Business

As retailers close stores and go bankrupt, Cedar Rapids and Iowa City have not been immune

'Creativity' needed to deal with big-box vacancies in the Corridor

A sign on the door alerts shoppers that a former Kmart store is closed for business in Iowa City on Tuesday, March 27, 2018. The store will be converted into smaller commercial spaces for lease to several tenants. (Rebecca F. Miller/The Gazette)
A sign on the door alerts shoppers that a former Kmart store is closed for business in Iowa City on Tuesday, March 27, 2018. The store will be converted into smaller commercial spaces for lease to several tenants. (Rebecca F. Miller/The Gazette)
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There are few indications left that the sprawling box of a building off Highway 6 East in Iowa City once was a part of one of the more well-known retail chains in the United States.

The “Big K” sign that welcomed shoppers to the Kmart is gone, with only a faint outline left on the facade. Two orange pieces of paper read “WE ARE CLOSED” in case potential customers missed the news about the last Kmart in the Corridor closing last September.

While the store might once have been bustling, it’s now empty. A recent walk through the interior shows the only Kmart-related logos are posted in a backroom “Kwash,” the chain’s attempt at a laundromat.

Shelves and countertops have been ripped from the floor. A back office file cabinet is empty except for folders labeled presumably for employees — Linda, Trevon, Ian HR, two Nancys.

A printed-out email left behind — subject line “Closing Store Info — Kmart #4315” — gives the store manager instructions from corporate.

This former Kmart, a 97,000-square-foot “big box,” is just one of the casualties from the downfall of once-prominent retailers in the United States. As companies such as Sears, Toys “R” Us, Gander Mountain, and Bon-Ton Stores have declared bankruptcy or shuttered locations, Cedar Rapids and Iowa City have not been immune.

Closures have left a number of so-called big-box and junior-box stores empty in the Corridor.

“Junior-anchor, big-box retail, that’s struggling in this town. That’s not a secret. You look at the vacant retail around here, it tends to be a lot of big-box guys,” said Craig Byers, a commercial Realtor with Pivot Real Estate in Hiawatha.

Among others, locations that are vacant or could be soon include:

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In addition, Geico plans to vacate its current office in Coralville and move to North Liberty. The Coralville office will be marketed as potential office and retail space, said Josh Seamens, retail specialist with GibbsLambDrown.

Vacancies at big-box locations, local developers and retail center managers said, mean they’ll need to find new or creative uses for the spaces, such as dividing them up or moving them away from retail altogether.

“In many cases, you’re seeing landlords splitting up big-box retail locations into multiple locations because it is harder and harder to fill those real large, big-box spaces,” said Deanna Trumbull, director of leasing for Iowa River Landing in Coralville.

From that perspective, the Iowa City Kmart is representative of current real estate shifts. Southgate Cos., the Iowa City-based company that has owned the building since the 1960s, already has a contract to sell the box to a different developer, said Joe Hughes, director of real estate operations.

The new owner likely will subdivide the space into three smaller sections for three different tenants.

“You’ve got a shell here and you’re really coming in and completely remodeling the building inside and out,” Hughes said.

A ‘QUICKER SHOPPING EXPERIENCE’

The national “retail apocalypse,” as some have called it, has a number of causes.

For starters, many consumers don’t want to spend hours shopping in person anymore.

“Back in the day when big-box became the way of retail, people were wanting to go to one place and get all their shopping done in one stop. Now we’re seeing customers have less time, so they want a little bit quicker shopping experience,” Trumbull said.

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Consumers increasingly are drawn to e-commerce sites, such as Amazon.com, pushing shopping away from physical stores to online avenues.

“Amazon is eating everyone’s lunch and then delivering your lunch to you because they literally do everything,” Byers said.

Changing customer preferences have meant retailers don’t need to stock as much inventory, don’t need as much space and may no longer need connections to a larger, interior mall, industry watchers said. Stores that don’t change fall away.

“If you look at what’s being added to even Lindale Mall, Westdale Mall, Coral Ridge Mall, those are all things that have an outdoor entrance because nobody just parks and wanders around a mall anymore,” said Greg Swartzendruber, project adviser at Primus Cos. in Cedar Rapids.

If consumers do want to go shopping, they want entertainment and dining options, so retail centers are trying to embrace a “live-work-play” mentality.

“Shoppers need flexibility with their time. They’re looking for a place where they can shop and dine and exercise and run errands and live and work all in one place,” said Monica Nadeau, general manager of Coral Ridge Mall.

