Record CRE Loan Defaults Expected This Month

Major U.S. retailers closed nearly 7,000 stores while opening approximately 5,700 new locations in 2008 resulting in a net loss of more than 1,000 stores for the year, according to exclusive research compiled by CoStar Group Inc.'s news division. Although not unexpected, the extent of the net loss in store count is sobering as it follows several consecutive years of retail expansion and substantial net store growth. What's more, with industry experts predicting the country won't see the start of a retail recovery until late 2009 or early 2010, the net store result for 2009 could easily echo that of 2008. The approximately 250 major retail chains CoStar included in this study have reported plans to open nearly 4,000 and close nearly 3,600 stores in 2009. However, if signs of an economic recovery remain elusive, retailers could adjust their store opening guidance downward by mid-year, as they have the past two years. In addition, the store-closing guidance issued by these retailers of 3,600 stores for 2009 will almost certainly increase, as additional retailers fall victim to the economy in the form of store closings and liquidations. Also, most major retailers publicly share store opening guidance but many remain reluctant to provide store-closing guidance. The major retailers CoStar sampled for this study opened nearly 6,500 stores in 2007 and 5,700 stores in 2008. If the nearly 4,000 planned openings are carried out in 2009, store opening activity would be down a staggering 39% in comparison to 2007 levels. On a net basis, as a percentage of total store count, retailers in the pet supply, dollar store/ deep discount, warehouse club, drugstore, grocery, and big box discount categories are projecting the biggest gain in stores in 2009, while retailers in the electronics, discount department, jewelry, apparel and office supply categories are projecting the biggest loss in store counts for 2009. Among those included in this CoStar analysis, the specific retailers planning to open the most U.S. stores in 2009 include Walgreens (540), Dollar General (450), CVS (275), Gamestop (250), Dollar Tree (235), Family Dollar (200), Walmart Supercenter (125), Aldi (80), Target (75), and Tractor Supply Company (75). Conversely, the specific retailers credited with the highest level of 2009 closings include Circuit City (567), Ritz Camera (400), Goody's (287), Steve & Barry's (252), Jones Apparel (225 - note this is for 2009 and 2010 closings), Blockbuster (150), Office Depot (118), Rite Aid (117), Zales (115), Gap (100), and Charming Shoppes (100). In 2008, Linens 'n Things (589), Movie Gallery (530), Friedman's Jewelers (377), Whitehall Jewelers (373), Blockbuster (277), Ace Hardware (242), Rite Aid (200), Sharper Image (184), Mervyns (176), Charming Shoppes (156), Circuit City (155), Demo (153), Claire's (118), Value City (113), Waldenbooks (112), Transworld Entertainment (111), Zales (105), and CompUSA (103) are credited with closing the most stores -- this list is overwhelmingly comprised of retailers that liquidated in bankruptcy. The following results of CoStar's analysis of store openings and closings by major retailers provides total store activity by retailer category. The International Council of Shopping Centers (ICSC) also released results from its most recent store opening / closing study this week. ICSC takes a different approach, however, tracking the number of major store closing announcements retailers made on a monthly basis. However, it too reflected the grim economic realities facing the retail industry. "The number of announced store closings in 2008 spiked to the highest [level] since 2004. This clearly reflected the severity and rapidity of the deterioration in the economy and its impact on the retail sector," said ICSC. According to ICSC's data, 2,284 store closings have been announced so far in 2009, compared to 2,785 announcements during the same period in 2008; 2,411 announcements during the same period in 2007, and 2,255 announcements during the same period in 2006. Based on this comparison, ICSC said that the latest round of announcements appears "a bit more upbeat than the news during 2008," because it is more "consistent with the degree of reduction experienced in the 2006-07 period." For more information see: www.houstonrealtyadviosrs.com By COSTAR"S Mark Heschmeyer
April 29, 2009