Q1 2015 UPDATESoutheast US Market Report

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A four-year study by the FBIC released in 2015 revealed that to 46% of store closure announcements happen in the first quarter of the year. Crossman & Company took a look at the retailers in the market and assembled a list of tenants that have made announcements from late 2014 through the end of Q1 2015. We cross-referenced press releases and annual reports filed by the companies. We grouped the retailers in an intuitive way, using a traffic stoplight metaphor.

They are grouped into three categories: • “Red light:” These are retailers that have suffered losses, have filed for bankruptcy or are trending toward unprofitable metrics.• “Yellow light:” Retailers who have had to close a portion of their fleet for various reasons. Their closures have triggered attention, but these retailers could either improve by reinvesting their savings or take a downward turn if they fail to correct their course.• “Green light:” These are retailers who are doing well and have announced plans for aggressive growth.

Tips for reading the tables: • The “Stores Opening / Closing” column are the announced expansions / closures; they are not a net increase / decrease unless noted.• The “% Store Fleet Closing” percentages were calculated using the greatest number of closures and the worldwide store fleet count.• Retailers who filed for bankruptcy or its equivalency are in red.

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Retailers specializing in quick-service and fast-casual restaurants, service, and fast fashion are expanding rapidly in 2015 and beyond. Many of the retailers featured on the expansion list have flat organizations, are sensitive to their demographics and leverage omni-channel marketing strategies well. H&M, Forever 21, Chipotle and Starbucks are all experts at connecting with the much-coveted Millennial demographic and are continuously innovating their store formats and product offerings to capture and retain marketshare. Starbucks is

rolling out an express format, a small-footprint, takeaway-only concept for urban centers during peak morning hours. They plan to have 5 express stores open in NYC by end of 2015, and they will feature mobile ordering and digital payment platform offerings. H&M unveiled a plan to incorporate a beauty concept (make-up, body care, hair care items) in 900 of its stores and online this fall.

Quick-service and fast-casual brands that we know well in the US are continuing to grow in the US but are increasingly setting their sights internationally. Yum! Brands is focusing on opening locations in developing markets, paying particular attention to China and India, and McDonald’s’ new locations will be primarily in China, Russia, France and the US. Dunkin’ Donuts and Subway are two brands that have grown aggressively by using franchisees and keeping start-up costs relatively low.

Other retailers are centering their efforts on Americans feeling the financial squeeze. Although Dollar General’s bid to merge with Family Dollar didn’t succeed, they have redoubled their efforts to expand their brand, looking to open more than 700 new locations and remodel another 875 in 2015. Walmart is taking aim at the discount retailers who are eating away at their profit margins by mounting a campaign to expand their Neighborhood Market center footprint, paying special attention to markets with heavy population growth like Texas and Florida. O’Reilly Auto Parts opened 3 new distribution centers in 2014, giving them the capacity to serve an additional 800 stores across the country.

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CompanyStores Opening in 2015 Current Store Fleet

Notes# Stores opening Announced # of Stores As of

Dollar General 730 in US Mar-15 11,789 in US Mar-15 Opened 650 stores in 2013. Opened 700 and remodeled / relocated 525 in 2014. In addition to new stores, will also remodel 875 locations in 2015.

Dunkin’ Donuts 410 - 440 in US 615 - 750 Worldwide Feb-15 8,082 in US

11,310 Worldwide Dec-14 Opened 405 new locations in US, 704 new locations in total in 2014

Walmart Neighborhood Market centers 240 in US Oct-14 474 in US Jan-15 Corrected their Feb ‘14 projections (270-300 opening) in Oct ‘14 to opening ~240

stores in 2015. They projected opening another 200-220 in 2016.

O’Reilly Auto Parts 205 in US Feb-15 4,366 in US Dec-14 Opened 190 stores in 2013, 200 stores in 2014. Opened 3 new Distribution Centers in 2014 that will have capacity to supply an additional 800 stores across the country.

Chipotle Mexican Grill 190 - 205 in US Feb-15 1,783 Worldwide Dec-14 Opened 192 new locations in 2014, 60 in Q4 2014 alone. Opened 185 new locations in 2013, 56 in Q4 2013 alone.

McDonald’s 125 in US 1,000 Worldwide Feb-15 14,350 in US

35,258 Worldwide Dec-14 Opened 222 new locations, remodeled 260 in US, 1,316 globally in 2014. In addition to new stores, will also remodel 100 in US.

Starbucks300* in US

1,600* Worldwide*Net increases

Mar-15 14,000 in the Americas 22,000 Worldwide Mar-15

Plan to grow store fleet to 30,000+ stores worldwide over the next 5 years with 3,500 new locations in the US. More than half of the new stores (~3,400) will be in the China and Asia Pacific Region (CAP).

