Putting the Brakes On

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December 14, 2008 | By Michael Fickes

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2008’s Big Builders saw steep declines from a year ago:–17%...

Retailers of necessities fared better: Drug stores showed gains in...

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For the first time since 2001, another recession year, the Chain Store Age Big Builders Survey shows a decline in new-store growth. Our survey of 25 leading retailers, covering all categories, shows that those retailers estimate that they will open 778 fewer stores in 2008 than they opened last year.

Capital Expenditures
(000 omitted)

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Wal-Mart (U.S. discount stores and supercenters)	$9,100,000	$6,200,000
2	Lowe’s	4,400,000	4,200,000
3	Target Corp	4,369,000	3,800,000
4	Home Depot	3,600,000	2,400,000
5	CVS	1,800,000	2,000,000
6	Walgreen	1,700,000	1,900,000
7	Costco	1,385,699	1,598,571
8	Supervalu	927,000	1,273,000
9	Kohl’s	1,500,000	1,200,000
10	Kroger	2,060,000	1,115,000
11	Safeway	1,768,700	1,007,300
12	J.C. Penney	1,243,000	1,000,000
13	Macy’s	1,105,000	1,000,000
14	Sam’s Club	700,000	1,000,000
15	Delhaize America	729,300	775,000
16	Best Buy	797,000	750,000
17	Publix	683,290	658,300
18	Limited Brands	749,000	600,000
19	TJX	526,987	575,000
20	Whole Foods Market	530,000	575,000
21	Sears	570,000	570,000
22	Gap	682,000	480,000
23	Abercrombie & Fitch	403,345	410,000
24	Staples	470,377	405,663
25	Rite Aid	336,728	364,400
$42,136,426	$35,857,234

New Square Footage

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Wal-Mart (U.S. discount stores and supercenters)	26,000,000	23,000,000
2	Target Corp.	20,532,000	20,184,000
3	Lowe’s	17,748,000	13,920,000
4	Walgreen	8,163,500	7,975,000
5	Kohl’s	9,744,000	6,525,000
6	Kroger	4,828,000	5,440,000
7	Best Buy	4,185,300	4,550,000
8	Home Depot	11,880,000	4,428,000
9	Dollar Tree	2,712,500	4,218,750
10	Dollar General	4,588,500	4,140,000
11	Costco	4,200,000	3,780,000
12	Publix	1,997,600	3,150,000
13	PetSmart	2,645,000	2,576,000
14	Family Dollar	2,822,000	2,567,000
15	Ross	2,728,000	2,395,000
16	Bed Bath & Beyond	2,400,000	2,250,000
17	Delhaize America	3,325,800	2,024,400
18	Sam’s Club	2,000,000	2,000,000
19	Dick’s Sporting Goods	1,840,000	1,760,000
20	Aldi	850,000	1,700,000
21	Staples	2,040,000	1,700,000
22	Supervalu	1,620,000	1,700,000
23	Tractor Supply	1,468,500	1,501,500
24	CVS	1,512,320	1,479,680
25	TJX	1,350,000	1,200,000
143,181,020	126,164,330

New Stores

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Walgreen	501	550
2	Dollar Tree	342	208
3	Family Dollar	300	205
4	Dollar General	365	200
5	Wal-Mart (U.S. discount, supercenters, and grocery)	218	191
6	CVS	275	186
7	AutoZone	163	174
8	O’Reilly Automotive	190	150
9	7-Eleven	106	130
10	Best Buy	164	124
11	Genesco	229	124
12	Lowe’s	153	120
13	Target Corp.	118	116
14	Advance Auto Parts	175	115
15	Gap	214	115
16	PetSmart	115	112
17	Abercrombie & Fitch	99	110
18	Brown Shoe	110	110
19	Aldi	50	100
20	Staples	120	100
21	Tractor Supply	89	91
22	Chico’s	143	89
23	Hibbett Sporting Goods	84	85
24	Kroger	71	80
25	Foot Locker	117	76
4,511	3,733

In 2007, the 25 leading retailers opened 4,511 new stores. In 2008, plans call for opening 3,733. The difference of 778 stores translates to a 17% decline.

