The subprime mortgage crisis has come to roost for retailers relying on new stores for growth. The slowdown in home sales has slowed migrations to places like Florida, which for years was a sizzling market for new homes and the retailers who followed them there or anticipated their arrival.
“The Baby Boomers, which really are all coming of age right now, can't get down to Florida or anyplace else because they can't sell their [current] house,” Herbert Zarkin, chief executive officer of BJ's Wholesale Club, remarked in a conference call last year. “And that has a big impact on Florida, there is no doubt about it. There has been a lot of guys that were building clubs, ourselves included, in anticipation of the continuing arrival of all this population.”
Slowdowns like that in Florida — the state's population growth dipped below 2% for the first time in a decade in 2007 and is expected to slide again in 2008, according to state estimates — are pressuring retailers to get more out of their existing stores, sources said. Opportunities for new locations still exist, but developers and retailers, which a few years ago were anxious to build, today are moving cautiously.
“We believe there are several gaps in the market where there are opportunities for growth, but everybody's hit hard by the housing market, and delays are substantial,” Dan O'Berski, retail specialist for CB Richard Ellis, Naples, Fla., told SN. “There's no speculation now. When we were doing centers in the past, retailers could see a growth pattern and calculate it into their returns. Now the growth is where the population is today. So if it works today they can consider the opportunity.”
O'Berski, who represents Winn-Dixie in a four-county region on the Gulf Coast, said he expects to find a few new locations for the Jacksonville, Fla.-based retailer this year, and a few more in 2009. He also said there is ample opportunity for discounters in Florida today. But he expects activity will be relatively light for the time being.
“A lot of retailers have to look at how their operation is being run and how they're servicing their clients. They have to figure out how to regain the confidence of their clients and grow sales, increase baskets and get our numbers up that way.”
Elsewhere in the country, opportunities to expand are still out there. According to recent U.S. census figures, Pinal County, Ariz., and Kendall County, Ill., both exceeded 10% population growth between July 1, 2006, and July 1, 2007, making them the fastest-growing counties in the U.S., excluding areas affected by Hurricane Katrina. According to sources in those areas, retail still has a ways to go to catch up to population growth.
Cermak Fresh Market landed in Aurora, Ill., for reasons not unlike the thousands of families wandering west from Chicago in recent years.
“The city has gotten so expensive to live in, and people are finding they can get more for their money out here,” said Mike Bousis, owner of Cermak, a specialty grocery store that opened last summer in this booming city, the second-largest in Illinois.
Bousis, whose company operates seven Cermak Produce stores in and around the city of Chicago, is no exception: Moving to Aurora, about 38 miles west of Chicago, landed Cermak in a 91,000-square-foot location where merchandisers could showcase their produce and meat expertise while also providing shoppers with a full selection of groceries. Bousis told SN he is enjoying the opportunity to stretch out the possibilities of his store a little while meeting the needs of shoppers — many of whom are also newly arrived here.
“This town is growing, and it's going in the right direction,” Bousis said. “As long as you have a good base and can weather the storms, and you can stay competitive with the competition, you can do all right here.”
Aurora straddles four counties on Chicago's western outskirts, including Kendall County, which according to the U.S. Census was the fastest-growing county in the U.S. between 2000 and 2007, with population growth of 77.5%. As of July 2007, Kendall had about 97,000 residents and was the only U.S. county not in the Southern or Western states to rank among the 10 fastest-growing in the last year.
Food retail growth opportunities in this area, sources said, reflect nationwide trends toward healthy eating, multiculturalism and sharply focused niches — trends that have also played themselves out in recent years in places like Phoenix and Florida's Gulf Coast, which share the top ratings on lists of the fastest-growing communities in the nation with Chicago suburbs. And while the housing slowdown is expected to have a parachute effect on new store growth, sources in these communities say the slowdown is relative.
“We are seeing the same thing as much of the nation is in terms of a housing slowdown, but we still did 400 new residential units last year,” Jim Testin, community development director of the Village of Plainfield, Ill., told SN. “For us, a slowdown means we're still as strong as some other community's best years.”
