Gaining leverage over Goliaths
As national chains slow expansions, shopping centers look to local retailers
In early 2007, Rob Sherer approached Market Street in The Woodlands to see about launching in the center his comfort footwear concept, All About Feet.
There wasn’t much interest, Sherer says, so he opened his first store in the Vintage Park shopping center in northwest Houston.
But in the summer of this year, a Market Street representative came to Sherer and encouraged him to open his second store there, and he agreed.
He will be getting a choice spot across from Tommy Bahama.
Many national retailers are in “lock-down” because of the recession, Sherer said, which means local retailers such as he are being courted more now, he believes.
While it is possible that Sherer could have moved into Market Street without the recession, retail analysts maintain that opportunities for local independent retailers to get prime locations are exceptionally good now.
There are some “unique opportunities” for local and regional retailers to move into desirable spaces that normally would not have not been available because they were not a big national chain, said Ed Wulfe, president of Wulfe & Co. Such chances for local retailers “are probably as good as they’ve ever been,” he said.
The economic downturn also enables local and regional retailers to negotiate better rates and lease terms, he said.
National chains haven’t stopped expanding completely, but there are certainly far fewer doing so, said Anita Kramer, senior director of retail and mixed-use development at the Urban Land Institute in Washington.
National retailers were the safest for developers, especially when developers would go to banks for construction loans, she said, because a bank often insists that proposed developments house national retailers with strong credit ratings.
The best sites
The inability to draw national retail tenants is a big reason that some mixed-use projects and other retail developments never got off the ground, she noted.
“This is an excellent time for local retailers to securitize the best sites,” said Scott Shillings, president of Riverway Retail, a Houston-based retail/tenant representative.
During the boom, Shillings noted, many national and regional retailers were vying for limited existing vacant spaces in the Uptown/Galleria area. Most of these retailers have slowed expansion, creating opportunities for local and concepts, he said.
A new eagerness
In recent months, local developers such as Levcor, Tanglewood Corp., AmREIT and Weingarten, which own centers along Post Oak Boulevard, “have been eager to work with locals,” Shillings said.
While some local retailers have been in those centers for years, the opportunities for them now are particularly good, he said.
Kendall Miller, president of Tanglewood Corp., owner of Post Oak Shopping Center, noted that when Pier One/Pier One Kids and Storehouse left his center, Houston-based Gallery Furniture and Austin-based Whole Earth Provision Co. came in.
“We benefited from local and regional tenants who were strong enough to expand when national retail expansion dried up,” Miller said.
Strong regional malls continue to focus heavily on national chain stores, Wulfe noted.
At Vintage Park, most of the 37 stores and restaurants are locally owned.
“Very few national retailers have been expanding, so we’re focusing on local and regional tenants,” said Melissa Goedde, director of retail management at Vintage Park, which was developed by Interfin and opened in 2007.
Local retailers are often “ingrained in the community and have strong ties,” she noted.
A little more than 30 percent of the 342,000 square feet of retail has been leased.
To appeal to local retailers, Vintage Park built out seven of its retail spaces.
Typically, Goedde noted, the tenant designs and engineers the shopping center space, and the developer gives them an improvement allowance to offset some of the cost.
However, many local independents want to “just decorate and move in,” Goedde said.
Vintage Park tenant Linda Fowler, co-owner of Jeanne’s Monogramming & Gifts, had been in the same part of town before she moved to Vintage Park in May.
“Vintage Park let us wait until we could get out of our previous lease,” she noted, and since moving her business has improved by 52 percent.
Regional chains’ strength
The current retail environment is actually better for regional retailers than it is for local retailers, said Jeff Green, president of Jeff Green Partners, retail feasibility consultants in Mill Valley, Calif.
Regional chains that didn’t over-expand and have good track records are still able to get financing for new stores, he said, while independent retailers have more trouble obtaining bank loans, Green said.
However, Sherer, the All About Feet owner, said he had no trouble getting financing for his first store in Vintage Park, and he didn’t need financing for the second because “I’m really doing well at the first location.”