Optimistic retailers ready to expand
Signs of growth appearing across city
Sarah Reinecke/Argus Leader
Trent Goossen was working in the decorative concrete business in Oklahoma when he got the idea to bring a new retail concept to Sioux Falls.
Two years later, he co-owns two CherryBerry self-serve yogurt bars in Sioux Falls.
He and his father, Bob Goossen of Renner, have licenses to open five more in South Dakota and one in Iowa.
“We just thought it would be a fresh idea for Sioux Falls,” Goossen said. “Sioux Falls hadn’t seen anything like it before. We know people up here like ice cream, and we felt it would be accepted really well. Especially with the health trends, we felt it would be a good fit.”
Willingness to take a risk with a new idea or expand an existing business is what it takes for new retail players to enter the Sioux Falls market.
Industry officials expect this year to bring much more retail growth than the city has experienced in the wake of the economic downturn.
Raquel Blount, vice president of commercial real estate for Lloyd Cos., is optimistic about this year. Lloyd Cos. has been contacted by several national retailers. The mild winter has even brought some people here for tours, a rarity during the usually cold winter months, Blount said.
“They want to consider Sioux Falls and come and tour the market,” she said. “The retailers need to grow. They’ve spent the last two or three years closing under-performing stores, getting more cash strong, re-evaluating different markets. It’s time for them to show some growth.”
The newest players on Sioux Falls’ retail scene include:
Tilly’s, a southern California-based surf and skate shop, will open in the former Abercrombie & Fitch space of The Empire Mall this spring.
CherryBerry and Peachwave are new frozen yogurt shops. Another, Red Mango, is opening soon, too.
Fuji Sushi & Hibachi, an upscale Japanese restaurant, will open soon at a new retail center near Plaza 41 at 41st Street and Kiwanis Avenue. The same owners opened Tokyo Sushi & Hibachi last year at 3202 E. 10th St. in the former Boston’s Gourmet Pizza space. The ownership group also operates two Tokyo Japanese Restaurants.
There also have been several recent business expansions and relocations in Sioux Falls, and more are expected. The changes include:
Sam’s Club is considering a second location.
“For most retailers, that equals better sales,” he said. “If retailers do their homework, they will realize that Sioux Falls is a diamond in the rough, but it’s hard to get over perceptions of a market.”
Another factor is that retailers have to have a plan to open more stores, a process that has been stalled in recent years because of the recession.
“People are starting to open stores again in 2012, and actually many retailers have also put the plans out for 2013, and they’re so much better than they have been,” Green said. “They used that three-year window of downturn to really improve the operations and merchandising of their retail stores, and they’re in much better shape now to expand.”
So far, so good
CherryBerry was Trent and Bob Goossen’s first try in the commercial retail world. Trent Goossen had owned a concrete business in Oklahoma. Bob Goossen is a retired information technology manager who lives near Renner and also has a vineyard.
After Trent Goossen polished the concrete floors of the first CherryBerry in Tulsa two years ago and then was called back to do the floors of a second store, he started asking about bringing CherryBerry to South Dakota and called his dad to get on board.
“Sioux Falls and the surrounding communities are very receptive to new restaurants, new things,” Trent Goossen said. “Everyone wants to try things out … experience all the flavors. I was hoping that’s all it would take would be for people to actually try it.”
And so far, it has been successful. The Goossens opened Sioux Falls’ first CherryBerry last Easter, at 57th and Louise. They opened a second store in October at Dawley Farm Village.
They plan is to have stores open by the end of this year in Brookings, Sioux City, Mitchell, Watertown, Aberdeen and Rapid City.
Although neither had experience in the retail world, they knew the key for the first Sioux Falls location was high traffic. They started on the west side, at 5107 S. Louise Ave., because they think it’s a stronger market, with high traffic counts, easy access and plenty of businesses nearby.
Walmart is looking to add a third store.
RCC Western Store moved from The Empire Mall to the new retail center near Plaza 41.
A Subway franchise is opening in the newest strip mall at Dawley Farm Village.
Pro Nails 2 is opening a second site in a strip center on Arrowhead Parkway.
An Aaron’s rental shop and a Subway restaurant are among the likely tenants at a new strip mall along East 10th Street to replace one destroyed in a fire.
With retailers new to the scene, the market analysis can take longer than if they are businesses that can pull a sales history and determine whether Sioux Falls is ready for a second location, Blount said.
One issue Sioux Falls has is lack of vacant space available in dense retail areas, such as the Louise Avenue corridor. Blount is working to put potential retailers in new sites and looking toward growth in the 69th Street and Louise area and on the city’s east side in the Dawley Farm Village development.
Most important in drawing new retailers, Blount said, is selling them on the market and making sure they can get product here. That’s why Blount often looks at retailers in Omaha and Minneapolis.
Retailers bunch together
Most retailers tend to have a “herding mentality,” said Jeff Green, a national retail consultant based in Arizona. They want to locate in areas where there are other retailers, he said.
“You have to look at retail as a magnet; they want to be in the middle of that magnet so they can pull from a greater distance,” he said.
From a planning perspective, one of the first questions asked by prospective tenants is related to traffic volumes and number of homes that have service to an area, said Jeff Schmitt, the city’s chief planning and zoning official.
