Big Builders 
 Dominant retailers continue to grow;
 portfolio optimization is new mantra

The annual Big Builders Survey measures new stores opened in 2009 and 2010, including relocations, and highlights retailers with notable construction activity. Although not a comprehensive ranking of all retail construction activity, the Big Builders report chronicles key leaders in select categories: department stores, discount stores, do-it-yourself stores, drug stores, food stores, specialty hardlines and specialty softlines.



From the dark cloud cast over retail construction by a slowed economy that has directly impacted real estate sales, development and financing, a silver lining has emerged in the form of clearly articulated growth strategies. Many retailers have announced definitive shifts in their strategies that reflect the “new normal” of the global economy: 


Portfolio optimization has become the watchword for all retailers, and growing the brick-and-mortar footprint includes carefully considered steps to invest wisely in the current store count before adding new stores. Store closings, relocations and expansions of existing stores often outnumber new development, resulting in flat growth across the retail enterprise even when a number of new stores have opened. 


Sam’s Club, which is included in the charts as part of Wal-Mart Stores, has experienced back-to-back years of negative or negligible growth despite having a billion-dollar budget for capital expenditures. In 2009, Sam’s Club closed 10 and opened four stores. In both 2010 and 2011, Sam’s Club projected $1 billion in capital expenditures that would go primarily for remodeling projects, although seven to 12 stores each year would be relocated, expanded or new.


International expansion affords a world of new opportunities for many retailers and will remain a focus for organic growth in the coming year. For instance, of the roughly 660 stores Wal-Mart opened in each of the last two years, 500 units were attributed to organic growth in international markets. 


Doug McMillon, Wal-Mart International president and CEO, recently announced new store growth in the coming fiscal year would focus on the emerging markets of China, Brazil and Mexico. Wal-Mart added a total of 32.5 million sq. ft. in 2010, but the bulk of that expansion was outside the United States. The company is expected to add more than 23 million sq. ft. in international space next year compared with 21 million sq. ft. opened in global markets this fiscal year.


Similarly, Gap Inc. has set its sights on international growth with new store locations in China and Italy and the introduction of online stores to Canada and Europe.


In updates to the company’s strategic three-to-five-year plan, chairman and CEO Glenn Murphy said Gap enjoys “significant global runway” and is making “the investments necessary to shift the balance of revenue over time to come increasingly from online and international businesses.”


By the end of 2010, Gap will be selling product in more than 80 countries — an impressive uptick from the 25 countries Gap played in at the start of the year. The company has projected more than 25% of its net sales will be attributed to international sales by fiscal 2013. 


Across the board, China is emerging as a key area for expansion. And with good reason: Consumption is on the rise, and an investment boom is resulting in scores of new upscale malls and shopping districts. In January, Credit Suisse released a report which predicted that by 2020 China would account for nearly a quarter of the world’s private consumption.


Value-driven consumers have also prompted dramatic shifts in the real estate choices made by many retailers. Upscale department stores Saks Inc. and Nordstrom are aggressively expanding their off-price venues, and now, specialty softlines retailers are following suit. For instance, Abercrombie & Fitch announced plans to open more than 39 outlet stores this year. 


Likewise, in 2009, The Children’s Place shifted its historical preference for malls in densely populated markets to value-oriented centers, or VOCs, in small- to medium-size markets. Twenty of the retailer’s 38 store openings in 2009 were in VOCs, while the majority of its 65 store openings in 2010 will be in VOCs.


On the flip side of the coin, discount retailer Big Lots said that 30 of the 80 new stores it would open this year would be in “A” locations rather than its historical preference for “B” or “C” properties serving middle- to lower-income populations. The switch to upper markets is indicative of the overall trend for consumers in every socioeconomic bracket to “value” shop. 


By the Numbers: Across every sector, retailers are continuing to add stores and hone growth strategies. The accompanying charts and category summaries highlight new store openings, capital expenditures and new square footage for leading retailers, as well as some of the decision points that define the group.


Department Stores: The majority of retailers in the department store category had single-digit new store openings, the exceptions being Kohl’s and Nordstrom. Most notable among this group is Kohl’s spike in capital expenditures from $666 million in 2009 to $900 million this year, due to the company’s planned investment in store remodels. In 2010, Macy’s opened two Bloomingdale stores in Dubai plus four Bloomingdale outlets and two Macy’s stores in the United States. Stein Mart, which opened three new stores and relocated five in 2010, saw impressive financial improvements from the start of 2009, when the company had $11 million in debt, to 2010, when the company was debt-free with $81 million in cash. Saks opened its second location in Mexico City in 2010, as well as four Off 5th outlets. Neiman Marcus opened one namesake store in 2010 and rounded out the year by opening three new value-concept stores, Last Call Studio. J.C. Penney, Dillard’s and Belk had modest growth, although Penney maintained a $500 million budget for capital expenditures in 2010, largely to support the opening of Sephora stores inside its existing stores.


Discount Stores: Dollar stores dominate the discount sector, and the cumulative total of new stores opened in 2010 by Dollar General, Dollar Tree and Family Dollar exceeds the total of new store openings by all of the other retailers in this category. However, no group of niche retailers comes close to the sheer volume of square footage opened by Wal-Mart or the $14 billion budget it allocated in 2010 to fuel growth. Despite cutting back on new store openings in 2010, Target bumped its capital expenditure budget from $1.7 million to $2.5 million, largely to cover an increased focus on remodels and expansions. 


TJX Co. ramped up new store openings from 91 in 2009 to a projected 130 in 2010, with the biggest increases in TJX, Marshalls, HomeGoods and TKX brands. Ross Dress for Less scaled back from 56 new stores in 2009 to 50 in 2010, with a stronger emphasis on opening smaller-footprint stores. The highlight for Costco was celebrating its best entrance into a new country, with revenues of $841,000 on the day its first Australian store opened in 2009; a second Australian store opened in 2010. 


Do-It-Yourself Stores: Auto-parts retailing is a niche that is thriving as well, and the sweet spot for these chains closely mirrors that of the dollar stores. Characterized by low-cost real estate and catering to a cross-section of socioeconomic demographics, but skewed to the middle- and lower-income masses, the three dominant auto-parts chains are nowhere near putting the brakes on domestic expansion. International openings accelerated as well in 2009 and