March 27, 2017 in Latest News
Sears cast doubt this week that it could stay open, and that followed recent announcements by other struggling retail stalwarts Macy’s, J.C. Penney Co. and Kmart that they would be closing stores across the country in response to the fallout from a consumer shift to online shopping.
Electronics and appliances retailer hhgregg said this month it would be closing all 11 stores in South Florida; the announcement came less than a year after Sports Authority went out of business.
The retailers are vacating spaces of 25,000 to more than 100,000 square feet, forcing shopping center owners to find new tenants or new uses for the buildings.
More yawning spaces could be opening up around South Florida if Sears and Kmart sink amid heavy financial losses. According to their websites, Sears operates 15 locations (14 department stores and an outlet store) in Palm Beach, Broward and Miami-Dade counties. Kmart has seven stores in all three counties.
“This certainly is at the top of [landlords’] minds right now,” said Robert Granda, director of retail investment sales for the Franklin Street brokerage across South Florida. “The challenge in this changing environment is that there are not that many retailers looking to take so much space. There are a lot more tenants looking for 10,000 square feet or less than there are looking for 30,000 square feet or more.”
Alan Esquenazi, a partner at commercial real estate company CREC, agreed that a “resizing” of retail is happening across the nation.
“Bricks-and-mortar retail is unequivocally not dead,” he said. “But you have to be really sharp, really competitive. You have to offer the customer an experience, like Apple does. The retailers that are closing offered nothing different, and they were destined to fail.”
Granda, Esquenazi and other retail observers say one of the best options for landlords is to subdivide the big box buildings into smaller spaces for two or three new tenants.
That’s the plan at former Sports Authority stores in Pompano Beach and Boynton Beach, though the new tenants have not yet been announced, said Katy Welsh, senior vice president of retail services at Colliers International.
The Related Cos. of New York, which owns CityPlace in West Palm Beach, has not announced plans for the two-story, 108,000-square-foot Macy’s that’s due to close this spring. But analysts say filling that space with multiple tenants is a strong possibility.
“My guess is that CityPlace will subdivide that space downstairs, and there likely will be a food and entertainment use upstairs,” said Alan Bush, CEO of Northlake Partners, a retail strategy company based in West Palm Beach. “That combination provides the best return on investment for the landlord.”
Welsh said retailers most likely interested in taking at least part of the space in former big box stores include discount clothing chains Ross, TJ Maxx and Marshall’s as well as Home Goods and Orchard Supply Hardware.
Another possibility is the grocery store chain group, including Trader Joe’s and Lucky’s Market, Welsh said. Lidl, a German grocer, is headed to Florida after expanding into the Carolinas, Virginia and Texas, she said.
Movie theaters are another possibility, but they wouldn’t be an ideal fit in smaller, older centers, analysts say.
Landlords are eager to find new tenants at a higher cost per square foot to replace the retailer-friendly leases signed by Kmart and other chains many years ago, according to Welsh.
As a consumer, she said it’s hard for her to accept that Sears and other former retailing powerhouses are struggling to survive. But as a retail observer, she’s intrigued by what’s ahead.
“From a landlord’s perspective,” she said, “we’ve been waiting for the other shoe to drop for a long time.”