Gallelli Gazette_June 13, 2023

THE GALLELLI GAZETTE Retail Roundup

QUOTE OF THE WEEK:

DISAPPOINTING

This week, on June 15th, the Census Bureau will be releasing their Advanced Monthly Retail Sales for Retail and Food Service Report for May 2023. Last month’s numbers surprised most analysts. On a monthly basis, both February and March reflected sales declines to the tune of -0.7%. That trend reversed itself in April with sales increasing by a seasonally adjusted 0.4%--which simply isn’t what one would expect going into the 24th month of an inflationary environment.

On an annual basis, April retail sales also surprised; they were up 1.6% from where they stood in April 2022. Though this was the smallest annual increase recorded since May 2020 (-5.2%) when we were still reeling from the initial lockdown period of the pandemic. Yet, economists have been scratching their heads wondering how long this indicator can stay positive. Monthly change has already gone negative four out of the last six months—but annual change has not.

Annual change numbers are usually the more important number to watch because in relatively normal times, they give a better view of the longer-term trend. Plus, this is all preliminary data to begin with. With the release of May 2023 retail sales later this week, April totals will also be revised based upon additional data that may have been collected since the last report. In relatively normal times, monthly shifts often end up just being noise. However, these are not normal times. During periods of heightened economic uncertainty, those monthly numbers matter a lot. They are the canary in the retail coalmine.

Unfortunately, I expect monthly and annual retail sales numbers will both go negative this week, for the first time since April 2020.

Here is why. From 2015 through 2019, annual retail sales growth averaged 3.4%. Not only were April 2023 numbers less than half of the pre-pandemic norm, but they also demonstrate a massive drop from the record levels we saw in 2021 and early 2022. Fueled both direct Federal aid to consumers and businesses, as well as the lopsided impacts of the pandemic itself, Americans went on a record-setting retail spending spree. From March 2021 (+28.8%) through October 2022 (+8.8%) annual retail sales growth never fell below the 8.0% mark. This includes June of last year when retail sales grew by 9.3% year-over-year despite that also being when inflation peaked at 8.9%.

It takes a while for consumers to feel the pinch of inflation, but the last time we recorded inflation below the 4.0% mark was in March 2021. We are now 24 months into an inflationary environment and though the Consumer Price Index (CPI) has come in at 5.0% the last two months in a row (April and May 2023), consumer spending levels have seemed to defy the gravity of both inflation and their own sentiment.

The good news is that by the time you are likely to read this, the latest inflation data will have been released by the Bureau of Labor Statistics (BLS). The May 2023 CPI report is scheduled to come out on Tuesday, June 13th and most economists expect inflation to fall. ; Trading Economics predicts a 4.1% reading while the analysts at FactSet forecast CPI to come in at 4.2%. Either one would be welcome news, though these are still double the Fed’s target level of 2.0%.

But I don’t expect good news on the retail sales front because of a couple of indicators. The U.S. Bureau of Economic Analysis (BEA) tracks the personal savings rate of Americans. Since 1959, this number has averaged in the high 8% range. It surged to 30% in the initial days of the pandemic when consumers reacted to uncertainty with a wave of panic savings. That, plus a mountain of stimulus meant that between February 2020 and April 2022, the amount of money that Americans had in the bank had spiked by $4.781 trillion. Since then, Americans have tapped into $876 billion of those savings.

Meanwhile, over the past year American credit card debt has surged. It’s increased 13.2%, or more than $1.4 trillion. By comparison, non-revolving consumer debt during this same time period has increased just 3.2%, or $165 billion. Our retail spending over the past two years has increasingly been sustained by consumers dipping into savings and running up bills on their credit cards. This has all occurred at a time when the price of money has gone up. According to the Federal Reserve, the average interest rate on American credit cards was 14.71% in 2020. As of February 2023 (the latest data they have published), this has gone up to 20.92%. But while the Federal Reserve just tracks this data on a quarterly basis, Forbes Advisor’s weekly credit card rates report indicates that as of June 12, 2023, the average rate now stands at 24.59%.

I hope I am wrong on this prediction, and the economy has certainly continued to generate baffling readings throughout the post-pandemic era, but I suspect both the monthly and annual change in retail sales will be in the red this week. 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.

TOP TEN RETAIL STORIES OF THE WEEK

1 US Retailers Face Increasingly Difficult Sales Environment Costar 6/9

2 Labor Hoarding is Gaining Steam Even as Businesses Brace for a Recession CNN 6/8

3 Six of Ten Americans Rooting for Mall Comeback Chain Store Age 6/7

4 Mixed-Use is the Future of Development Inside Media Limited 6/7

5 The Global Brands Coming to a Shopping Center Near You Wall Street Journal 6/7

6 Entertainment Brands Will Sign 9MSF of Leases Thru 2024 Chain Store Age 6/7

7 Is Retail the New Darling of CRE— There are a lot of reasons to think so Globe Street

8 Go Big or Go Small: Grocers See Early Success w/Small Formats

9 NRS’ May 2023 Retail SameStore Sales Report National Retail Solutions 6/5

10

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

While Most are Living Paycheck to Paycheck, the ‘Quiet Luxury’ Trend Takes Over CNBC 6/10

“A society when old men plant trees in whose shade they will never sit.”

