Observations & Conversations
The British are coming, and so are the Japanese.
Interesting tidbits... The Mills Corp., who would of thunk it? Boy the worm does turn from just a few years ago everybody and their brother was trying to emulate or replicate their concept, now they’re glad it’s not them restating the last five years of income with the SEC and Sarbanes-Oxley Act breathing down your neck. I recently spent some time with a friend who’s an officer of a publicly-traded retail chain and we spent hours talking about the Sarbanes-Oxley Act, legislation that makes publicly-traded companies accountable for their accounting and puts corporate officers at risk of criminal penalties for cheating or making stupid mistakes. I’m all for scrutiny when you’re playing with folks’ retirement and college tuition funds and there’s no guarantee on a stock’s value increasing, but you should be able to trust financial statements. We got on to the topic of retailers and how they can manipulate the books to their benefit. Of course, we all know that if most retailers really audited their inventory and the crap that’s been sitting on the books and supposedly in the warehouse for the past five years was really calculated at its true value, which is zilch in many instances, there would be a lot of restatements being put out there. We disagreed about retailers that fill their floors with private labels... his contention is that most of them are ethical in valuing the merchandise, but I’m not so sure.
More worm turning at Sears, too. Sears Holding said “no dice” to Sears Essentials after a year of test driving the concept. The former Kmarts that became Essentials are being rebranded as Sears Grand. On the topic of profits and making it work, I also heard that Abrecombrie & Fitch lost $20 million last year on its seven-unit Ruehl concept, but they expect to turn the corner to profitability in 2007. It’s hard work and capital intensive getting a new concept off the ground. Look at Sears, they have lots of experience and when they launched Sears Essentials, yep the same concept they are disbanding, the sales volumes were 15% lower than what Kmart was generating on the same piece of dirt. It’s even harder to do less sales psf than Kmart, than it is to launch a new chain. Kroger is expanding its 110,000 sq.ft. Kroger’s Marketplace concept in Ohio and taking over some former Kmart sites. Let’s hope they have better luck than Sears. Kroger has been successful operating superstores/mass merchandise concepts in the west. It will be interesting to see how the stateside supermarket chains react if and when Tesco, the UK’s largest supermarket chain, crosses the pond. The company put its hand in the ring to buy Albertson’s and speculation is they’ll arrive on the west coast next year. Tesco isn’t talking yet about which of their concepts they intend to debut, but rumor has it that they’ve earmarked $400 million for growth in the U.S. Currently they operate a 3,000 sq.ft. concept selling produce, wine and baked goods, in addition to 7,000 to 15,000 sq.ft. stores and another concept using 20,000 sq.ft. to 50,000 sq.ft. It’s largest format takes upwards of 60,000 sq.ft. The larger stores sell apparel, housewares, health and beauty, electronics and the standard fare of a mass merchandiser. I heard that Tesco is so dominant in the UK that Wal*Mart asked the British government to investigate Tesco’s 30% market share. If they come here with their convenience store concept only, I don’t think it will be front page news, but if they rock the boat with their large format stores it will be.
Not only could we see a British invasion on the retail landscape, Japan is launching Famima, an upscale convenience store concept, in California. Famima not only sells the microwavable burritos that you can find at any c-store, they also carry sushi, rice bowls and salmon eggs. The 5,000-unit chain of Asian-based stores, trading as The Family Mart, is also expected to expand into New York.
I’ve been looking at fitness-oriented chains and watching for new concepts. QFitness is a chain of fitness centers catering to the 55 and up crowd with locations in 55-and-over communities. The company has three units in Pennsylvania and is expected to enter Delaware soon. Fitwize 4 Kids, a gym for children ages six to 15, operates/franchises 15 locations using 1,500 to 2,000 sq.ft. The company has six units in California, its home base, and one each in Illinois, New Jersey, New York and Tennessee. Recent franchises were sold in Idaho, Maryland and Nevada. The concept charges $50 to $125 monthly and offers circuit training, nutritional classes and incentive gifts for attendance. I read a statistic that 1.8 million kids between six to 11 years old had a health club membership in 2004. Another chain focused on fit children is My Gym Children’s Fitness Center, a 2,400 sq.ft. to 4,000 sq.ft. facility catering to children as young as three months in parent supervised sessions and up to 13 years old with gymnastic classes. The company has about 150 locations operating in the states, with growth taking place in Arizona, California, Florida, Maryland, Minnesota, New Jersey, New York, Oregon, Texas, Virginia and Washington. The company plans to open 30 units this year.
Another growing fitness concept is Cuts, a New Jersey-based franchisor that operates both men-only and women-only fitness centers. The company recently launched Cuts Women, which is expanding in its home state, as well as in Ohio and Georgia. The company has franchisees in New Jersey, Virginia, Maryland, Mexico and Ireland for its newest concept. The mens-only arm of the company operates 180+ locations nationwide. Another growing chain is Planet Fitness, which also trades as Judgement Free Zone, with franchised locations in Alabama, Arizona, Texas, Kansas, Alabama, Florida, Illinois, Michigan, Pennsylvania, North Carolina, and throughout the Northeast. The fitness centers use around 12,000 sq.ft. The company is opening sites in Connecticut, Pennsylvania, North Carolina, New York, Maine, Massachusetts and Florida. The concept has locations that charge as little as a $49 initiation fee and $10 monthly and require no contract or obligation beyond the ten bucks. Another company that’s set for growth, and you’ll need to visit one of the gyms above after shopping their store, is Stonewall Kitchen, a specialty foods company based in Maine, that grossed $34 million last year. The company operates eight stores in New England. It plans to open between 20 to 40 stores of 3,000 sq.ft. to 5,000 sq.ft. throughout the Northeast in the next few years. Its merchandise includes specialty foods like jams, syrup, sauces, condiments, confections including hand-dipped chocolate strawberries, hand-made petit fours, baking mixes, kitchenware, stemware, cook books, accent furniture, kitchen linens, luxury bath products, home fragrances and gift items. The company also sells its lines through a catalog and wholesale accounts.
Well, I’m running of out designated space, so I wanted to remind you to call us about marketing and to send in your publicity since we’re gearing up for Vegas. Yes! Vegas will be here in a blink. You can reach us at 609-587-6200 and participating in our “A List” helps tremendously with booking appointments before the convention. Call Alyson, Laurie or myself and we’ll be glad to give you the details. If you need our boiler-plate form for publicity, just call or drop me an email at ann@dealmakers.net. While this issue is on press, we’ll be at the ICSC show in DC and the following week in Charlotte for the Carolinas Dealmaking. Make sure you stop by our booth and say hello.
Until next month,
Ann O’Neal
Publisher