Nadeau also said current shifts in the market are a “reset” after retailers overbuilt. She cited a statistic from the International Council of Shopping Centers that since 1970, the United States’ population has grown by 50 percent, but gross leasable retail space increased by 400 percent.

“We’re just over-retailed,” she said.

Altogether, those factors make traditional “big-box” stores less viable for today’s shoppers.

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‘CREATIVITY’ REQUIRED

The decline of big-box stores will mean developers need “creativity” when figuring out what to do with those vacant spaces, said Josh Seamans, retail specialist with GibbsLambDrown in Cedar Rapids.

“Subdividing spaces. Looking for alternative uses. And then just smaller stores, carving them into smaller uses, smaller retailers,” Seamans said. “Instead of 100,000-square-foot tenants, we’re seeing more 20,000- to 25,000-square-foot retailers, or smaller.”

Such transformations have occurred before in the Corridor.

Two Kmarts in Cedar Rapids, for example, were redeveloped. One turned into the space Fresh Market previously occupied on Collins Road NE. The other, on the city’s southwest side, is now the home for MidAmerican Aerospace, a company that buys and dismantles old aircraft and then sells the parts.

In Iowa City, Procter & Gamble now uses a former Menards store for production of its oral care products. Coralville’s Coral Ridge Mall has divided the former site of a Sears into space for six separate stores, four of which are occupied.

Nadeau said the mall hopes to announce the last two tenants in the next couple months.

While no other big-box tenants at Coral Ridge have said they are closing, Nadeau said the mall wants to be prepared if they do.

“That’s always what we’re looking at — if we would happen to get another box back, what would we do with it and what are some of the opportunities,” she said.

Westdale in Cedar Rapids faces a similar issue. Even while the shopping center is in the middle of $90 million redevelopment, a key tenant will close soon. Bon-Ton Stores, the parent company of Younkers, plans to shutter the 100,000-square-foot store later this year.

Lisa Rowe, vice president of retail for Frew Development Group and Westdale’s general manager, said Frew is in discussions with multiple possible replacements for the Younkers space.

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“It is always better to fill the space with a tenant of the same size rather than split the space up to accommodate multiple tenants, however there are not many tenants out there at this time that are leasing spaces of that size, so developers have had more success lately by splitting the spaces up,” Rowe said in an email.

NEW RETAIL BEING ADDED

Not only does the Corridor have several large vacancies, but that inventory is coming online at a time when developers are adding new retail space.

Ahmann Cos. is moving dirt on a new retail center at the intersection of Blairs Ferry Road NE and Edgewood Road NE in Cedar Rapids, to be called Peck’s Landing., on the site of the former Peck’s Green Thumb Nursery. The front 10 acres of that site will have between 30,000 and 35,000 square feet of retail, said Byers, with Pivot Real Estate, a division of Ahmann.

At Westdale, about 415,000 square feet of retail space is built, with another 270,000 square feet expected, Rowe said.

When Coralville’s Iowa River Landing is finished, it will have 250,000 square feet of retail, Trumbull said. Only about 80,000 square feet of that is constructed, she said.

That doesn’t count multiple smaller projects around the Corridor, such as various mixed-use proposals planned for Cedar Rapids First Avenue.

Swartzendruber, with Primus Cos., described the situation as a “Catch-22.”

“Do we need to go out and create new spaces if we’ve got inventory on the books? But, again, if you want to attract a new client or somebody that’s new to this market, they’re likely going to want to go into a shiny new space,” he said.

‘AN ATTRACTIVE RETAIL MARKETPLACE’

Even with new retail and large vacancies coming around at the same time, Corridor-area developers largely said they are not worried about the area’s retail environment.

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“I probably wouldn’t go out and build a new shopping mall today, but I’m not overly concerned with the vacancy that we have in the market right now,” GLD’s Seamans said.

The Corridor’s population is growing, they said, and a lot of shoppers live in the eastern portion of the state. While demographics and spending patterns may make it difficult to recruit the same retailers as bigger cities, Cedar Rapids and Iowa City still are attracting stores, they said.

“Between Coralville, Iowa City, Cedar Rapids, the entire Corridor, it’s an attractive retail marketplace,” Seamans said.

In addition, Byers and Seamans noted that much of the newly built retail space is not the same as older, big-box stores that are now vacant. The new space, they said, is going after retailers that want or can only use a few thousand square feet.

“I’m not too worried because the product that’s coming online is completely different than the product that’s becoming vacant,” Byers said.

l Comments: (319) 398-8366; matthew.patane@thegazette.com

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