, not adjusting for inflation, the National Retail Federation reported in mid-January. Lululemon, Abercrombie & Fitch and American Eagle Outfitters are among the retailers that raised their financial targets on stronger-than-expected late-year sales.
The U.S. economy also exceeded expectations, growing at a 3.3% GDP clip in the fourth quarter. We’ll recall, consumer spending accounts for 70% of the economy.
From a real estate perspective, Coresight Research reported the net new retail store openings in 2023 surpassed the number of stores that closed – for the second-straight year. The firm has forecast that retailers are on track to open 1,000 net new stores in the U.S. during 2024.
By late last year retail availability in the U.S. fell to 4.8%, the lowest level in 18 years, according to one published report. With demand surging, landlords have largely moved away from rent structures as a percentage of sales – a common practice during the pandemic designed to help keep retailers afloat, yet not as profitable for property owners as rents on a per-square-footage basis.
Consequently, average asking rents are 10%, 15% and 20% higher than pre-pandemic years (2019 and earlier), depending on the market or submarket. An executive at one national retail and private-equity investment firm that operates in 29 states with open-air shopping centers and enclosed malls said that they are experiencing “massive, massive rent growth.”
Retail sales slipped in January, however, and were down 1.1% from December and 0.02% from a year earlier. Weather may have played a factor with storms pounding the Northeast, Midwest and even California. During a 2024 “Outlook” webinar with Liz Ann Sonders, Schwab’s Managing Director, Chief Investment Strategist, said the soft January sales could be a reflection of consumers “economizing” after month-after-month of escalating food, gas and energy prices.
New Stores, Expansions and Concepts
Grocery Outlet announced its intention to open 1,100 new stores this year. The Emeryville, CA-based closeout-retailer offers deeply discounted and overstocked products from namebrand and private label suppliers (NASDAQ: GO) that uses, on average, 16,000-square-foot stores. A company executive stated at a commercial real estate conference that they are looking for venues “everywhere that I don’t have a store two-miles away” and specifically said it was eyeing Southern California – where it already has 100 stores, with another 100 locations.
Walmart recently revealed it plans to add 150 stores this year and remodel and expand 650 of its existing locations, as part of its strategy of rolling out the “Store of the Future”. The new concept will feature expanded pharmacies and update vision centers, improved layouts, expanded selections and the integration of new technologies. The company also stated its goal of developing a reliable coast-to-coast network of affordable EV charging stations.
