Jonathan Hipp
Dollar stores, that is. Brands in this stalwart category of the net lease sector are upping the ante on service, with plans to cash in on the growing trend toward “customer experience.”
Take Dollar General. In a clear move that's good for the goose and gander alike, DG will be rolling out FedEx drop-off and pick-up services in 8,000 of its stores in the coming year, according to Business Insider. The springboard for that push starts now, with 1,500 initial locations set to work the addition this year. Not only will the added service bring more people into the store–that at least is the theory–but as BI points out, it will also open FedEx services to a wider audience.
And speaking of geese, Dollar Tree is looking to goose the profile of its beleaguered Family Dollar chain by the introduction of alcoholic beverages–to customers, not to management, just to be clear. According to website Motley Fool, given alcohol's lower margins, it's seen as a branding play more than a pure-play sales strategy, although one does accompany the other.
All of this comes at a particularly interesting time in the evolution of net lease retail (for that matter, retail in general), and other categories are following suit. Walgreens and CVS, as just one example, are battling out their own trade wars by sidling up to walk-in med center services. And quick-service restaurants are putting a heavier stamp on formerly pure-play shopping centers.
Why? Well, with the probable exception of those med services, all of these concepts are more easily handled from the comfort of the shopper's home computer. We can even get our Big Macs and Slurpees via GrubHub.
We all know by now that internet sales and brick-and-mortar need to co-exist to survive. Hence the movement to omnichannel strategies that some–such as Home Depot or Macy's–do so well. But the brick-and-mortar providers still need feet crossing their welcome mats, and for the dollar stores, such product and service expansions seem to be the ticket.
And that's a good thing for investors, potentially at least, if the strategies make cash registers ring. Buyers more than ever are looking to future-proof their net lease investments. First comes the real estate–the good locations in high-traffic areas with long-term leases at rents that make sense. Emphasis there on the long-term. Investors want confidence in their buys, without the need to re-tenant when a strategy fails and the occupant vacates.
Our latest research shows that those lease terms on dollar stores that have moved in the past quarter averaged just north of 11 years, up from Q1's 9.3 years. Investors like those odds, and are placing their bets at cap rates that have decreased since the first three months of the year. Second-quarter cap rates hovered around 6.45 percent–a bit higher than the overall net lease average of 6.32 percent. But it's actually lower than the dollar store category posted in Q1–7.26 percent.
Clearly there's value in the dollar. It will be interesting to see if these new strategies will enhance or detract from that value.
The views expressed here are the author's own and not that of ALM's real estate media group.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
