Retail Property REITs like Kite Realty Group (NYSE:KRG) for the past 3 years have been thunderstruck with an increase in vacancy and decrease in percentage rents. While vacancy rates have been stabalizing, Percentage Rents may be on the rise as shoppers spend more this holiday season.
Costco Wholesale posted a 9 percent rise in November sales at store open at least a year, helped by higher gasoline prices and strengthening foreign currencies.
The largest US warehouse club company, which operates 582 warehouses across the world, recorded 13 percent same-store sales growth at its international segment in the month.
Analysts were expecting same-store sales to rise 6.2 percent, according to Thomson Reuters data.
For the four weeks ended Nov.28, net sales at Issaquah, Washington-based Costco // [COST 68.31 
0.70 (+1.04%) 
] // rose 12 percent to $6.78 billion.
The holiday shopping season is off to a “solid start” across most retail categories, according to a report released on Wednesday that offers some hope that consumer spending is starting to bounce back.
The retail sales growth in November, which includes the crucial Black Friday weekend sales, was particularly strong for apparel and for online sales, according to research from MasterCard Advisors’ SpendingPulse, which estimates total retail sales across all payment forms.
“Household wallets are pointing a little bit more toward retail,” said Michael McNamara, MasterCard’s vice president, Research and Analysis.
No doubt strong promotions—some offered as early as Halloween—helped to encourage consumers to shop. Retailers such as Sears Holdings // [SHLD 67.58 2.08 (+3.18%) ] // advertised Black Friday-style doorbuster deals each weekend of the month. Store hours were extended for the Thanksgiving weekend, and retailers made a big push online around Cyber Monday, with some—including Wal-Mart Stores // [WMT 54.70 0.61 (+1.13%) ] // and Target // [TGT 58.02 1.08 (+1.9%) ] // —extending those discounts for an entire week.
McNamara was encouraged by a 9.6 percent gain in apparel sales, which was fueled by a 3.9 percent increase in sales of women’s clothing and a 7.2 percent gain for men’s apparel.
This was the second month in a row that women’s apparel sales recorded a gain, and the increase in men’s apparel reversed a sales decline in October.
The women’s category is likely benefiting from some pent-up demand, McNamara said. Women’s apparel retailers have suffered with anemic sales for the past two years as women tend to cut back spending on themselves when times get tough. Seeing some signs of life in this important category is an encouraging sign that consumer spending could be picking up.
The growth in online sales accelerated in the latest month, rising 12 percent from the year-ago period, according to SpendingPulse.
“Online sales have just been killing it this year,” McNamara said.
Sales of furniture rose 2.8 percent, which was the best showing for that category in quite some time. Sales of luxury items rose 1.6 percent, but the overall electronics category fell 1 percent, hurt by sharp price declines of popular electronics items such as LCD televisions.
According to McNamara, television prices have fallen between 10 to 15 percent from last year, and it is difficult to offset such steep price declines.
Still, the sales trends in November were generally positive.
“When you take a step back and see the bigger picture, it is turning into a pretty solid season in most areas,” he said.
The Thomson Reuters Same-Store Sales Index is expected to post 3.6 percent growth in November 201, considerably higher than the 0.5 percent gain last year.
According to analysts surveyed by Thomson Reuters, all retail sectors are expected post gains.
However, anecdotal evidence suggests there could be strong gains posted by teen apparel retailers. In a research note, Thomson Reuters analyst Jharonne Martis-Olivo said there were long lines at both Aeropostale // [ARO 26.80 
-0.23 (-0.85%) ] // , which was offering discounts of as much as 70 percent off, and even longer lines at American Eagle // [AEO 16.84 0.34 (+2.06%) ] // and Hollister, which weren’t offering such steep discounts.
“Teen spending is a good proxy of discretionary spending, and teenagers are paying higher prices now,” Martis-Olivo said.
Online sales also have been strong. Cyber Monday sales topped $1 billion, making it the busiest online shopping day ever, research firm ComScore said.
There also have been reports that shoppers were beginning to treat themselves while they shopped. If this is true it bodes well for the retail sector.
Still, there remain concerns that the early promotions could have shifted some of the holiday sales into November at the expense of December. It is hoped that some of the retailers will provide some insight into these trends when they release their monthly sales reports on Thursday.
