Tuesday, November 24, 2009

7-Eleven ramping up in DFW

If it seems like there’s a 7-Eleven on every corner now, just wait a few years.

The Dallas-based convenience store giant will add more than 75 stores in North Texas over the next three years, as part of a fast-track plan triggered by opportunities created in the commercial real estate downturn. The company will add 550 stores nationwide and about 4,000 worldwide during the same period, CEO Joe DePinto said.

“We’ve really positioned ourselves for this,” DePinto said. “We have a strong balance sheet, real estate values are down, and a lot of other retailers aren’t growing right now, so there’s a lot of real estate available that would have been cost-prohibitive in the past.”

The new North Texas stores will be built in Dallas, Tarrant, Collin, Denton and Rockwall counties, with new-store investment valued at about $50 million through 2001. The Slurpee retailer has 266 stores in the area now.

“We’re seeing a lot of good opportunities for growth,” said Dan Porter, 7-Eleven’s vice president of real estate and new store development. “With the market being what it is, landlords want a national, [solid] credit tenant, and we bring that to the table. In today’s environment, they want someone they can trust to pay the bills every month.”

7-Eleven has increased its real estate staff in Texas and hired CB Richard Ellis Inc. as its local brokerage. This is the first time the company has used an exclusive broker for its expansion plans.

Mike Friedman, CBRE senior vice president and Naveen Jaggi, senior managing director for CBRE’s national retail group, will lead the site selection efforts in North Texas and Southern California, where CBRE also has an exclusive agreement with 7-Eleven.

7-Eleven looks for prime, high-profile corners with easy access and preferably a right-hand turn-in for drivers headed to work, Friedman said. Competition for those corners was fierce until about a year ago, with banks and drug stores vying for the same space. That’s not the case anymore, he said.

“(7-Eleven has) a corporate mandate that they want to open more stores, so the timing is perfect in this market,” Friedman said. “They’re one of the very few national retailers that are on a massive expansion program.”

The local growth will include new development, leases, acquisitions and conversions of other retail outlets to 7-Eleven operations, Porter said. In addition, the company is looking for sites in shopping centers and downtown buildings for urban-walkup locations.

About half of the growth will come from converting or acquiring existing stores, 10% will come from ground-up development and the rest will be leases, Porter said.

The company also plans to remodel 3,000 stores nationwide, including many in North Texas, over the next two to three years, at a cost or $160,000 to $180,000 per store.

Strong balance sheet

Porter said 7-Eleven is able to expand in this economy because the company has reduced its debt and remained profitable despite the economic downturn. Though the private company does not release specifics about its finances, 7-Eleven’s total debt is about one-third what it was in 1999, Porter said.

“Strong companies continue to grow and take advantage of the market opportunities whether the economic times are good or bad,” Porter said. “We’ve brought down our debt over the years, and, with real estate values down and other retailers contracting, it’s a very good time to grow.”

The number of convenience stores in the United States fell by about 1,000 last year to 144,875, said Jeff Lenard of the Alexandria, Va.-based National Association of Convenience Stores. It was only the third time in 15 years that the store count has dropped, he said. Lenard expects store count will be flat or down slightly in 2009.

The drop in 2008 was caused by skyrocketing gas prices, which cut into retailers’ profit margin in the first half of the year, and the recession and credit crisis, which intensified in the second half, Lenard said. Now, companies that have cash and relatively little debt, including 7-Eleven, are positioned to grow, he said.

“With 7-Eleven and other companies, we’re seeing that since they have a clean balance sheet and they have some capital, they’re able to either acquire stores in distress very economically, or build their own new stores,” Lenard said.

Another advantage for 7-Eleven is that it doesn’t rely heavily on gas sales, like many of its competitors, Lenard said. Nationwide, convenience store sales, excluding gas, have increased slightly during the recession.

“That’s because convenience stores, above all, sell immediate consumption, and that’s the last thing to be affected,” Lenard said. “When you’re thirsty, you get something to drink. You don’t look at your retirement fund.”

Despite the real estate slowdown, 7-Eleven will face competition for sites from other convenience stores that are growing, including QuikTrip and RaceTrac, said Earl Harris, senior vice president and director of project leasing for Dallas-based retail real estate firm The Weitzman Group.

“7-Eleven’s biggest challenge will be finding locations,” Harris said. “They’re a great tenant to have. I think landlords will get creative to get them into their centers.”

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