in CONTEXT
Retail MAXIM July 2017
Issue: Rating growing risk of retail liquidator credits in off-price, factory outlets, close-outs, dollar stores and fast fashion
Theme: “Eyes Wide Shut. Disruption of B&M Liquidation Channels in Convergence of Next Gen Online Marketplaces & B2C. Analysts Blind Spot--A Love of Liquidation Formats Misses Inflection in Off-price, Factory Outlets, Fast Fashion & Dollar Stores
Metrics: Global 400 ratings of business model and real estate portfolios based on latest earnings [2017/Q2-Q3], internal growth trajectory 2008-17, four-wall productivity and management fiscal guidance 2017
Topics: Structural catalysts impeding performance and dislocating liquidating channels, including next generation of online marketplaces to manage inventories and product excesses, manufactured brand convergence on B2C platforms bypassing, rationalizing overexpansion of store supply built for dysfunctional supply chains and supplier-centric not consumer-centric models
Retail MAXIM June 2017
Issue: 21st Annual MAXIM Store Productivity Survey of 850 Retailers & Brands, 106 Subsectors & 2,150 B&M Formats
Theme: “Chainspotting. Four-Wall Productivity On & Off the Rails in Transition of 20th C Chain Store Model.”
Metrics: Productivity Metrics Series I: Sales per square foot [PSF] and average unit volume metrics by chain, sector and format by average format size, annual absolute sales and growth 2008-2016. Real Estate Metrics Series II: Productivity of chain and brands broken out by various existing formats [core portfolio prototype, derivatives, pilots and concessions, vintage [date opened] and proposed 2017-18, average format size 2016 and indexed to 2008, range of each format by biggest and smallest footprint, base supply for each format in store portfolio as of 2016, annualized since 2008 and pipelines of openings and closings 2015-2017E.
Topics: +Highest producing & evolving formats transcending deflationary trends of excesses supply and marginal real estate rationalization. +Competitive catalysts and industry disruption under three successive inflection points over arc of 2008, 2013 and 2016 recession-recovery-recession impacting ongoing erosion in sales PSF. +Slippery slope of B&M productivity due to secular subpar internal growth [same-store sales] since 2008 turning sublinear in 2013. +Record high retention rate under back-to-back real estate asset valuation bubble [2002-06 and 2010-15] elevates portfolio obsolescence and excesses of nonproductive square footage as 80-90% of stores leased-owned generate sales 50-70% below market average. +Store cycle underreported by industry in terms of record high retention rate of vintage supply and ongoing expansion of B&M footprint. +Go-dark risk underestimated by real estate capital markets in 2017 based on higher levels of closings announced by 850 chains surveyed for core and derivative formats. +Go-dark risk outlook 2018-19 under new FASB ruling mandating “expensed” rents of operating leases be itemized as debt on balance sheet.
Retail MAXIM May 2017
Issue: 2017 Revisions of G-400 Corporate Governance Ratings ‘CGRS” rating the caliber of stewardship, executive management and Board of Directors, in retail’s transformation to an interactive model
Theme:“Black Mirror. Reflecting on the Void of Retail Leadership in the Next Stage of Digital Convergence.”
Metrics: Proprietary ratings of current retail management and Boards impacting trajectory of Global 400 Watch List Ratings. Six corporate governance ratings identify “Exemplary” leadership for 49 credits out 400 Boards screened.
Issues: +Retailers mounting crisis of leadership in transformation to an interactive model and intensifying global competitive landscape in convergence of next generation online marketplaces. +Screening caliber of retail stewardship and rating diversity of Board members that possess a winning corporate culture to advance the G-400 competitive advantage. +Leadership that can go up against Amazon and other aggravated competition. + Ratings accounting for lack of cohesive corporate culture under transient ownership, privatization and acquisitions by private equity buyout firms and Boards controlled by hedge funds. + Rating role of Board as custodian for shareholders and responsibility in defining culture of company through executive appointments, credit and capital policies and strategic contributions to create sustainable B&M businesses
+ Identifying diversity of Boards members and industry expertise beyond conventional B&M retailing in new forms of commerce, tech, digital, media, transport, supply chain logistics and entertainment. + Boards in control of real estate rationalization and digitization. + List of retailers governed by Boards seeking short-term value creation through rent-seeking objectives that ultimately trade and/or liquidate the business
Retail MAXIM July 2016
Issue: 20th Annual MAXIM Store Productivity Survey of 800 Retailers & Brands, 1,880 B&M Formats, 104 Subsectors
Theme: “Power of One. Formats Maximizing Productivity Potential of Multichannel Retailing.” Part I: Just the Metrics.