New square footage brought to market followed along, falling from 143 million new sq. ft. last year to an estimated 126 million sq. ft. this year, a decline of approximately 12%.

Capital spending fell also, from approximately $42.1 billion in 2007 to $35.9 billion in the estimates for 2008, a 15% decline.

The slowdown in expansion affected nearly the entire retail industry. Discount stores went from 1,632 new stores in 2007 to 1,192 stores in 2008.

The drug store category was not immune to the slowdown, with 772 new stores estimated to open in 2008 compared to 834 last year. CVS opened 186 stores in 2008 and 275 in 2007. Walgreens was poised to end 2008 with 550 new stores, compared to 501 last year. New York City regional chain Duane Reade opened 15 stores in 2008, compared to 10 in 2007. Rite Aid followed the pattern of the other categories, cutting its new-store openings virtually in half.

Only the supermarket category beat the trend, opening 555 compared to 424 in 2007. Aldi went from 50 new stores in 2007 to 100 stores this year. Kroger beat last year’s total of 71, with 80 new stores this year. Publix opened 70 stores this year, compared to 44 in 2007. Safeway opened 20 new stores this year compared to 13 last year. Supervalu’s total went up to 75 compared to 27 last year. Wal-Mart’s Neighborhood Markets added 23 stores this year, vs. 20 in 2007.

Food Stores
Capital Expenditures (000 omitted)

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Supervalu	$927,000	$1,273,000
2	Kroger	2,060,000	1,115,000
3	Safeway	1,768,700	1,007,300
4	Delhaize America	729,300	775,000
5	Publix	683,290	658,300
6	Whole Foods Market	530,000	575,000
7	Winn-Dixie	218,000	250,000
8	Harris Teeter	205,500	192,200
9	A&P	122,900	125,000
$7,244,690	$5,970,800

Food Stores
New Square Footage

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Kroger	4,828,000	5,440,000
2	Publix	1,997,600	3,150,000
3	Delhaize America	3,325,800	2,024,400
4	Aldi	850,000	1,700,000
5	Supervalu	1,620,000	1,700,000
6	Wal-Mart Neighborhood Markets	800,000	1,000,000
7	Safeway	585,000	900,000
8	Whole Foods Market	1,076,700	790,500
9	Harris Teeter	874,000	598,000
10	A&P	130,350	100,000
16,087,450	17,402,900

Food Stores
New Stores

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	7-Eleven	106	130
2	Aldi	50	100
3	Kroger	71	80
4	Supervalu	27	75
5	Publix	44	70
6	Delhaize America	69	40
7	Wal-Mart Neighborhood Markets	20	23
8	Safeway	13	20
9	Whole Foods Market	21	15
10	A&P	3	2
424	555

But that’s it. Beyond the stores that sell necessities—grocery stores and drug stores—and the stores that sell at sharp discounts, there are no bright spots.

The Home Depot and Lowe’s together opened 161 new stores this year, compared to 263 in 2007. Specialty hard line stores, such as AutoZone, Hibbett Sporting Goods, Michaels and seven others, dropped from 1,100 new stores last year to 961 new stores this year.

Specialty Hard Lines
Capital Expenditures (000 omitted)

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Best Buy	$797,000	$750,000
2	PetSmart	294,437	285,000
3	AutoZone	224,474	243,594
4	Circuit City	242,000	226,200
5	Williams-Sonoma	212,000	220,000
6	Bed Bath & Beyond	358,210	212,000
7	Barnes & Noble	196,500	210,000
8	O’Reilly Automotive	282,700	195,000
9	Advance Auto Parts	210,600	190,000
10	Tractor Supply	83,986	105,000
11	Borders	142,700	80,000
$2,901,907	$2,636,794

Specialty Hard Lines
New Square Footage

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Best Buy	4,185,300	4,550,000
2	PetSmart	2,645,000	2,576,000
3	Bed Bath & Beyond	2,400,000	2,250,000
4	Dick’s Sporting Goods	1,840,000	1,760,000
5	Tractor Supply	1,468,500	1,501,500
6	Barnes & Noble	806,000	1,040,000
7	AutoZone	1,043,000	1,024,000
8	O’Reilly Automotive	673,200	1,020,000
9	Advance Auto Parts	1,295,000	805,000
10	Cabela’s	1,300,000	320,000
17,656,000	16,846,500

