Gallelli Gazette_July 19, 2023

QUOTE OF THE WEEK:

SOFT LANDING JUST GOT STRONGER...OR DID IT?

The entire “are we going to have a recession or not?” debate is just getting old. Obviously, working as an economist and real estate analyst, that question has dominated far more of my time than it would the average person, but I hear the same “forecast fatigue” from most everyone I talk to.

In March 2022, the yields on short-term T-bills (2-year notes), surpassed the yields on longer-term T-bills (10-year notes). Normally investors receive higher yields with longer-term investments. When the yield curve inverts, it means that investors are moving their money away from short-term bonds and into long-term ones because they are pessimistic about the near-term future. But the implications of an inverted yield curve go a lot farther. Banks start to pull back on lending in this environment. Higher interest rates inhibit consumer borrowing with major implications for consumer spending on both large purchases (homes, autos) and small (credit card debt service). For businesses it means higher costs and more reluctance to issue debt (bonds) to invest in facilities, new equipment, people, and growth.

Inverted yield curves alone do not cause recessions—but here is the thing about them… they have been recorded 6 to 18 months before 12 of the past 13 U.S. economic downturns. To most economists, when the yield curve first inverted last March, it meant we were on the clock for a downturn. Based on an 18-month timetable that would mean a recession by this September…

Yet, during this time, job reports have continued to surpass analyst expectations. Retail sales are still defying gravity. And though banks have cut back on lending, a greater credit crunch has been averted… at least so far. It appears the case for recession may be crumbling. This week, Goldman Sachs’ Chief Economist slashed his odds of a 2023 recession from 25% to 20%. Chase economists, who had consistently been skeptical of a soft-landing scenario, are now downplaying near-term risk of recession in 2023. Meanwhile, Moody’s recently changed their outlook from a 75% chance of a downturn in 2023 to 0%--but still a 55% chance of short and shallow downturn in 2024.

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No. 8 |

THE GALLELLI GAZETTE Retail Roundup

Here’s why… the latest inflation numbers were released last Friday, and it has now fallen to just 3.0%. Exactly one year ago it stood at 9.1%--the highest level in more than 40 years. The current rate of inflation is the lowest we have seen since March 2021 when it was just starting its meteoric rise. There are some goods where prices are still inflated—bread, beer and cookies, for example, and though most goods are moderating in prices, there remains some concern that the biggest declines have come from volatile energy prices, which can swing quickly.

But it is great news. For the last 18 months, the big question for economists has been “Can the Federal Reserve’s war on inflation succeed without driving the economy into recession?” Can they engineer a soft landing? The opinion of every economist I know, including me, was “Maybe, but I will believe it when I see it.” But a 3% rate of inflation under current circumstances is the kind of thing that a soft landing is made of.

And so are retail sales numbers that continue to outperform even though American savings levels have been falling while credit card debt has been climbing. June retail sales were released by the U.S. Census Bureau today (7/18) and, reflected a monthly increase of 0.2% and annual gain of 1.5%. This is after a revision to May’s data that boosted those totals from a monthly gain of 0.3% to 0.5%. June’s sales reflected lower spending for gasoline and groceries, but a rebound in electronics and furniture. Meanwhile, one cannot rule out the impact of rapidly falling inflation that has kept spending afloat despite significant headwinds.

For the past 18 months we have been using the “R” word a lot; recession. But the other “R” word, resilience, has consistently foiled diligent analyst forecasts based upon solid logic and math.

Last September I gave a forecast presentation to an economic development event in El Paso where I laid out multiple scenarios and shared my take at the time that we would not have a soft landing… but a bumpy one. You know, one where the landing gear collapses, and we skid across the runway spitting fire and smoke… but everyone walks away from the plane. I like that I have greater confidence today in our “landing gear,” than I did then. But…

As of this morning, the yield on a 2-year treasury note was 4.768% compared to a yield of just 3.902% on a 30-year treasury bond. The yield curve not only remains inverted, but the gap is more pronounced. And, as great as the inflation news has been—the Fed is still signaling they’re going to raise rates again.