Metrics: Productivity Series I: Sales per square foot metric by chain, sector and format by average format size, annual growth. Productivity Series II:
Average store volumes, square footage ranges of all formats comprising store portfolio legacy core, derivatives & bridge, pilots & proposed formats, base supply expansion-contraction recession-recovery-inflection point. Time Series: 2008-16 annual
Topics: + Highest productivity led by next generation B&M formats of consumer-centric & social media-entertainment platforms + Highest functioning productive formats possess evolutionary prowess + Rightsizing revolves around bigger not smaller format footprint + Destination retailing global-digital age dictates format size & sales volumes + Real estate rationalization tests for highest & best use determining store capacity ripe for retention as retail, conversion to online warehousing & delivery or closings + New strategies maximizing the multichannel model as Omni-channel format lags
Retail MAXIM June 2016
Issue: Ranking G-400 Department Store Credits for Sustainable Turnarounds and Real Reinventions
Theme: “J-Z Penny’s Turnaround Gets Jiggy. A New Riff on Department Store Drift. How to Reinvent a Middle Market Icon.
Metrics: Operating and productivity data of restructuring & reinventing department stores under various stewardship [pre-Ron Johnson, under and post Johnson under Ellison, successful retail turnarounds. Trajectory of dept. store G-400 Watch List Values 1998-2016
Topics: + Reinventing the family department store model by reintroducing durable goods eliminated in 1970s + Diagramming a new higher caliber well-curated merchandising plan leveraging shopping voids of suburban middle & working class consumer + Monetization of legacy brands unleashes inherent value & growth potential + Repurposing & rethinking function of dept. store real estate to support online warehouse & delivery models + New benchmarks & analytics testing highest & best use of B&M platform + Differentiation from the 1970s fashion category killer department store model now under siege + Reinvention of mass market model supporting America’s Great Mall Complex
Retail MAXIM May 2016
Issue: Ranking State of Turnarounds on G-400 Watch List
Theme: “From Reinvention to Intervention. Restructurings That Lost Their Way unlike Those on a New Path”
Metrics: Ranking of stage of turnarounds post 2013 inflection point & industrywide transition, cycle of fundamental values G-400 WL indicating widening-narrowing economic moat, breakout of business component values assessing weak links in restructuring, management fiscal guidance and risk-reward ratings assessing upside-downside potential, G-400 Corporate Governance Ratings System [CGRS] of public and privately-held retail [private equity firms to family & cooperatives]
Topics: + Corporate DNA of restructuring dictates highly variable outcomes & sustainability + Structural forces rewriting industry rules & derailing turnarounds + New entertainment & social media platforms as new fashionistas undermining fashion & luxury brand sectors + Supply chain obsolescence aggravated by disruptive forces of “Amazon effect” colliding with “Anna Wintour effect” + “Anna Wintour effect” collapses industry structure & forces reinvention of luxury fashion sector + Retailers targeted by private equity buyouts and IPO recycling of businesses & assets caught in a perpetual turnaround cycle + Collapse in traditional demand & replacement cycles depresses rates of sales growth & conversion + Impact of reinvented industries spawning new competitive risk + Event risk inherent in subpar corporate governance
Retail MAXIM April 2016
Issue: Ranking 2016 Growth Prospects of G-400 Credits & Management Guidance on Same-Store Sales
Theme: “Flying over the No-Growth Zone. Mining the Middle Market Minefield for Moat”
Metrics: Internal growth [same-store sales] cycle of 2002-2016 vs. 2016 forecast for 580 G-400 retailers, e-commerce sales growth, external growth measures [store footprint, projected closing pipeline, M&A, alternative revenues], G-400 “Growth Prospects” ratings, G-400 Management Fiscal Guidance
Topics: + Reinvention of mass market model supporting 60% of US households economically disfranchised yields new growth among innovative G-400 retailers [Positive Watch] + Systemic subpar internal growth of 2002 recovery turns sublinear in 2010 recovery with low prospects of reversing for huge swath of G-400 retailers + “Winners Take All Economy” of past 40 years widens disparity in wealth & household income to record and curbs consumption levels by half + Unfettered capitalism commoditizes everything from labor, good produced, assets and shopping experiences yielding subpar-sublinear growth + “Supply-on-Demand” construct [shopping ‘out of need not want’ and by event] symptomatic of malfunctioning economy, adopted by working class households in 2004 crosses over to affluent cohort depressing consumption across price point spectrum + Structural attrition in store traffic since 1980s reaches single & double-digit rates in all retail sectors, price points & shopping center channels due confluence of dislocations [economic, online, competitive] + Catalysts of 2010-14 recovery [tourist consumption to renewed store expansion] derails with relapse in global economies + Systemic low growth triggers aggravated M&A and consolidation to achieve greater scale and growth potential + Absence of internal growth signs of late stage Asset Bubble Economy at tipping point similar to 2007-08 collapse