Subway 2,500 Worldwide Feb-15 30,000 in N. America 43,500 Worldwide Feb-15 Opened 2,609 globally in 2014, and has franchisees in 109 countries.

Yum! Brands (KFC, Taco Bell, Pizza Hut) 2,000+ Worldwide Dec-14

KFC: 4,391 US; 19,420 WW TB: 5,951 US; 6,206 WW

PH: 7,908 US; 15,605 WW YUM!: 18,250 US; 41, 231 WW

Dec-14In 2014, opened 666 KFC, 465 Pizza Hut, and 236 Taco Bell locations internationally. In 2015 they are looking to open more than 2,000 locations internationally. They are focusing on developing markets, with 700+ locations planned for China alone.

Forever 21 600 Worldwide over the next 3 years 480 Worldwide Privately owned company: store fleet is estimated and forecasted store openings are

from an undated post on the Forever 21 site.

H&M 400 Worldwide Jan-15 364 US 3,551 Worldwide Feb-15 Opened 51 US stores, 379 new stores total in 2014. Most of the 2015 expansion will

be in US and China.

T hese retailers have suffered a few missteps, are undergoing major mergers or brand overhauls. They have the potential to recover strongly or they may falter in the volatile space they occupy in the market. 2014 saw many significant merger announcements: Family Dollar & Dollar Tree, Office Depot & Office Max, and Walgreens & Boots Alliance. These mergers may be driven by a combination of brick-and-mortar retailers’ efforts to compete against one another and online merchants like Amazon in an increasingly lean marketplace. Office

Depot acquired Office Max in 2014 and is in talks with Staples to engineer yet another merger. Staples announced in mid-2014 that they would be closing 225 of their stores in an effort to slash expenses and reinvest the capital in their sizable online presence. If the FTC blesses Staples’ merger with Office Depot, it may mean closing another 1,000+ locations in the coming years. Dollar Tree’s acquisition of Family Dollar would grow their total fleet to more than 13,000 stores, less any FTC-mandated dispositions, as they go head-to-head with Dollar General (11,789 stores). Walgreens became the largest drugstore in the world after sealing a merger with international drug retailer Alliance Boots in late 2014. Walgreens Boots Alliance, Inc. announced that it was rolling out an aggressive strategy to cut more than $1 billion in costs that may involve lease renegotiation and a redesign of store formats and layouts that sends ripples through its retail real estate.

There are several retailers who are working hard to reinvent themselves and up their brand relevancy. American Eagle Outfitters, Coach, and Chico’s are all working to reposition their footprints wisely and be more responsive to omni-channel savvy consumers. Abercrombie’s long-time CEO retired suddenly in late 2014 and the new management is playing catch-up by cutting prices, upping outlet locations and toning down the logo-heavy look of the past. Target’s operations in Canada announced bankruptcy in January 2015, and their entire fleet of 133 stores will be shuttered “as early as mid-April.” It is redoubling its efforts in the US and working to perfect smaller store prototypes. JCPenney closed 33 under-performing stores in 2014 and made headlines by announcing its intentions to ax another 40 in 2015, but investors have responded well to their improved sales metrics. Macy’s is also set to close 14 of its stores, and will use the estimated $140 million in savings to reinvest in technology. They are outfitting their stores to fulfill online orders for shipment and in-store pick-up, and are testing same-day delivery in eight Macy’s and four Bloomingdale’s markets.

CompanyStores Closing in 2015 Current Store Fleet

Notes# of Stores Announced # of Stores As of

Family Dollar / Dollar Tree 500 in US Jul-14 Family Dollar: 8,101 in US Dollar Tree: 5,367 in US Jan-15 Dollar Tree is working with the FTC to close the merger by late April 2015.

Office Depot / Office Max 232 in US May-14 1,745 Worldwide Dec-14 The Office Depot / Office Max merger will close 400 total stores by the end of 2016. Office Depot closed 168 stores (of the 400) in 2014.

Target (Target in Canada)

11 in US133 in Canada

Feb-15Jan-15

1,801 in US0 in Canada

Nov-14Apr-15

They closed 11 stores in late 2014 & early 2015, and announced plans to open 15 new stores. 9 smaller format, and 6 full-size stores. Filed Chapter 11 in Jan ‘15. Announced that the entire fleet may be permanently shut down “as early as mid-April.”

American Eagle Outfitters 70 in N. America Mar-15 920 stores in US 1,056 Worldwide Jan-15 Announced in Nov ‘14 that they are closing 150 stores by the end of 2017. Opened 60

stores and closed 70 in FY 2014. Plan to open 20-25 stores and close ~70 in FY 2015.

Coach 70 in N. America Jun-14 539 in N. America 1,014 Total Jul-14 Announced in Jun ‘14 plans to close 70 stores through the end of FY 2015 as a part of a

rebranding/restructuring strategy.

