Digital Dealer - January 2018 - 10

O WN E R S H I P

Continued from pg. 8

A GROWING NUMBER OF RETAIL OUTLETS ARE
VACANT TODAY IN MAJOR RETAIL MARKETS (SEE
CHART 5). THESE VACANCIES ARE A RESULT OF
CONSUMERS' SHIFT TOWARD ONLINE SHOPPING."
impact of the disruptive
technologies creating
current headlines.
"With everything going
on in the automotive business today, you need to
be super aggressive, have
as much scale as possible
and be an efficient retailer
of automobiles...To do
that, you need a lot of
capital and a lot of size."
-David Rosenberg, CEO
and President, Prime Auto
Group, discussing his decision to partner with GPB
Capital. Automotive News,
October 23, 2017
DEALERS ARE
CHOOSING TO
SELL THEIR REAL
ESTATE WITH THEIR
FRANCHISE

JANUARY 2018

Major U.S. Retail Store Closings Announced
2017 YTD

400

Rue 21

400

Payless Inc

250

The Limited

220

hhgregg

190

GameStop

187

RadioShack

171

Wet Seal

168

Bebe Stores Inc*

160

Crocs Inc.

160

Sears and Kmart**

138

JCPenney

120

BCBG

110

American Apparel

101

Gordmans Stores Inc.

In a buy/sell, sellers
have often preferred to
retain their dealership
real estate and lease the
property to a buyer, usually on long-term basis.
The rental income served
as income post-transaction and the real estate
asset was viewed as
an attractive investment
for a dealer's estate or
retirement.
We see dealers increasingly reconsidering
this strategy in today's
buy/sell market. We
believe there are several
important reasons for this
shift. First, dealership real
estate values are currently
trading at record levels,
prompting more dealers
to cash in on these high
values. The differences
in valuation multiples
10

CHART 5

70

Staples
CVS

70

Macy's***

68
68

MC Sports

50

Chico's

44

Lucy Activewear
Gander Mountain
Ralph Lauren****

between real estate and
franchises explains the
attraction of a real estate
sale. Kerrigan Advisors
estimates dealership
real estate is valued at a
multiple three times higher
than the average dealership blue sky multiple
(See Charts 3 and 4). In
an environment where
blue sky values are on
the decline, rising real

D I G I TA L D E A L E R . C O M

97% YoY

60

Guess

Eastern Outfitters

Total: 3,296
Accounced Store Closings

36
32
23

Source: Fung Global Retail and Technology
* Closing all 134 retail stores and 34 outlet stores
** Closing 115 Kmart and 45 Sears stores
*** Part of 100-store closure announcement made in 2016
**** Closing remaining stores included in the 50-store
closure plan announced in June 2016

estate values often offset
that decline and make
the transaction work for a
seller.
The second reason we
are seeing dealers choose
to sell their real estate is
that they are observing
real estate challenges in
other segments of retail.
A growing number of retail
outlets are vacant today in
major retail markets (see

Chart 5). These vacancies
are a result of consumers' shift toward online
shopping. Given that most
dealership properties are
located on prime retail
real estate, an increasing
number of vacant retail
properties could eventually put pressure on all
retail real estate values,
ultimately leading to a
decline in price. (See
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Table of Contents for the Digital Edition of Digital Dealer - January 2018