Here is the problem; the lag time that occurs before the impact of interest rate hikes fully hit the economy is considerable—typically 12 to 18 months. This means what we are seeing today is mostly a result of the moves made late last year. Which means there is a greater risk the Fed will overdo it if they have not already.

I would feel a lot more at ease with a “soft landing” prognosis if the Fed would just extend the pause in interest rate hikes for now—until the inflation data says otherwise. In the meantime, please remain seated with your seatbelt fastened until the captain turns off the Fasten Seat Belts sign.

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.

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TOP TEN RETAIL STORIES OF THE WEEK

2 Retail Sales, Housing Data to Come as Markets Embrace ‘Soft Landing’ Scenario US News & World Report 7/17

3 David’s Bridal Reportedly Will Keep 200 Stores Open Under New Ownership Retail Dive 7/17

4

Giant Food President: Theft and Violence is a Spiraling Problem Winsight Grocery Business 7/14

5 NRF Forecasts Record Back-to-School Spending of $41.5B Progressive Grocer 7/14

6

Deloitte Forecasts Back to School Spending Drop This Year Globe Street 7/13

7 Amazon Has Largest Sales Day Ever with Prime Day Winsight Grocery Business 7/13

8 Amazon’s Biggest Prime Day Ever; Adobe Says $12.7B in Online Sales Over Two Days US News & World Report 7/13

9

Ghost Menu Massacre: Virtual Brands Face Reckoning as Uber Eats Slashes 8,000 from App Business Insider 7/13

10

Inflation Drops to 3% in June! BBC News 7/13

Gallelli Real Estate - www.gallellire.com

– Jane Birkin (12/14/46 - 7/16/23)

THE CASE FOR A

1 Yellen Does Not See Recession Ahead Reuters 7/17

THE GALLELLI GAZETTE Retail Roundup

RETAIL AND CONSUMER TRENDS

Lower Prices Win Greater Loyalty from Today’s Conditional Consumer PYMNTS 7/17

eCommerce Grocery Sales Continue to Slow Throughout 2023 Drug Store News 7/17

‘Feel Good Factor’ of Travel Encourages Purchase of Luxury Goods CNBC 7/17

Millennials Increase Online Grocery While Gen Z Pushes Back Supermarket News 7/14

Is Diversifying the Answer? Sean ‘Diddy’ Combs Says No, Launches Curated Marketplace PYMNTS 7/14

TOP ECONOMIC STORIES

Amazon Prime Day May be Consumers Last Hurrah Before Recession Sets in Forbes 7/14

NRF Chief Economist: US Economy on the Move—Positive Trajectory Despite Headwinds Retail Wire 7/13

Construction materials Prices Flat in June Chain Store Age 7/13

Wealthier Shoppers are Patronizing Lower-Cost Stores Globe Street 7/12

Grocery Inflation Drops Below 5% Grocery Dive 7/12

TOP RETAIL REAL ESTATE TREND NEWS

People Miss Shopping Malls—Especially Gen Z Retail Wire 7/17

Urban Retail Availability Increases as Suburbs Flourish Globe Street 7/17

Store Traffic Gains Cooling Across Downtown America

WWD 7/12

Mall Visitors are Staying Longer Globe Street 7/12

Retail Defaults Set to Jump This Year Retail Dive 7/11

BUILDERS & BUYERS NEWS

Upstate NY’s ShoppingTown Mall $400M Redevelopment Could be Moving Forward Syracuse .com 7/17

Howard Hughes’ South Street Seaport Seeks Distinct Retail Concepts for Next Development

Phase

WWD 7/14

Elkhart Indiana’s Concord Mall to Become Mixed-Use Development

Ink Free News 7/14

Caruso Lands $450M to Refinance Americana at Brand Retail Component

Commercial Search 7/14

El Paso’s Sunland Park Mall Gets New Owner, Name and Upgrades

El Paso Times 7/11

SUPPLY CHAIN/ECOMMERCE/OMNICHANNEL/TECH

Biggest Winner on Amazon Prime Day? Cats! Grocery Dive 7/14

Food Retailers Spent More than $13B on Tech Investments in 2022 Grocery Dive 7/13

Retailers Find its Expensive to be Like Amazon PYMNTS 7/13

How Edge Computing Enables the Retail Store of the Future Retail Touchpoints 7/12

Chipotle Testing Robot Avocado Slicer to do Task Employees Hate Business Insider 7/12

ARE YOU EXPERIENCED?

