BJ's may be looking to sell or go public

A report in the Wall Street Journal last month stated that the private equity firms that own BJ's Wholesale Club could either be trying to sell the company or planning for an IPO.

Leonard Green and Partners and CVC Capital Partners acquired BJ's in 2011 for about $2.8 billion. At the time, it was reported that Walmart made an offer for BJ's but was rejected.

An analyst at Kantar Retail noted that although more and more BJ's shoppers have been cross-shopping on Amazon and limited-assortment discounters are eroding the uniqueness of the warehouse club's value proposition, BJ's has shown signs of improvement since CEO Chris Baldwin took over last February.

Baldwin has focused on five key pillars: smart saving families; improving value perception; driving member engagement and retention; revitalizing the general merchandise assortment; and increasing its response speed by improving processes.

BJ's currently operates 213 clubs. Although analysts think Costco and Sam's Club could be curious about acquiring BJ's, they believe it's unlikely either company would make such a large investment in physical stores.

Amazon planning to sell groceries at its own convenience stores

A Wall Street Journal story last week outlined Amazon's plans to expand its grocery business with new, bricks-and-mortar convenience stores. According to the story, Amazon envisions having stores that would sell milk, produce, meats and other perishable items that customers could take home. And using mobile phones, customers could order products like cereal and peanut butter for same-day delivery.

In addition, Amazon will reportedly open drive-in locations where online grocery orders will be brought to customers' vehicles. License-plate reading technology - currently under development - could speed customer wait times.

The stores are initially slated for subscribers to Amazon's Fresh service, which promises same-day food delivery at set times.

Although online grocery purchases only account for two percent of U.S. grocery sales, Morgan Stanley Research estimates that online sales could more than double this year. And Amazon may consider grocery sales as crucial to their growth, since consumers typically restock their refrigerators on a weekly basis, and grocery purchases could lead to other, more profitable purchases.

Amazon expects stiff competition for curbside pickup from Walmart, which plans to have the service at about one fourth of its 4,600 U.S. stores by the end of 2017. Walmart recently purchased e-commerce company Jet.com for $3.3 billion.

Target adding grocery employees, pushing to boost food sales

The Wall Street Journal reported last week that Target stores across the U.S. will soon have teams of employees working exclusively in their grocery sections. The change is part of a plan to improve the company's grocery revenue, which currently accounts for about 20% of the retailer's business.

Last March Target announced it would cut back on its dry packaged goods and add more fresh produce, as well as more organic and gluten-free products. However, Target is not alone in these efforts, as similar investments in the product mix and in customer service have been made by Walmart, Kroger, Aldi and Trader Joe's.

Despite Target's recent changes, their most recent quarterly results showed a 1.1% decrease in comparable store sales.

Aldi and Lidl planning shake-up of U.S. grocery landscape

A Wall Street Journal article last month said "the two scrappy German discounters that have wreaked the most havoc in Britain are ratcheting up their U.S. ambitions." The discounters are, of course, Aldi and Lidl.

Aldi currently has over 10,000 stores in 18 countries. (Aldi is actually broken down into Aldi Nord and Aldi Sud, a breakup that occurred in 1960 as a result of a rift over cigarette sales between the Albrecht brothers. Aldi Sud operates Aldi in the U.S. and a number of other countries, while Aldi Nord includes Trader Joe's U.S. stores.) Aldi recently said it would invest about $3 billion into opening new stores in the U.S., and that it plans to increase its U.S. store count from 1,400 to 2,000 by the end of 2018.

The very next day, Lidl, which has over 10,000 stores across Europe, outlined its plans to enter the U.S. market, most likely in 2017 or 2018. As brokers, landlords and real estate developers up and down the east coast know, Lidl has been aggressively pursuing sites for the past year. Lidl is owned by Schwartz Group, Europe's largest retailer.

In Great Britain the success of Aldi and Lidl has contributed to continuing problems - falling share prices, lost jobs and closed stores - for the country's traditional grocers. On the other hand, the success of these discounters has proven to be a boon for consumers in the form of lower prices and more convenient shopping.

The two food retailers "are on everybody's radar in the U.S. today," according to Craig Rosenblum, a retail consultant at Willard Bishop.

With Aldi's aggressive growth plans and Lidl's planned entry into the market, U.S. discounters like Walmart and Save-A-Lot are on notice.

Safeway reveals that Kroger would have paid more than Cerberus

According to a Wall Street Journal story citing Safeway's proxy statement, Kroger was willing to pay more for Safeway than Cerberus Capital Management did, but concerns over antitrust risk caused Safeway to make a deal with the private equity firm.

The story reports that Kroger first contacted Safeway in February about buying all or part of the company. Company executives met shortly thereafter, where antitrust issues dominated the conversation. A Kroger-Safeway deal would have combined the two largest U.S. grocery chains by market share, according to Euromonitor.

When Safeway signed a deal with Cerberus in early March, Safeway still allowed Kroger to continue its due diligence during a three-week "go-shop" window. Kroger reportedly contacted 26 potential buyers of Safeway stores that would most likely need to be sold to avoid antitrust problems. Eventually Kroger bowed out.

The Safeway proxy statement also showed that in January, Cerberus suggested that Safeway buy Albertson's - which Cerberus owns - in a leveraged capitalization. The deal would have required Safeway to pay a one-time dividend to its shareholders and issue new shares to Cerberus, thereby resulting in the private equity firm owning about half of Safeway with an option to buy more. Safeway didn't consider the idea.

