Urban Decay

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The days when a department store flagship was the centerpiece of virtually every downtown in America have long since passed. And while there has been a slight resurgence in center city retailing over the past decade pre-Covid, the fact is that many major cities — from Detroit to Atlanta and Houston to Denver — don’t have a single major department store in their downtown retail districts.

Even with this general decline, the recent exodus of several major large retailers from urban areas is something else entirely, equal parts alarming and sadly disturbing. The planned exit of Nordstrom from San Francisco and Walmart from Chicago, among others, has raised the question of whether America’s big cities can still support general merchandise retailing.

The combination of inner-city crime, a homelessness problem that seems incapable of being solved added to the failure of workers to return to their downtown offices has created a perfect storm of retail real estate reduction that looks like it will get worse before it gets better…if it ever does. And if the flagship stores are still open, customers enter under the watchful eyes of armed security decked out in bulletproof vests: think Nordstrom in Seattle. Not exactly the optimistic customer experience we all look forward to.

Not the San Francisco Giants

The recent exodus in major cities like San Francisco, Chicago, and New York has certainly gotten everybody’s attention. These rexits (retail exits) need to be put into the broader context of the overall closings of all kinds of stores in all kinds of areas over the past decade or two. For one, Morgan Stanley has reported that from 1995 to 2021 more stores closed every year than opened. Ecommerce gets most of the blame (some would say credit) but that’s a philosophical debate best left for another time. No one will dispute that America has had too many overstuffed stores and too many similar overstuffed stores for a long time.

In terms of cities including San Francisco, Los Angeles, San Diego, New York, Seattle, Miami, and Chicago, a JPMorgan Chase Institute report says there has been an overall reduction in the number of retailing businesses. But what’s going on more recently is a new wrinkle. In San Francisco, Nordstrom said it was closing both its traditional department store at the upscale San Francisco Centre on Market Street as well as its nearby Rack off-price store. Further down on Market Street, where things get decidedly sketchier, Whole Foods closed a store that had been open for barely a year and was once described with great flourish as a solution for the area’s grocery desert conditions. Both national retailers blamed crime, shoplifting, the area’s homeless population, and reduced traffic due to more work-from-home conditions.

Two years earlier, during the height of the pandemic when in-person retailing was suffering everywhere, Walgreens closed five of its stores in the Golden Gate City, specifically blaming crime as the catalyst for the move. And just this month, Coco Republic, an Australian-based home furnishings store that expanded into the U.S. with its acquisition of HD Buttercup, said it was closing its San Francisco store and had begun a going-out-of-business sale. Their store in the Union Square downtown retail district had been open less than a year. “The safety and wellbeing of our customers and employees are our highest priorities,” Coco said in announcing the closing.

Chicago, Not Their Kind of Town

More than 2,000 miles – and considerably more culturally some would say – Chicago is facing a similar situation. In April, Walmart said it would close four of its eight locations in Chicago, all of which are grocery models under the Neighborhood Market format. The giant retailer, ever cautious when it comes to its public image these days, would only say it was due to financial reasons and admitted that none of its eight Chicago stores were profitable, which no doubt couldn’t sit well with either shareholders or Walton family members.

Earlier in the year, three Gap brands – its namesake as well as Old Navy and Banana Republic – closed their downtown stores which had been anchors in the Loop and on the Magnificent Mile. Five years ago, before recent conditions reshaped urban retailing, Crate & Barrel closed its Michigan Avenue flagship in hindsight was more the result of landlord greed than socioeconomic shifts.

The same for Bloomingdale’s Home Store in the Windy City. This was a magnificent store in a richly restored historic mosque building just off Michigan Avenue that closed in 2020…and has remained unoccupied ever since. Maybe those landlords should reconsider their rent rates. Likewise, when Macy’s shut down its Water Tower Place store in 2021 (it was once a bold Marshall Field initiative to serve customers who didn’t want to go to its landmark flagship barely a mile away in the Loop), because it was no longer financially viable.

And there’s more. Abercrombie & Fitch closed its own Water Tower Place location in 2020, although it did replace it with a smaller store in the Lakeview neighborhood of Chicago, a decidedly more residential area. Walking the downtown Chicago retail strip can be shocking for those who haven’t seen it in a few years, given all the empty spaces.

If You Can Make It Here…

And then, there’s the Big Apple. Granted the flagships are still with us, but the long tail of the smaller specialty stores tells a sad story. Block after block is still dark with vacant storefronts. To put it into perspective, New York City has something like 25 Empire State Building’s-worth of empty space. The loss of daytime working crowds that needed to sustain successful neighborhood retail models has changed the retail landscape, along with the disaster facing the businesses that supported them stuck with excess real estate inventory. As a counterpoint, there is granddaddy Macy’s operating as New York’s self-described tourism agent with its biannual holiday celebrations supporting its host city’s diverse, inclusive community. One flagship is still revered, profitability notwithstanding.

Future Shock…in the Present

All this retail retrenchment in America’s big cities appears to be partially pent-up demand to finally get out of expensive, undesirable leases and locations, propelled by the Covid aftershock. Just as many big cities have seen renters and condo owners head for the suburbs – not to mention exurbs and second and third-tier cities like Nashville, Austin, and Phoenix – retail departures are part of a bigger picture with migratory pattern one piece of the puzzle.

The fact is that crime has always been part of the downtown urban experience, as has the unsheltered. What’s changed is that while in the past these social dysfunctions were disguised – or at least more hidden – they now represent a significantly higher percentage of the city streetscape. People (your customers) notice them more and they are uncomfortable. The homeless bunking on the sidewalks a block from Nordstrom’s home base flagship in Seattle is troubling.

What is a retailer to do? No matter how many shelters are built for the homeless and how many more cops are added to city police departments, the key for retailers to survive downtown rests almost entirely outside their control with a return to the office for America’s workforce to keep these urban areas relevant. There are wildly different estimates in how many people still work from home, but it’s safe to say it’s at least 25% of the office population and significantly more than pre-pandemic.

The urban landscape is going to change. Corporate office buildings transformed into residential centers? How about empty retail stores turned into those same residential centers … or schools, wellness complexes – you name it.

All kinds of experts have all kinds of potential solutions but what they all have in common is that they will take some time to kick in. “It’s a really tough problem for cities and economic developers,” JPMorgan Chase Institute president Chris Wheat told CNN. ‘How do you make these live, work, and play neighborhoods? That was a question before the pandemic, but it’s become more salient now.”

If you look up the word “salient” in the retail dictionary these days, you might just see a picture of an empty storefront. This can’t be Armageddon. It’s going to take a comprehensive and cooperative partnership of city and private sector coalitions to work together to master plan the future of our urban centers. So, all you retail C-level leaders: Do you ignore the problems? Or do you work with urban planners to revitalize and transform our city centers? You have the real estate to start kick start that collaboration.

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