Bed Bath's Initial 56 Store Closures: Not Likely to Stay Vacant Long

Last month Bed Bath & Beyond announced plans to close at least 150 stores by next year.

The first 56 stores to close have been identified and liquidation sales are already underway.

But these stores are not likely to stay vacant long.

Good locations, tight retail vacancy rates, well-capitalized owners, and a number of aggressively growing replacement tenants eager for Big Box space bode well for relatively quick backfills of many soon-to-be former Bed Bath & Beyond stores.

A quick look at Bed Bath & Beyond’s initial 56 store closures suggests that the real estate may not remain vacant long. Consider:

• All but 1 of the 56 stores are located in multi-anchored shopping centers or malls
• In more than 75% of the centers that face a store closure, the Bed Bath and Beyond suite will be only the Big Box vacancy
• 15 of the 56 stores (~27%) are in shopping centers owned by REITs with very little anchor vacancies
• Although store sizes range from 18,000 - 70,000 square feet, the average size is 32,000 square feet – and only 6 stores are larger than 45,000 square feet
• Several Big Box retailers have aggressive new store opening targets that they are trying to achieve - and the Bed Bath stores would likely be a good fit

Nearly all of the Bed Bath stores slated for closure are located in multi-anchored shopping centers or enclosed malls alongside other established tenants that will continue to drive customer traffic and demand even without the Bed Bath & Beyond store. Importantly, in at least 3/4 of these shopping centers, the Bed Bath suite will be the only Big Box vacancy in the center. Further, many of these centers are located in supply constrained markets where there has been very little prior vacancy (and opportunities for other retailers to enter).

Also, at least 15 of the 56 stores are in shopping centers and malls that are owned by well-capitalized REITs that have both the relationships and resources to quickly identify and complete deals with replacement tenants. Many of these REITs have been successful in filling vacancies and have very little available anchor space in their existing portfolios. For instance, several of the initial Bed Bath closures are in shopping centers owned by Kimco and RPT Realty, two REITs that reported only 2.5% and 4%, respectively, of unleased anchor space at the end of the second quarter.

Finally, the rapid re-tenanting of the ~1,200 Big Box spaces that were vacated in the recent bankruptcies of Sports Authority and Toys R Us demonstrates the strong likely demand for backfilling the Bed Bath suites. The average size of the Sports Authority and Toys R Us stores was approximately 40,000 square feet, squarely in the size range of many of the Bed Bath stores slated for closure - and many of the replacement tenants for this space are still active in the market.  

Three retailers – Dick’s Sporting Goods, Burlington Stores and TJ Maxx – took nearly ¼ of the shuttered Sports Authority sites and four retailers – Burlington, Ollie’s Bargain Outlet, Big Lots and Hobby Lobby – account for roughly ¼ of the backfilled Toys R Us stores.  Many of these same retailers are still aggressively growing their store bases – Burlington and Ollie’s both plan to open at least 500 new stores over the next 5 years – and they are targeting many of the same locations, markets, store sizes and customer bases as Bed Bath & Beyond.

So while the upcoming store closures may not be good for Bed Bath & Beyond, they represent an opportunity for real estate owners to improve their shopping centers and for growing retailers to increase their store base and enter new markets -- and they are unlikely to stay vacant long!