by Andrew Little, Special Correspondent
Lead singer Dan Auerbach of rock band The Black Keys could have been singing about retailers and retail sales in the band’s new hit “Lo/Hi” as the roller coaster for merchants continues in 2019.
Overall sales in the retail and food services industries showed a solid increase of 3.1% in April compared with the same month a year ago, according to the most recent data from the U.S. Census Bureau. Riding high, nonstore retailers showed an increase of 9% over last year, and food services and drinking places were up 5.7% year over year.
Heading lower were sporting goods, hobby, musical instruments and book stores, which were down 8.5%. Department stores continued to slide, falling 3% year over year.
A slate of retailers recently released first-quarter results and, in large part, the individual retailers match overall retail sales. Department store retailers Nordstrom (down 5.1%), Kohl’s (down 3.4%) and J.C. Penney (down 5.6%) all showed sales fell compared with last year’s first quarter.
Macy’s bucked the trend somewhat and showed a slight increase in comparable stores of 0.6%, even though overall sales were down 0.7%.
Non-mall stores like Target (up 4.8%) and Walmart (up 3.4%) showed increases in comparable store sales but also had enormous growth in their web businesses. Target increased its digital channel sales 42% and indicated that same-day fulfillment accounted for well over half of that growth. Likewise, Walmart’s first-quarter digital sales grew 37%, reflecting strong growth in online grocery, home and fashion.
So far in 2019, the big losers have been retailers that seem to have lost touch with their customers.
In May, Dressbarn said it’s closing all of its approximately 650 stores. That follows several other retailers including Charlotte Russe, Gymboree and Payless ShoeSource announcing closings this year.
So how have retail loans navigated the highs and lows? Loans backed by retail properties have the highest delinquency rate of all property types with 4.66% of outstanding loan balances late or already foreclosed upon and owned by the lender, according to information from real estate data provider Trepp LLC. The next closest type is loans backed by office properties at 2.79%.
While not a terribly healthy percentage of retail loans to be delinquent, the trend is actually positive. Overall commercial mortgage-backed securities delinquencies are down from last year, and delinquent retail loans are also down.
Cash flow from loss of tenants is not a problem for many retail property owners. The real problem is a lack of capital and liquidity when loans come due.
For instance, according to data from Trepp, the Greenbrier Mall in Chesapeake was recently sent to special servicing in anticipation of a maturity default in December. The $66.6 million loan has been outstanding since 2006 and was extended once in 2016, after its original maturity.
Despite losing Sears as an anchor tenant last year, the mall appears to have plenty of cash flow, according to publicly available data. Its biggest issue may be that it has a J.C. Penney as another anchor tenant and is waiting for a resolution about its fate.
The Hampton Roads area has some other large retail problem loans that have yet to be resolved by the servicers. According to Trepp, there are $54.1 million in loans that are unresolved and either listed as nonperforming or already foreclosed upon and owned by the lender in the area. That excludes the Greenbrier Mall loan, which is still performing.
Loans on retail properties in the Richmond region are performing better. Two retail properties in the Richmond area are listed as nonperforming or currently owned by the lender.
One is The Shops at Colony Crossing, a small neighborhood shopping center near Powhite and Charter Colony parkways just off state Route 288. It was foreclosed upon by the lender in November. It is supposed to be marketed for sale in the near future, according to Trepp, which lists lender commentary on the asset. The most recent appraisal listed in Trepp valued the property at $2.6 million as of June 2018.
The other property, located off Pouncey Tract Road near Short Pump, seems to be suffering from a cash management dispute between the borrower and lender. Combined, the two properties account for only $9.3 million in loan balance.