Retail Sales Climb as Stores Close

In 1995, America discovered Fayetteville.

For the next three years, national retail chains opened stores in the city at an unprecedented rate.

Suddenly, the growth appeared to stop in early 1999 when two of the nation’s largest department store chains closed their Fayetteville stores. And the Northwest Arkansas Mall, which completed a major renovation project in 1998, still had 24,000 SF of vacant space to lease.

The closing of Service Merchandise and Montgomery Ward, which opened in Fayetteville’s Evelyn Hills Shopping Center in 1963, made some observers wonder if Fayetteville was “over-retailed.”

Had too many national chains followed the The Gap and Victoria’s Secret into Fayetteville based on demographics that suggested the two-county area of Northwest Arkansas (Washington and Benton counties) might be referred to as a “metropolitan area?”

But statistics indicate retail sales are continuing to climb at a healthy rate in Fayetteville, and more national retailers are eyeing the area.

According to the Arkansas Department of Finance and Administration, which keeps track of collections of Fayetteville’s 1 percent sales tax, retail sales have grown steadily in the city since 1995 (see related graphic).

Retail sales in Fayetteville jumped 8.2 percent to $1.08 billion in 1998. For each of the first three months of 1999 (the most recent months for which statistics are available from the state), sales continued to increase over the comparable months of 1998, although the growth had slowed somewhat by March.

Sales for March totaled $89.6 million, up 1.5 percent from $88.3 million in March 1998. By comparison, January sales were up 7.1 percent to $85.2 million; and February sales were up 10.5 percent to $87.5 million.

Healthy economy

Thomas Jensen, chairman of the marketing department at the University of Arkansas, says the closures reflect problems with those particular companies, not with the Northwest Arkansas retail environment.

Montgomery Ward & Co., based in Chicago, filed for bankruptcy in 1997 and plans to complete its reorganization effort in August. The company says it has closed more than 100 “under-performing” stores (leaving it with 252 in 32 states), introduced a new store prototype and upgraded its merchandise.

Service Merchandise is also scaling back. The company announced in February that it would close as many as 134 stores, which would leave it with 213 in operation. Service Merchandise plans to refine its niche in fine jewelry, gifts and home products, says CEO Bettina M. Whyte.

The closings are part of an out-of-court restructuring plan. Service Merchandise failed to make a $13.5 million interest payment on its bonds in December. A month later, Citibank bailed the company out with $750 million.

In both cases, the two companies are closing some of their less-profitable stores, and each company just happened to have a not-so-profitable store in Fayetteville.

“I think we’re seeing some changes in the players,” says Jensen, who also holds the UA’s Wal-Mart Lectureship in Retailing. “Montgomery Ward has had some problems in the past. For them to close some stores is not surprising. I was surprised by Service Merchandise, but they were closing stores nationwide.”

Jensen says the area is “doing quite well” as far as retail sales go.

“We have a pretty good shopping pull, equal roughly to that of Wichita, Kan.,” he says of Washington and Benton counties combined.

The 96,137-SF Montgomery Ward, which had served Fayetteville for the past 36 years, weathered many changes but had become one of the the company’s “under-performing stores” during the area’s retail onslaught of the late 1990s. The store closed on May 1.

Service Merchandise opened its Fayetteville store in October 1995. In 1998, a 200,000-SF Wal-Mart Supercenter opened across Joyce Boulevard from the Service Merchandise store, and other stores have opened recently in the busy area surrounding the Northwest Arkansas Mall.

Service Merchandise’s location near the Supercenter may have contributed to its closing. On similar products, Wal-Mart’s prices tend to be lower than those of Service Merchandise, but Service Merchandise offers a wider variety of upscale products.

Northwest Arkansas Mall

With its three-year renovation project, which was completed in early 1998, the Northwest Arkansas Mall has grown from 600,000 SF to about 822,000 SF. The mall is anchored by three department stores, which have had stores at the mall since the 1970s: Dillard’s (which has two stores there), J.C. Penney and Sears Roebuck & Co.

The renovation added a new 160,000-SF J.C. Penney, a new two-level Dillard’s women’s store, a new food court and an additional 40,000 SF of mall stores. The renovation will be complete this summer after a 40,000-SF Sears expansion is finished.

The mall opened on March 2, 1972, but the Sears store actually opened in 1971 while the mall was still under construction. In 1972, the mall consisted only of the north-south section from Sears to what is now the women’s Dillard’s store.

