Sunday, October 17, 2010

No Additional New Fresh & Easy Neighborhood Market Stores Set to Open This Year; Ten New Units Planned For January 2011

Breaking Buzz

United Kingdom-based Tesco isn't planning to open any additional new Fresh & Easy Neighborhood Market stores this calendar year, Fresh & Easy Buzz has learned. No new stores are set to open in October, November or December 2010 at present, and likely won't be.

However, the retailer is currently planning to open 10 new stores in January 2011, according to our sources. All 10 stores are in Southern California.

New store openings are dynamic and fluid at Fresh & Easy Neighborhood Market headquarters in El Segundo, California. Therefore, the current 10 planned store openings for January 2011 could change in either a plus or minus direction between now and the end of 2010.

Tesco opened nine new Fresh & Easy stores in September. [See - September 22, 2010: California Dreamin': Fresh & Easy Neighborhood Market, Whole Foods Market Combined Open a Total of Four Stores Today in California.]

Fresh & Easy Neighborhood Market was originally considering opening at least three new stores in November 2010. However, that was before Tesco decided to close 13 Fresh & Easy stores - six each in metro Phoenix, Arizona and metro Las Vegas, Nevada, and one unit in Southern California - which it announced on October 5. (there's a list of the addresses of the 13 locations set to close by November 2, 2010 at the top of Fresh & Easy Buzz. Just click the "13 Closing Fresh & Easy Stores List" link.)

Tesco's Fresh & Easy is now in the process of closing the 13 stores. It plans to board the stores up, something it's referring to as "mothballing," saying it might open some or all of the units up again at some time in the future.

All 13 stores are set to be shuttered by November 2, 2010.

Fresh & Easy's real estate department is also trying to sub-lease the stores, which will be difficult, particularly in metro Phoenix and metro Las Vegas, where there's an abundance of vacant retail commercial real estate on the market currently. Apparently "mothballing" is a situational process. If Fresh & Easy is fortunate enough to sub-lease some or all of the stores, that would tend to render opening the stores up in the future a moot point, wouldn't it?

As of today there are 168 Fresh & Easy stores - 93 units in Southern California; seven stores each in metro Bakersfield and metro Fresno, in California's Central Valley; 34 units in metropolitan Phoenix, Arizona; and 27 stores in metro Las Vegas, Nevada.

After closing the 13 stores, Fresh & Easy Neighborhood Market's store-count will be 155. There will be 92 units in Southern California, 28 stores in metro Phoenix, and 21 units in metro Las Vegas. The Bakersfield and Fresno region store numbers will remain unchanged.

On October 5, 2010, Tesco said it plans to open 19 Fresh & Easy stores over the next six months. [See - October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market]

The new store opening schedule - 19 stores over the next six months or so - tracks with our research and analysis. Besides the 10 Southern California stores set for January 2011 openings, as we've previously reported, Tesco plans to open 11 stores in Northern California in early 2011. [see - September 22, 2010: Fresh & Easy Neighborhood Market Plans to Open Two Additional Stores in Northern California in Early 2011.]

The retailer's plans call for opening some of the 11 stores in February 2011, and opening the remaining units in March. However, that schedule depends on how many of the stores are ready to open at the time. A few of the 11 stores might not be ready to open until April 2011.

Either way, if all 11 are open and operating by the end of March 2011, that equates to 21 stores in six months. If a couple aren't ready to open until April that would work out to about 19 new units six months from now.

As we've previously reported, Tesco's Fresh & Easy plans to distribute to the Northern California stores from its Riverside County distribution center in Southern California, rather than opening its Northern California facility, which has been sitting idle since 2008.

The Northern, Southern and to a lessor degree Central California regions will be Tesco's focus in 2011 in terms of opening new Fresh & Easy stores, based on our information, as well as analysis.

We expect the retailer to open a few stores in metro Phoenix, Arizona, in selected locations, in 2011. Tesco has a number of Fresh & Easy store locations in the region. A few stores are completed but sitting empty. Tesco holds leases on still other metro Phoenix sites where no work at all has been started.

At present we would be surprised if Tesco opens any Fresh & Easy stores in metro Las Vegas, although one or two are possible. Like in metro Phoenix, Tesco has a number of unopened and future store locations it acquired a considerable amount of time ago and is sitting on.

When it reported its half-year sales and earnings on October 5, Tesco said it plans to have 400 Fresh & Easy stores open and operating by the end of its 2012/13 fiscal year. It's currently in its 2010/11 fiscal year, which ends in February of next year.

The retailer also said fiscal year 2013-end is when it plans to break-even. [See - October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market]

To achieve that 400-store mark, Tesco will have to open 245 new stores in less than three years. That's in contrast to having opened 168 - and it will be 155 when the 13 stores close - in its first three years of operation with Fresh & Easy. The first batch of Fresh & Easy stores opened in late November 2007.

In our analysis its a very tall order to open 245 stores in that period of time - and to do so without ending up with numerous poor to very poor locations, which is something Tesco's Fresh & Easy has done - choose way too many bad locations in the first place - in opening the 168 stores in a bit under three years, which is the primary reason it's closing 13 stores, some of which have been open for far less than three years.

For example, three of the six metro Phoenix, Arizona region stores that are closing are in the city of Mesa and two are in Gilbert. See 13 Closing Fresh & Easy Stores List. A more thoughtful store location process would not result in five of the six stores being closed being in just two cities.

[Editor's Note: We will elaborate on Tesco's strategy and plans to open 245 new Fresh & Easy stores by the end of its 2013 fiscal year in an upcoming analysis piece.]

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