EXPERIENTIAL RETAIL NEWS

54K SF Townwest Commons in Hutto TX to be Experientially Themed Entertainment Center Costar 7/17

7-Unit Eatertainment Concept 810 Billiards & Bowling Has 8 Additional in Pipeline Restaruantenews.com 7/17

Popular SF Food Hall, La Cocina, to Convert to Commercial Kitchen Amid Crime Issues SF Gate 7/14

Elev8 Fun Opens Second location in Tampa; Experiential Concept Expanding Rapidly Vending Times 7/14

Puttshack Inks Lease to Open at Baltimore’s Harbor East FSR Magazine 7/11

RETAIL CHAIN STORE OPENINGS AND GROWTH

Sur La Table Back in Growth Mode; Three Openings Planned—Here’s Where Chain Store Age 7/17

150 + Unit Rally House Opens New Stores in Iowa and Detroit Retail Insight Network 7/17

How DTC Brand Collars & Co Used Data to Optimize First Physical Location Retail Touchpoints 7/17

British Apparel Brand Arne Expands to US w/NYC and LA Stores Retail Dive 7/17

Ross Opens 27 Locations with More to Come Chain Store Age 7/17

Dunham’s Sports Takes Former Bon-Ton Store in Indiana Mall The Indiana Gazette 7/15

THE GALLELLI GAZETTE Retail Roundup

Look at Aston Martin’s New Manhattan Flagship Store

Retail Touchpoints 7/14

Buff City balloons to 260 Stores w/Kids Soap-Themed B-Day Parties Forbes 7/14

Reformation’s New NYC Flagship Mixes Vintage & High Tech

Retail Touchpoints 7/14

Costco Closes on Hendersonville TN Property Nashville Business Journal 7/14

Reborn Babies R Us to Arrive as Buybuy Baby Bids Farewell Costar 7/13

Maria Pinto Opens 3,000 SF Flagship in Chicago’s Gold Coast WWD 7/13

Sustainable LA Label EB Denim Takes First Steps into Retail Stores w/SoCal Popup WWD 7/13

French Lingerie Giant Etam Opens First US Store: Here’s A Peek Chain Store Age 7/12

2,521-Unit Casey’s Explores Opportunities for Network Expansion; Wants to Hit 3,000 Convenience Store News 7/12

DTC Luggage Brand Monos Opens First Store in Vancouver BC—More Canadian Units to Come Retail Dive 7/11

A Peek Inside Blu Dot’s New Furniture Showroom in Portland’s Pearl District

Retail Touchpoints 7/11

DTC Bridal & Jewelry Concept Brilliant Earth Opening Four New Stores. Here’s Where Chain Store Age 7/11

Iconic San Francisco Chocolatier Ghirardelli Gets Big Makeover Chain Store Age 7/11

Walgreens Acquires 120 Brookshire Grocery Pharmacies in AK, LA, and TX Supermarket News 7/11

RETAIL CHAIN STORE CLOSINGS AND CONTRACTION

Wegmans to Close Multi-Level Store at Natick Mall in Natick MA Patch 7/13

More Than 2,200 Stores Are Closing Across the US in 2023—Here is the Full List Business Insider 7/11

SoCal’s 5-Unit Taps Fish House Shuts Down Amid Financial Misconduct FSR Magazine 7/11

Buybuy Baby Stores Set to Shutter as Deal to Save Chain Falls Apart at 11th Hour CNBC 7/11

Lidl Closing Five US Stores (in NC, NJ, SC, VA) Even as it Opens More Supermarket News 7/11