– Greek Proverb

RETAIL SALES NUMBERS AHEAD?

THE GALLELLI GAZETTE Retail Roundup

Livestream Shopping Booms as Small Businesses Strike Gold on social media

CNBC 6/9

Retailers are Gamifying Shopping w/Virtual Storefronts to Boost Engagement & Loyalty

CNBC 6/9

Demand for Smoothies Continues to Soar

QSR Magazine 6/7

Legacy Beauty Brands Aging Down to Reach Gen Z

Retail Dive 6/7

SUPPLY CHAIN/ECOMMERCE/OMNICHANNEL/TECH

Sweetgreen to be Fully Automated w/in 5 Years

QSR Magazine 6/8

TOP ECONOMIC STORIES

The Wealth Effect and the Great Resignation

The Real Economy Blog 6/8

It’s Official: We’re in a Bull Market

CNN 6/8

White House Weighs in on ‘Cooling’ Grocery Inflation

Grocery Dive 6/8

Economic Conditions Look Like Soft Landing Says NRF Economist Chain Store Age 6/7

National Diesel Fuel Prices Down Logistics Management 6/6

TOP RETAIL REAL ESTATE TREND NEWS

How to Keep Up w/21st Century Drive Thru Demands

QSR Magazine 6/8

Refinancing Could be Disaster for Many Loans, Not Just Office Globe Street 6/8

Mall Foot Traffic Drops for Fourth Straight Month Chain Store Age 6/7

This Analyst Believes CRE Growth Will Revert to Usual 3% - 6% Gains Globe Street 6/7

Canada’s Traditional Malls are Turning into Mall Cities Archinect News 6/7

BUILDERS & BUYERS NEWS

PREIT Faces Potential Leadership Shake Up After Brutal Shareholder Vote Bisnow 6/9

Why Net Lease Retail Continues to Draw Investors

Globe Street 6/8

Minneapolis Explores New Pedestrian Only Vision for Nicollet Mall

Bring Me the News 6/6

Stan Kroenke Buys Another LA Mall at Big Discount

Commercial Observer 6/5

Firm w/Flair for Redevelopment Buys Houston Mall

Costar 6/5

RETAIL AND CONSUMER TRENDS

Retail’s Big Theft Problem

Commercial Observer 6/9

Lululemon Expanding Digital Workout Offering

Retail Dive 6/8

TikTok Eyes $20 Billion Retail Business Despite US Setback

Bloomberg 6/7

IKEA Buys American Supply Chain Firm; Ramps up eCommerce

Furniture Today 6/7

Online Marketplaces are in Growth Mode

Digital Commerce 360 6/5

ARE YOU EXPERIENCED? EXPERIENTIAL RETAIL NEWS

8-Unit Puttshack to Add Ten More Units

Chain Store Age 6/7

Why Competitive Socializing is Poised to Take Retail by Storm

Globe Street 6/7

Crestwood MO Food Hall w/in Schnucks Grocery Store Opens

St. Louis Post-Dispatch 6/6

Classic Arcade Starcade Moving to St. Paul MN Food Hall, the Keg & Case Market

Bring me the News 6/5

Julia & Henry’s Food Hall Opens in Miami

Miami Eater 6/5

RETAIL CHAIN STORE OPENINGS AND GROWTH

Espirit Continues US Comeback via Pop-Ups; 3 Permanent Stores to Open in 2023

Chain Store Age 6/8

Signet Jewelers to Pilot New Jared, Kay Concepts

Chain Store Age 6/8

9-Unit Pet Evolution Inks Orlando Franchise Deal; Will Open 15 -20 Stores in 2023

