Retailers Find Opportunity in Others’ ‘Going Out of Business’ Signs

Although the steady stream of retail bankruptcies spells trouble for the economy and retail real estate, some national chains are making moves that may help soften the blows.  A striking example emerged late last week. On Friday, Kohl’s Corp. and Forever 21 Inc. disclosed that their joint-venture $6.25 million bid had won an auction for 46 Mervyns leases in California and the Southwest. Macerich, the shopping center REIT, said in a related announcement on Friday that it owns 22 of the leases acquired by the Kohl’s and Forever 21 joint venture. The two retailers intend to use those sites as a springboard for expansion. For Kohl’s, the 31 Mervyns locations will boost the department store’s Western growth strategy, observed John Bemis, executive vice president & director of leasing and development for Jones Lang LaSalle Inc.’s retail services unit. In a statement on Friday, the company said that it plans to open 50 new locations in fiscal 2009, many of them in the former Mervyns’ locations. Bemis termed Forever 21’s acquisition of 15 Mervyns’ leases “a fairly bold move.”  After steadily increasing the footprint size of is new stores, the fashion retailer apparently intends to take the leap into a full-size department store. In recent years, national apparel stores like The Gap, Old Navy and The Limited have attempted to grow their store size but then pulled back from the effort. “It’s a very difficult step to take,” Bemis said of the Forever 21 strategy. “If they make the transition, it will be highly profitable for them.” Retailers should have many additional opportunities to bid on leases of bankrupt or downsizing retailers in 2009.  The liquidation of the KB Toys chain announced last week will add still more inventory to the retail leasing market in 2009. Announced on Thursday, the chain’s pending disappearance will shutter several hundred stores nationwide. Bemis called the timing of the move during the holidays “a shocking decision.” Although KB Toys has struggled for years and filed for bankruptcy once before, the announcement of the chain’s demise surprised many observers. “If anything, they should have waited until the first week in January to do it,” Bemis said. He speculated that landlords should be able to lease the best KB Toys locations in about three to six months, but added that less desirable sites will probably stay vacant for the bulk of 2009. For most observers, the big question for early 2009 will be how many more chains will sink under the weight of poor holiday sales. Bemis contends that there are still too many moving parts to make accurate predictions, but he suggested that the scariest predictions are overblown. “I don’t think it’s going to be the mass onslaught that some people have projected,” he said. “We’re not going to see 500 retail chains go out of business after the first of the year.”