Big Box Still Sells

Quantum Real Estate Advisors, Inc. recently closed a $70M portfolio that consisted of three single-tenant Walmart Supercenters and one Home Depot Home Improvement store.

  • $14,146,341: Walmart Supercenter located at 10 Kimberly Ln, Cranberry, PA
  • $17,538,406: Walmart Supercenter located at 150 Concord Commons Pl, Concord, NC
  • $19,191,300: Walmart Supercenter located at 1226 E Dixie Dr, Asheboro, NC
  • $18,900,000: Home Depot located at 1881 Ridge Rd, West Seneca, NY

Zack Hilgendorf, Vice President, Quantum Real Estate Advisors, Inc. represented the buyer who is exclusively focused on the acquisition of big box, investment-grade net-lease deals.  This comes on the heels of the negative press retail has be receiving, in particular, big box retail.

Mr. Hilgendorf said, “Big box retail is still favored among investors, especially investment-grade credit tenants who continue to evolve their e-commerce business. I think these recent deals are an indicator that big box retail is “not dead” like the media has continued to portray.”

Retail continues to experience a major cultural shift. Although human connection and personalization for many retailers and shoppers is essential, many larger brands still need a strong identity for successful omnichannel execution.

Even though e-commerce sales are skyrocketing, physical spaces remain important with 85% of retail consumption still taking place in retail stores. Retailers such as Home Depot and Walmart have invested billions of dollars in online deliveries and in their stores giving a them a big advantage over other retailers who have been slower to adapt to the changing retail environment. Despite the broad “retail apocalypse” these tenants have found a way to continue to flourish.

Walmart and Home Depot have realized its greatest asset is in its brick-and-mortar stores. As of today, 90% of Americans live within 10 miles of both a Walmart and/or Home Depot store.

Instead of viewing ecommerce and in-store retail as two competing revenue streams, both companies have found a way to leverage its ecommerce capabilities to draw more people into its store and thus increasing the opportunity for additional revenue.

 

Walmart

As Walmart continues to invest in its ecommerce capabilities (currently representing 15% of total sales), the importance of the big box store is being reinforced. Walmart has recognized that it is uniquely positioned to take advantage of the fading distinctions between physical and online retail commerce. Its industry-leading physical footprint and in-place logistics expertise effectively provide it with 4,769 “distribution centers” that also serve as retail stores.

Walmart, like other successful retailers, has embraced an “omni-channel” approach, allowing the customer to choose amongst a variety of shopping modes (online, curbside pickup, or browsing the physical store). Many companies have an online and physical presence, giving the consumer an option to avoid shipping coast by having their order delivered to a local store instead of their home. Since 2017, Walmart began offering its online customers discounts on thousands of products if they selected the option to collect their items in store. This is an example that Walmart has found a way to leverage both worlds to draw more people into its store and increasing the opportunity for additional business.

Walmart is also growing its presence as a grocer, both on-line & in-store, which also bolsters its long-term prospect of continuing to be the largest real estate retailer. Walmart has captured 23% of the total grocery market, the category now represents more than 50% of total sales.

Walmart’s third quarter earnings topped expectations and raised its outlook for the full year, building on the momentum in its core U.S. business.

  • Net income rose to $3.61 billion, or $1.26 per share
  • Total revenues grew 1.8% to $130.38 billion from $128.03 billion a year earlier, beating expectations for sales of $130.11 billion.
  • In the U.S., net sales grew 2.9% to $85.20 billion from $82.82 billion a year earlier.
  • E-commerce sales surged 37% during the quarter, matching growth during the prior quarter.

 

Home Depot

Like Walmart, Home Depot’s success has been the integration of its e-commerce business with its traditional brick and-mortar business.

Product search was the first pain point Home Depot found to negatively affect customers’ experiences. One of the primary steps Home Depot has taken to invest in its store locations is making mobile store-specific maps available to customers. Each “allows customers to pinpoint the aisle and bay location of an item they are looking for in the store.”

The company also invested heavily in easing a second pain point customers encountered — the checkout experience. To better deliver “speed and convenience” to customers, Home Depot is piloting a redesign of the front end of some stores. Another thing it is doing in select stores is introducing self-service lockers for online orders being picked up.

Unlike Walmart and many other multi-category stores, Home Depot is a “Project Retailer” rather than an “Item Retailer.” 35-45% of their sales are to professionals. These professionals, service contractors, property managers, electricians, and others are more likely to continue the in-store orders. Additionally, Home Depot has identified the importance of this customer type and is emphasizing that opportunity including a business-to-business e-commerce site and a professional tool rental program.

In addition to its brick and mortar model, Home Depot is one of the few retailers with a truly successful “brick and click” website. They have invested in a value-add approach to the website that includes “how-to” videos and significant content. Home Depot has adopted the mindset that the stores also serve as local distribution centers, further supporting their long-term role in the company’s future operating model.

Online sales now represent about 6.4% of all Home Depot sales. In each of the last four years, the company has grown its online sales by about $1 billion. Home Depot’s third quarter earnings saw sales growth rebounded after slowing for three consecutive quarters. However, the expansion pace remained well below management’s forecast for the full fiscal year. Earnings weakened, too, as customer traffic and average spending metrics softened.

  • Comparable-store sales rose 3% to mark an acceleration over the prior quarters 2.5% uptick. That result put growth at about 3% so far this year compared to over 5% in each of the last two years.
  • Gross profit margin contracted slightly, dipping to 33.8% of sales from 34% a year ago.
  • Customer traffic was flat and the growth in average order spending was also weaker than investors have seen in recent quarters.
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