The company has not yet announced any store closings but according to Jim Koury, a senior vice president at Spaulding Slye Colliers and a specialist in shopping center sales, the company will look at the profitability of each store as well as the cost of advertising. In major market areas, notes Koury, the cost of advertising goes down as the company can advertise for a number of stores at once. This could impact stores in the more rural parts of the state.
But stores in higher rent areas increase the occupancy costs of a store, as those costs are determined by the gross rent divided by the store's sales. "If rent is lower it can lower the occupancy costs," Koury tells GlobeSt.com. "This will account for the profitability of a store."
Once Kmart determines which stores should be closed, the bankruptcy court will look at the leases and decide which ones will be approved. If a lease has value--meaning that the rent being paid is less than the market value--it can be sold to the highest bidder. If Kmart is paying rent that is greater than the market rate, the owner of the shopping center gets stuck with the lease. "That will define how many will stay vacant," notes Koury. But he adds, that in the greater Boston area those spaces will probably be taken by other retailers.
The problem with most of the Kmart locations is that they might not be viable for other chains. Most Kmart stores are between 72,000 and 9200 sf, according to Koury. Targets and Wal-Marts are much larger. Supermarkets are generally 50,000 to 70,000 sf. Koury points out that Kohl's would look for store in that range but many of the Kmart stores are older and the owners will have to decide how much they want to invest in fixing up the buildings. "Some [of the locations] may be used as other alternatives," says Koury, adding that in this option owners might decide to subdivide the space.
But scrambling for tenants might be more appealing to some owners than having to deal with the headache of having a tenant under bankruptcy court in its building. Koury points out that the short-term risks in such a situation are that when the owner wants to refinance the property the cost of capital and interest rates will go up and if the owner wants to sell the property, it will be hard to get a good price. The long term risk is the vacancy but, says Koury, "Its almost better for them to get out than to have to suffer with them as a tenant." And, adds Koury, Kmart, which is a national chain won't die a quick death like regional chains Bradlees and Caldors. "Kmart won't be as quick," he says. "It will be a cumbersome process."
Whether the chain will cut stores in this area is still anybody's guess. "I'm not sure New England is where they'll start cutting," he says. "There may be a few here, but it won't be massive [closings]."
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
