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Retail closures pose big challenges for Colorado Springs shopping centers

May 6, 2017 Updated: May 6, 2017 at 11:41 am
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Shoppers leave the Gordmans store at Chapel Hills Mall Monday, April 17, 2017. The store is closing just seven months after opening there. Photo by Mark Reis, The Gazette

As retailers fight to keep their doors open, retail centers must do the same.

The list of troubled national and regional chains includes a who's who of familiar names. Sears, Kmart, J.C. Penney, Macy's, Radio Shack, Staples, Payless Shoe Source, Gordmans and Golfsmith all are in various stages of closing bricks-and-mortar stores. Sports Authority and Family Christian Stores have shuttered altogether.

Whether it's big-box anchors or smaller stores, retail closings put pressure on shopping center owners and landlords to fill their empty spaces; they need to keep rents coming in or risk their own financial woes. Many borrowed to acquire their properties and risk foreclosure if they fall behind on loan payments - something that happened occasionally in Colorado Springs during the Great Recession.

Too many vacant storefronts also are a turnoff to customers, who might go elsewhere - threatening the bottom lines of remaining retailers. And shopping centers without tenants can expect a decline in property values, which could hurt a local government's tax base.

"It used to be that you had an anchor, a national anchor tenant, and that was a golden thing to have in your basket of retailers because they never went anywhere," said Jay Carlson, managing broker and principal at Front Range Commercial in Colorado Springs. "But now, at any time, a retailer can decide to shutter a bunch of stores. And all of a sudden, you don't have that cash flow anymore."

Many area malls are struggling, especially those with a closed junior anchor. Photo by Jerilee Bennett, The Gazette 

Competition from Amazon and other online shopping sites along with changing consumer habits have hurt today's traditional retailers and shopping centers, local industry experts say. Consumers shop and buy online with their home computers or mobile devices. Some visit a store to kick the tires on a product, but they walk out the door, pull out a cellphone and make their purchase.

Likewise, many consumers no longer wander through a mall or around a strip center to shop; their attention spans are shorter, and they need other reasons to spend time shopping beyond just buying clothes or appliances.

"It seems like gyms and entertainment venues and some other uses were dirty words at retail shopping centers," said Dan Rodriguez, a senior associate with the Springs office of national real estate firm CBRE. "But now, the highest-value tenants are the ones that are just physically bringing people into the center."

At a conference he attended recently, Rodriguez said, experts suggested that bricks-and-mortar retailers aren't necessarily losing out to the internet; instead, they're getting beat by boredom.

"What retailers need to do now, they're competing for our attention," he said. "There has to be another reason, another drive for you to go spend time at a retail center because just buying the product isn't enough anymore. You can buy the same product at Amazon. So there's got to be other, compelling reasons for you to justify your time in physically going to a retail center."

Late afternoon on a weekday, the parking lot at the Sears at Southgate is almost empty. Wednesday, May 3, 2017. Photo by Jerilee Bennett, The Gazette 

Trendier neighborhoods

Online competition and changing consumer habits might be today's reasons for retail closings. But shopping center owners and landlords faced similar downsizings during and after the Great Recession. Circuit City and Borders Books & Music were some of the retailers that went out of business in the recession's aftermath, leaving gaping holes in a few Colorado Springs shopping centers.

Growth in the Pikes Peak region also has been a factor. Over the past two decades, some Academy Boulevard shopping centers saw major tenants bolt for newer and trendier developments along Powers Boulevard or in other fast-growing areas. Those moves put retailers near thousands of rooftops in new neighborhoods and close to higher household incomes on the Springs' north, northeast and east sides.

Meanwhile, some retailers have adopted new marketing strategies. Instead of being one of dozens of stores inside a mall, for example, some prefer to be in open-air retail centers where customers can pull into a parking lot and walk directly into the store. That's why Old Navy left the Chapel Hills Mall several years ago and moved to the Chapel Hills Market retail center directly south.

Natural Grocers, meanwhile, is moving to free-standing buildings. The chain recently relocated a store from a north-side Springs shopping center, leaving behind a storefront that's still vacant. The grocer also plans to move to a new building from a south-side shopping center.

Not surprisingly, the changing retail landscape means older retail centers are more vulnerable, said Fred Veitch, a vice president with Nor'wood Development Group of Colorado Springs. Nor'wood, one of the city's biggest real estate companies, has developed retail centers along Powers Boulevard on the east and northeast sides, along with another project in the far-north InterQuest area.

Because newer centers are in faster-growing areas where incomes are higher, they stand a better chance of survival and can find replacement tenants when retailers close, Veitch said.

Whole Foods closed in March at Nor'wood's First & Main Town Center along Powers Boulevard. But Nor'wood expects to fill the space soon; three retailers already have expressed interest, he said. By contrast, the aging Rustic Hills Shopping Center and Rustic Hills North Shopping Center, at Academy and Palmer Park boulevards, have struggled for years to fill their storefronts.

At the same time, some retailers remain hesitant about expanding in a post-recession environment, and those that are growing take their time about it, Veitch said. When they do expand, they're more likely to look to newer locations.

"The older centers and the centers that are anchored by tenants or retailers who are having financial difficulty are going to have a tough time of it because there just aren't very many retailers expanding today," Veitch said. "Almost everyone is trying to decide where the market is going before they move and they haven't yet figured out what that means."

Entertainment tenants

For now, keeping retail centers full in the wake of a wave of retail closings means owners and landlords must embrace new ideas and tenants.

Fitness centers and entertainment uses, as Rodriguez said, are possibilities. The owner of a climbing gym company told The Denver Post last week that he wants to put his facilities in vacant big boxes around the country - and is starting with the former Sports Authority headquarters in suburban Denver.

Another possibility: combining recreational uses with co-working spaces, restaurants or coffee shops - a so-called "mash up" concept, Rodriguez said.

"There are places in parts of the country where there are climbing gyms that also have space that overlaps as co-working space," he said. "So people may go there to work for a few hours throughout the day or different parts of the day but then also take a break and go do some climbing and then come back and work."

More restaurants, grocery stores and walk-in medical clinics - increasingly popular in Colorado Springs - also are possibilities to fill retail centers, Rodriguez said.

Carlson said other creative options might include using portions of enclosed malls for offices and even storage.

"You might have to take a 40,000-square-foot space and split that in half to find a retailer that can go in a location like that," Carlson said.

Finding new ways to fill shopping center vacancies will remain important because more store closings might be coming, Veitch said.

"I don't think, by most of the reports that I read in the industry, that the worst is over yet," he said.

So if retailers continue to struggle, some consumers no doubt will ask: Why build more stores and more shopping centers?

Today's new centers aren't constructed on a developer's hope that retailers will come later; most are pre-leased and tenants typically sign 10-year deals, said Mark Useman, executive managing director of Colorado Springs Commercial.

Moreover, while shopping habits have changed, the desire to shop hasn't, he said.

"There's always going to be a need for strip centers and shopping centers because there are a lot of people that want to go out and have the experience and be hands on and go get it immediately, as opposed to waiting," Useman said.

Besides, restaurants, liquor stores, amusement centers and service-oriented businesses are popular shopping center tenants - and those purchases can't be made online, he said. Building materials and home goods also are items that shoppers don't necessarily want to wait for after purchasing them online.

"I don't think retail is going to go away," Useman said. "It's going to change, and there will be certain people that will be affected by it and may decide to go just to an online aspect of their business. But I think you're going to see both. They're going to co-exist. But it's going to change, and it's going to have an impact. It already is having an impact on brick-and-mortar."

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Contact Rich Laden: 636-0228

Twitter: @richladen

Facebook: Rich Laden

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