In the final deal, Cerberus and Albertson's are contributing $1.25 billion in cash and borrowing the remaining $8.15 billion. The Wall Street Journal calls it one of the smallest equity checks - about 14% of the deal's value - since the financial crisis

Report says Kroger may be disrupting Safeway-Cerberus deal

3/7/14 Update: Cerberus to merge Albertsons with Safeway in $9 billion deal

In contrast to my post on Tuesday that said Kroger may work with Cerberus to take some Safeway stores the private equity firm might not want if they were to buy Safeway (Kroger could be a player in Safeway sale), a story in The Wall Street Journal online yesterday reported that Cerberus' efforts to purchase Safeway have been complicated by Kroger's involvement.

According to the story, Cerberus, which last year purchased Supervalu's Albertsons and Acme chains, among others, had been hoping to make a deal for Safeway this week. However, Kroger, the largest supermarket chain in the country, is now considering a bid on its own for all or part of Safeway. Cerberus is still seen as the most likely buyer, as Kroger could face antitrust issues in areas where the two companies compete.

The Wall Street Journal reports that Cerberus is offering to pay about $40 per share for Safeway, which would make the deal worth approximately $9 billion.

Cerberus and Kroger recently competed for Harris Teeter Supermarkets, and Kroger emerged victorious, paying $2.4 billion for the chain.

Safeway currently operates more than 1,300 stores in the West, Southwest, Rocky Mountain and Mid-Atlantic regions. In the last two years, the company sold or closed all but one of its Genuardi's stores. Last year it sold its Canadian division and closed or sold its 72 Dominick's stores in Chicago.

A&P may put itself up for sale

According to multiple reports, A&P, formally known as the Great Atlantic and Pacific Tea Company, has hired Credit Suisse to help review strategic alternatives that may include selling the company. A&P brands include Pathmark, which recently announced the closing of three stores in New Jersey, as well as Superfresh, Waldbaum's, The Food Emporium and Food Basics.

Bloomberg News reports that A&P may also raise new capital from investors, consider new business partners or refinance the company.

A&P, which emerged from bankruptcy last year, has more than 300 locations. The Wall Street Journal said yesterday that the company's asking price could be as high as $1 billion.

Property worth $4.4 billion in Supervalu deal

In a Wall Street Journal story published earlier this week, Karen Short of BMO Capital Markets estimates the property value of the real estate bought by Cerberus Capital Management and its partners from Supervalu to be worth $4.4 billion. The partnership group agreed to pay $3.3 billion for Albertsons, Acme, Jewel-Osco, Star Market and Shaw's grocery stores.

According to the article, about half the 877 stores to be purchased are company-owned or subject to ground leases.

Cerberus' partners in the deal - Kimco Realty, Klaff Realty, Lubert-Adler and Schottenstein Real Estate Group - are all real estate companies, and are the same partners that teamed with Cerberus in 2006 to purchase 650 Albertsons stores. The group sold off some of those stores, closed others and kept several in operation. And they reportedly earned significant profits.

According to Kimco COO Mike Pappagallo, "Even though we recognize that the benefit here is primarily improving the overall operation of the business, we're comfortable with the fact that the real estate value we have, at minimum, supports the purchase price."

Fitness centers increasing their presence in shopping centers

CoStar reported that health clubs and gyms accounted for 8.8% of new leases signed so far this year by retail chains in the U.S., according to a story yesterday in The Wall Street Journal. At this point last year health clubs and gyms accounted for 7.9% of new leases by retail chains.

U.S. health clubs now occupy more than 70 million square feet, a 57% increase since 2007. The International Health, Racquet and Sportsclub Association says that health club membership increased 10.8% in 2010 to more than 50 million members. Membership had been relatively stagnant for several years.

The story quotes representatives from Gold's Gym and L.A. Fitness, both of whom are planning to expand. Gold's Gym, which currently has 500 U.S. locations, intends to add 17 sites this year and 30 next year. L.A. Fitness has 370 clubs and plans to open 250 more in the next five years.

Retail sales and vacancy rates at odds in recent reports, but wait...

Sales: According to Thomson Reuters data on 25 major chains, retail sales in the U.S. increased 1.7% in March, despite a late Easter, high unemployment and rising gasoline prices. Analysts had expected that sales would fall 0.7%. And according to a story in The Wall Street Journal, U.S. retailers expect solid spring sales, despite gas prices, inflation and lackluster consumer confidence. Global consumer strategist Don Palmer says many retailers are actually raising prices more than they have to in order to test their pricing power with customers.

But wait... Mr. Palmer points out there is risk in this pricing strategy, as resistance to rising prices will be delayed and hit later, possibly during the critical back-to-school or holiday sales season.

Vacancy rates: According to Reis, vacancies at neighborhood and community shopping centers, which are usually anchored by discount and grocery stores, rose to 10.9% in the first quarter from 10.7% a year earlier. The rate was unchanged from the three previous quarters and the highest since it reached 11% in 1991. The vacancy rate for regional malls hit 9.1%, also the highest rate since 1991.


But wait... CoStar Group said the vacancy rate for all types of U.S. retail properties (including freestanding stores, malls, strip malls and community shopping centers) fell to 7.1% in the first quarter from 7.4% a year earlier. Furthermore, retail properties overall have had net occupancy gains for seven quarters. More consumer spending and corporate hiring has helped, according to one of CoStar's senior real estate strategists.

There you have it.