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Supervalu takes a step toward turnaround with 60 store closures. Is it enough?

BY Michael Johnsen

WHAT IT MEANS AND WHY IT’S IMPORTANT — The journey to a complete turnaround begins with the first step. Supervalu’s restructuring, refocusing and revitalizing the executive team may have been the first step, but it’s been quickly followed by the second — culling out underperforming stores and reinvesting those saved dollars into that refocused, revitalized business. The question, really, is this: Is 60 enough? Is closing out 60 underperforming or nonstrategic stores out of the company’s total 2,400-plus store base (including Save-A-Lot), enough?

(THE NEWS: Supervalu announces additional store closures. For the full story, click here.)

It’s certainly a step in the right direction, and it’s not the only step that Supervalu is taking.

"Today’s announcement reflects our commitment to move with a greater sense of urgency to reduce costs and improve shareholder value," said Wayne Sales, Supervalu chairman, president and CEO and. But Sales and his team have already been moving with that sense of urgency. The day after Sales assumed the helm at Supervalu, he identified four key initiatives to help grow Supervalu in a letter to employees that was later published by The Wall Street Journal

First, Supervalu must generate profitable sales, Sales noted, which entails right-pricing the stores to the competitive environment while maintaining focus on a superior shopping experience. "Together, we will take immediate steps to profitably improve sales and create points of sustainable differentiation in the marketplace," he wrote. Second, Supervalu must continue to take significant costs out of the system (such as the aforementioned 60 underperforming stores) at a fast pace. Third, like Sales’ predecessor, Supervalu’s Save-A-Lot deep discount banner needs to serve as the company’s growth engine going forward. And last, Supervalu needs to maintain deliverables across its grocery wholesaler business that services some 2,700 independent grocers. 

The step to close 60 stores may generate more proceeds than Supervalu expects. Supervalu estimated that these store closures would generate between $80 million and $90 million in cash proceeds from the sale of owned real estate (which accounts for approximately one-third of those 60 stores). But according to an analysis whipped up by Citi Research analyst Deborah Weinswig, however, those cash proceeds could actually fall between $85 million and $98 million. "Of the banners mentioned, Albertsons and Jewel-Osco had some of the highest real estate valuations at around $125 per square foot or nearly $7 million per store based on an average size of 52,500 square feet per store, by our estimate," she wrote in a Sept. 6 research note. "Valuations for [Supervalu’s] Save-A-Lot stores were significantly less at around $69 per square foot or approximately $1 million per store based on an average size of about 15,000 sq. ft. per store. Assuming the full $80 million to $90 million in cash proceeds comes from the monetization of owned real estate … this implies [Supervalu] would get a maximum of just over $4 million per store, so we believe that the proceeds from store sales seems a little light."

So, are 60 store closures enough? Probably not. It represents only 2.4% of the company’s store base, and that leaves the challenge for Sales to fix the remaining 97.6%. Analysts have suggested that Supervalu will continue exploring the liquidation of assets that the grocer originally announced in July by then-president/CEO Craig Herkert, because a company doesn’t hire such investment bankers as Goldman Sachs and Greenhill & Co. just to consult on asset valuations. Those bankers are there to sell those assets.

But that should come as no surprise. Supervalu has taken its first few steps toward turning its business into a profitable venture in what has become a very competitive space: The volatile economy; fear of food inflation borne out of the drought across America’s breadbasket; increased competitive pressure from nontraditional food retailers, such as the smaller-box Walmarts and Targets, and the more fresh options being sold through the drug store and dollar store channels.

Now all Supervalu has to do is keep walking.

What do you think? Sound off in the comments below.

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Stop & Shop brings fuel savings to N.J. customers

BY Allison Cerra

PURCHASE, N.Y. — Stop & Shop has expanded its gas rewards programs to customers in New Jersey.

Beginning Sept. 10, shoppers will be able to redeem their Stop & Shop Gas Rewards points at more than 135 participating Shell stations in New Jersey. For every dollar spent at Stop & Shop on purchases (some restrictions apply), customers will earn one point, and for every 100 points, they will receive 10 cents off per gallon of their next fuel purchase at participating New Jersey Shell stations. Customers will be able to save up to $2.20 per gallon by shopping at Stop & Shop and presenting their Stop & Shop loyalty card. Unlike other states, the discount will not appear at the pump but will be reflected on the customer’s receipt. Once points are earned, they can be redeemed at any participating Shell station within 30 days from the date of purchase.

The program, which launched two years ago, initially wasn’t permitted in New Jersey; however, legislation passed by the state and signed into law by Gov. Chris Christie allows New Jersey motorists to enjoy the same savings already available to drivers in other states, including New York, Massachusetts Rhode Island and Connecticut.

"We are pleased that we can help our customers reduce the cost of filling their gas tank," said Don Sussman, president of Stop & Shop’s New York metro division. Stop & Shop applauds our elected officials for enacting legislation that allows us to partner with Shell and allow our New Jersey customers to enjoy the same benefits that Stop & Shop customers in neighboring states have long enjoyed."

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Kmart does away with layaway fee

BY Allison Cerra

HOFFMAN ESTATES, Ill. — Kmart has removed its layaway service fee both in stores and online through Nov. 17.

The mass retailer, which offers the program year round, said the decision to make the program free "emphasizes the company’s commitment to delivering value and convenience to customers, acknowledging family budgets are strained during the holiday."

"At Kmart, we understand the excitement holidays bring, and the budget concerns that come with them," Sears Holdings VP financial services Jai Holtz said. "By providing free layaway we want to help make holiday shopping less stressful."

Several other retailers have reported the reduction of their layaway program fees, including Walmart.

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