Retail MAXIM March 2016
Issue: Assessing the Impact of Private Equity on G-400 Credits Performance 2010-2016
Theme: “Private Lives Unhinged. Disruptive Dance of Public-to-Private Capital Trumps the Digital Transition”
Metrics: Trajectory of G-400 Watch List Competitive Advantage Values by private equity-owned retailers & IPOs by private equity firms, corporate ownership diagramed by private equity vs. publicly-held credits, operating margins, growth & return on capital data
Topics: + Destructive forces of escalating “private public equity dance’ [PtP] & shareholder activism eroding economic moat and sustainable entities + Mounting loss of confidence among PE firms evidenced by 2016 sell off of equity stakes & increasing inflows of shadow capital funding distressed credits + Real estate spin-offs and REITs of trouble retailers target of private equity buyout sunder Fed ZIRP polices inducing asset bubbles + G-400 corporate governance ratings are lowest for retailers owned by private equity and taken public by same group + Sources of retail disruption rooted in private equity buyouts & recycling of companies & assets elevating risk contagion [event, competitive, leasing] + High levels of real estate obsolescence and low four-wall productivity from systemic under investing in stores & high retention of non-integral assets + Financial-centric models of private equity trump consumer centric elevating speculative growth & unstable business + Digital innovation blunts asset deflation + Recapitalization stabilizes cash flows to cover private equity hefty dividend payouts & fees
Retail MAXIM February 2016
Issue: 2016 Update of G-400 Corporate Governance Ratings System
Theme: “This is Spinal Tap. Boards as the Backbone that Make or Break a Retailer”
Metrics: Corporate Governance Ratings System [CGRS] scoring caliber of management and Boards of Directors for each 580 G-400 WL credits, gains & losses in G-400 advantages as a function of caliber of corporate governance ratings
Topics: + Corporate Boards are retailers’ first defense in a roiling marketplace and key to a sustainable transition & turnaround + Highest caliber, diverse & visionary G-400 Boards are also the top rated G-400 credits positing greatest gains in economic moat + Top rated G-400 Boards support consumer-centric models + Low-rated G-400 Boards support “shareholder-centric” models dictated by “tyranny of short-termism’ + Sustainable versus speculative businesses a function of ‘consumer-centric” & “shareholder-centric” models set by culture of Boards + Qualifying competitive advantage of retailer based on caliber of Board and capital allocation policies + Boards seated by hedge funds & private equity firms invite predatory buyouts & short-termism
Retail MAXIM January 2016
Issue: Ranking the Real Estate Advantage of G-400 Credits for Monetization & Liquidation Potential
Theme: “Fight Club. A Real Estate-Led Restructuring Hampered by the Exclusionary Rezoning of American”
Metrics: G-400 Business Component Values breakout rated by real estate monetization potential over past three cycles and future cycles, G-400 Real Estate Value rankings identify potential liquidation situations distribution of G-400 retailers by credit quality, market niche, price point & sector
Topics: + Rezoning of America underway by Congress, State & urban governments resetting land use policies and real estate valuations, marginalizing middle and working class shopping destinations + Monopolistic positions of REITs and high density markets and inflated rents and property values reinforced by rezoning changes type of store formats & B&M feasibility + Higher rent districts attract corporate monopolies and inflate land prices [as seen w/ Google] + Rezoning outgrowth of unfettered capitalism commoditizes retail limiting monetization potential + Urbanization and global gateway cities embrace exclusionary zoning to redevelop shopping and eateries for the Uber-wealthy and spendthrift tourist at expense of mass market resident households + Rezoning & redistricting aggregates higher purchasing power forcing retailers to consolidate store portfolios into higher density, higher income, higher rent locations and markets + Future pipeline of turnarounds and store liquidations building as rezoning sets new location criteria marginalizing future sales potential of existing retail + Monetization potential of real estate trigger rebranding and new merchandising platforms seeking exclusionary-zoned sites to generate growth, productivity and high returns lacking in emerging marginal sites + “Superpower” predatory strategies of US and urban government fostering aggressive expansive strategies and larger footprints affordable by only a finite group of high producing retail that overtime commoditizes the shopping experience + Real estate capital markets and hedge fund rent-seeking strategies redefining retail real estate values and land use [see Seritage REIT spin off of Sears]+ Rezoning movement will dislocate the past 60 years of suburbanization, wealth and middle class, generating a pipeline of dark assets [stores to shopping centers] + Rezoning sets new higher hurdles in turnarounds for US retailers whose merchandising models and customers are concentrated outside the new epicenters fo wealth & commerce + Great American Suburban shopping Center Complex is under siege as rezoning destroys real estate values
