Gallelli Gazette_May 31, 2023

THE GALLELLI GAZETTE Retail Roundup

QUOTE OF THE WEEK:

REFLECTIONS ON ICSC AND THE POSSIBILITY OF A GROCERY PRICE WAR AHEAD

You will notice that this week’s issue is packed with two weeks’ full of top retail real estate-related stories. We skipped publication last week because, like many of you, I was in Las Vegas for the annual ICSC ReCon show. While I have yet to come across official attendance numbers, they certainly appeared to be back to pre-pandemic levels or very close. And, despite current economic headwinds, the dealmakers were out in force and the mood was upbeat. I asked most of the people I was meeting with what their greatest concern in the marketplace currently was and overwhelmingly the answer was not the overall economy, but the challenge of finding quality available space. This is consistent with the reports we continue to come across regarding record low retail availability in dozens of markets.

Of course, not every type of retail real estate is doing well— urban amenity retail in office-dominated central business districts will remain challenged until either more workers are back in their offices or until we begin to see more residential conversions of this space. As for the other weak spot for retail—malls, most Class A and trophy assets currently boast tenant waiting lists or sub 3% vacancy levels. These centers have certainly faced some challenges in the past decade, especially when department store anchors went vacant, but the real challenges all along for malls weren’t the roughly 350 top producing assets but the +/-800 Class B and Class C projects out there.

You may notice that in the Builders and Buyers section of the gazette, mixed-use redevelopment stories tend to dominate. This is because of the approximately 800 Class B and C malls that were in existence prior to the pandemic, only six closed their doors permanently and became, or are in the process of becoming, something different entirely. Despite all the hubbub a few years ago about transforming dead malls into eCommerce distribution centers, this has happened in only four

cases in the last five years. Meanwhile, over 425 of those challenged Class B and C malls have either undergone, or are in the process of undergoing, transformation into mixed-use projects with multifamily, hospitality, medical, office or campus components taking the place of what had been excess retail space. If your shopping center is no longer the center of the community, build a community around it.

By the way, it is impossible for me to not try to cram in mall excursions while I am in Vegas surrounded by the world’s largest concentration of luxury retailers. Multiple Shein pop-ups and news that the Chinese fast-fashion retailer is opening a factory in Mexico, have me convinced that like many brands before them, the chain will be pursuing North American physical store growth ahead likely starting with the pop-up-to-permanent route of site selection.

BTW, over the years, some of the best and most accurate coverage of ICSC (an event often known for industry hyperbole) has come from Globe Street’s, Natalie Dulce. Her latest missives include the growing importance of experiential retail, the rising demand for sit-down dining, QSRs and medical tenants, and her take on the mood of the show (which I share) which was that leasing momentum and optimism abounded.

One more note for the week: within my top ten articles of this issue is an article on a trend I suspect we will be seeing play out as the next saga of grocery stores… from pandemic, to inflation, to a price war. The reality is that in addition to multiple other causes, the inflationary period of the last 18 months has partially been driven by companies padding prices under the cover of inflation while recording record profits. Last year corporate profits hit their highest margins since the 1950s.

This trend holds true not just for major food producers but for many grocers themselves. This is one of the reasons why most of last year saw grocery price inflation far outpace restaurant price growth (restaurateurs are simply not as able to raise their menu costs quickly). But the trend is already starting to reverse itself—restaurant inflation finally surpassed grocery store price growth last month, which I see as both restaurant prices increasing and grocery decreasing slightly. The X factor ahead is food suppliers, but we are already seeing their pricing come back to earth. It may take a while to transpire but I can easily envision the smartest and largest grocery players (likely with much advertising fanfare) to move first in a price war with the idea of seizing precious market share from competitors.

If this was shared with you and you would like to receive the Gallelli Gazette Retail Roundup weekly in your email, email me directly at gbrown@gallellire.com and get on my mailing list.

Garrick H. Brown Gallelli Real Estate gbrown@gallellire.com (916) 789-3324

TOP TEN RETAIL STORIES OF THE WEEK

1 Crucial Days Ahead as Debt Ceiling Deal Goes for Vote AP News 5/28

2

After a Pandemic & Inflation Could a Price War be Next for Grocers?

