Gallelli Gazette_June 20, 2023

THE GALLELLI GAZETTE Retail Roundup

QUOTE OF THE WEEK:

GREAT WEEK FOR THE ECONOMY/BAD WEEK FOR PREDICTIONS

Want to know what really bugs me? Nobody keeps scorecards on economists as to the accuracy of their predictions. One would think that this would make immense sense. In sports, we know that a baseball player that regularly plays and manages to hit just in just three out of ten times at bat is a star. We know that the football quarterback that throws 20 touchdowns for every one interception is a superstar. We fastidiously keep metrics on people that merely play games—and even the most casual fans tend to have a decent idea of who is exceptional, who is average and who likely isn’t going to be in the big leagues for long. Yet we don’t do this for the prognosticators predicting things that really will impact our lives. Granted, economists are generally dealing with far greater global complexities in their judgments than the still complicated mechanics of eye-hand coordination and physics that athletes must master. One of the problems with economic forecasting is that a small change in a few variables can make predictions almost impossibly complex. And no one can predict “black swan” events, things that are utterly unforeseeable except to the omniscient, like a 9/11 attack, the plague or the sudden popularity of pickleball. But if athletes fail consistently, they usually are driven from the competitive field quickly. The same usually doesn’t happen with economists. For example, Dr. Nouriel Roubini, also known by the nickname “Dr. Doom,” is one of the most famous economists in the world and, if you watch any of the 24/7 business channels you have, no doubt, seen him dispensing his predictions and forecasts over the past 20 years. He is arguably best known for forecasting the 2008 Great Financial Crisis. The only problem is that he forecast it would happen in 2004. And then 2005. And 2006 and 2007. He finally got it right in 2008. By the way he predicted our current cycle of inflation would end in a recession, but one that would have started 11 to 7 months ago had he been correct with timing and one that would bring about 1970s levels of stagflation (double digit inflation and unemployment) had he been correct as to severity. But he is still on television all the time. By the way, right now he is upbeat about AI.

My point isn’t to beat up on Dr. Doom. The fact is he has a pretty good track record most of the time, as detailed here in an analysis from the journalists at Citywire. My own two critiques of his work

would be that his bearishness sometimes underestimates the resilience of markets (economics, after all, is called the “dismal science” because its about risk analysis) and in the timing of his predictions.

Which brings me to where I get to happily eat crow for my prediction last week. I said that retail sales, after 24 months of heightened inflation, would finally sink into negative growth territory in terms of monthly and annual change. They didn’t. In fact, the economy had a fantastic week.

Most importantly, May inflation fell to just 4.0%--beyond what most analysts predicted/expected—and its lowest level in 24 months. If the Federal Reserve had still been on the fence about further interest rate hikes, I am pretty certain that this bit of data finally sealed the deal. After ten consecutive rate hikes that had increased the federal funds rate a whopping five full percentage points (the fastest ramp-up of interest rates in its history), Jerome Powell and his crew finally hit pause— an incredibly welcome sign for real estate. Considering the impact of rate hikes usually takes anywhere from six to 18 months to fully impact the economy, it is a safe assumption that continued decreases in inflation, even if modest, will mean the hikes are finally over.

As for my sales prediction, I am incredibly happy to have been wrong. But they are far from rosy. Total May sales increased 0.3% on a monthly basis and were up 1.7% annually. But if you take car sales out of the mix, they were modestly in the red… to the tune of -0.1% both monthly and annually. Here’s the standout categories (good and bad) in terms of annual sales growth:

Food Service & Drinking Places +8.2% (+0.4% monthly)

Health & Personal Care Stores +7.8% (0.0% monthly)

Non-Store/eCommerce +6.5% (+0.3% monthly)

Gas Stations -20.3% (-2.6% monthly)

Furniture & Home Furnishings -5.9% (+0.2% monthly)

Electronics & Appliances -4.9% (+0.2% monthly)

Incidentally, one other standout was Building Materials & Gardening Equipment (basically the home improvement category), which saw a month-over-month surge at +2.2%--though the category is still down year-over-year -1.2%.

