The Evolving Arc Of Junior Box Centers

by Katie Sloan

By mid-2021, retail properties were back in favor with investors and the active buyer pool had expanded from single-tenant and multi-tenant retail pads to grocery-anchored shopping centers. With the unprecedented buyer demand and limited inventory of institutional quality retail investments for sale, some owners of shopping centers with a collection of junior box anchors have successfully tested the buyer market and heralded the latest retail investment category to make a comeback, the power centers.

However, given the recent 100-basis-point rise in the 10-year treasury rate and increasing inflationary pressures, the market is currently in a place of price discovery between buyers and sellers of junior box centers. These shopping centers might include soft goods retailers and/or electronics, pet supplies, home accessories, arts and crafts, beauty and shoes, with tenant suites typically ranging in size from 15,000 to 30,000 square feet. Examples include Ross, T.J. Maxx, Marshalls, HomeGoods, Best Buy, PetSmart, Joann Fabric and Craft Stores, Michaels, ULTA Beauty and DSW. 

This property category has attracted a bevy of private and institutional capital buyers and 1031 exchange buyers with $20 million to $100 million to spend, creating a competitive bidding environment for the most desirable properties. For example, Hanley Investment Group is working with a private exchange buyer with $150 million from the sale of industrial property in Northern California. The buyer would prefer to exchange into three or four institutional-quality grocery-anchored shopping centers. However, with the lack of available product in this sector, the buyer may need to purchase a power center to complete the 1031 exchange. 

The value of power centers varies tremendously across the country and the real estate fundamentals of these investments are critical to buyers as they look to maximize income stability. For example, is the shopping center located in an affluent market in a high-demand, dense metropolitan statistical area? Does the junior box center have below-market rents and strong sales? What about co-tenancy language — is it minimal? Is the site plan layout functional? What is the length of the remaining lease terms and the credit quality of the tenants? What is the asset’s estimated CAGR (compound annual growth rate) over a 10-year period? 

If an investment property has the opportunity for rent growth because the leases don’t have fixed rates, then that deal will be more attractive to buyers, especially during inflationary times. Buyers look for shopping center deals with below-market rents and want the option of being able to raise rents in the future. (Junior boxes typically have a fixed-lease rate, which could be problematic for sellers in an inflationary market where rental rates are rising.)

Falling short in any of the attributes of the real estate fundamentals will significantly impact the power center’s value by hundreds of basis points. For example, a power center property located in a high-demand, dense metropolitan statistical area with strong real estate fundamentals can have a cap rate in the 6 percent range and, in a less desirable location and lacking some of these critical attributes, we are seeing cap rates in the 9 percent range. 

Many of the retailers typical of a power center have seen an uptick in sales. The online giant Amazon, once thought to be the killer of brick-and-mortar, purchased Whole Foods Market in 2017 and has since opened Amazon Fresh and Amazon Go stores. On the flip side, online direct-to-consumer companies have opened brick-and-mortar stores. Successful omnichannel retailers are offering their customers a variety of options through their brick-and-mortar stores, app-based options and online platforms. Many retailers have created partnerships to drive more online and in-store traffic. For example, Kohl’s accepts Amazon returns. Instacart, the leading online grocery platform in North America, has welcomed non-grocery companies like Michaels, The Container Store, Office Depot, OfficeMax, Dollar Tree and 7-Eleven to its growing list of partners to offer customers same-day delivery in as fast as an hour from some stores. Uber Eats recently announced a global partnership with bp to support the growing demand for the fast delivery of food, groceries and everyday essentials. 


At the end of March 2022, Hanley Investment Group generated multiple full-price offers within two weeks of marketing the 109,956-square-foot Raley’s grocery-anchored shopping center in Ukiah, California, located 100 miles north of San Francisco.

With the pandemic hopefully behind us, many shoppers are eager to have an in-store retail experience, while others prefer to shop online or a combination of both (think curbside delivery or in-store pick-up for instant gratification). A study from Raydiant found that 48 percent of the 1,000 respondents said they prefer to shop in-person at a physical store when given the choice and 82 percent of the respondents said that a positive in- location experience makes them more likely to return to a physical establishment. Raydiant’s “State of the In-store Experience Report” noted that, of those who prefer in-person shopping, the number one reason was that they enjoy the experience of shopping in person (nearly 35 percent). The other reasons why consumers prefer to shop in person are they want to interact with products before spending money (24 percent) and they do not want to pay shipping fees (13.2 percent).