Supermarket News 5/26

3 How Streetwear Culture Created a Generation of New Luxury Collectors Glossy 5/24

4 Retail Rents Will Maintain Record Highs in 1H 2023 Globe Street 5/18

5 National Retail Federation: Thefts at Stores, Malls Skyrocketing CBS New York 5/17

6 US Suburban Retail Thrives as Work-From-Home Grows Retail Insight Network 5/17

7 Complete List of Stores Closing in 2023 The Krazy Coupon Lady 5/17

8 Ghost Kitchens Are Dying and Nobody Notices Arkansas Democrat Gazette 5/17

9

Target Flashes Recession Warning: Shoppers Buying Fewer Clothes, More Necessities CNN 5/17

10 Parsing the

“If you are depressed, you are living in the past. If you are anxious, you are living in the future. If you are at peace, you are living in the present.”

–Sun Tzu

THE GALLELLI GAZETTE Retail Roundup

Issue No. 2 | May 31st, 2023

RETAIL AND CONSUMER TRENDS

The Consumer Mystery: How Retail Copes in an Uncertain World WWD 5/19

Footwear Retailers Using Concept Stores to Drive Localization

Modern Retail 5/18

Americans are Spending Less on Hobbies. How’s that Impacting Stores that Rely on them? Marketplace 5/18

Why 43-Unit Soft Surroundings is Refocusing from Boomers to Gen X Shoppers Modern Retail 5/18

We’re Already Seeing Grocery Prices on the Rise in May

Supermarket News 5/16

TOP ECONOMIC STORIES

Lower Gas Prices Mean More Money in Americans’ Pockets

New York Times 5/24

Have Consumers Maxed Out their Spending?

Real Economy Blog 5/19

High Food Prices Persist, Cutting into Spending Even as Inflation Moderates Chain Store Age 5/18

Rebounding Margins Silver Lining for US Retail Firms in Uncertain Economy Reuters 5/17

After a down March, Retail and Food Services Sales Rebound Supermarket News 5/16

TOP RETAIL REAL ESTATE TREND NEWS

Retail Leasing Trends for 2023

Commercial Search 5/18

Big Cities See Big Donut Effect Hollowing Out CBDs Globe Street 5/16

Key Drivers of Successful Urban Retail Redevelopments

Globe Street 5/16

Life at the Mall? Converting Retail Spaces to Apartments Would Address Housing Crisis

Savannah Now 5/15

BlackRock: Not All CRE is Risky Connected 5/15

Inside the Decision to Turn a Mall into Housing

The Real Deal 5/15

BUILDERS & BUYERS NEWS

The Luxury Shopping Oasis Emerging in San Francisco’s Struggling Downtown WSJ 5/24

Reconsidering an Ocean of Asphalt at the Anderson Square Shopping Center Austin, TX) Towers 5/18

Moreno Valley (CA) Mall Overhaul to Mixed-Use Approved

Press Enterprise 5/17

DRA to Sell $540M Retail Portfolio

The Real Deal 5/17

Reverse Build-to-Suit Sale Leasebacks Are a Hot STNL Commodity

Globe Street 5/16

SUPPLY CHAIN/ECOMMERCE/OMNICHANNEL/TECH

Peak Season Imports May Pick Up Slightly Over Last Year

CNBC 5/25

Supply Chain Update: Egg Prices Hit 17-Month Low

Nation’s Restaurant News 5/18

Unpacking Amazon’s Shopping Ambitions Within Mobile Games

Modern Retail 5/18

How Many Fast-Food Jobs Can We Actually Give to AI?

Daily Meal 5/17

The AI Revolution is Here to Stay in Retail

Retail Insight Network 5/15

ARE YOU EXPERIENCED?

EXPERIENTIAL RETAIL NEWS

Levi’s Creating a 501 Experience in San Francisco

WWD 5/18

Farmers Union Plans Food Hall & Event Space in New Chippewa Falls (WI) HQ

Volume One 5/18

Fuel and Iron Food Hall is First of its Kind in Pueblo CO

KRDO 5/17

More Mall Owners Embracing Pickleball to Lure Shoppers

Bisnow 5/15

The Ultimate Guide to NYC’s Food Halls

Gotham 5/15

RETAIL CHAIN STORE OPENINGS AND GROWTH

51-Unit Canada Goose Opening 3 US Stores; 16 Total Globally This Year

Retail Dive 5/26

37-Unit Von Maur Opening Department Store in North Dakota

Chain Store Age 5/25

Dick’s Plans 9 House of Sport Stores This Year

Retail Dive 5/24

Primark Opening 3 Stores in NY and NJ Malls

Chain Store Age 5/23

Miniso Opening in Times Square; will Surpass 100 US Units by End of Year

Chain Store Age 5/23

THE GALLELLI GAZETTE Retail Roundup

Issue No. 2 | May 31st, 2023

Belk Opens 10 More Retail Outlets in May Bringing Belk Outlet Store count to 16

Retail Dive 5/22

60-Unit PGA Tour Superstore to Open 8 Units This Year

Chain Store Age 5/19

130-Unit Texas-Based Kendra Scott Expanding in Northeast

Chain Store Age 5/19

Bath & Body Works to Open 90 Off Mall Stores While Closing 50 Mall Stores in 2023 Chain Store Age 5/18