Now, let’s just hope that I was a complete idiot on this one and like, Dr. Doom, have underestimated the resilience of the American consumer (even if they are dipping into their savings accounts and running up credit card debt to keep spending).

Let’s hope my error was not one of timing. We will see when the June retail sales numbers are released on July 18th.

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 It Was a Great Week for the Economy Business Insider 6/17

2 Motor Vehicles, Building Supplies Lift US Retail Sales in May Fashion Network 6/16

3 Retailers Preparing for a Discount-Heavy, Down Holiday Season CNBC 6/16

4 US Retail Sales Rose in May CNN 6/15

5 Rockport Files Bankruptcy Again (They Closed All Stores Last Time in 2018); Will Sell Assets Chain Store Age 6/15

6 Federal Reserve Boosts Commercial Real

7 Federal Reserve Pauses Interest Rate Hikes After 10 Consecutive Increases

8 Westfield Gives up San Francisco Centre Mall, Signaling More Pain Ahead

9 Inflation Cools Sharply in May to 4%--Lowest in Two Years

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

10 US Inflation Report Suggests Fed Pause Will Become Full Stop Bloomberg 6/13

“Prediction is hard. Especially about the future.”

– Niels Bohr, Nobel Prize Winning Physicist

THE GALLELLI GAZETTE Retail Roundup

Consumers Hesitant to Spend but Mall Visits Remain Same

Globe Street 6/15

Nearly All Americans Have Cut Back on Spending Due to Inflation CNBC 6/14

Consumers Reveal Prime Day Shopping Plans: $250 Average Spend per Prime Day SHopper

Chain Store Age 6/12

80% of Americans Plan to Spend for Father’s Day

Chain Store Age 6/12

SUPPLY CHAIN/ECOMMERCE/OMNICHANNEL/TECH

Walmart Opens its Largest (2.2 MSF) Fulfillment Center Near Indianapolis

Supermarket News 6/16

TOP ECONOMIC STORIES

Initial Unemployment Claims Remain Steady for Week Ending June 10th

BLS 6/15

S&P Has Erased All Its Losses Since Fed Started Raising Interest Rates A Year Ago

Business Insider 6/15

Goldman Sachs CEO Surprised at Economy’s Strength but Warns of CRE Pain

Business Insider 6/13

Earnings Rose 0.3% (Monthly) and 1.3% (Annually) in May

BLS 6/13

Cooler Inflation Bolsters Argument for Fed Pause

New York Times 6/13

TOP RETAIL REAL ESTATE TREND NEWS

Prices Improving for All CRE Types Except Office, Life Science & Storage

Globe Street 6/16

US Real Estate Being Snatched Up by International Apparel Brands Uniqlo & Mango

Apparel Resources 6/15

Here’s the Real Reason Downtown Malls are Closing (It’s Not Crime)

The Street 6/15

Capital Markets Continue to Thwart CRE Professionals

Globe Street 6/13

Prime Space at a Premium for Expanding Retailers

Shopping Center Business 6/12

BUILDERS & BUYERS NEWS

PREIT Avoids Major Leadership Shakeup

Chain Store Age 6/16

Macerich Takes Full Ownership of Five Vacant Sears Boxes

Chain Store Age 6/15

Westfield Surrenders San Francisco Centre to Lender

Chain Store Age 6/13

Irvine Company Adding Apartment Units to Orange County CA Shopping Center

Globe Street 6/12

Pyramid Restructures Loan on Poughkeepsie Galleria in New York

Chain Store Age 6/12

RETAIL AND CONSUMER TRENDS

Consumer Sentiment Lifted 8% in June According to U of Michigan Survey University of Michigan Survey of Consumers 6/17

DTZ Brands Innovate Online and in Physical Stores (Filson, Shinola, True Religion, Zenni)

Chain Store Age 6/16

Why is Delivery Demand for Restaurants Softening?

