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Bed Bath & Beyond is closing hundreds of stores. But they won’t be empty for long

<i>Justin Sullivan/Getty Images</i><br/>A closed Bed Bath & Beyond store this year in Larkspur
Getty Images
Justin Sullivan/Getty Images
A closed Bed Bath & Beyond store this year in Larkspur

By Nathaniel Meyersohn, CNN

Bed Bath & Beyond is stripping down its big blue signs, clearing out aisles of linens and closing 400 stores as it tries to stave off bankruptcy.

Already, chains including TJ Maxx, HomeGoods and Ross have scooped up the vacant stores. Burlington, Five Below, Nordstrom Rack and budget gym Planet Fitness may also fill up the spaces, say retail landlords and real estate analysts.

Bed Bath & Beyond’s real estate is a precious, scarce resource for retailers, gyms and anyone else who needs ample space. There’s been little new retail development since the 2008 financial crisis and the rise of online shopping, and vacancy rates are at historic lows.

“E-commerce scared a lot of people off from building retail,” said Brandon Isner, the head of retail research at CBRE, a commercial real estate firm. “A lot of great real estate is going to come available into a market where there’s been no vacancies. It will not take long for retailers to occupy those spaces.”

Particularly in a tight commercial real estate market, bad news for one brand means opportunity for another.

“For us, the biggest source of new store locations comes from other retailers closing stores,” Burlington CEO Michael O’Sullivan said on an analyst call in February. “So many of our most productive locations were formerly Circuit City or Toys ‘R’ Us or Sports Authority.”

Commercial construction and vacancies at record lows

Store space is incredibly scarce at the moment, and that’s an ongoing trend: Total new commercial retail real estate construction reached a new low in 2022 for the third consecutive year, according to CBRE.

And for existing spaces, the retail space vacancy rate fell to 4.9% at the end of 2022 — the lowest level since CBRE began tracking the market in 2005.

So Bed Bath & Beyond has a lot to offer prospective tenants.

The company has stores in all 50 states, with the most in population-dense areas in California, Texas, New Jersey and Florida. Plus, the majority of its stores are in the suburbs of mid-size and large cities and are under 50,000 square feet, all of which are attractive qualities in retail as brands trend toward smaller spaces to save on rent, labor and other overhead.

“There is good interest for Bed Bath & Beyond stores that are closing given desirable locations” and an average size of around 30,000 square feet, retail analysts from Telsey Advisory Group said in a note to clients.

In some cases, landlords are also eager to replace old Bed Bath & Beyond leases because the company was paying below-market rent in certain locations, Telsey Advisory Group analysts said.

Which companies are growing?

Bed Bath & Beyond has fallen to the “retail apocalypse” over the past decade, but many chains are still growing.

Growth has been most pronounced in the discount segment of retail as shoppers on tight budgets search for low prices. Other companies are using their stores to ship online orders to customers, which can be more efficient than delivering orders from warehouses.

In fact, despite high inflation and a pullback in retail sales, physical store openings exceeded closings last year for the first time since 2016, according to Coresight Research.

And so far store opening announcements have outpaced store closures this year, the firm says, with Dollar General, Family Dollar, Dollar Tree and Five Below at the top.

But it’s not only retailers looking for space and enjoying growth.

Discount gym Planet Fitness is opening about 200 new gyms a year.

“Bed Bath and Beyond sites are interesting to us, and we are exploring available opportunities with our franchisees,” a spokesperson told CNN. The company has previously opened gyms at former stores of two brands that filed for bankruptcy: Toys ‘R’ Us and Sears.

A real estate investment trust that owns nine Bed Bath & Beyond stores, Federal Realty, is currently talking to chains like TJX, Burlington, Ross, Nordstrom Rack, Container Store and others about moving into Bed Bath & Beyond spaces. Once an agreement is finalized, it usually takes 18 to 24 months for the new retailer to open.

“We feel pretty bullish based on the demand that we’ve seen that we’ll be able to release all of these spaces to other retailers,” said Lance Billingsley, the company’s senior vice president of anchor leasing.

He also believes Bed Bath & Beyond may not be able to avoid bankruptcy or liquidation, which would lead to more vacancies.

Meanwhile, another home goods retailer, Tuesday Morning, will close more than 250 stores this year. A&G Real Estate Partners is auctioning off leases to the stores, which are 10,000 to 20,000 square feet, said Mike Matlat, A&G’s senior managing director.

Discount chains are interested in moving into those spaces because they’re small and already built, Matlat said.

“With not a lot of new development going on, everyone’s growth will come from second-generation space,” he said.

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