Abercrombie & Fitch 60 in US Mar-15 788 in US 958 Worldwide Mar-15 Plan to close the majority of those stores by letting the leases expire and opening 11

outlets in the US and 15 full-price stores internationally.

Staples 56 in N. America Mar-14 1,679 in N. America1,963 Worldwide Jan-15 They closed 40 stores in 2013 and announced that they would close 225 from Mar ‘14 to

the middle of 2015. By Jan 31, 2015, they had closed 169 of the 225.

JC Penney 40 in US Jan-15 1,062 in US Jan-15 Closed 33 stores in 2014 and plans to close weak stores in 2015 to strengthen remaining store metrics.

Chico’s FAS 35 in US Feb-15 1,547 in US Feb-15 Will close 120 stores between 2015 and 2017. 35 will be cut in 2015, mostly Chico’s and White House/Black Markets, and it will open ~40 stores in 2015.

Macy’s 14 in US Jan-15 823 in US Jan-15 The store closings and reorganizations are expected to generate $140 million in annual savings beginning in 2015, and that money will be reinvested into technology.

Walgreens Boots Alliance, Inc. 12,800 Worldwide Nov-14 In 2014 they had a net decrease in store count of 273. They plan on a net increase of

60-120 stores in FY 2015.4.

CompanyStores Closing in 2015 Current Store Fleet % Store Fleet

Closing in 2015 Notes# of Stores Announced # of Stores As of

RadioShack 1,784 in US Feb-15 4,000 in US Feb-15 57% Standard General is in talks with Sprint to save 1,723 stores in order to operate them as co-branded retail locations.

Wet Seal 338 in US Jan-15 511 in US Jan-15 66% Closing two-thirds of the store fleet: they plan to operate the remaining 173 stores.

Sears Holdings Corp. 200 - 300 in US Jan-15 1,725 in US Jan-15 17%Closed 235 stores in 2014; the majority were Kmart locations. Working to raise more than $2 billion in cash by spinning off up to 300 of its stores into a REIT by June.

Deb Shops 287 in US Jan-15 287 in US Dec-14 100% Filed for Chapter 11 in Dec 2014.

Body Shop / Body Central 265 in US Jan-15 265 in US Jan-15 100% Announced an Assignment for the Benefit of Creditors in Jan 2015.

Caché 218 in US Mar-15 218 in US Feb-15 100% Filed for Chapter 11 in Dec 2014.

Aéropostale 50 - 75 Aero 126 P.S. from Aero Dec-14 850 in N. America

1,089 Worldwide Jan-15 18% They closed 120 + stores in 2014. They also plan to shut down 126 P.S. from Aéropostale stores in 2015.

Jones New York 127 in US Jan-15 127 in US Jan-15 100% Closing all stores and wholesale business and looking for “strategic opportunities.”

Delia’s 92 in US Dec-14 92 in US Dec-14 100% Filed for Chapter 11 in Dec 2014.

RadioShack, Deb Shops, The Body Shop, Delia’s and Caché all filed for Chapter 11 bankruptcy protection or its equivalent in late 2014 and early 2015. For some of these retailers, it means the end of an era; for others it is the opportunity to undergo massive restructuring efforts to allow the brand to continue in a different form. Caché issued a statement in December 2014 that it would close a portion of its stores in hopes to find a strategic partner to preserve the rest of the locations, but has conceded to liquidating all of its inventory

and closing its doors. A portion of the RadioShack fleet may survive as stand-alone stores or as co-branded Sprint stores, depending upon the results of the impending bankruptcy auction.

Other retailers that made the list have suffered as they have failed to evolve their brand in response to the shifting habits of their target demographics. Brands that thrived in the early 2000’s like Aéropostale have struggled to attract and retain fickle teen shoppers who are shopping online, where they have a relatively small presence. Aéropostale’s efforts to shutter some stores may be helping to stem their losses, but aren’t doing much to reposition them for growth. Jones New York plans to close its stores but may continue to partner with other retailers like Macy’s to continue carrying their merchandise. Sears has hemorrhaged red ink for years, posting negative same-store sales rates since early 2010. Sears’ CEO announced a plan to spin off up to 300 of its stores in to a REIT by June of this year in an effort to salvage the remaining stores. Investor interest may not be strong enough to merit Lampert’s optimism for the future of the brand.

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This document has been prepared in good faith on the basis of information available at the date of publication. Crossman & Company does not guarantee or warrant the accuracy, reliability, completeness or currency of the information in this publication. Readers are responsible for assessing the relevance and accuracy of the content of this publication. Crossman & Company will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on information in this publication.

Crossman & Company, Retail Real Estate Southeast US Market Report, Q1 2015 Update

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