QSR Magazine 6/15

Uber Health Adds Grocery & OTC Meds Delivery

Grocery Dive 6/14

Kohl’s Turns Associates Into Influencers

Chain Store Age 6/13

ARE YOU EXPERIENCED? EXPERIENTIAL RETAIL NEWS

F1 Arcade Announces Major Investment for US & International Expansion Retail & Leisure International 6/15

New Food Hall, The Third Place, Coming to Old Town Clovis, CA Thetandd.com 6/14

Food Hall & Entertainment The Power House Venue to Open in Rock Hill, North Carolina WSOC-TV 6/14

Look Inside New Downtown Orlando Immersive Dining Concept; Debonair Supper CLub Orlando Business Journal 6/13

Pickleball Chain Pickle Haus to Open Five Chicagoland Venues This Year Bisnow 6/12

RETAIL CHAIN STORE OPENINGS AND GROWTH

Casey’s General Store Buys 26 Units in KC area Kansas City Star 6/17

DTC Sneaker Brand Kizik Opens First Physical Store at Urah Mall—More to Come Chain Store Age 6/16

Tentree Opens First Physical Store in DC WWD 6/16

Amiri Debuts Larger, Renovated Rodeo Drive Store WWD 6/16

Hobby Lobby Opens in Baxter MA Brainerd Dispatch 6/16

Louis Vuitton Opens 8th Store in Las Vegas Fashion Network 6/15

Macy’s Celebrates Opening of Social Kitchen Concept at Minnetonka MN Store Macys 6/15

REI Expanding Resale Concept Re/Supply

Chain Store Age 6/15

THE GALLELLI GAZETTE Retail Roundup

Barnes & Noble Now Open in Reston (VA) After Closing a Decade Ago

FFX Now 6/15

Surf’s Up for Reef’s First US Store

WWD 6/15

SUPERVSN’s Chooses Slauson Over LA’s Other Retail Hubs for First Store. Here is Why Mr. Mag 6/14

Bank of America to Enter 7 New Markets for Retail Banking Banking Dive 6/14

29-Unit Outdoor Furnishings Concept Watson’s Celebrates Opening Five Detroit-Area Stores

Furniture Today 6/13

IKEA Plans a Third Store in North Texas But its Not What You Think

Dallas Morning News 6/13

RazerStore Opens Five Units in Simon Malls

Chain Store Age 6/13

Japanese Dollar Store Daiso Finally Opening in Dallas Dallas Morning News 6/12

Restoration Hardware Sets High Bar w/European Debut—Opens in 400 Year Old Landmark

Estate

Chain Store Age 6/12

Swedish Luxury Shirt Brand Eton to Open NYC Flagship Store

ConnectCRE 6/12

Crocs Expands w/New Store at Hershey PA Tanger Outlets

ABC 27 6/12

Primark Opens 20th Store at Buffalo’s Walden Galleria; Plans to Have 60 by 2026

Chain Store Age 6/11

RETAIL CHAIN STORE CLOSINGS AND CONTRACTION

AT&T Closing San Francisco Flagship in Union Square

Fox KTVU 6/15

San Francisco’s Cinemark Theater Becomes Latest Casualty at Westfield Mall Daily Mail 6/14

AT&T To Close Chicago Magnificent Mile Store This Summer NBC Chicago 6/14

Hubert White, Emblematic Downtown Minneapolis Retailer, to Close Minneapolis Star Tribune 5/14

All Nordstrom Canada Stores Will Close This Week

Storeys 6/12

THE GROCERY AISLE

‘Greedflation’ in Groceries Hits Wall of Frustrated Shoppers

Bloomberg 6/16

Retail Council of Canada Report: No ‘Greedflation’ in Grocery

Winsight Grocery News 6/16

Publix Opens New Miami Store

Winsight Grocery News 6/16

Whole Foods and Lidl Open New Stores in Washington DC

Supermarket News 6/15

Aldi is Opening Four Stores Today—Here is Where They’re Going Next Eat This, Not That 6/15

