By Steve McLinden 7/16/10

The race for retail space is on again, with dozens of retailers gearing for growth after navigating a perilous fiscal road and emerging leaner and keener. A few are running neck and neck for the best spaces, observers say.

Some 2,500 retailers in the Retail Lease Trac database, excluding Macy's, Target, Walmart and similar larger chains, say they plan to open stores: 44,404 units in the aggregate over the next 12 months, and 83,572 over the next 24.

Those retailers that put expansion on hold last year are now acquiring second-generation spaces and reconfiguring them for new stores for this year and beyond, says D.J. Wight, CEO of Retail Lease Trac. “I think that their interest in renovating existing spaces shows us that while they're taking cautious steps, they still have the desire to expand,” said Wight.

Dollar General, which plans to open 600 new stores this year, and Subway, which aims to surpass McDonald's for number of worldwide restaurants, are intent on capitalizing on today's prevailing value proposition, says Wight. Quiznos, with some 4,000 North American stores, says it will be boosting its convenience-store locations at the same pace it opens traditional restaurants over the next several years. It now has about 200 such locales and will add 500 more by the end of 2012.

Among retailers, it is not just the traditional discounters that are expanding. A renewed focus on affordable family-oriented retail has children's merchants growing rapidly. The Children's Place says it will open 65 clothing stores this year, nearly twice the 38 it opened last year. “Our brand is well penetrated in 'A' and 'B' malls, and we perform very well in these malls,” said Jane Singer, the chain's vice president of investor relations. “But growth potential also exists for us in smaller to midsize markets.” The stores opened last year are enjoying returns upwards of 50 percent, Singer says. Most are in value-oriented strip and enclosed centers. The growth “is based on a disciplined retail strategy and sound financial requirements.”

Children's apparel chain Carter's says it will open a total of about 100 stores over the next two years under the Carter's and Oshkosh B'Gosh banners. Carter's opened 28 stores last year. The company wants to expand from mostly outlet center stores to sites in conventional lifestyle and strip centers, James Petty, Carter's retail president, told the media.

Children's clothier Gymboree is in the process of opening as many as 100 of its value-formatted Crazy 8 stores this year. Wonder, a big-box children's newcomer launched by venture capitalists Shane Christensen and former Wal-Mart executive Bill Colaianni, is set to open this fall in a 135,000-square-foot former Great Indoors property in Deerfield, Ill. The company plans to open 19 stores over five years and as many as 120 in total eventually. The stores will cater to families with children up to age 7 with a product mix of clothes, toys, strollers and diapers.

“Retailers that are expanding are improving their position by getting real estate that wasn't really available to them three years ago - and on favorable terms,” said John Bemis, Jones Lang LaSalle's director of leasing and development. “The space is there, and they have upgraded at the same cost, though they usually have to be willing to make a 10-year commitment.”

Coach is looking at a rollout of up to 30 stores over the next few years, says Bemis, and Academy Sports, which is opening a pair of stores in Chattanooga, Tenn., this year, is sizing up additional opportunities. Sports Authority is growing too, launching its higher-end S.A. Elite concept in stores measuring between 12,000 and 15,000 square feet. The first S.A. Elite store is to open in Denver next month. Bed Bath & Beyond says it will open or renovate a total of some 60 stores by the time its fiscal year winds down, next February. Nordstrom Rack is planning as many as 15 new stores, Bemis says.

H&M, which has about 2,000 stores in 37 countries, plans to add numerous U.S. sites, according to Bemis. “However, there's really not a big flood of international retailers coming to the U.S.,” he said. Ikea, meanwhile, continues a deliberate, around-the-globe expansion. In May Ikea broke ground on its first Denver-area store, in Centennial, Colo., slated for a fall 2011 opening. Ikea opened a first Dominican Republic store, in Santo Domingo, in February, and its second Finland store opened in May. Published reports have Ikea planning stores for Bulgaria, New Zealand, Serbia, Thailand and Ukraine in the coming years, as well as a flagship in Abu Dhabi next year. The company also has stores planned for existing markets in Greece, Hungary, Poland and Romania.

Some of the expansion news may be exaggerated, such as the reports that Spain's Zara will open 450 stores by next year. Zara is growing fast, concedes a company spokesman, but “450 stores is an absolutely unrealistic figure.” Zara opened 103 stores in 46 countries last year, seven of them in the U.S. Meanwhile, parent company Inditex has plans to open numerous additional U.S. Zara stores, the spokesman says.

