When a bankrupt retailer terminates its lease, another retailer will consider moving in.
The same is true this year when Bed Bath & Beyond announced it would go out of business and close its remaining 360 namesake stores and 120 Buy Buy Baby stores. Other retailers such as Burlington, Macy’s, and Michael’s quickly moved in to take over prime real estate at Bed Bath & Beyond. But it’s not just Bed Bath and Beyond. Other bankrupt retailers, including Party City and Rite Aid, are also in the process of handing over their stores.
It’s no surprise that open space in commercial real estate is in high demand, especially for large retail stores. Compared to new real estate space, stores previously owned by bankrupt retailers provide historical foot traffic data. A number of brick-and-mortar retailers filed for Chapter 11 this year, opening a floodgate of real estate opportunities for fast-growing retailers looking to expand into new markets.
Ethan Chernofsky, Placer.ai’s senior vice president of marketing, said that because less new space is being built and more retailers are vying for the same space, it’s hard to get a good retail space. He said competition is fierce. “There are a lot of retailers looking for space,” Chernofsky said. Bankruptcies of retailers like Bed Bath & Beyond “free up a lot of space at once and present a very exciting opportunity for brick-and-mortar retailers.”
In fact, taking over these leases could allow retailers to expand into new geographies and reach new demographics.
Rite Aid filed for Chapter 11 bankruptcy protection in October after suffering significant losses. The drugstore will sell 180 Rite Aid and Bartel Drug leases in states including California, New Jersey and Pennsylvania. Meanwhile, Party City began auctioning nine rental properties in April and is selling properties from as many as 28 stores as part of its bankruptcy filing. Bidders for these spaces have not yet been announced.
This is not a new phenomenon. When Sports Authority and Toys R Us filed for bankruptcy a few years ago, retailers also began taking over the space. When Toys R Us went bankrupt in 2018, more than 700 stores were left vacant. Burlington took over Toys R Us stores in markets such as California and New Jersey. The discounter also acquired more than 30 different Sports Authority locations when it filed for Chapter 11 in 2016.
History repeats itself. Burlington is leveraging the real estate left behind by Bed Bath & Beyond, acquiring more than 50 stores for $13.53 million. Meanwhile, Michael’s signed nine leases for $2.55 million, and Macy’s is taking over a store in Winter Park, Fla., for $1.2 million.
“We have a very strong real estate team with extensive experience in retail insolvencies,” Burlington CEO Michael O’Sullivan said on a conference call with analysts. “Many of our most successful and productive stores today were once Circuit City, Toys R Us, Sports Authority and Linens and Things.”
If landlords are keen to fill these spaces, retailers will also benefit from more favorable lease terms, said Adam Robbins, strategic real estate advisor at Real Estate Bees and principal at asset management firm ARC Equities LLC. He said it was possible.
“This is very market-driven,” Robbins said. “Small operators are keen to backfill their assets. Perhaps they will be willing to negotiate.” He said larger operators may be able to afford to wait longer for the right tenant. He added that it is expensive.
Brad Jasinski, director analyst for research firm Gartner’s marketing practice, said retailers like Bed Bath & Beyond spend large sums of money researching which markets their products appeal to. He said that there is a high possibility that the company is investing in
“The challenge with a new location, especially if it’s brand new, is there’s no historical traffic data, so there are more unknowns,” Jasinski says. “Knowing historical evidence of store traffic and what traffic patterns look like can help you better match cheaper opportunities.”
But retailers looking to acquire these real estate spaces still need to be strategic about their expansion strategies, he said. He warned that expanding too quickly could hurt retailers.
That doesn’t seem to worry Burlington. Mr O’Sullivan said the retail bankruptcy would give the company the opportunity to open more stores in 2024 and 2025. “We believe these bankruptcies are likely to have a significant impact on attractive new store locations,” O’Sullivan said in the paper. Earnings calls. “We are confident that these bankruptcies will strengthen our new store pipeline.”