Hybrid Grocery Store—Food Pantry The After Market Opens in Las Vegas Food Desert

Winsight Grocery News 6/15

Issue

Hy-Vee’s Biggest Store (135k SF) Opens in Nebraska

Supermarket News 6/15

Korean Grocer H Mart Opening First Sacramento Store in South Sac

Sacramento Business Journal 6/15

7 Things to Know About Asian Grocer H Mart Opening in Dallas’ Koreatown

Dallas Morning News 6/14

Grocery Inflation Continues Rapid Descent Grocery Dive 6/13

FOOD & BEVERAGE

8-Unit Massachusetts-Based Kelly’s Roast Beef Targets LA for Future Growth

QSR Magazine 6/16

40-Unit Paisano’s Pizza Plots East Coast Growth

Pizza Marketplace 6/16

122-Unit (in USA) Bonchon Signs 19 Locations in 2023

Fast Casual 6/16

100 Unit +/- Twin Peaks to Enter Pennsylvania in July

FSR Magazine 6/16

11-Unit Waffle & Ice Cream Concept Dolly Llama Expanding in Utah

QSR Magazine 6/15

Organic Fast Casual Concept Amy’s Opening 5th Unit (in CA)

Fast Casual 6/15

New York Fro-Yo Concept 16 Handles Opens 32nd Unit in Naples FL

QSR Magazine 6/15

44-Unit World of Beer Opens at Grandscape Shopping Center in The Colony, TX

FSR Magazine 6/15

16-Unit CHIP Cookies Opens in Cottonwood Heights UT—12 More on Way Nationally

QSR Magazine 6/15

Netflix Plans to Open First Pop-up Restaurant in LA Dexerto 6/14

32-Unit Stoner’s Pizza Joint Inks Deal for 3 Units in Charlotte NC Area

Pizza Marketplace 6/14

Chicken Concept Huey Magoo’s Opens 49th Unit in OH—Has Another 225 Franchises Sold QSR Magazine 6/14

17-Unit BBQ Concept 4 Rivers Smokehouse in National Growth Mode

Nation’s Restaurant News 6/13

Chicken Salad Chick Adding New Braunfels TX Store

My San Antonio 6/13

240+ Unit Smashburger Adds 5 Stores to Pipeline w/new Utah Franchise Agreement

Chain Store Age 6/13

Dickey’s Adding to Canadian Footprint w/2 New Alberta Stores

Fast Casual 6/13

90-Unit Dog Haus Wants 100 by End of Next Year

Nation’s Restaurant News 6/12

Controversial Dual Drive Thru Chick Fil-A Opening in Atlanta This Week

Urbanize Atlanta 6/12

Portland-Based Thirsty Lion Gastropub Wants 20 Stores by 2025

Nation’s Restaurant News 6/12

8-Unit Smalls Sliders Opens 9th in Metairie LA w/Another Slated to Open Soon

QSR Magazine 6/12

THE GALLELLI GAZETTE Retail Roundup

LOCAL MARKET NEWS

Downtown Exodus: Map Shows Every Major Retail Closure This Year San Francisco Chronicle 6/16

$7 Billion Montreal Mixed-Use Development Royalmount Unveils Luxury Lineup Chain Store Age 6/14

Inland Empire Retail Growth a Product of Fundamentals Globe Street 6/14

Indie Concepts Thrive as Portland’s Lloyd Center Reinvents Itself Again OPB 6/11

New Tampa Bay Mall Concepts Diversify Beyond Retail Axios Tampa 6/11

CULTURE CORNER: BUT I USED LEMON JUICE!

In keeping with a theme of mistakes, I want to share with one of my favorite podcast listens of all time—Cautionary Tales by the economist Tim Harford. If you think all economists are boring, you don’t know his work. In each episode he explores mistakes, screwups, and colossal blunders—and, more importantly, why they happen again and again.

