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Fellow Seeking Alpha contributor Trent Tillman provided an excellent preview of the Teavana (TEA) IPO. I suggest you read it, as it nicely summarizes much of what you should consider before making an investment decision on the stock.

One thing Trent did not get into, however, is what keeps me from jumping into the stock at this juncture. In my mind, Teavana has not done a very good job locating its stores, relative to other high-end retail establishments.

If you play with the company's retail store locator, you find that Teavana locates almost exclusively in shopping malls and "lifestyle centers." Malls are a dying breed, even in affluent areas, and the "lifestyle center" is nothing more than a cheap imitation of the traditional urban shopping street. And that is exactly where Teavana needs to place its stores going forward.

A focus on suburban shopping malls brought Teavana to the dance; for the company to kick into hyper-growth mode it has to go urban and go outside.

I lump Teavana in with the high-end retailers I am high on in an economy that favors the affluent. As Tillman notes, Teavana compares itself to Starbucks (NASDAQ:SBUX) and Williams Sonoma (NYSE:WSM). I like that. I have been in and purchased items from one of the company's Orange County, California stores. I would also lump Teavana in with Lululemon (NASDAQ:LULU), Nordstrom (NYSE:JWN), Whole Foods Market (NASDAQ:WFM) and other like retailers in terms of the crowd it attracts. It's high-end. It's affluent. And Teavana's average receipt of $36, noted in its most recent S-1, supports this contention. Teavana has customers who can splurge on things they do not necessarily need.

The urbanist-investor in me, however, just cannot get on board with the stock. Unlike many of the most successful high-end retailers, including the ones noted here, Teavana has yet to tap the markets where a large portion of its potential base lives and shops.

While Teavana locates in shopping malls on the outskirts of town, it is not part of the streetscape -- in outdoor, traditional walkable shopping environments -- in places like Manhattan, San Francisco, Santa Monica (where Whole Foods, for instance, has three stores within 1.5 miles of my house) and even in smaller, but still trendy neighborhoods like Portland, Oregon's Pearl District or Burlington, Vermont's Church Street. And the list goes on. Nothing in the S-1 tells me that Teavana intends on going in this direction; in fact, expect the focus to remain on the shopping mall:

We believe there is a significant opportunity to expand our store base in the United States from 161 locations to at least 500 stores, having already identified the malls, lifestyle centers and other high-sales-volume retail venues that are suitable locations in which to open new Teavana stores....

Our store base is balanced geographically across the four regions of the United States. We plan to continue our penetration of these four regions with a focus on high traffic locations within malls, lifestyle centers and other high-sales-volume retail venues.


We have built a proprietary retail mall database which we use for comparison purposes and employ a proprietary regression model to evaluate projected store sales and profitability based on a number of critical inputs incorporating trade area demographics, mall tenant productivity and total anchor sales.
..

As we continue to expand our store base, it may become more difficult to identify additional suitable sites for new stores and we will target an increasing number of shopping malls with lower average sales per square foot than the malls in which we currently are located.

We seek to open stores in locations that reinforce the premium image of our brand and support the consistent execution of our strategy, targeting high traffic locations within malls, lifestyle centers and other high sales-volume retail venues...

There's an urban rebirth happening across the nation. There's a reason why not only Whole Foods, but big-box retailers like Walmart (NYSE:WMT) and Target (NYSE:TGT) will settle for smaller, atypical stores to get into dense, urban markets. The people that live in the lofts, condos and historic homes that populate these metropolitan cores have money to spend. And they like nice stuff. Teavana sells nice stuff. The company just needs to make it accessible to more of the people with the means and desire to buy it.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Teavana Needs to Penetrate Urban Areas to Become a Buy