Drive down any main shopping drag, and odds are you will encounter an increasingly common symbol of the historic retail downturn: the vacant big-box store.
Towns across the country are littered with thousands of these empty giants that not long ago signified the future of retail. These faceless hulks aren’t abandoned in forgotten outposts but are commonly in prime spots in busy strip malls and near thriving communities.
“The question is, who is going to replace the big-box player?” said Lois Huff, senior vice president at Retail Forward, a Columbus, Ohio, retail market research firm. “It’s very difficult. They may just sit empty for a while.”
The rising vacancy rate is changing the look of strip malls and power centers. Either the empty buildings become eyesores and hurt adjacent stores as traffic dwindles, or creative landlords bring in unconventional tenants, such as a day-care center or artist colony, that change shopping patterns.
When Circuit City Stores Inc. went out of business this year, Mike Jaffe joined scores of landlords wringing their hands over how to fill such a huge space.
With retailers adjusting to the dive in consumer spending, the chances of finding another national chain to replace the electronics store in South Barrington were slim. So when a gymnastics academy in nearby Elgin had nowhere to go after a heavy snowstorm damaged its building this winter, Jaffe quickly snatched them up. The Midwest Elite Gymnastics Academy moved in last month.
“This isn’t a time that big-box tenants are looking for new deals,” said Jaffe, managing member of the Arboretum of South Barrington, the outdoor mall that had counted Circuit City as an anchor. “Centers that will survive will need to think outside the box.”
The vacancy rate for stores between 50,000 and 100,000 square feet in the Chicago area rose to 11.9 percent in the first quarter compared with 8.1 percent for the same period in 2007, according to data provided to the Chicago Tribune by Marcus & Millichap Research Services and CoStar Group Inc.
That compares with a 7.3 percent vacancy rate nationwide in the first quarter for same-size stores.
More than 100 million square feet of retail space has flooded the country in the past year as retailers have gone bankrupt or shut unprofitable stores, said Greg Apter, president of Northbrook-based Hilco Real Estate. Imagine Woodfield mall empty, 50 times over.
Among the casualties: more than 700 stores from Circuit City, 589 from Linens ‘n Things, 287 from Goody’s, 240 from Steve & Barry’s, 175 from Mervyn’s, 64 from Shoe Pavillion and 37 from Wickes Furniture.
And it isn’t over, experts say. More big-box stores are expected to become vacant due to bankruptcies.
When retailers file for bankruptcy, courts typically cancel their lease obligations. The longer the building sits empty, the longer the landlord has no cash flow to cover the loan. Before long, the lender has to decide whether to foreclose. The trouble is, banks aren’t set up to operate retail properties, Apter said.
“It’s hard to know the next step,” said Apter, whose firm handles thousands of leases for distressed retailers. “You have to figure out if another tenant in that space can satisfy the loan, and how do you do that when there is extraordinary competition and tons of available space?”
Most big-box chains are focusing on squeezing out more profit rather than spending precious cash on expanding. J.C. Penney and Sears, once eager to set up shop beyond the mall, have lost their enthusiasm for that strategy.
Some retailers are eager to buy prime retail space at a discount. Los Angeles-based Forever 21 bought about a dozen Mervyn’s stores, and Big Lots is taking advantage of the downturn to move into East and West Coast locations that had been out of its price range.
Local independent chains also are buying a few vacant stores.
Binny’s Beverage Depot recently purchased an empty Circuit City store in Downers Grove, where the Chicago-based retailer will open a wine and spirits emporium. And Angelo Caputo’s Fresh Markets plans to move out of its original store in Elmwood Park into a nearby vacant Circuit City later this year.
Analysts predict vulture real estate funds will raise money and scoop up empty stores for pennies on the dollar as soon as next year. What will become of them after that is an unanswered question.
Julia Christensen, author of “Big Box Reuse” and an Oberlin College professor, tracked what became of Wal-Mart and Kmart stores that were shuttered before the recession and discovered a wide range of creative reuses: a county courthouse, an indoor raceway, a charter school, a museum, a library, a chapel and a senior center.
“Hopefully, towns can become more empowered and realize they don’t have to accept the homogenous corporate structure over and over again,” said Christensen. “As more and more of them are left behind, it means a massive change for our landscape and civic structure.”
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smjones@tribune.com