Boardroom Styling Lounge Wants to Grow From 45 to 100+ Units in Next Five Years

D Magazine 5/18

Belk Expanding Outlet Banner to 16 Stores with Ten New Openings

Chain Store Age 5/18

333+ Unit Boot Barn to Open 52 Stores This Year

Chain Store Age 5/18

Scotch & Soda’s US Operations Acquired with Eye to Expansion

Chain Store Age 5/18

Torrid Looking for New CFO and to Open 30 – 40 Stores This Year

Chain Store Age 5/17

Toys R Us Canada to Open Nine Namesakes & Two Babies R Us Stores Across Canada this Summer

Yahoo! Finance 5/17

Soon to be 31-Unit Scheel’s Readies to Open 240,000 SF Mega Sporting Goods Store in Meridian Idaho

Idaho Press 5/17

Adidas Rolling Out New Concept, Pulse, at Four Locations in Canada Starting at Toronto Premium Outlets

Insauga 5/16

Sports & Merch Retailer Rally House to Open in Dallas, Chicago & Omaha

Retail Insight Network 5/15

New Owners of Toys R Us Brand to Open Airport Store at DFW Airport Travel Pulse 5/15

RETAIL CHAIN STORE CLOSINGS AND CONTRACTION

Journeys to Close 100 Stores This Year, Move Away from Malls; Will Open 25 Off-Mall Locations Retail Dive 5/26

US’ Oldest Mall (Southdale in Edina, MN) Losing Buffalo Wild Wings & PF Chang’s Original Newsbreak 5/18

The First Chick-Fil-A Restaurant Closes After Nearly 56 Years at Atlanta’s Greenbriar Mall Eater Atlanta 5/18

Walmart Will Be Closing 23 Stores This Year; Here is the List WFTV 5/17

Nordstrom Rack is Officially Closed in Canada Style Democracy 5/16

THE GROCERY AISLE

Fresh Market Opens 160th Store in Carmel, IN Supermarket News 5/26

89-Unit Big-Y Express Opening 90th in Springfield, MA Winsight Grocery Business 5/25

Aldi, in Push to Open 120 Stores in 2023, Opens Stores in Philadelphia & New York state Winsight Grocery Business 5/24

H.E.B. Continues to Expand in North Texas Supermarket News 5/24

Publix Ends its Greenwise Banner Grocery Dive 5/23

Hy-Vee Opens 3 Stores in Tennessee w/Another on the Way Supermarket News 5/19

Publix Opens New Florida Store and Takes Over Famed ‘Disco Kroger’ Spot in Atlanta Winsight Grocery Business 5/18

US Foods’ 90+ Unit CHEF’STORE to Open Three New Stores in NC, VA Winsight Grocery Business 5/16

Fareway’s 135th Store Opens as Iowa-Based Grocer Celebrates 85 Years in Business Winsight Grocery Business 5/16

Meijer Opens Two New Supercenters in NE Ohio Chain Store Age 5/16

FOOD & BEVERAGE & ENTERTAINMENT

Fast Casual Concept Crisp & Green will hit 65 Units by EOY; Wants 1,000+ Chain Store Age 5/25

50+ Unit Orlando-based Foxtail Coffee Co. Wants to Add 30 Units in Orlando Tampa Bay Times 5/25

58 Unit (in USA) Fogo de Chao Opening New Unit in Brea, CA

FSR Magazine 5/23

Kevin Hart Opens 3rd Unit of Vegan QSR, Hart House, in former McDonald’s Eater Los Angeles 5/22

120+ Unit Black Rock Coffee Bar Opens 32nd Unit in AZ (in Glendale)

QSR Magazine 5/18

31-Unit Toasted Yolk Opening 32nd Store in Magnolia, TX (Has 12 More Openings in Pipeline)

FSR Magazine 5/18

63-Unit Fleming’s Breaks Ground on New Tampa Location

FSR Magazine 5/18

716-Unit Dutch Brothers Coffee to Open 150 Stores in 2023 in Bid to Become Next Great Coffee Brand

QSR Magazine 5/18

Why Chipotle is Focused on Small and College Towns: Chipot-lanes

Nation’s Restaurant News 5/18

18-Unit Pacific Catch Opening New Restaurant in Tustin, CA

FSR Magazine 5/18

98-Unit Twin Peaks to Open 15-16 Stores This Year

FSR Magazine 5/17

11-Unit Roll-Em-Up Taquitos (w/57 Units Already in Pipeline in Western US & TX) Will Enter Southeast