A breakdown of the estimates follows:
//
|
November Same-Store Sales Estimates
|
| Retailers |
November 2010 Estimates |
November 2009 Actuals |
| Costco |
6.2% |
6.0% |
| BJ Wholesale |
3.9% |
1.0% |
| Target |
3.7% |
(1.5%) |
| JC Penney |
3.1% |
(5.9%) |
| Kohl’s Department Store |
2.8% |
3.3% |
| Dillards Department Store |
3.0% |
(11.0%) |
| JW Nordstrom |
3.8% |
2.2% |
| Saks Department Store |
9.5% |
(26.1%) |
| Stage Stores |
2.8% |
(12.5%) |
| Macy’s |
5.0% |
4.3% |
| Gap |
2.6% |
0.0% |
| TJX |
2.9% |
2.0% |
| Limited |
4.0% |
3.0% |
| Ross Stores |
2.8% |
8.0% |
| Stein Mart |
0.5% |
(7.2%) |
| Abercrombie |
6.8% |
(17%) |
| American Eagle |
1.4% |
(2.0%) |
| Aeropostale |
0.9% |
7.0% |
| Hot Topic |
(4.6%) |
(11.7%) |
| Wet Seal |
0.8% |
(5.0%) |
| The Buckle |
3.8% |
1.4% |
| Zumiez |
12.6% |
(8.5%) |
| Walgreen |
2.9% |
3.9% |
| Rite Aid |
(1.0%) |
(0.8%) |
|
Source: Thomson Reuters; Figures in parenthesis are losses.
|
“This should result in better returns for the Retail REIT’s as percentage rents add profits back to their bottom line” says Charles Rankin, of Rankin Commercial Properties.
Percentage Rents are a calculation of gross sales over a pre-determined or natural breakpoint. If the sales exceed the natural breakpoint, the landlord or property owner recieves additional rent. Increased rents lead to increased income and an increase in property valuations.
According to Coremetrics, a research tool by IBM consumer spending over the November holiday’s rose as much as 24%. Department stoes rose 38% and jewelry stores nearly doubled their sales.
Preliminary sales reports and data show shoppers spent more in November, responding to “Black Friday” deals and promotions that began early in the month.
MasterCard Advisors’ SpendingPulse, which tracks spending across all transactions including cash, reported spending on family and children’s clothing rose more than 10 percent in November. Teen clothing was particularly strong, up 12 percent.
Spending on luxury goods rose 1.6 percent. Electronics fell 1 percent as flat-screen TV prices fell.
Overall online sales rose 12 percent during the month.
Most retailers were set to report revenue in stores open at least a year on Thursday but some teen stores reported on Wednesday. Aeropostale, Zumiez and Hot Topic all reported November revenue in stores open at least a year that beat expectations.
Teen retailer Zumiez // [ZUMZ 31.57 --- UNCH (0) ] // posted a 20.7 percent same-store sales increase in November, topping estimates that called for a 12.6 percent gain, while rival the Buckle // [BKE 36.13 --- UNCH (0) ] // saw a 7.9 percent gain, solidly ahead of the 3.6 percent analyst estimate published by Thomson Reuters.
Limited // [LTD 34.64 --- UNCH (0) ] // turned in another month of strong results, with its same-store sales riseing 10.0 percent, compared with a 4.0 percent estimate.
Still, there were a few disappointments. Aeropostale // [ARO 26.80 --- UNCH (0) ] // , which had advertised steep markdowns during the Black Friday weekend, said same-store sales declined 1.0 percent. Analysts estimated a 0.9 percent same-store sales gain.
Hot Topic // [HOTT 6.13 --- UNCH (0) ] // posted a 2.1 percent decline in same-stores sale, but the loss was narrower than analysts wer expecting. They had forecast a 4.6 percent decline.
A complete summary of the results follows:
//
|
November 2010 Same-Store Sales
|
| Retailers |
November 2010 Estimates |
November 2010 Actuals |
| Costco Wholesale |
6.2% |
9.0% |
| BJ Wholesale |
3.9% |
3.8% |
| Target |
3.7% |
5.5% |
| JC Penney |
3.1% |
9.2% |
| Kohl’s Department Store |
2.8% |
6.1% |
| Dillards Department Store |
3.0% |
8% |
| JW Nordstrom |
3.8% |
5.1% |
| Saks Department Store |
9.5% |
5.3% |
| Stage Stores |
2.8% |
2.4% |
| Macy’s |
5.0% |
6.1% |
| Gap |
2.6% |
4% |
| TJX |
2.9% |
3.0% |
| Limited |
4.0% |
10.0% |
| Ross Stores |
2.8% |
6.0% |
| Stein Mart |
0.5% |
Flat |
| Abercrombie |
6.8% |
22% |
| American Eagle |
1.4% |
Flat |
| Aeropostale |
0.9% |
(1.0%) |
| Hot Topic |
(4.6%) |
(2.1%) |
| Wet Seal |
0.8% |
7.0% |
| The Buckle |
3.6% |
7.9% |
| Zumiez |
12.6% |
20.7% |
| Walgreen |
2.9% |
|
| Rite Aid |
(1.0%) |
(1.3%) |
|
Source: Thomson Reuters,company reports. Figures in parenthesis are losses.
|
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Charles Rankin