That’s the draw to the retail mecca that is 41st Street and Louise Avenue – the state’s busiest intersection and one that boasts a large customer base within a three-mile radius, Schmitt said.
Schmitt said the area near Dawley Farm Village still doesn’t have that many residential rooftops in every direction. Nor does southwest Sioux Falls, near 69th and Louise. That’s the reason for slower retail growth.
But for some retailers, it works, Schmitt said. Consider smaller, locally owned businesses such as Lewis Drug, Krav’n, McNally’s and Tinner’s, which all draw from a smaller area.
The surrounding neighborhood is a good fit for Lewis Drug at 69th and Louise, said Mark Griffin, president and CEO.
“We like to have families grow up with Lewis,” he said. “There’s a lot of young families – two-income families that work during the day – so evenings and nights are strong,” he said.
In retail, it’s important to plan a long way out on location commitments, Griffin said.
He said Lewis owned land at 69th and Louise for more than seven years and had a sign up for about three years before opening Sioux Falls’ newest Lewis store in November 2010.
“You have to have rooftops around your store. People think that it’s just traffic volume on the streets, but that’s not the best measure,” he said. “Everything has to cooperate, whether it’s growth of neighborhoods, roads and traffic, and economy nationally and locally. All the pieces of the puzzle have to come together. It’s a risk every time because it’s a large investment and you want it to be successful as quickly as possible.”
The addition of national retail chains can be an especially long, sometimes slow, process, Schmitt said.
Streets, water and sewer service and homes typically come to new neighborhoods before retailers get interested in the area.
But Green, the consultant, said once the first store comes, more follow.
“Once Applebee’s goes in, Chili’s will look at it,” Green said.
One problem, Green said, is that many retailers have a perception that all small markets – including Sioux Falls – are created equal. But he said that’s not the case. When comparing Sioux Falls, Sioux City and Rapid City, Sioux Falls has higher income, more white-collar employment and a higher level of sophistication, he said.
Then, after learning they were drawing customers multiple times a week from the city’s east side, they started looking there. They chose Dawley Farm Village for its supporting businesses, including Kohl’s, Target, Century East and Subway.
“If you can get a space like this surrounded by other existing business, it helps traffic flow,” Bob Goossen said. “This (spot) doesn’t require them to make it a destination, they can stop after shopping, seeing movies. We think the baseball fields will be a big draw this summer.”
After a few years of economic struggles and sluggishness, the retail scene in Sioux Falls is picking up.
Industry officials report more inquiries and activity, and say retailers are poised for growth and filling area vacancies.
Sam Assam, broker with Assam Commercial Real Estate, said he’s seeing more activity on the city’s east side. Kohl’s, Target and Wal-Mart make for strong anchors, Assam said. The possible addition of a Sam’s Club could help, too.
“Those large anchors are traffic generators,” he said. “Then smaller retailers are able to capitalize on the increased traffic, too.”
Assam has about 8,000-square-feet of retail space remaining at Arrowhead Ridge Mall. It has 21,000-square-feet in total and houses HuHot Mongolian Grill, Check into Cash and Verizon Wireless. He recently leased a space to Pro Nails 2, which is expected to open in March.
“Just the general economic conditions have been terrible,” he said. “I could have filled my space up a long time ago. But it’s definitely a renter’s market, and I can’t blame them. What do we all want? A deal, right?”
Assam said he’s doing mostly five-year leases at a minimum, and he’s had to turn down low offers.
“I didn’t want to be stuck with all these multi-year options at reduced rate, so I turned the deals down,” he said. “It just depends on getting a number of the right mix of tenants, and good, strong tenants.”
The newest strip mall at Dawley Farm is fully leased, with Subway expected to open this month. The remaining tenants – Supercuts, Cellular Only, an Avera Medical Clinic and Sioux Falls Quilters Headquarters – are expected to open in March.
Raquel Blount of Lloyd Cos. is working to start pre-leasing another multi-tenant retail facility at Dawley Farm. She said Sioux Falls’ selling points are low operating costs and high sales volume.
‘We’re definitely seeing increased activity in the retail market,” she said. “I think Sioux Falls has proven to be a good market for retail. We didn’t see a lot of closings, the only stores we lost were due to national bankruptcies.”
Don Dunham, CEO of The Dunham Company, said he doesn’t have many vacancies. The Dakotah Town Centre on east 10th Street has about 5,000-square-feet of vacant space. His new retail center near Plaza 41 is full, with RCC Western Store, Subway and Fugi Sushi &Hibachi, an upscale Japanese restaurant.
“I think the demand is coming back,” Dunham said. “It was just for awhile, when you lost a tenant, there were no tenants out there to replace them with.”
He has about 10,000-square-feet available on South Louise Avenue, in a strip center he built before the 2007-2009 recession that’s never been occupied. He said he’s working with two or three smaller retailers to fill those spaces.
“There are several people out there snooping around right now,” he said. “I would really be disappointed if we don’t have all of those things on Louise filled right now, this year. With the action we’ve got going right now I would think it would be filled. I just think it’s confidence, it’s money available, it’s the people having the confidence that if they start a business, they’re going to be successful.”