Kohl’s and Aldi—A Win-Win for an Overspaced Department … · 2018-03-06 · Title: Microsoft...
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Transcript of Kohl’s and Aldi—A Win-Win for an Overspaced Department … · 2018-03-06 · Title: Microsoft...
1 DeborahWeinswig,CEOandFounder,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2018CoresightResearch.Allrightsreserved.
March 6, 2018
Kohl’s and Aldi: A Win-Win for an Overspaced Department Store and a High-Growth Grocery Chain
• Kohl’swillbecarvingoutspacefrom5–10ofitsstoresandleasingthatspacetogrocerydiscounterAldi.
• Aldi’saveragestoreis20,000grosssquarefeet,equatingto23%ofatypicalKohl’sfull-rangestore,whichmeasures88,000grosssquarefeet.
• Kohl’sisuniquelypositionedamongthetoptierofUSdepartmentstoreretailerstomakethismove,asmanyofitsstoresarelocatedinthekindofopen-aircentersinwhichAldipreferstolocateitsownstores.
• TheKohl’sinitiativefollowsitsrecentintroductionofAmazontechnologydepartmentsandAmazonreturnsservicesatsomeofitsstores.
OnMarch1,USdepartmentstoreretailerKohl’sannouncedthatitwouldbeslimmingdown12ofitsstoresandthat,aspartofapilotprogram,5–10ofthosestoreswouldcarveoutspacetohouseAldidiscountsupermarkets.Kohl’sCEOKevinMansellsaidonthecompany’sfourth-quarterconferencecallthatAldiwouldbethecompany’sinitialpartnerasitdownsizesstoresthroughcarve-outs,butthatitcouldleaseexcessspacetoothergroceryretailersorserviceproviders,suchasfitnesscenters,inthefuture.Mansellidentifiedsuchoutletsas“trafficdrivers”thatKohl’sknowsit“cancoexisttogether[with]foralongtime.”
TheannouncementthatKohl’sisseekingtorightsizeselectedstorescomesinthecontextofadepartmentstoresectorthatisincreasinglyrecognizedasoverspaced.ThesectorhasbeenmarkedbynewsofstoreclosuresbyMacy’s,JCPenney,Searsandothers,butKohl’shassofarstoodapartfromthosenamesbyannouncingnoclosureprogram.
2 DeborahWeinswig,CEOandFounder,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2018CoresightResearch.Allrightsreserved.
March 6, 2018
Space:SmallBoxinaBigBoxContrarytosomemediareports,AldiwillnotbeopeningshopsinanyKohl’sdepartmentstores.Instead,Kohl’swillbecarvingoutspaceforseparate,adjoiningstoresthatwillbeleasedtoAldior,intime,othercompanies.So,AldiandKohl’swillbeneighborsratherthancohabitants.
Kohl’shastheadvantageofbeingapredominantlyoff-malldepartmentstoreretailer;weseethisasonefactorbehinditsrecentstrongperformance.Kohl’sstoresinopen-aircentersarefundamentallysquareboxes.Thecompany’scoreestateoflargerstores(whicharethekindweexpecttoseedownsized)average88,000grosssquarefeet.
Aldi’sstoresaresmallersquareboxes.AccordingtotworecentAldiUSrealestatebrochures,thecompanylooksforstoresthatare17,000–22,000grosssquarefeetinsize.IfwesplitthedifferenceandassumethatAldiwilltakeanaverageof20,000squarefeetofspacefromeachoftheKohl’sstoresinvolvedinthepilotprogram,thentheimplicationisthatAldiwilltakeapproximately23%ofspacefromeachofthedownsizedKohl’sstores.Weprovideanapproximaterepresentationofsuchacarve-outinthegraphicbelow.
Figure1.EstimatedAldiSpaceCarve-OutataTypicalKohl’sStore
Source:GoogleStreetView/companyreports/CoresightResearch
ThisalsoimpliesthatthetypicalKohl’sstoreinvolvedintheprogramwillloseoneofitstwoentrances,whichwillbeusedtoprovidecustomerentrytothenewAldistore.
AldiHuntingforRealEstateAldiaimstooperate2,500USstoresbytheendof2022,upfromacurrent1,755(perAldi’sonlinestorelocator).WebelievethatAldiopenedapproximately150USstoresin2017,andweestimatethatitwillopen200morein2018.TheexpansionofretailerssuchasAldi,Lidl,dollarstoresandoff-pricechainsisunderpinningstrongdemandatopen-airshoppingcenters,whichwenotedinourJanuary2018reportWhatRetailApocalypse?ReviewingTrendsinUSBrick-and-MortarRetail.
BycarvingoutspaceforAldistores,Kohl’sisgivingAldiaccesstosuchopen-aircenters,includingthosewherehighoccupancylevelsmeanthattherearenoexistingretailunitsavailableforAlditomoveinto.Kohl’soperates1,158storesin49USstates,providingapotentiallywidenetworkoflocationsforAlditotap—although,ofcourse,availabilitydependsonwhichstoresKohl’siswillingtodownsize.
3 DeborahWeinswig,CEOandFounder,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2018CoresightResearch.Allrightsreserved.
March 6, 2018
Figure2.Kohl’sUSStoreMap
Source:Companywebsite
Aldi’s1,755USstoresarealllocatedintheEasternUSandCalifornia.
Figure3.AldiUSStoreMap
Source:Companywebsite
KeyTakeawaysTheKohl’spilotprogramisabouttheretailercarvingoutstand-alone,adjacentstoresforAldi—or,intime,other,asyetunspecifiedlessees.Amongthemajordepartmentstoreretailers,Kohl’sisuniquelypositionedtoundertakesuchaventure,asitsoff-mallstoresarebasedinthekindofopen-airshoppingcentersinwhichAldiseekstoopenitsownstores.
Thislookstobeawin-winforKohl’sandAldi.ForKohl’s,itprovidesacomplementary,traffic-drivingtenantreadytotakespaceasitdownsizesaswatheofstores.ForAldi,itprovidesmorepotentiallocationsinarealestatemarketthatseeshighoccupancyratesatin-demandopen-aircenters.
Finally,thismovefurtherunderlinesourviewthatKohl’sseemstobeleadingthepackintermsofout-of-the-boxthinking.Latelastyear,someKohl’sstoresbegansellingAmazontechnologydevices,suchastheEcho,andacceptingreturnsonbehalfof
4 DeborahWeinswig,CEOandFounder,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2018CoresightResearch.Allrightsreserved.
March 6, 2018
Amazon.Now,Kohl’sistacklingtheissueofexcessspacecreatively.Thisapproach,combinedwiththefactthatKohl’shaslimitedexposuretounderperformingregionalmalls,islikelytosupportthecompany’ssustainedoutperformancecomparedwithsomeofitsmajordepartmentstorepeers.
5 DeborahWeinswig,CEOandFounder,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2018CoresightResearch.Allrightsreserved.
March 6, 2018
DeborahWeinswig,CPACEOandFounderCoresightResearchNewYork:917.655.6790HongKong:852.6119.1779China:[email protected]
JohnMercerSeniorAnalyst
HongKong:2ndFloor,HongKongSpinnersIndustrialBuildingPhase1&2800CheungShaWanRoad,KowloonHongKongLondon:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomNewYork:1359Broadway,18thFloorNewYork,NY10018CoresightResearch.com