Plainfield, located in Will County, was recently named to a list of the seven most notable places in 2007 by the Gadberry Group, a data service provider for retailers. Gadberry, Little Rock, Ark., made its determination based on factors including changes in household growth, ethnic composition and the presence of “emerging blocks,” which Gadberry defined as blocks growing from fewer than 10 to more than 100 households between 2000 and 2007.
“We've been going through such a strong growth rate, we're still seeing commercial users looking at us for growth. They are still looking at the current growth — but they're following the current growth we've had in recent years,” Testin said.
Plainfield, Testin added, is benefiting from proximity to communities like Joliet, Bolingbrook and Naperville, which have emerged in recent years as models of upscale suburban growth and successfully promoted themselves as such.
“Naperville is typically identified as one of the best-quality places to raise a family,” Testin said.
Plainfield recently has approved more than 1 million square feet in new commercial space, with supercenters Target, Meijer and Wal-Mart leading the way. “The question now is, ‘Will it get built?’” he said.
But competition between communities for retailers is active as well, he said.
In the Kendall County town of Montgomery, five new major retail centers are under development, according to Amy Furfori, executive director of Montgomery's Economic Development Corp. The area's growth has allowed newcomers like discounter Aldi and a Wal-Mart Supercenter to open shop, while sparking established players like Jewel and Dominick's to strategically relocate some stores.
“The Chicago market has a really nice solidness to it, and so when the boom in residential hit the nation, it was higher in our area,” Furfori explained. “We were right on the edge of what people thought were the original suburbs of Chicago. It was considered more of a farming community than anything.
“But we've been seeing new residential neighborhoods by the thousands since 2000, and what you're seeing now is retail following that.”
According to Furfori, residents of Montgomery today are demanding upscale offerings and natural/organic grocers. Results of a recent survey reconfirmed the need to fill that niche or else “leak” sales to neighboring communities, she added.
In Aurora, newly arriving food retailers should be prepared to service a multiethnic and multicultural population base, said Manny Maysonet, assistant director of Aurora's Economic Development Corp. Aurora is around 40% Hispanic today.
“My advice for retailers coming to a growing market like ours is first, to key in on the long-term plans of city leadership so you understand where the growth is going, and then, to make an honest assessment of your ability to serve the multiethnic customer,” Maysonet told SN. “It's largely an untapped market throughout the country and we're seeing it first-hand here, not just as an opportunity for grocery but for all business.”
Among the new arrivals to tap into the Hispanic market is Supermercado El Guero, a family-run retailer which, like Cermak, found larger spaces and more affordable rents in Aurora than in its Chicago base. Both retailers are reusing space as well: While Cermak occupies a former Kmart, El Guero is currently redeveloping a former Eagle Food Center.
“Growth of the ethnic grocers here has really been eye-opening,” Maysonet said.
“Jewel and Dominick's here are still performing well, but you can see a change in their ethnic aisles as well, and some of that I think is because they're seeing what's happening at places like El Guero and Cermak.”
Once sparsely populated, Pinal County, Ariz., grew by 11.5% between 2006 and 2007, making it the fastest-growing county by percentage growth in the U.S. excluding hurricane-affected areas, census figures show. Today, some in the area are still awaiting an echo from retailers.
“Even though our area showed great residential growth, we did not get the retail growth in recent years because marketers thought, ‘Oh, they're close [to the metro Mesa-Phoenix area]. They can drive,’” Reyna Palmer, chief executive of the Apache Junction (Ariz.) Chamber of Commerce and a member of the Northern Pinal Economic Partnership, told SN in an interview. “But we're getting their attention now.”
Though just five miles outside of Mesa, Apache Junction, a community of about 40,000 year-round residents (seasonal visitors take population counts to around 75,000 at peak times, Palmer said) also serves as a hub for an estimated 10,000 people in small desert communities and mining camps in outlying areas, Palmer said.
“I see a desperate need for another grocer, either in Apache Junction or just to the east where there's entire markets served only by one grocer,” Palmer said. The town is embarking upon a study to determine its level of retail sales leakage, she added.
To a degree, the relatively slow arrival of new grocers to Pinal County communities benefit existing players like Safeway, Bashas' and Fry's. But those operators are also busy with new store plans, sources said. Upscale grocers and natural/organic players have done most of their battles in metro Phoenix.
“As the economic wheel turns, residential spurs the retail and service sector, and the wheel has gone full circle to that,” Palmer said. “We expect retail to be developing hugely even with the downturn in housing.”
