Value, Dealmaking, and Breakthroughs

Short on Time, Big on Insights: Your monthly rundown on the most compelling narratives.

Elizabeth Lafontaine , Director of Research

The latest category of specialty retail ready for the spotlight? It’s baby! 

After losing the sole remaining retailer in the category last year, and despite declining birth rates in the U.S., it appears that baby-centered retail is ready for its comeback, with broadline retailers leading the charge. 

Kohl’s recently revealed the initial 200 locations that will receive the Babies”R”Us shop-in-shop concept this summer; the locations signal an attempt to court visitors from other mass merchants or capture lost demand. 

Macy’s also launched a baby registry service this past month, a move aimed at attracting and retaining customers as they enter new life stages. Baby products represent a big business opportunity for retailers, particularly as they attempt to court high-income shoppers, both first time parents and grandparents who have higher levels of disposable income and a desire for only the best strollers, car seats and more.

Ethan Chernofsky , SVP of Marketing

You might want to sit down for this one. But what if the expansion of dollar chains isn’t limitless.

There is an argument to be made - and yes, I’m making it - that we need to understand the closure of locations at some dollar chains within a slightly different context than is being widely reported. And that context is the recognition that there is a fixed market for those locations.

Proof point? Dollar General, a venerable king of the physical retail world, launched pOpShelf as a means to expand upwards from the pure value category. Five Below has made similar moves and this, at least to me, indicates a recognition that the oft-overlooked middle may hold the key to massive retail upside.

Important caveats. Is this stating that the dollar segment is in trouble? Absolutely not. Does this mean value is overrated? No again.

But…. It does mean that there is a growing appetite for targeting the retail ‘middle’.

R. J. Hottovy, CFA , Head of Analytical Research

As we near the halfway point of the year, concerns about slowing foot traffic trends across the quick-service restaurant (QSR) category and increased competition with alternative food retail channels like grocery, dollar stores, and convenience stores have not let up.

Most QSR operators we’ve spoken to recently have confirmed flat or year-over-year declines in comparable visits, which is consistent with the year-to-date on most of the restaurant subcategories we monitor (below).

Looking ahead, we’re closely watching the ripple effect of McDonald’s plans to launch a $5 value menu on June 25 (which will run for a month). We’re already starting to see competitors try to front-run McDonald’s $5 value menu, and there will likely be others who introduce similar promotions in the coming weeks. 

While these offers are likely to help QSR chains recapture some of the visits lost to other channels, these chains will likely need to continue with their value messaging in the back half of the year (especially with price rollbacks taking place at Walmart, Target, and other superstore chains) while also committing to more menu innovation than we’ve seen year-to-date.

Thomas Paulson , Director of Research & Business Development

May brought retail earnings reports which have generally been in-line to slightly better than expectations and initial plan.

The most consequential development is that Walmart (along with Amazon) has pulled ahead with a large and double-digit growing e-commerce business which has left other brands dependent upon the physical locations to drive customer and sales growth. 

Additionally, this lead—fostered by its marketplace, merchandise upgrades, store-enabled curbside and delivery services, and other enhancements—has delivered substantial market share gains among more affluent households, something Walmart has aspired to achieve for decades. 

Stephanie Atiase , VP of Marketing

In the realm of eatertainment, where dining meets play, stalwarts like Dave & Buster’s and Main Event Entertainment thrive. 

Despite challenges, they boast impressive year-over-year visit growth in Q1 2024, driven by loyalty and embracing late-night crowds. Doubling down on cultivating loyal audiences, they offer enticing rewards and family-friendly promotions. Recognizing the potential of late nights, both extend hours and introduce special offerings, tapping into a burgeoning market (~25% share of visitors). 

As 2024 unfolds, the pursuit of culinary delight intertwined with immersive late night entertainment promises endless possibilities in the saga of eatertainment evolution. Your business may experience unexpectedly high visitors later in the evening with the right family friendly dining and entertainment experiences. 

Caroline Wu , Director of Research

Word on the street at ICSC this week is that dealmaking is going to be all about creativity.  

With a favorable situation for landlords in desirable areas, rents are being driven up by tight supply. As a result, if you’re a tenant wanting to be in a specific location, you may have to get creative.

This may mean envisioning a different footprint, being open to partnerships or a shop-in-shop. Brands are streamlining their portfolios and closing underperforming locations, while simultaneously going all in on innovative concepts and strategies to attract new customers and grow market share. 

They also need to be mindful of how work habits have shifted and be prepared to fulfill new needs, which might include remote workers needing a third space (or in this case a second space since home and work have now merged), earlier mealtimes, or a desire for entertaining meetup locations. 

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