Here is one of my favorites; The Dunning-Kruger Hijack, and Other Criminally Stupid Acts

On April 19, 1995, a man named McArthur Wheeler robbed two Pittsburgh banks in broad daylight. Wheeler thought he had done his homework. Hearing that lemon juice was an active ingredient in invisible ink, he coated his face in lemon juice and took his own picture with a Polaroid. When the instant photo popped out of his camera, he was delighted to see the picture did not capture his image. Therefore, he would not be visible on bank security footage. He called a friend to drive the getaway car and off they went to rob banks. They were arrested within hours, after bank security footage, clearly showing Wheeler, was broadcast. When arrested, he reportedly, he kept saying, “but I wore the juice…” Detectives later theorized his experiment had been flawed by bad film, a broken camera or just poor selfie aim. He was sentenced to 24 ½ years in prison.

This inspired psychologist David Dunning and graduate student Justin Kruger to create an experiment based on comparing self-assessment tests against objective measures of performance. They found people with low ability, expertise or experience on a task/area of knowledge often overestimated their skills. Conversely, high performers often underestimated theirs. The theory hasn’t been without its doubters, as explained in this article. Dunning himself says the theory “has more to do with the misinformed than uninformed.” According to him, it’s lesson is; “we should be humble and cautious about ourselves.” Not a bad lesson no matter what. While Dunning-Kruger is about the person with low abilities but thinks they have superior ones, it’s not the same thing as the Peter Principle. That management theory was created in 1969 by UCLA Professor Peter Principle and states that people in a hierarchical system ultimately rise to a level of respective incompetence.

M&A MANIA

Kroger CEO: Albertson’s Merger Planning Proceeding Nicely Winsight Grocery Business 6/16

Cava Shares Soar 117% Following IPO CNBC 6/15

Darden Completes Acquisition of Ruth’s Chris FSR Magazine 6/14

Overstock.com in $21.5M Bid for Some Bed Bath & Beyond Assets, but Not Real Estate Chain Store Age 6/14

How the Albertson’s/Kroger Merger Could Impact Southern California Retail The Packer 6/12

It’s nowhere near as malicious as Dunning-Kruger. It’s about mismatched job skills. In large organizations, employees are usually promoted based on past successes in previous jobs. The Peter Principle occurs when someone is eventually promoted above the level at which they are competent. Picture the great salesperson who gets promoted to running the entire organization. The skills needed to manage people are not the same as those of being a great salesperson. Sure, there are plenty of stories of entry level employees climbing the ranks to be transformative leaders (retail innovator Harry Gordon Selfridge is one of those stories). But you’re probably more likely to come across people that have been promoted above where their abilities were best suited than prodigies.

Take for example, marketing genius John Sculley, who had done wonders for Pepsi after launching ‘the Pepsi Challenge” campaign in the 1970s (though he reportedly chose Coke in his blind taste test). Perhaps too harshly, he consistently appears on “Worst CEOs of AllTime” lists. This is because, after being recruited by Steve Jobs, he ultimately forced Jobs out in 1985. By the time Apple brought back Jobs in 1996, the company was on the brink of bankruptcy. You know the rest, Jobs creates the iPhone and as of this writing, Apple is the most valuable company on earth, worth $2.91 trillion (more than the United Kingdom’s $2.7 trillion GDP in 2022).

Of course, not all workplace syndromes deal with incompetence. The flipside to Dunning Kruger is Imposter Syndrome--where objectively high performing and talented individuals experience anxiousness and struggle to internally experience or feel their own successes. Incidentally, this syndrome is directly linked to worker burnout and workplace turnover—all of which can have a hugely negative impact on an organization. I’ll leave you with a great article from Forbes; “What the Peter Principle, Dunning-Kruger Effect and Imposter Syndrome Look Like in the Workplace.” I’m off to buy some lemons.