In the company’s news release, Raydiant’s CEO Bobby Marhamat said, “The findings confirm our belief that brick-and-mortar retail is not dying, it’s simply evolving, and that the retailers who are focused on creating true in-store experiences are positioned to thrive as the retail landscape continues to evolve.”

The following is a selection of retailers and their recent sales and announcements. Their success as omnichannel retailers fuel investors’ higher level of confidence in the power center product type. 

Ross Stores, Inc., an S&P 500, Fortune 500, and Nasdaq 100 (ROST) company headquartered in Dublin, California, reported total sales for 2021 grew 18 percent to $18.9 billion, up from $16.0 billion in fiscal 2019, with comparable store sales up 13 percent. Currently, the company operates Ross Dress for Less (“Ross”), the largest off-price apparel and home fashion chain in the United States with 1,629 locations in 40 states, the District of Columbia, and Guam. The company also operates 295 dd’s DISCOUNTS stores in 21 states that feature a more moderately priced assortment of first quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20 percent to 70 percent off moderate department and discount store regular prices every day. Ross Stores, Inc. opened 22 Ross Dress for Less and eight dd’s DISCOUNTS stores in 15 states and Guam in February and March 2022. These new locations are part of the company’s plans to add approximately 100 new stores — 75 Ross and 25 dd’s DISCOUNTS — during fiscal 2022.

“We recently raised our store potential targets for both Ross and dd’s DISCOUNTS. Our return to stronger unit growth in 2022 reflects our belief that Ross can ultimately grow to 2,900 locations and dd’s DISCOUNTS can become a chain of 700 stores given consumers’ ongoing focus on value and convenience,” said Gregg McGillis, group executive vice president, property development, in a March 7, 2022, company news release. “Our continued expansion of both chains also demonstrates our commitment to further building our presence in both existing and newer markets.”

The TJX Companies, Inc. (NYSE: TJX), the leading off-price apparel and home fashions retailer in the United States and worldwide, announced sales and operating results for the fourth quarter ended January 29, 2022. Net sales for the fourth quarter of fiscal 2022 were $13.9 billion, an increase of 27 percent versus the fourth quarter of fiscal 2021. For the full year fiscal 2022, net sales were $48.5 billion, an increase of 51 percent versus the full year fiscal 2021. In the United States, the company operates T.J. Maxx, Marshalls, HomeGoods, Sierra and HomeSense. As of January 29, 2022, the end of the company’s fiscal year, the Company operated a total of 4,689 stores in nine countries, the United States, Canada, the United Kingdom, Ireland, Germany, Poland, Austria, the Netherlands, and Australia, and five e-commerce sites. These include 1,284 T.J. Maxx, 1,148 Marshalls, 850 HomeGoods, 59 Sierra, and 39 HomeSense stores, as well as,, and, in the United States. TJX Companies plans to open more than 170 new stores in 2022, including 60 new HomeGoods and HomeSense stores in the United States this year, increasing the store count by nearly 7 percent. It’s also adding distribution capacity for the fast-growing home-furnishings chains.

Best Buy (NYSE: BBY), a big beneficiary of the pandemic-era remote working requirements, expects its new membership program that it launched in October, Totaltech, to add $1.5 billion in revenue by fiscal 2025 through fees and enticing customers to make more frequent purchases at Best Buy stores and its website. It costs $199.99 per year and includes perks like round-the-clock tech support, free shipping and installation and extended product warranties. Best Buy also spent nearly $400 million to acquire remote patient monitoring technology company Current Health in October. Best Buy plans to focus on the consumer health category for customers who want to be healthier, sleep better or monitor a chronic condition like diabetes or heart disease. The retailer is also focused on active aging with emergency response devices and services for seniors, along with virtual health to connect patients and physicians, including remote patient monitoring.

