NNN retail – what’s hot and what’s not?

Per the National Retail Federation’s annual forecast retail sales could grow between 6.1 and 8.0% to more than $5.0 trillion in 2021 as vaccinations increase and the economy reopens.  E-commerce sales are included in this number and are expected to jump rapidly by 15 – 20% to a spike of $1.2 trillion.  According to recent reports analyzed by S&P, 20 major shopping center REITs that have filed reports for calendar 2020, had increased YOY rent collections from 87% to 93%, showing solid improvement in the net lease NNN retail market.  As retailers’ net leases become due for renewal, their term is shrinking, as net lease retailers grapple with unprecedented volatility. About 2.0 billion square feet of retail space will have triple net leases expire this year, and increasingly, landlords are looking to pop-ups as a favorite short-term NNN solution until the retail landscape settles.  Americans spent $800 billion during 2020 on e-commerce, up 30% from 2019, according to data published by the U.S. Census Bureau. That behavior translated to e-commerce accounting for 16% of total retail sales, compared to 12% in 2019. Categories with big spikes included gear for home improvements, groceries, games, toys, sporting goods and musical instruments, etc.

HOT

L Brands will continue to expand its Bath & Body Works chain, opening 49 U.S. stores in 2021.  L Brands is also shifting more Bath & Body Works stores to off-mall locations, where comps are double and operating costs are lower, per investor reports.

Payless is back in the brick-and-mortar business in North America. The discount footwear retailer will open the doors on March 1 to its first store since it filed for bankruptcy protection in 2019, and subsequently closed its 2,500 locations and e-commerce operations in North America. The opening follows the brand’s online relaunch this past summer and is the first of hundreds of stores expected to open during the next five years.

Sephora is going ahead with its largest store expansion plan in its 21-year history. The beauty giant will open more than 50 freestanding stores and 200 locations within Kohl’s stores this year. Sephora will begin to open the standalone stores this month, with locations in TX, TN, FL and CA.

Target plans to expand the Apple shop-in-shops by the end of the fall. Apple products are already sold in Target stores, but the dedicated shops would double the tech giant’s footprint in select stores and expand its offerings.

Planet Fitness, saw a 46% month-over-month increase in visits in January 2021 compared to December 2020, a decrease year-over-year but impressive numbers nonetheless. 

The International Franchise Association estimates more than 26,000 franchised locations will be added this year, an increasing number especially in rural locations, offsetting declines seen in 2020. Rural franchises employment is projected to grow by more than 8%.

NOT

Macy’s executives are making it clear that they are betting on e-commerce to help the department store chain recover from the pandemic. At its earnings report this morning, Macy’s reported that during its fourth quarter, same-store sales were down 17.1% year-over-year, while e-commerce sales were up 21%. Macy’s also managed to report a profit of $170 million, its first quarterly profit in a year.

After closing nearly 250 stores in 2021, Victoria’s Secret will close 30 to 50 more locations this year, parent company L Brands revealed in an investor presentation. 

Smaller malls were struggling even before COVID hit. But as the pandemic caused mandatory shutdowns, shoppers avoided indoor spaces. It should be no surprise that the percentage of all retail loans in special servicing has risen to 35%. Late payments and delinquencies are hitting 12%.

Call your favorite experts at the Triple Net Investment Group for solid, enduring advice on retail NNN investment properties.