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Retail in the Doldrums

The Regal Cinemas at Winrock Center on Tuesday, May 2, 2017. (Greg Sorber/Albuquerque Journal)

ALBUQUERQUE, N.M. — The past year has been brutal for many brick-and-mortar retailers.

According to the Bureau of Labor Statistics, employment in the retail trade has declined by 89,000 jobs since a recent high in October of 2016. In March 2017 alone, 30,000 retail jobs were lost nationwide.

Albuquerque has shared in the pain, with national retailers like Macy’s, Sears, JC Penny, Sports Authority and Gordmans closing or scaling back their presence here, along with the shuttering of some longtime mom-and-pop stores.

What that means going forward depends on whom you ask. At a minimum, landlords are rethinking the types of retail that might work for a particular location. But in some cases, industry insiders say, it’s time to consider entirely different uses.

Albuquerque developer Scott Throckmorton, whose company recently built the new Lovelace Medical Group clinic at Jefferson and Osuna NE, said new kinds of users could bring more foot traffic to local malls. Some may be ripe for medical and educational uses, a grocery store, a climbing gym, call center operations, government clients, even apartments. Value retailers, like the dollar stores, are also good candidates to fill space.

But he added it may be too late to fix some of Albuquerque’s retail white elephants. “You can’t assume that because it’s a mall or strip center, it always has to be that development type,” said Throckmorton. “Sometimes, it’s not a case of a retail market being overbuilt, but one that is underdemolished.”

At least part of the problem has been pegged to the rise of e-commerce. According to the U.S. Commerce Department, online retail sales made up 11.7 percent of total retail sales nationally last year, but that is up from roughly 6.7 percent in 2012. Online retail also represented 42 percent of total retail growth in 2016.

But even with that growth and the well-documented retail troubles of the past year, some say it’s way too soon to declare physical retail dead.

“In that context, online is seeing huge growth but still a comparatively small piece of the whole pie. Retailers can’t ignore it, but bricks-and-mortar aren’t going anywhere anytime soon,” said Ben Perich, a senior commercial broker at Collier’s International.

Albuquerque’s landscape

In Albuquerque, CBRE New Mexico crunches data for a dozen submarkets and six development types, with categories ranging from strip centers, power centers and super-regional centers. Car dealers and freestanding movie theaters and restaurants are excluded from the market stats compiled by researchers.

Despite a few success stories such as the arrival of a grocery store, Downtown Albuquerque is the laggard, with 24 percent of its half-million square feet of retail space vacant as of the fourth quarter of 2016. The Uptown area is close behind with 23.8 percent of its 2.6 million retail space vacant as of the fourth quarter.

Looking at the metro region’s universe of 26 million square feet of retail space, the average vacancy rate stands at 10.8 percent, according to preliminary first quarter retail market report from CBRE New Mexico. Ten years ago, the figure was 23 million square feet.

The West Side’s Cottonwood Mall has been hard hit, having lost two anchors – Macy’s and Sports Authority – and a number of smaller retailers. A walk-through earlier this spring showed 19 vacant retail suites.

On the other side of town, La Mirada Square, a once-bustling strip center on the southwest corner of Montgomery and Wyoming NE, features three vacant big boxes. Its most recent anchors included a Hobby Lobby, a Hastings and a furniture store. Perich, the leasing agent for the property, said owners are discussing various options for the space.

For the year just ended, the 1.1 million square feet of space left vacant in Albuquerque was a staggering 31 percent more than that of 2015 and the highest since 2008. That mirrors a growing national trend. More than 8,600 U.S. retail stores could close this year, well above the peak of 6,200 in 2008, according to Bloomberg News.

Albuquerque, like much of the U.S., may indeed be “over-stored,” a subject that has caught the eye of at least one academic researcher. According to Ellen Dunham-Jones, an architect and professor at George Tech, there are about 1,200 enclosed malls in the U.S. and about one-third of them are dead or dying.

Real-estate research firm Cushman and Wakefield says mall visits have declined 50 percent between 2010 and 2013.

Local commercial real-estate brokers and analysts say data suggest the brick-and-mortar retail market will remain lackluster and is unlikely to see dramatic improvements in the coming year.

Changing the mix

Brokers and developers agree that a gear has moved in the retail universe, with a future that looks more interactive, digital and discounted. Mall owners, they say, would be wise to rethink their core identities, as they transform from retail meccas to mixed-use real estate with alternative tenants.

According to the Bureau of Labor Statistics, trends since 2008 show a fundamental shift in national purchasing habits. Travel and dining are up, while retail is down. And while retail in general is losing jobs at a high rate, according to the bureau, department stores, the traditional anchors of large enclosed malls, are dropping jobs much faster than any other type of retailer.

Perich said the enclosed malls that are surviving are either discount or luxury malls. Retailers like Macy’s aimed at the middle of the spectrum are losing business to specialty retailers with a specific target demographic, like millenials or tweens.

“I think you are going to see a focus on experience and amenities,” said Perich. “We are seeing now a trend where restaurants are serving as the new anchors.”

New developments coming on line have high-traffic retail stars increasingly at the center of the shopping experience, like Nordstrom Rack at Winrock, and, later this year, Cabela’s in the Legacy Journal Center, which now is under construction and with a tenant mix that will include an apartment development.

Construction continues on the new Cabela’s, an outdoor outfitters store of hunting, fishing and outdoor gear. Construction on the 70,000-square-foot store Ð the company’s first location in New Mexico Ð is expected to have a 2017 opening. The store will join the Legacy at Journal Center development located near the intersection of Interstate 25 and Paseo del Norte. (Greg Sorber/Albuquerque Journal)

“Retailer developments aren’t so much getting larger or smaller, they are getting smarter,” said Perich.

He said the problem is not necessarily that there are too many retailers to survive, but that the profitable spots for development are decreasing. Incoming retailers want to invest in a few premium quality locations, rather than a large number of secondary locations.

While the enclosed mall model is in transition, longtime Albuquerque industry analyst Ken Schaefer wonders how many owners are actually up to the task of energizing or repurposing stale properties

Call centers, the silent giants in Albuquerque’s and Rio Rancho’s economies, are particularly well suited for malls needing to backfill empty storefronts, said Throckmorton, president of Argus Investment Realty, who said he’s seen malls in Phoenix and Tucson eager to accommodate this category of office tenant. “Mall operators like the foot traffic they bring,” he said, adding economic development agencies and brokers would be wise to talk up the potential of these spaces when they recruit new companies or help existing ones expand.

As to what’s next for Cottonwood Mall, where nearly one-fifth of its retail space currently is on offer, it’s too soon to say, but Schaefer is confident it will not sit idle for long.

“It’s too much real estate” not to be put to good use, he said. “I think the Macy’s and Sports Authority spaces will be reabsorbed in the next year,” he added. “It’ll be a successful retailer, or someone new to the market,” he predicted.

“They could probably put a Target in there, a Container Store or a Trader Joe’s, which grocery shoppers on the West Side would dearly love,” he said.

By: Steve Sinovic and Taylor Hood (Albuquerque Journal)

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