St. Louis: Value in focus in vie for Gateway City shoppers
A declining population in the St. Louis metro area is exacerbating a competitive retail marketplace dominated by Schnuck Markets, Walmart and Walgreens. Meanwhile, no-frills discount chain Aldi is ramping up the pressure on traditional grocery retailers. Lidl, a similar German-owned chain, is rumored to be opening stores in the area soon.
Analysts said a declining population could mean everything from price wars to declining sales potential to flat growth, which may lead to operational changes and sometimes even store closures. Certainly, St. Louis is not a robust market for building or remodeling stores — unless the retailer is Aldi.
The German discount chain is renovating dozens of its stores in the St. Louis metro area. About $49 million is being spent to spruce up stores and become more of a retail factor through a nationwide remodeling program.
Since the discount chain’s calling card is lower prices, its stepped-up presence will apply considerable pressure on traditional grocers Schnucks and Dierbergs Markets. The former controls a 28.6% market share, while Dierbergs stands at 10.4%, according to ARM Insight. Walmart has a significant share with 27.4%.
And then there is Amazon.
The dot-com giant — always a market disruptor — will open its first fulfillment center in St. Peters, Mo., in May 2019. The warehouse’s legendary robotic technology will efficiently give Amazon Prime customers in the St. Louis area next-day, and perhaps even same-day, delivery of thousands of products.
“Stores that are most vulnerable to online competition will likely feel more pressure and may be the first retailers squeezed out of the market,” said Douglas Munson, principal at MTN Retail Advisors, said. “Declining population will eliminate current struggling chains and force the surviving chains to reconcile their existing store network.”
Lari Harding, vice president of product strategy and marketing at Inmar, doesn’t believe that a declining population and decreased foot traffic will automatically result in a store closure. Changing marketing conditions could first lead to other less dramatic responses, such as limiting labor hours.
“If sales do dip enough to make closing a store a serious consideration, it will not be a quick decision,” Harding said. “Retailers will consider several important factors, including real estate and unionized stores, as part of the decision-making process. For real estate, do they rent or own the land? What are the conditions of the lease? When is the lease up? In the case of unionized stores, closing is further complicated by the likelihood that the retailer may have to offer senior, higher-paid employees jobs at another store — potentially shifting labor costs to other stores that may be facing similar challenges.”
In the drug channel, independent pharmacy’s market share is almost gone. Walgreens has more than an 80% share of the drug store business in St. Louis, while CVS has a 14% share.
Inmar’s Harding urges supermarkets to open in-store pharmacies to give the drug chains some competition. Inmar’s 2018 Shopper Behavior Study found that more than 44% of shoppers rate the ability to shop for groceries at the same location as “important” or “very important” in selecting a pharmacy to fill their prescriptions.
Schnucks operates pharmacies in two dozen stores in St. Louis. Dierbergs Markets operates pharmacies in its half-dozen urban stores.
“These retailers, responding to the growth of retiring baby boomers, will have to execute an assortment change that recognizes and enables the shopping habits and preferences of this group,” Harding said. “ “This change represents an opportunity for retailers to drive additional sales in a number of categories, particularly in health care and personal care where retailers can elevate OTC medications and beauty aids.”
Houston: Booming oil industry drives economic engine
Higher oil prices and investments to recover from Hurricane Harvey are buoying the Houston area’s economy, which is projected to continue to expand in 2018.
Houston itself is the largest city in Texas and the fourth largest in the United States with a population of more than 2.3 million, and the metro area is the sixth largest with a population of nearly 6.5 million.
The Houston metro area had the sixth largest nominal gross domestic product of any metropolitan area in the country in 2017 at $526 billion — an increase of about 10% over 2016 levels, according to the U.S. Commerce Department’s Bureau of Economic Statistics.
Oil is quite literally the fuel of the Houston-area economy, and local forecasts call for a robust year amid higher energy prices. If the price of crude oil remains above $60 per barrel, the area will add about 75,000 jobs this year, according to a recent report in the Houston Chronicle.
An economic forecast from Waco-Texas-based research firm the Perryman Group recently projected job growth in the Houston metropolitan area will exceed the rates of both the United States and all of Texas in the next five years. The firm said the region should be able to recover relatively quickly from the damage caused by Hurricane Harvey last fall, in part because of the robust energy industry.
“When [Hurricane Harvey] hit the Texas gulf coast, it hit a vibrant, rapidly growing area,” Ray Perryman, president and CEO of The Perryman Group, said during a presentation earlier this year to the Houston West Chamber of Commerce.
Retail expansion in the Houston area continues to be robust, although some retail projects that had been slated for completion in 2017 have been pushed back to 2018 due to the hurricane, according to a recent report from local real estate firm Wulfe & Co.