Franchising.com 6/8

300+ Unit Royal Farms Opens Second North Carolina Store

Petrol Plaza 6/8

Colombian Brand Agua Bendita to Open 1st US Store in Maimi

Fashion Network 6/8

New Burlington Opening in Henderson NV

Las Vegas Review Journal 6/7

Austin-based Made in Plans to Add More Permanent Stores for Cookwear Concept

Chain Store Age 6/7

1,507 Unit Dollarama Plans to Have 2,000 Canadian Stores by 2031

Globe and Mail 6/7

THE GALLELLI GAZETTE Retail Roundup

Issue No. 4 | June 13th, 2023

Burlington Adding New San Jose Store

Bolly Inside 6/7

467-Unit Ollie’s Bargain Market to Open 44 Stores This Year

Chain Store Age 6/7

247-Unit School of Rock Opens in Maywood NJ

Franchising.com 6/7

211-Unit LoveSac Sees Q1 Sales Boost—Has Added 50 Units in Past Year

Retail Dive 6/7

110-Unit Stretch Zone Opens in Dawsonville GA

Franchising.com 6/7

Barnes & Noble Opening Two Massachusetts Bookstores this Month CBS 6/7

Swiss Luxury Watchmaker Bucherer Opens in Las Vegas

Fashion Network 6/6

17-Unit Primark Opens at Arundel Mills (Hanover, MD); 3 Other Summer Openings Planned

Chain Store Age 6/6

New C-Store Concept, roam ‘ stop, Opens 3 Las Vegas Units This Week

CSP Daily News 6/6

Five Below Sales Up; Snatches Up 16 Tuesday Morning Leases

Retail Dive 6/5

27-Unit Foxtrot Opens Largest Store (6k SF) to Date in Austin TX

Grocery Dive 6/5

Japanese Department Store Teso Life Opening 5th US Unit in Houston

Secret Houston 6/5

RETAIL CHAIN STORE CLOSINGS AND CONTRACTION

Cultivation Food Hall at the District at Eastover (Jackson, MS) to Close WLBT 6/9

Experts Propose Mixed-Use Solutions for Vacant Canadian Nordstroms Globe & Mail 6/8

Recent Store Closure List—San Francisco Business Insider 6/8

Tops Renovating Five PA Stores, Closing One in Erie PA Winsight Grocery Business 6/6

Rite Aid Closes Seattle Store Amid Continued Crime & Violence

Supermarket News 6/7

THE GROCERY AISLE

Publix’s new Lakeland FL Store Opens; 1,343 Units Now

Winsight Grocery Business 6/8

Loblaw’s 33-Unit Asian Concept T&T Supermarket to Open in Bellevue WA Winsight Grocery Business 6/8

380-Unit Sprouts Readies Four New Stores to Open Supermarket News 6/8

Inside H.E.B.’s Supersized Georgetown Store

Winsight Grocery Business 6/7

Fareway Opens 136th Unit in Bondurant IA

Winsight Grocery Business 6/7

H.E.B. Expanding 9-Unit Joe V’s Smart Shop w/2 New Dallas Stores

Chain Store Age 6/6

Aldi Set to Open Three Stores in Three States (MS, OH & PA)

Winsight Grocery Business 6/6

Whole Foods to Open New Store at Parks at Walter Reed in DC REBusiness Online 6/6

Only 12% of Grocery Transactions Online Supermarket News 6/7

Watch Out Restaurants, Grocery Stores Are Coming for You Winsight Grocery Business 6/6

FOOD & BEVERAGE

Germany-Based Coffee Fellows Opens 1st US Store in Texas

QSR Magazine 6/9

150-Unit Paris Baguette Moves Closer to Goal of Opening 64 Stores in 2023 RestaurantNews.com 6/9

+/-50 Unit Nando’s PERi-PERi Opens Flagship in DC’s Penn Quarter QSR Magazine 6/9

122-Unit Bonchon Announces Agreements for 12 New Locations

QSR Magazine 6/9

CA-based Fish and Chip Concept, The Wee Chippy, Inks 30 Unit Franchise Deal Franchising.com 6/8

The Cauldron Chicago Introduces “The Vault” Speakeasy Chicago Food Magazine 6/8

The Human Being Opens Third Vancouver WA store Franchising.com 6/8

300 +/- Unit Chicken Salad Chick Opens in Amarillo TX

QSR Magazine 6/7

QSR Operator Southpaw Buys 40 Atlanta Taco Bells

QSR Web 6/7

Starbucks to Diversify Footprint w/Delivery-Only and Drive-Thrus

QSR Magazine 6/7

31-Unit Miami Grill Opening Two Orlando Restaurants

Fast Casual 6/7

70-Unit Ziggi’s Coffee Inks Franchise Development Deal for 18 Units in IL, IN and KY

QSR Magazine 6/7

67- Unit Pokeworks to Open 12 Restaurants in 2023

QSR Magazine 6/7

230+ Unit Slim Chickens Opens Second Iowa Store

QSR Magazine 6/7

2-Unit Apola Greek Café to Open 3rd Store in Valencia CA

QSR Magazine 6/7

400+ Unit Boston’s Pizza Opening in Casper WY Franchising.com 6/7

Pinkbox Doughnuts to Open 10th Las Vegas location at Plaza Hotel DT Bake Magazine 6/6