QSR Magazine 5/16

85-Unit Pizza Guys Expanding to Texas; Wants 200 Restaurants There Eventually Pizza Marketplace 5/16

88-Unit Another Broken Egg Café Opens in Austin’s (TX) Highland Neighborhood| FSR Magazine 5/16

362-Unit Golden Corral to Debut Fast-Casual Spinoff Homeward Kitchen for Growth

QSR Magazine 5/16

THE GALLELLI GAZETTE Retail Roundup

Two Unit Daddy’s Chicken Shack Acquired by Private Equity; 11 New Stores Opening Soon Nation’s Restaurant News 5/15

420+ Unit Hooters Announces 6-store agreement in Las Vegas and Central Florida Nation’s Restaurant News 5/15

46-Unit Kora Sushi Opens in Buford, Georgia FSR Magazine 5/15

Legal Sea Foods Opens 25th Location and First VA Store (Virginia Beach) FSR Magazine 5/15

100-Unit Ike’s Love & Sandwiches Adds Another SoCal Store in Downtown LA Fast Casual 5/15

LOCAL MARKET RETAIL NEWS

Texas Boasts 6 of 15 Fastest Growing Cities Globe Street 5/19

Beyond Shopping: Discovering Houston’s Spirited Uptown Neighborhood Houston Chronicle 5/19

North Florida Retail Demand Remains High, But Headwinds Could Temper Enthusiasm Shopping Center Business 5/18

Available Retail Space in Cleveland at Historic Lows Costar 5/17

Large Chains Absent from NYC’s Top Retail Deals from April The Real Deal 5/16

CULTURE CORNER: HOW TO FEED A DICTATOR

Speaking of luxury retail and the greatest proliferation of chef-driven high-cuisine restaurants in the world, it simply is impossible to not be overwhelmed by this in Las Vegas. During ICSC my crew was staying at the Venetian/Palazzo complex (which houses a Versace store). As does the Wynn/Encore complex next-door. Granted, next door in Las Vegas typically means a half to full mile stroll from one city-state to the next. Which can be somewhat mind-blowing when one considers that there are roughly 30 Versace stores in the United States. My home state of California has seven, but the Las Vegas Strip has six.

As for compiling statistics on luxury dining concepts—I am not even going to try. But in the spirit of all this luxury and culinary focus, I would like to share a few tidbits of useless information with you—as well as an incredible read you may want to check out.

M&A MANIA

Express Closes on $75M Bonobos Acquisition from Walmart Retail Dive 5/24

Ex-Famous Dave’s CEO Wants to Buy Bankrupt Corner Bakery Cafe FSR Magazine 5/23

Regency Centers to Acquire Urstadt Biddle in All Stock Deal Worth $1.4 Billion Globe Street 5/18

Shake Shack Strikes Deal w/Activist Investor QSR Magazine 5/16

TPG Buys Angelo Gordon in $2.7B Deal

Globe Street 5/16

The total gaming square footage of the Wynn/Encore city state/casino-resort is a whopping 190,000 SF. This just happens to be the exact square footage of Vladimir Putin’s secret Black Sea dacha/bunker, according to a recent article from Business Insider. By the way, the place does have its own casino, as well as church, wine cellar, hookah lounge with a stripper pole, ice rink, arboretum, no-fly zone and surrounding 17,000 acres of military-patrolled woodlands. It is a fascinating read, with this property being one among at least eight reported other major residences owned by the Russian “President.” Not bad for a dude that in 2021 earned an official salary of 10.2 million Russian rubles, or the US equivalent of $127,000—roughly the average salary of a CPA.

BTW, Putin’s grandfather reportedly was once a chef for the Russian strongman Josef Stalin, who was responsible (depending upon estimates for the deaths of between seven and 30 million people). Apparently, he had the good luck or judgment to not become the full-time chef. Perhaps that is where culinary mediocrity has its rewards beyond far too many QSR concepts.

Which brings me to the fascinating book I have been reading since my Vegas ICSC trip; “How to Feed a Dictator: Saddam Hussein, Idi Amin, Enver Hoxha, Fidel Castro and Pol Pot through the Eyes of Their Cooks.” And I thought American restaurateurs had it rough! It is an utterly fascinating read, whether you are a foodie or history buff—or not. Here is a great podcast interview with the author, Witold Szablowski, that encouraged me to immediately buy it and start listening.