THE GROCERY AISLE

When Will Amazon Fresh Stores Open? Sacramento Bee 7/17

Costco Plans Largest Store Yet (241K SF) in Fresno, CA Supermarket News 7/17

H-E-B Named Food & Wine’s Best Supermarket in US Supermarket News 7/17

Sprouts Heading to Middletown Delaware Delaware Online 7/17

Harps Acquires Louisiana Indie Janise’s Supermarkets Progressive Grocer 7/17

20+ Unit Chicago-Based Go Grocer to Open 2nd Milwaukee Store; Eyes Florida Next Winsight Grocery Business 7/14

H-E-B Breaks Ground on 3rd Pflugerville Store Winsight Grocery Business 7/14

Pop Up Grocer Helps Emerging Brands Make It Big Supermarket News 7/13

380-Unit Sprouts Farmers Markets to Open 10 Stores This Summer: Here’s Where Retail Leader 7/11

Albertsons’ Way Forward Progressive Grocer 7/10

FOOD & BEVERAGE

Twin Peaks Opens First Pittsburgh PA Location FSR Magazine 7/17

Phoenix-Based Boba Cucue Announces New Locations for NM, NC, and NV Restaurantnews.com 7/17

Bay Area Based Slice House by Tony Gemignani Gears Up for Growth Pizza Marketplace 7/17

34-Unit Toasted Yolk Readies Addison TX Store for Opening—11 More in Pipeline for 2023 FSR Magazine 7/17

91-Unit Dog Haus Expanding to Waco TX Restaurantnews.com 7/17

North Carolina-Based Clutch Coffee Looking to Jump to 30+ Units Over Next 18 Months QSR Magazine 7/13

98-Unit Newk’s Eatery Ramping Up Expansion in Southeast-Adjacent Markets

QSR Magazine 7/14

Pretzelmaker Opens Drive Thru in Cedar Rapids, IA QSR Web 7/14

103-Unit 7 Brew Coffee Opens in San Antonio

QSR Magazine 7/14

Carl’s Jr. to Enter Florida Market w/up to 35 New Units QSRWeb.com 7/14

Roll-Em-Up Taquitos Opens 14th Unit in Irvine, CA—Four More to Open Soon QSR Magazine 7/14

76-Unit Old Chicago Pizza & Taproom Looks to Kickstart US Franchising Efforts FSR Magazine 7/12

13-Unit Dessert Concept Dolly Llama to Open 3rd Florida Unit; Has 100 Sold Franchises in Pipeline

QSR Magazine 7/12

LL Cool J Inks 60-Unit Deal with Cookie Plug to Expand Concept in Multiple Markets nationally Fast Casual 7/13

70-Unit Pizza Forno Expands to University of New Orleans Pizza Marketplace 7/13

60+ Unit Rock N Roll Sushi to Open in Colorado Springs CO Restaurantnews.com 7/12

44-Unit Charcuterie Concept Graze Craze Expands in AK and TX; 30+ Units Nationally to Open Soon

QSR Magazine 7/12

THE GALLELLI GAZETTE Retail Roundup

Issue No. 8 | July 19th, 2023

Austin Favorite R. Terry’s Burger Stand Entering Houston Market Costar 7/12

The Crack Shack, opens 10th Unit in Murray, UT—Will Double Over Next 12 Months Restaurantnews.com 7/12

Portland Legend Voodoo Doughnuts to Open 20th Unit in Dallas Soon QSR Magazine 7/11

CULTURE CORNER: MORE THAN JUST A HANDBAG ORIGINALLY DESIGNED ON THE BACK OF AN AIRPLANE BARF BAG

This past week, singer, actress, and style Icon Jane Birkin Died at 76 at her home in Paris. While perhaps most well known today to Americans as the inspiration for one of the world’s most expensive luxury handbags, Hermes’ Birkin Bag, she had an outsized impact on French music, culture and cinema. Pretty impressive, especially considering that she was not French.