Why Chicago’s Slice Factory Created New Sweet Spot Concept

Nation’s Restaurant News 6/6

Restaurants, Fitness, Discounters & Grocery Grow in Importance to Landlords Costar 6/6

Salad and Go Opens 100th Unit in Las Vegas

Fast Casual 6/5

THE GALLELLI GAZETTE Retail Roundup

LOCAL MARKET NEWS

The Fraying of the Texas Miracle; How the State’s Affordability Edge is Coming Undone Bisnow 6/9

Retail Availability in Orange County Nears All-Time Low Costar 6/8

Twice as Many Stores Opened as Closed in DC Since 2022 ConnectCRE 6/8

Tucson Developers Needed to Expand Commercial Space Marana News 6/7

The Future of Downtown Cincinnati Cincinnati.com 6/6

M&A MANIA

How This Flooring Acquisition Could Change the World of Home Retail Business of Home 6/8

FAT Brands to Take 100-Unit Twin Peaks Public (Will Open 18 – 23 Units in 2023)

FSR Magazine 6/7

Cava Values itself at $2.1B

QSR Magazine 6/6

BuyBuyBaby in Talks to Sell to Owner of Janie & Jack Wall Street Journal 6/5

Sonic Franchisee Buys Corner Bakery Café Out of Bankruptcy

QSR 6/4

CULTURE CORNER: UNSINKABLE SAM: LUCKIEST CAT / UNLUCKIEST SHIPMATE

We recently passed the 82nd anniversary of the sinking of the German battleship, the Bismarck on May 27, 1941. This ship, and its sister vessel the Tirpitz, were the largest battleships ever built by Germany and two of the largest (to this day) that have ever been built by any European power. These ships were both 821 feet long, or nearly the length of three football fields, and though they each weighed in excess of 50,000 tons, were powered by 12 steam engines each that made them capable of cruising a fast 30 knots. The Bismarck had eight 15-inch guns that were capable of firing 1,800-pound armor-piercing projectiles as far as 21.75 miles. Its guns could penetrate 16.5 inches of armor from eleven miles out. It also had some of the thickest armor ever put on a ship—the interior of its gun turrets was protected by 14.2 inches of solid armor and the armor belt around the ship was 13.8 inches deep.

It embarked on a campaign to sink Allied shipping in the North Atlantic on May 18, 1941. Three days later, it would sink the HMS Hood—hits from the Bismarck would ignite an ammunition fire that exploded the aging British battlecruiser, splitting it in two and killing all but three of the 1,421 sailors aboard in what is still the Royal Navy’s largest loss of life from a single ship. It also damaged the HMS Prince of Wales, killing 13 of her crew before that ship escaped.

It is unknown if the shipbuilder, Blohm + Voss, ever referred to the ship as “unsinkable.” This nickname would later become part of its American lore, following the 1959 Hollywood film “Sink the Bismarck!” and the Johnny Horton song with that title released the same year. But, if history has taught us anything, never call a ship unsinkable.

Three days later, the combined efforts of a large British force of ships, submarines and bombers, would send the Bismarck to the bottom of the ocean with over 2,200 dead. Only 110 men would survive and be picked out of the ocean by the British fleet. 110 men and one cat. And June being “Adopt a Cat” month, I’m not going to bore you with more military history— there is a great History Channel podcast on the topic if you want more of that—but I’m going to talk about “Unsinkable Sam,” the luckiest (or maybe unluckiest) feline in naval history.

Sam was a black-and-white patched cat that likely was a pet of a German sailor on the Bismarck. He was found floating on a board hours after the Bismarck’s sinking and brought aboard the HMS Cossack by sailors that named their new mascot Oskar (they supposedly chose a name starting with an ‘O’ from the International Code of Signals code for man overboard, and the German spelling because… it was a German cat).

Oskar would serve onboard the HMS Cossack for the next six and a half months… until it was hit by German torpedoes on October 24, 1941, killing 159 of her crew of 219. Oskar was among the survivors. The cat was then transferred to the aircraft carrier, the HMS Ark Royal. Now nicknamed “Unsinkable Sam,” the cat would serve as a mascot for that ship’s sailors for less than a month. On November 14, 1941, the HMS Ark Royal was sunk by German torpedoes off the coast of Gibraltar. Sam was reportedly found floating on plank by a rescue team that described him as, “angry, but unharmed.” He was transferred first to the offices of the Governor of Gibraltar but was later sent to live out his days at the “Home for Sailors” in Belfast, Ireland. Sam died of natural causes in 1955.

History for Weirdos has an entertaining podcast on the topic of Sam, as well as the even weirder true story of the Polish WWII hero Wojtek, a chain-smoking, beer-drinking 500+ pound brown bear that was “seen” at the Battle of Monte Cassino in 1944 carrying shells to artillerymen on the front lines.