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Putting the Brakes On

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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...

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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