According to the firm’s 25th Annual Retail Survey, the greater Houston area will add 3.3 million sq. ft. of new retail shopping center space in 2018. While this represents a decline from the average of 4.4 million sq. ft. per year added in 2016 and 2017, it is more typical of the market’s growth.
“This year’s square footage projection is realistic and appropriate when considering that the square foot average over the previous 10 years was 3.0 million per year,” Ed Wulfe, chairman and CEO of Wulfe & Co., said.
Wulfe said that many of the retailers in the area have been focused on reconfiguring existing stores to more efficiently provide pick up and delivery of items ordered online.
San Antonio-based H-E-B, which is the largest supermarket operator in the market with 91 stores and a 26.6% share, is planning six new stores in the market in 2018, according to Wulfe & Co., which cited
market share data from the Shelby Report.
Walmart is No. 2 in the market with 101 stores and 25.1% share, followed by Kroger with 112 stores and 22.5% share. Kroger is planning to add two of its 100,000-sq.-ft. plus Marketplace stores in the market this year, according to the Wulfe & Co. report.
Walgreens currently holds the lead in market-share among drug stores in the market, with 13 of its locations featuring in-store Boots Beauty departments. The stores feature beauty consultants who can explain the attributes of Walgreens’ Boots line of skincare and makeup products. CVS Pharmacy also has a strong presence in the market, where Camp Hill, Pa.-based Rite Aid does not operate.
Forthcoming retail openings include 10 new small-format, limited-assortment stores from Batavia, Ill.-based Aldi, and one store each from Sprouts Farmers Market, Costco Wholesale and Korean food retailer H Mart.
Neither Target nor Walmart have openings planned for the market in 2018, according to Wulfe & Co. dsn
Miami: The fast-growing gateway to Latin America
Washington, D.C., might be the capital of the United States, but Miami is the unofficial capital of the Americas.
The Miami metropolitan area has a population of nearly 6.1 million, making it the eighth largest in the country. It is a densely populated market that stretches along the east coast of Florida — an area called the Gold Coast — in a long, narrow population strip between the Atlantic Ocean and the Everglades.
Its economy is largely driven by its status as a bridge between Latin America and the United States, and its population reflects its proximity to Central and South America and the Caribbean. Nearly half the population — about 41.6% — is Hispanic, and another 21% is African-American.
As a center for global trade, Miami also is home to the headquarters and regional branches of several large multinational corporations, and also is the headquarters for such Spanish-language media companies as Univision, Telemundo and UniMAS.
The metro area had a gross domestic product of $345.9 billion in 2017, making it 11th in the United States, according to the Bureau of Labor Statistics.
Florida overall added 195,000 jobs in 2017, and the Miami area was among the leaders in that growth, according to the state chamber of commerce. Job growth is expected to slow slightly in 2018, with about 180,000 new jobs statewide.
The state is expected to continue to see population growth. The state remains attractive as a destination for retirees, students and those seeking to take advantage of the lack of income tax, with 898 people per day moving to the state, according to the Florida chamber of commerce.
“Growth is important to retail, and the things I always look at are whether people are moving there and whether tourists are going there,” John Crossman, CEO of real estate firm Crossman & Co., said. “I don’t know of an engine that’s bigger than Miami on both those fronts.”
In addition to being a draw for high-income tourists, the Miami market also has been attracting a lot of top talent fresh out of business school, he said.
“If you are a retailer looking to grow, and you are looking at Florida, Miami is going to be on your radar,” Crossman said.
Local observers said the trend toward building residential developments in urban office centers is attracting younger consumers who are seeking such amenities as food and drug retail outlets in the areas where they live and work.
CVS Pharmacy and Walgreens have fairly even shares of the Miami metro market, according to a 2015 research report from Barclays Capital. Miami was the launch site of Hispanic-focused CVS Pharmacy y Más, which now has 14 area locations. The launch came a year after the Woonsocket, R.I.-based chain acquired Miami’s Navarro Discount Pharmacy, which had been the largest Hispanic-owned drug store chain in the country. Rite Aid does not have a presence in the market.
Lakeland, Fla.-based Publix — Miami’s fourth-largest private employer behind the University of Miami and two large hospitals — is a perennial growth leader in the consumable retail market. It is seeing increasing competition, however, from such specialty chains as Boulder, Colo.-based Lucky’s Market, a low-priced natural and organic specialist that has opened three locations in the area in the last few years as part of an aggressive push into Florida.
Miami is a significant market for BJ’s Wholesale, which has nine area warehouse clubs, and last year Costco opened a new location in the city.
Florida remains a stronghold for Walmart, which operates several Supercenters and Neighborhood Markets in the Miami area.