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BFD Expert Voices - Retail Deals

BFD Expert Voices

Data: Coresight; Table: Simran Parwani/Axios

Halfway through 2022, retailers have opened 4,283 stores amounting to an estimated 73.2 million square feet of retail space, according to Coresight Research.

Why it matters: Physical stores are seeing a resurgence as a key part of retailers' omnichannel strategy.  

The number of store openings compares with 1,766 store closings announced so far, equating to an estimated 29.1 million square feet.

State of play: Brick-and-mortar stores have become marketing tools, introducing shoppers to new brands and cultivating in-store experiences to entice customers to return.

Digitally native or mature online businesses looking for growth will need to create compelling retail experiences, says Steve Dennis, president and founder of SageBerry Consulting, and a former retail executive.

That said, there's plenty of demand for essentials for a low price at a location conveniently near shoppers — demonstrated by the trio of dollar-store giants topping the chart. 

Yes, but: Like many of the recently released data points on retail and consumption, these latest results are lagging indicators, says Spence Mehl, a partner at RCS Real Estate Advisors, which works with a number of retailers.

Stores take months to open from finding the right location to negotiating the lease to designing and building the store itself, he tells Richard.

With looming economic uncertainty, retailers have begun to scale back their plans, the effect of which will become clear in about six months, Mehl says.

By the numbers: While the chart notes banners opening the most locations, CVS Health, Foot Locker and Rite Aid have shuttered the most stores.

Amazon, 10th on that list, is slated to close 57 locations this year.

Though Macy's is not among those closing the most stores, it is first in mothballing the most square footage, more than 9 million square feet.

The coming holiday season will determine whether the industry will see another wave of store closings, says Mehl.

Meanwhile, digitally native brands such as Warby Parker, Fabletics, Psycho Bunny and Vuori are also opening stores, between 20 and 40 apiece.

"But the jury is out on how successful that strategy will be at any scale," SageBerry's Dennis tells Richard.

The intrigue: The rise of "medtail," a melding of health care and retail, is increasingly visible in malls and on main street, Mehl points out.

Amazon's $3.9 billion play for primary care operator One Medical is the latest example of this phenomenon — and that deal could have implications for big-box retailers looking to keep up with the e-commerce giant. 

The bottom line: Reports of the physical store's death were greatly exaggerated — at least, for the time being. 

1 big thing: Store openings continue at a brisk clip

Kitchen United, the ghost kitchen operator and technology provider, announced a $100 million Series C financing, comprised entirely of equity, says CEO Michael Montagano.

Why it's the BFD: Ghost kitchens, also known as cloud kitchens or virtual kitchens, are projected to become a $1 trillion industry by 2030 (but that figure encompasses more than restaurant-related ghost kitchens), according to Euromonitor. 

Yes, but: While the sector generated about $52 billion in sales in 2021, not all ghost kitchen operators are faring well. Butler folded after raising $50 million, TechCrunch reported.

Of note: Montagano declined to comment on financials but said Kitchen United's post-money valuation eclipses that of its most recent round. The company was valued at $140 million in 2019 after raising a $40 million Series B, according to PitchBook. 

Kitchen United has no debt and has grown 100% year over year for four consecutive years, which includes this year, Montagano says. 

Details: New investors include strategics such as Alimentation Couche Tarde and its subsidiary Circle K, Kroger and Burger King parent Restaurant Brands International.

That's in addition to real estate operators Simon Property Group and Phillips Edison & Co., as well as supply chain manager The Havi Group and VC firm B. Riley Venture Capital.

A full slate of returning investors participated, as did NFL Super Bowl MVP Peyton Manning.

Flashback: Kitchen United began raising its Series C at the beginning of the year, Montagano tells Richard.

The company targeted $100 million from the beginning and was able to maintain its desired valuation through negotiations, he says.   

Proceeds will primarily invest in further developing its tech stack, as it provides software to other ghost kitchen operators such as New York City's Hudson Yards.

What's next: Capital will also go toward physical expansion from its current 15 locations and delivery capabilities.

The company is putting the finishing touches on five new sites.

It plans to open a total of 500 over the next five years, with a partnership with Kroger to help it do so.

State of play: Competitors include Uber co-founder Travis Kalanick's CloudKitchens, which raised $850 million last year, as well as Guy Fieri's Guy's Flavortown Kitchens, and Reef, among many others.

The intrigue: Given how increasingly crowded the space is, "We anticipate further market consolidation, and will continue to analyze new opportunities to partner with other like-minded companies," Montagano says, referring to acquisitions.

Last year Kitchen United acquired software and ghost kitchen developer Zuul. 

What they're saying: "We aren’t the ghostly ghost kitchen. We want to be in the best trade areas," says Joy Lai, COO of the company's ambitious expansion.

2. The BFD: Kitchen United raised $100M Series C

A Kitchen United kiosk at a Kroger grocery store. Photo: Kitchen United

Alibaba, the Chinese e-commerce giant, is applying for a primary listing on the Hong Kong stock exchange, expected to be complete by year-end.

The move comes amid an ongoing battle between the U.S. and China about auditing issues, which could result in the delisting of Chinese companies from American exchanges, ProRata colleague Kia Kokalitcheva writes. 

Alibaba has been dual-listed since 2019, but making Hong Kong its primary exchange means the company will be accessible to mainland China investors.

3. Retail therapy

Illustration of a check out screen on a phone with an icon of a shopping cart and a button that says "feel better."

• Rush ReCommerce, a software and service provider, closed a $12.9 million Series A round, led by Beringea with participation from Advantage Capital and existing shareholders. Read more. 

• Conscious Cultures, a plant-based foods company, raised a $1.5 million seed round led by venture capital firm Prime Movers Lab. The company also announced a corporate rebrand to Bandit. Read more. 

• Balance, a New York-based B2B e-commerce payments startup, raised $56m in Series B funding led by Forerunner Ventures, with Salesforce Ventures, Hubspot Ventures, Lyra Ventures and Gramercy Ventures also participating. www.getbalance.com

• Nash, a San Francisco-based delivery management startup, raised $20m in Series A funding led by Andreessen Horowitz, with Y Combinator and Rackhouse Venture Capital also participating. www.usenash.com

4. Retail transactions

• Dr. Praeger's Sensible Foods, a plant-based frozen foods company, appointed Andy Reichgut as CEO, effective immediately. Founder Larry Praeger will serve in a special adviser role and will remain an active board member. Reichgut most recently served as general manager of Upfield-owned vegan cheese company Violife. 

5. It's Personnel

Situational awareness: Shopify is laying off around 1,000 workers, or 10% of its global workforce, according to an internal memo — a dark cloud for big bets made on e-commerce during the pandemic. 

July 26, 2022

1 big thing: Store openings continue at a brisk clip