Philadelphia-based Five Below, a multicategory value retailer catering to teens, will open 40 stores this year and 50 more next year. Driving this is the opportunistic climate in retail real estate leasing plus the strength of the company's existing stores, especially the 20 it opened last year, says Douglas Walrod, Five Below's vice president of real estate. The company is looking chiefly at power centers in major and smaller one-store markets, although regional malls, community centers and freestanding spaces are options under the right conditions. Five Below, so named because its items are priced between $1 and $5, is one of very few nationally expanding retailers seeking spaces in the 7,000-to-10,000-square-foot range, Walrod says.

Specialty fashion retailer Forever 21 says it will build large-format spaces at five Taubman Centers properties by next year featuring expanded lines and, in some cases, affiliated concepts For Love 21 and Heritage 1981. Forever 21 stores are slated for Beverly Center, in Los Angeles; Sunvalley Shopping Center, in Concord, Calif.; Dolphin Mall, in Miami; Great Lakes Crossing, in Auburn Hills, Mich.; and Twelve Oaks Mall, in Novi, Mich. Forever 21 is opening two stores in Japan and several other U.S. stores this year, including a store in Times Square at the site of the former Virgin Megastore. “Forever 21 has been one of the hottest retailers in the U.S. over the last several years,” said David Weinert, Taubman's senior vice president of leasing.

Though the economy is keeping the number of openings for 2010 modest, prospects for economic improvement encourage retailers to go more aggressive for 2011 and 2012, said CEO Robert Taubman at an earnings call in April.

Similarly, Matt Winn, national managing director of Cushman & Wakefield's retail consulting group, says retailers know they must start cultivating modest growth at least. “Everybody is starting to look,” Winn said.

“For many of them, it's just a question of format. We're seeing people who are now in strategic-planning phase and are getting ready to gear up for a smart expansion. But I don't think there will be a battle to capture market share the way it was before.” Those retailers holding off for now on store openings are focused on optimizing existing-store performance, Winn says. “Both consumers and retailers are getting smarter with cash management.”

Ross Dress for Less is also capitalizing on today's value-pricing demand. The 1,000-store chain says it will open 50 stores this year and 70 next year, in view of record results last year and a strong first quarter this year. These stores will be primarily retrofitted into existing center spaces, says company spokeswoman Bobbi Chaville.

Discounter Kohl's, which operates some 1,070 U.S. stores, says it plans to open roughly new 30 stores by year-end and to remodel an additional 85, about two-thirds more than the number it remodeled last year. Tavistock Restaurants says it will expand its Freebirds World Burrito concept with 26 new restaurants in North Carolina, Oklahoma, Texas and Southern California, many of them on or near college campuses. Schlotzsky's will open 60 eateries under a new prototype by year-end and then convert all its units to that new look by the end of next year. Dunkin' Donuts' Russian franchise partner, Donuts Project LLC, will open between 10 and 20 Dunkin' Donuts restaurants in the Moscow region this year.

There is also growth in the movie-theater sector. Alamo Drafthouse has two openings planned in Texas for the next 12 months, in Austin and San Antonio, but the company is looking for sites in Houston and on both coasts as well. The economy has helped winnow down the number of potential franchise operators to a more viable group, says CEO John Martin. “And it has given our concept a number of more accessible dark boxes for conversion,” he said.

Bed, Bath & Beyond, Best Buy, HH Gregg and Kohl's are filling some of the prime vacated big boxes in urban markets, but not as much in suburban and exurban locations, says Wight. Grocers Aldi and Sprouts Farmers Market continue to push forward with dozens of new stores, says Daniel Taylor, senior vice president of SRS Dallas, a site-acquisition specialist and retail tenant representative firm. “They have a lot of deals in the pipeline,” Taylor said. PetSmart and Petco too are on the hunt for new sites nationally, he says.

Seemingly downturn-resistant Walgreen and CVS continue to grow into strategic real estate, and Auto Zone and Advance Auto Parts are looking to open about 150 new stores each, says Bemis. “People are holding onto their vehicles longer, and the auto-parts people are benefitting dramatically from the situation,” he said.

The retail industry mood has become cautiously optimistic as consumer-confidence numbers inch up, says Bemis. “People want to believe it's over and that we are in a solid recovery cycle,” he said. “The reality is, we are going to see a steady climb between now and 2011, with a bump or two. But I don't see a steep climb out.”

Almost none of the new U.S. stores are new development, Taylor says. “This is all existing space getting gobbled up.” Some new-build projects are starting to get resurrected from failed pre-bust starts, he says. “At some point development is going to have to start again.”