Birkin first gained prominence in the Swinging London scene of the late 1960s, landing small parts in counterculture era films like Antonini’s Blow Up, or the weird Warren Beatty British crime movie of the same year Kaleidoscope. By 1968 she was landing lead roles in the psychedelic film Wonderwall and French satirical film, Slogan (this, despite the fact that she could barely speak French at the time). This would turn out to be a major turning point in Birkin’s life. Her costar was the French singer/songwriter/composer/actor/writer/director Serge Gainsbourg, who once quipped, “I have succeeded at everything. Except my life.” The two would fall in love and Birkin moved to Paris in 1968 and remained there the rest of her life.

She would live with Gainsbourg for the next 12 years (their daughter, actress Charlotte Gainsbourg, was born in 1971. The two would part ways in 1980 due to Gainsbourg’s womanizing and alcoholism. But in the late 1960s, he would play a pivotal role in propelling Birkin into being the new French “It Girl.”

LOCAL MARKET NEWS

‘Never Going Back to Way it Was,” Salesforce CEO’s Grim Outlook on Downtown San Francisco Entrepreneur 7/17

Cleveland Ranks Among Top Markets for Retail Rent Growth Costar 7/17

San Diego’s Retail Market Brings Positivity RE Business Online 7/14

Manhattan Retail: Leading Indicator of Soft Landing? Globe Street 7/13

Food & Fitness Drive Phoenix Retail Market Costar 7/11

M&A MANIA

High Bluff Capital Partners Acquiring 81 Hardee’s Locations out of Franchisee BK Chain Store Age 7/17

David’s Bridal Sells to Cion Investment Corp.; Will Keep +/-200 Stores Open Chain Store Age 7/17

Subway Reportedly Failed to Get a $10B Bid—Still Seeking Buyers Business Insider 7/13

Kim Kardashian’s Skims Chases $4 Billion Valuation Ahead of IPO PYMNTS 7/13

Dream on Me Acquires Buybuy Baby’s Trademark, Digital Assets Retail Touchpoints 7/13

In 1967, while romantically involved with Brigitte Bardot, Gainsbourg wrote an organ-driven pop tune he described as a “song about the desperation and impossibility of physical love.” The song, Je T’Aime… Moi Non Plus” (or “I Love You… Me Neither”) was controversial because it was punctuated with Bardot’s sighs and moans of pleasure. But it also happened to be the most quintessentially French pop song ever written—propelled by a haunting and beautiful melody in what Bardot would eventually call “the most beautiful hymn to love.” There was only one problem. In 1967, Brigitte Bardot was married to German industrialist Fritz Sachs who was not happy when he heard the recording. Bardot rescinded consent for the song to be released. She would later regret that decision and authorize the original version of the song to be released in 1986.

By then, his affair with Bardot over, Gainsbourg was not giving up on the song. He approached multiple singers, including Marianne Faithfull. But, he re-recorded it with his new paramour, Birkin. An immediate hit, it was banned from the radio in Brazil, Italy, Spain, Sweden, and the United Kingdom. In France it was not allowed to be played before 11 PM. The Vatican denounced the song and threatened to excommunicate the record company executive that approved its release in Italy. Birkin would later recount Gainsbourg declaring, “The Pope is our greatest PR man ever!”

Birkin’s French film work also took off in this period—she would be active in cinema (particularly French films) through 2021. Despite her heavily accented French, she would become a cultural phenomenon once reflecting on her unlikely iconic status, “when you fall in love with a country and its people, that makes any country warm to you.”

In a 2020 interview with Christiane Amanpour, Birkin wondered aloud what she would be remembered for, her recording career, her film legacy, or the Birkin bag, “…when I’m dead people will… only talk about the bag.” That bag was born from a 1984 flight in which Jane Birkin was sitting next to Hermes CEO, Jean-Louis Dumas. After spilling some of the contents of her overpacked handbag, Birkin struck up a conversation with the Hermes exec, telling him she “wanted a bag half the size of her suitcase.” Dumas asked her to draw him what she had in mind. There, hand-drawn on the back of an airplane barf bag, one of the world’s most sought after and expensive luxury good items was born. Incidentally, Birkin reportedly gave all of her royalties to charity and there is no longer a waiting list.

Rest in peace, Jane Birkin.

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