Retail Shakeout Looming Discount Chains, Department Stores, Regional Malls Battle For Slice Of Nearly Saturated Retail Market

Spokane’s retail market has attracted leading retailers in every discount category in recent years, but experts predict some won’t survive.

The discounting growth spurt, nationally and in Spokane, has created a new retail environment with low-cost stores controlling a larger portion of the shopping jungle.

“The customer is not stupid,” said Tom Seay, executive vice president of real estate and construction for Wal-Mart Stores Inc. If a consumer can buy a box of Tide for $5.99 instead of $8.99, he said, they will. “Now, that’s not rocket science.”

But the math gets more complicated when everyone is selling Tide for $5.99. That’s why Seay and other retail experts expect a Darwinian shakeout over the next several years.

Last year, said Seay, was the largest declaration of bankruptcy by discounters in recent history. Those companies, he said, haven’t figured out, as Wal-Mart has, how to pay less for overhead costs. “The ones in trouble have high expense structures. I guarantee, they will not survive,” Seay said, predicting a maximum of three discounters in each category will exist in the long run.

Seay made his remarks last week during the International Council of Shopping Center’s spring convention in Las Vegas. Seay, along with the vice presidents of Sears, J.C. Penney and Federated Department Stores, made predictions about the future of department stores and discount stores.

Sears, Penney’s, and The Bon Marche, a division of Federated, all have a significant presence in the Spokane-Coeur d’Alene market. Wal-Mart has submitted a site plan for a location in the Valley and has discussed possible North Side locations with Spokane County officials.

Many of the plans outlined by the retailers - such as department stores’ entrance into specialty store markets, increased spending on renovations, and selection of sites with room for store expansion - already are happening in Spokane.

Spokane has also begun to see an increased influx of so-called “category killers,” and more are coming.

For example, PetSmart, a discount pet supply store, is being built at Sprague and Evergreen in the Spokane Valley. Home Depot, the nation’s leading discount hardware store, also is planning its first Spokane site in the Valley, adding another major player to a highly competitive niche.

In 1989, Home Depot’s share of the national market was 2.5 percent. That number leapt to 11.6 in 1995 and is predicted to increase to 22.1 percent by 1999. If that growth pace continues, some competitors are likely to be trampled.

With big general merchandise discounters, such as Wal-Mart, Seay said, the competition already has been narrowed to “three major players,” referring to Wal-Mart, Target and Kmart. He said Kmart, despite its financial difficulties of the past year, still has too many locations to be ignored.

Wal-Mart’s strength is impossible to dispute. The retailer projects 195 new stores will be built this year, with 25 million square feet built during the next five years.

Wal-Mart is projecting $96 billion in sales this year. The majority of its new projects will be supercenters, where customers can shop for groceries and purchase every other product or service they need.

“We think the consumer is looking for one-stop shopping,” Seay said. “They want to stop in at a bank, go to the cleaners, and pick up a video.” All of that, he said, can be done at Wal-Mart.

Wal-Mart is growing so fast, it’s reaching a saturation point in the United States. Of its 195 new stores being built this year, between 80 and 90 are stores in cities or towns where Wal-Mart has not been.

The retailer also is beginning to divert capital toward global expansion. This year, Wal-Mart has $2.4 billion targeted for domestic expansion, Seay said, and $800 million targeted internationally. Those numbers will reverse over time, he said.

The incredible growth of discounters has slowed the growth of regional malls and department stores. As Michael Lowenkron, vice president and director of real estate for J.C. Penney, explained, at 200,000 square feet, “Wal-Mart is a mall.”

Still, he said, regional malls will be built, probably at a rate of about six to eight per year, and department stores will grow, but in a different direction.

One way department stores will expand revenues is by spinning off specialty stores.

That’s already happening in Spokane, with the planned arrival of The Bon Marche’s home store at NorthTown Mall. Though it’s not clear when construction will begin, Seattle-based Sabey Corp. displayed plans here last week that showed the retailer’s new specialty store on the northwest corner of the mall.

In addition, of the 350 stores Sears plans to build this year, the vast majority will be specialty stores, said Barry Kaufman, vice president of real estate. Spokane customers shopping at Sears - the newest store will open at the new Spokane Valley Mall in the fall of 1997 - may also see an increased amount of apparel in the department store.

lKaufman said one of Sears goals is to increase apparel merchandise to 40 percent of total volume.

Two years ago, Lowenkron said, 90 percent of J.C. Penney’s sales came from regional malls. That number is even higher now, he said. J.C. Penney has closed many of its stores in the central business districts of small and midsize cities, including Spokane. Of the 40 new stores they plan to open this year, 25 are in metro regional markets. Like Sears, Penney’s plans to open a new Spokane store at the Spokane Valley Mall in the fall of 1997.

Retail chains that hope to survive have to meet consumers’ changing demands by renovating and expanding stores.

Increased amounts of money will be put into renovations and expansions at Sears, Penney’s and Federated department stores, the convention speakers said. In Spokane, when NorthTown Mall begins its proposed expansion, both Sears and Penney’s will be remodeled, said Laurent Poole, executive vice president of Sabey Corp., owner of NorthTown. The Bon Marche will expand into a new space twice its present size.

Wal-Mart has its eyes on expansion from the day it plans a new store. One of the key factors in site selection, said Seay, is whether it provides room to expand. At the site the retailer has targeted in the Valley, overlooking Interstate 90 at Sullivan, there’s nothing but wide open fields. However, the land is owned by more than one developer and it’s unclear how much land will be available to Wal-Mart.

“We want to be able to grow that building,” said Seay, when discussing Wal-Mart’s site selection. “Wal-Mart is a destination.”

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