Retailer Risk Tracking
Last year I prepared a review of the financial health of the top retailers and assessed the potential real estate risk related to occupancy and leasing.
Since the economy is beginning to improve it was time to update the effort to understand how retailers have fared. The latest version covers approximately 100 retailer entities and is a good point-in-time reference as to financial performance and risk.
Overall, the major headline is that retailer risk has improved. There are no real “downgrades” since last year, other than Blockbuster and Zales. In general, the video and jewelry categories remain under continued stress.
Retailers with an improved “risk rating” include AMC, Chico’s, Foot Locker, Fossil, Game Stop, Home Depot, J. Crew, and Lowes. While there are only a handful showing a notable financial improvement that changes their “risk rating”, the significant take-away is that the majority of the retailers covered are now seeing greater stability in terms of their operating metrics. Depending on the retailer, some are seeing improved net sales, higher comp store sales, or better margins. Many of the retailers have been successful in reducing costs and adapting to the challenges the recession brought.
Unfortunately for real estate, broad-based store expansion is still not in the cards. As such, the shopping center industry will likely remain under pressure for the foreseeable future in terms of challenges to occupancy and rents. There will also continue to be a split in the market, with class A and B+ centers seeing high demand and centers with less than ideal locations and tenant line-ups struggling.
What is important here, however, is that the worst is over and most of the retailers that are still standing can be considered survivors. In addition, looking to the upside, the improved operating metrics achieved by many of these retailers (like Chico’s or Home Depot) should position them to take advantage of increasing top line sales as the economic recovery gains momentum.

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