Specialty Hard Lines
New Stores

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	AutoZone	163	174
2	O’Reilly Automotive	190	150
3	Best Buy	164	124
4	Advance Auto Parts	175	115
5	PetSmart	115	112
6	Tractor Supply	89	91
7	Hibbett Sporting Goods	84	85
8	Bed Bath & Beyond	75	70
9	Michaels	45	40
1,100	961

The biggest loser: the specialty apparel category, which in our survey included Abercrombie & Fitch, Brown Shoe, Charming Shoppes, Chico’s and six others. The nine retailers in the category opened a total of just 744 stores this year. Last year, they opened 1,159 stores.

The same pattern holds true for capital spending.

The Truth May Be Worse Yet

Our survey was conducted during November, as retailers and retail real estate developers were trying to shake off the cataclysm that struck in October. Cataclysm? Think about what happened to retail real estate investment trusts (REIT) in October. Through the first nine months of 2008, the FTSE NAREIT Equity REIT Index, which tracks REIT stock performance, showed that retail REIT stocks declined by about 2.5%. People were worried, but then a 2.5% dip wasn’t all that bad.

Home Centers
Capital Expenditures (000 omitted)

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Lowe’s	$4,400,000	$4,200,000
2	Home Depot	3,600,000	2,400,000
$8,000,000	$6,600,000

Home Centers
New Square Footage

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Lowe’s	17,748,000	13,920,000
2	Home Depot	11,880,000	4,428,000
29,628,000	18,348,000

Home Centers
New Stores

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Lowe’s	153	120
2	Home Depot	110	41
263	161

At the end of October, however, retail REIT stocks had declined 40.6% for the year. That’s not a misprint. That’s what happened in October: Retail REIT stocks moved from 2.5% down for the year to 40.6% down for the year—in 30 days.

It wasn’t a fluke confined to retail real estate, either. Every real estate category took a beating.

Before October, multifamily REIT stocks had risen 17.1% for the year. During October, those stocks fell 27.6% and ended down 10% for the year by the end of the month. Office REIT stocks were down 2% for the year before October and 32.1% for the year after October. Industrial REITs got shellacked. Down 12.5% for the year before October, industrial REIT stocks ended down 62.8% after October. October, of course, also brought major declines to the general stock market.

After all of that carnage,Chain Store Age started the Big Builders Survey. It’s important to keep that in mind, because retailers made most of their estimates for the remainder of 2008 based on the slow going of the first three-quarters of the year, not after the October earthquake. In short, when retailers and REITs issue their annual reports covering 2008, the year may look worse than it does now.

Data on construction spending collected by the U.S. Census Bureau show a pattern similar to the Big Builders Survey’s findings, while confirming that October was indeed a game changer. “The Census Bureau numbers suggest that someone slammed on the brakes abruptly,” said Kenneth D. Simonson, chief economist with the Arlington, Va.-based Associated General Contractors of America.

Specialty Apparel
Capital Expenditures (000 omitted)

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Limited Brands	$749,000	$600,000
2	Gap	682,000	480,000
3	Abercrombie & Fitch	403,345	410,000
4	American Eagle Outfitters	250,407	250,000
5	Ross	236,100	227,000
6	Foot Locker	148,000	159,000
7	Chico’s	202,000	125,000
8	Pacific Sunwear	106,000	85,000
9	Talbots	85,000	75,000
$2,861,852	$2,411,000

Specialty Apparel
New Square Footage

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Ross	2,728,000	2,395,000
2	Stage Stores	846,000	1,008,000
3	Brown Shoe	798,000	798,000
4	Gap	2,568,000	731,000
5	Abercrombie & Fitch	680,680	703,120
6	Charming Shoppes	607,700	265,500
7	Stein Mart	518,000	222,000
8	Chico’s	286,000	116,000
9,032,380	6,238,620

Specialty Apparel
New Stores

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Genesco	229	124
2	Gap	214	115
3	Abercrombie & Fitch	99	110
4	Brown Shoe	110	110
5	Chico’s	143	89
6	Foot Locker	117	76
7	Talbots	75	46
8	Charming Shoppes	103	45
9	Christopher & Banks	69	29
1,159	744

The Census Bureau categorizes retailers differently, but the trend is still unmistakable.

