..open doors to operators
While big retailers close stores, franchisees are targeting the empty boxes for expansion. But not every space works for every operator. A Batteries Plus Bulbs exec insists the right location trumps a vacated space.
Another wave of store closings from national chains such as Radio Shack and Staples has not been good news for landlords. But, franchisees searching for new locations are happy to pounce on the fresh real estate opportunities.
“We tend to stay the course and find the best space, and not necessarily settle” because the box is empty, says B+B’s John Twist.
The road to recovery has been bumpy for shopping center owners. Landlords have made progress in their efforts to fill empty spaces. Yet just as property owners begin to see some improvement, another shoe drops. The weak economic recovery along with growing competition from e-commerce continues to take its toll on retailers.
Most landlords had hoped the worst was behind them, after weathering the fallout from bankruptcy filings and a slew of store closures from national brands such as Blockbuster Video, Borders and Circuit City. That is not the case. Earlier this year, Radio Shack announced plans to shutter 1,100 stores, while Staples has said it will close 225 stores by the end of 2015. And there are hundreds more store closings still in the pipeline.
The Office Depot/OfficeMax merger has left the new Office Depot with a surplus of about 300 stores expected to close in the next 18 months. It remains to be seen if a buyer will step in to take over the 260-store Brookstone, which filed for Chapter 11 bankruptcy protection in April. Barnes & Noble expects to shrink its store count by about one-third over the next few years as its leases expire. Even Walgreens, a solid-credit company, is planning to close 75 of its under-performing or redundant stores this year, according to a recent research report from Cassidy Turley.
Franchisees, on the other hand, are taking advantage of these closures to secure new locations. Store closings are one of the few sources of new real estate inventory open to franchisees.
Batteries Plus Bulbs is one chain taking advantage. The franchise has been opening about 50 to 60 locations each year over the last six to seven years. “There is definitely a tight supply of what we would consider grade A sites in many markets,” says John Twist, vice president of franchise and business development at Batteries Plus Bulbs in Hartland, Wisconsin. There are vacant spaces available, but many are vacant for a reason. Some stores have poor visibility or poor ingress and egress, he adds.
Repurposing vacant space
The Radio Shack stores slated to close could be an attractive option for franchisors such as 1800Fix.com. “The reason that would probably work for us is because it is already a known electronics place,” says 1800Fix.com President Nick Rizzi. The franchise specializes in the sale, repair and trade-in of smartphones and electronics and is chasing much the same customer as Radio Shack. The smaller Radio Shack stores would be a good fit for 1800Fix.com, which requires between 1,200 and 1,800 square feet.
Opening in a space with a similar target customer would aid the fledgling franchise group, which is still in the early stages of building its brand. The franchise has 13 locations open, mainly in the New York area with plans to add another 15 by the end of the year.
Repurposing a retail space also allows franchisees to take advantage of a store that has already been built out, which helps to lower construction costs. “We do find that Radio Shacks are a good fit for us, and they are generally in pretty good locations regarding visibility and ingress,” adds Twist. Cell phone stores are another target Batteries Plus Bulbs considers.
That being said, there are some uses Batteries avoids, such as restaurants, because the cost of converting the real estate to a retail space becomes too expensive. Converting a restaurant space to a retail use can be a complex and expensive process, because it often involves more work to remove existing equipment and change the ventilation, plumbing and electrical systems.
The vacancies created by big box stores are too big for most franchisees to take over on their own. Franchisees have found success in moving into Blockbuster Video stores with shared or co-located stores. In addition, some landlords are willing to subdivide those larger spaces to create multiple smaller store spaces.
Converting non-retail space
Renovating one “vanilla box” retail space to a new retail use is fairly easy for most franchisees. However, landing desirable real estate locations also means thinking outside the box on occasion. Converting a non-retail space to a new use can be key to landing a prime location or securing a bargain-priced real estate opportunity.
Those unique conversion projects are standard fare for The Gravity Vault, an indoor rock-climbing gym. Finding a space that fits the company’s needs is one of the company’s biggest challenges. The concept requires between 10,000 and 15,000 square feet with high ceiling heights of 30 to 40 feet. The first two corporate locations in Chatham and Upper Saddle River, New Jersey, went into facilities originally built as indoor tennis centers in the 1970s.
“Recycling old fitness or old recreation centers works for us,” says Tim Walsh, co-founder of The Gravity Vault. Oftentimes, there is quite a bit of rehab that comes along with those locations, but the “bones” of the buildings in terms of the size and structure are a good match, he adds.
The older buildings typically need updating, such as adding energy-efficient lighting and roof repairs. So, it is a balance to find the right locations and make sure franchisees don’t end up paying too much to renovate or reconfigure the space. The best advice is to do due diligence on a building before making a commitment. “A lot of times we will get our contractors or architects involved to make sure that the building really does have what we’re looking for,” says Walsh.