PetSmart operates approximately 1,650 pet stores in the United States, Canada and Puerto Rico, and more than 200 in-store PetSmart PetsHotel dog and cat boarding facilities. The retailer provides a broad range of competitively priced pet food and products, and services such as dog training, pet grooming, pet boarding, PetSmart Doggie Day Camp and pet adoption. The retailer has expanded its offering of digital services to customers, including a recent collaboration with the “buy now pay later” (BNPL) platform Afterpay to give customers flexible payment options when shopping in-store or online. Best Buy also has partnered with on-demand delivery platform DoorDash for on-demand delivery of pet supplies and accessories. Last September, PetSmart announced the launch of The Pharmacy at PetSmart, an online platform allowing pet owners to order prescription medications and supplements through the pet retailer. Expert veterinary care is available in many of the PetSmart stores, where Banfield Pet Hospital operates full-service pet hospitals. These in-store pet hospitals operate independently of PetSmart. PetSmart is also inviting other veterinary clinic operators where Banfield is not present. For example, Easyvet, a United States-based walk-in veterinary clinic group, announced it planned to expand to the Florida market by opening clinics within PetSmart stores in Naples and Estero. 

JOANN Inc. (NASDAQ: JOAN) is the nation’s category leader in sewing and fabrics and one of the fastest-growing players in the arts and crafts industry. From a single storefront in Cleveland, Ohio, the company has grown to include 855 JOANN stores across 49 states and a robust e-commerce business. Last fall, the company began unveiling remodeled stores designed to reflect the new ways customers want to shop. The reimagined stores give customers more hands-on experiences, such as demonstrations of the latest crafting and sewing tools, classes and spaces where crafters can rent time on specialized machines to complete projects. JOANN also has added digital tools to make it easier for customers to get information about products, place online orders at the store or collect curbside orders. Since February 1, 2020, there were 10 million new customers added to its marketing database, according to Seeking Alpha. The company has seen elevated repeat purchase levels at its stores and online. JOANN sees further opportunities to cross-sell to these new customers as they add them to their database. The new customers also tend to be large consumers of sewing and craft technologies that require equipment such as sewing machines and related supplies. Historically, JOANN has seen that customers who purchase sewing machines on average spend $500 or more on JOANN’s products in the year following the purchase and over $330 in the next year. 

Michaels, like JOANN and Hobby Lobby, enjoyed a surge in sales due to the pandemic lockdown as people found creative ways to stay entertained at home. Michaels reported high sales during the pandemic, and the company’s projections for 2022 remain strong. Today, there are 1,275 stores in 49 states and Canada, plus its online business. The Michaels Companies, Inc. also owns Artistree, a manufacturer of custom and specialty framing merchandise. In February 2022, Criteo S.A. (NASDAQ: CRTO), the global technology company providing the world’s leading Commerce Media Platform, announced a retail media advertising partnership with Michaels. According to Criteo’s news release, brands and agencies connected to Criteo’s retail media platform and ecosystem can now engage Michaels’ loyal customer base of millions of Makers, enhancing the shopping experience with the increased discovery of relevant products through non-intrusive advertising while driving new revenue streams for the retailer. The partnership empowers Michaels to scale its retail media program with a full suite of solutions and capabilities including sponsored products, display, and off-site advertising.

Looking ahead, as interest rates increase, we expect to see volatility in the market for power centers. And, as more power centers come on the market in 2022, the additional supply of available properties could impact pricing depending on a property’s attributes and the number of buyers chasing these deals. Further changes in the capital markets could also impact values. Buyers of power centers are typically more focused on yield and are usually shorter-term holders than the buyers of a grocery-anchored shopping center. Therefore, junior box shopping center buyers are more likely to adjust their price target based on near-term interest rate movement. It will be interesting to see where the sellers’ expectations and buyers’ pricing for junior box centers meet in the coming months should there be continued volatility in the capital markets.

— Kevin Fryman is an executive vice president with Hanley Investment Group Real Estate Advisors and can be reached via email at [email protected].

This article was originally published in the May 2022 issue of Shopping Center Business magazine. To subscribe, click here

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