In the category of general merchandise stores, construction spending was up by one-half of a percent during the one-month period from September 2008 to October 2008. In short, October this year was a little better than September of this year. But spending for construction by general merchandise retailers in October 2008 plummeted by 29% compared to October 2009. Don’t forget, October is when new stores have to come online to catch onto holiday sales. So there should be a lot of spending in October, especially compared to September.

Discount Stores
Capital Expenditures (000 omitted)

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Wal-Mart (U.S. discount stores and supercenters)	$9,100,000	$6,200,000
2	Target Corp	4,369,000	3,800,000
3	Costco	1,385,699	1,598,571
4	Kohl’s	1,500,000	1,200,000
5	J.C. Penney	1,243,000	1,000,000
6	Macy’s	1,105,000	1,000,000
7	Sam’s Club	700,000	1,000,000
8	TJX	526,987	575,000
9	Sears	570,000	570,000
10	Staples	470,377	405,663
$20,970,063	$17,349,234

Discount Stores
New Square Footage

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Wal-Mart (U.S. discount stores and supercenters)	26,000,000	23,000,000
2	Target Corp.	20,532,000	20,184,000
3	Kohl’s	9,744,000	6,525,000
4	Dollar Tree	2,712,500	4,218,750
5	Dollar General	4,588,500	4,140,000
6	Costco	4,200,000	3,780,000
7	Family Dollar	2,822,000	2,567,000
8	Sam’s Club	2,000,000	2,000,000
9	Staples	2,040,000	1,700,000
10	TJX	1,350,000	1,200,000
75,989,000	69,314,750

Discount Stores
New Stores

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Dollar Tree	342	280
2	Family Dollar	300	205
3	Dollar General	365	200
4	Wal-Mart (U.S. discount and supercenters)	198	168
5	Target Corp.	118	116
6	Staples	120	100
7	Kohl’s	112	75
8	Fred’s	45	22
9	Sam’s Club	25	21
10	Big Lots	7	5
1,632	1,192

Building-supply stores spent 2.7% more in October 2008 than in September 2008, but 29% less this October compared to last October. A category labeled “other stores” spent 9.7% less from September to October of this year, and 22% less in October 2008 than in October 2007.

Drug stores followed the pattern of most other categories in the Big Builders Survey. Spending on construction rose 9.2% from September to October this year, and fell 4.3% in October 2008 compared to October 2007.

What specifically happened in October? Who put on the brakes? Everyone. Lenders stopped lending and developers stopped developing.

“Developers either had the credit window slammed on their fingers or were rethinking assumptions about the probable success of a project,” Simonson said. “The dismal figures on consumer spending have to lead to a conclusion that a project started today would probably sit around unoccupied.”

Simonson went on to say that the consensus outlook among economists calls for further declines through the second quarter of 2009, with a rebound thereafter.

“There is no agreement about whether the pick-up will be sharp or gradual,” he added. “And keep in mind that what has happened to the economy is unprecedented, and I’m not sure that anyone really knows how to forecast a recovery.”

Is there any good news?

“The price of materials is dropping,” Simonson said. “There are lots of contractors available to execute projects. Anyone with cash will be well-rewarded in terms of lower costs and faster delivery times.”

Drug Stores
Capital Expenditures (000 omitted)

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	CVS	$1,800,000	$2,000,000
2	Walgreen	1,700,000	1,900,000
3	Rite Aid	336,728	364,400
$3,836,728	$4,264,400

Drug Stores
New Square Footage

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Walgreen	8,163,500	7,975,000
2	CVS	1,512,320	1,479,680
3	Rite Aid	609,600	266,700
4	Duane Reade	75,000	112,500
10,360,420	9,833,880

Drug Stores
New Stores

TOTAL Source: Company reports/Chain Store Age research

Rank	Company	2007	2008
1	Walgreen	501	550
2	CVS	275	186
3	Rite Aid	48	21
4	Duane Reade	10	15
834	772

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