On the other end of Pinal County, around 50 miles to the southwest, the newly incorporated city of Maricopa has grown to around 35,000 residents, and is just getting started. According to Danielle Casey of Maricopa's Economic Development Office, the housing slowdown may delay growth in Maricopa, but retailers overlook its potential at their own risk.
“A lot of folks who communicate with us regularly are just watching our population numbers. And when they see we've gotten to the right point, they can go with us. It's about watching the market,” Casey said. “It's not a question of whether we're going to hit the growth, it's more a question of how long it's going to take us to get to those break-point figures.”
Casey called Maricopa “an oasis in the desert,” separated from the Phoenix metro area by Indian reservations but as a result, a faster commute than many of the city's closer neighbors. And like Chicago's western suburbs, Maricopa is promoting itself as an ideal family community.
That's drawing young families and the retailers who are after them: Kroger's Fry's Marketplace superstore in Maricopa, sources said, is among the most productive in that chain. Tesco's Fresh & Easy has its eyes on Maricopa as well.
Wal-Mart is to anchor a 630,000-square-foot commercial property under construction in Maricopa, while Vestar Development has a 950,000-square-foot power center in its plans for a 2009 opening. Though tenants at that center have not been announced, a similar property developed by Vestar in Phoenix has Albertsons and Target anchors. A Vestar project currently going up in Goodyear, Ariz. — another of Gadberry Group's “seven notable places” — is to be anchored by a SuperTarget.
“We see a lot of 20- and 30-somethings who come to Maricopa because of the great community we have here,” Casey said. “They can work in Phoenix and have a life out here that comes with having a degree and a young family. This is a community where they can be safe.”
The 10 fastest-growing counties/parishes as measured by population percent growth from July 1, 2006, to July 1, 2007, along with the leading supermarket operators in that region by market share
|County/Parish||% Growth||Market Share Leaders|
|St. Bernard, La.||42.9%||Wal-Mart Supercenter (27.5%), Winn-Dixie (20.6%), A&P Save-A-Center/Rouses (19.9%)|
|Orleans, La.||13.8%||Wal-Mart Supercenter (27.5%), Winn-Dixie (20.6%), A&P Save-A-Center/Rouses (19.9%)|
|Pinal, Ariz.||11.5%||Fry's (27.3%), Bashas'/AJ's/Food City (14.0%), Wal-Mart Supercenter/Neighborhood Market (13.9%), Safeway (13.7%)|
|Kendall, Ill.||10.6%||Jewel (37.3%), Dominick's (12.7%), Strack & Van Til/Ultra/Key/Town & Country (5.5%), Costco (4.8%)|
|Rockwall, Texas||8.2%||Wal-Mart Supercenter/Neighborhood Market (23.1%), Kroger (14.4%), Albertsons LLC (12.0%), Tom Thumb (12.0%), Minyard/Carnival/Sack 'N Save (7.7%)|
|Flagler, Fla.*||7.2%||Publix (36.0%), Winn-Dixie (20.4%), Wal-Mart Supercenter (16.1%), Food Lion (9.6%)|
|Union, N.C.||7.2%||Harris Teeter (26.3%), Food Lion/Bloom/Bottom Dollar (24.5%), Bi-Lo (14.4%), Wal-Mart Supercenter (13.4%)|
|Forsyth, Ga.||7.2%||Publix (29.3%), Kroger (26.1%), Wal-Mart Supercenter 16.6%), Ingles Market (5.6%)|
|Paulding, Ga.||6.7%||Publix (29.3%), Kroger (26.1%), Wal-Mart Supercenter 6.6%), Ingles Market (5.6%)|
|Jackson, Ga.**||6.7%||Kroger (23.1%), Wal-Mart Supercenter (22.9%), Publix (15.6%), Sam's Club (11.3%)|
|Notes: Market share figures based on metropolitan area market statistics as published in the 2007 Metro Market Studies Grocery Distribution Analysis & Guide. St. Bernard and Orleans, La., and Forsyth and Paulding, Ga., are in the same metropolitan area. |
* Jacksonville, Fla., metropolitan area
** Athens, Ga., metropolitan area
Source: U.S. Census Bureau/Metro Market Studies