Since the renovation, the mall has landed several national chain stores, some of which had eschewed the mall in the past because demographics didn’t indicate Northwest Arkansas could support their stores.

With prosperity, however, came national retailers such as The Gap, Eddie Bauer, Victoria’s Secret, Disney, Talbots, Gymboree and The Buckle. Across College Avenue from the mall, the new Northwest Village Shopping Center landed Barnes & Noble Booksellers and Pier 1 Imports.

Lisa Skiles, a spokeswoman for the mall, says a survey before the 1990s expansion indicated 40 percent of shoppers at the mall had left the area to shop in other cities during the two months prior to the survey. Since the renovation, that number has dropped to 30 percent.

“We knew through research we were losing customers to adjacent markets, with Tulsa being the major one,” Skiles says. “We knew to meet the needs of the area, we had to focus on our merchandising mix in addition to physical presentation. Since it opened in 1972, it had one renovation in 1987, so our property was over 25 years old.”

Skiles says commitments were renewed with the three department stores, and the mall administration set out to “remerchandise” the mall. Between 1995 and 1997, more than 70 percent of the mall’s leasable space was turned over as new stores moved in and many existing stores moved to larger spaces in the mall.

All the work apparently made the mall a more attractive piece of real estate.

In December 1998, a subsidiary of The Macerich Co. bought the mall for $94 million from its owner, Tri-State Joint Venture, a Maryland partnership comprised of an affiliate of Teachers Insurance and Annuity Association and an affiliate of the Rouse Co.

The anticipated first year net operating income is expected to be about $7.9 million.

Annual mall tenant sales, excluding the Malco cinema, averaged $269 per SF at the time of the sale, said Edward Coppola, executive vice president of Macerich.

The mall currently has an occupancy rate of 92 percent.

Coppola immediately upped the rent at the mall by 20 percent.

Skiles says the mall’s tenants have been bringing in 20 percent more in sales per SF since the renovation was completed. Alice Bishop, the mall manager, says sales average $300 per SF for the mall’s tenants (excluding the theater and department stores).

With the expansion, the northern end of the older wing of the mall has been left with four empty spaces. Abercrombie & Fitch, a casual clothing chain based in Reynoldsburg, Ohio, plans to open a 10,000-SF store in one of those spaces this fall, but the contract has yet to be signed. The addition of Abercrombie & Fitch, one of the nation’s leading clothing store chains, could revitalize the older section of the mall.

Bishop says she tried to bring in more upscale stores after the renovation.

“There was a certain kind of tenant we targeted and a certain kind of merchandise, but we didn’t have any commitments from them before the renovation was completed,” Bishop says.

“It’s not like we only want the nationals,” she says. “We want anybody who’s going to do well.”

With the renovation, some of the smaller shops were unable to pay the higher rent and left the building as a result. In addition to monthly rent, the mall gets a percentage of sales revenue from its tenants.

“What we’re focusing on right now is the merchandising mix,” Bishop says. “We have some stores here who’ll probably go away when the leases turn over. They’re not doing very well. … Right now, we’re focusing on what we’re lacking in.”

Ozark Center Point Place

In early June, Mathias Properties of Springdale announced that it is renaming Ozark Factory Outlet Stores in Springdale as Ozark Center Point Place.

The change is supposed to reflect a change in merchandising that had already been taking place at the 300,000-SF shopping center.

“What we have here is a mixed-use center,” says Sam Mathias, who owns the property, seven other shopping centers in Springdale, and one each in Bentonville, Lowell and Fayetteville. Mathias’ 12th shopping center is currently under construction in Russellville.

“We thought we’d change the name to reflect what we’ve got,” he says.

Center Point Place currently has 34 retail stores and a restaurant.

With the renaming, Mathias announced that the center would be expanded from its original 21-acre site to 70 acres that will contain 352,500 SF of space when the first phase is completed. The entire project should be finished in about two years. In addition to the current shopping center, the expansion will provide lots for office buildings and a new, 10,000-SF restaurant near Sunset Avenue.

Two new buildings are planned for the center before the end of the year: a 22,500-SF building that will house office and retail space and another that will be 52,500 SF and will fill a gap making the existing L-shaped shopping center look more like a “J” from the air.

The first stores opened in the outlet mall in 1995. The center is located just to the west of the busiest intersection in Northwest Arkansas, the junction of U.S. Highways 71 and 412.