Owners of shopping centers challenged by e-commerce

The growth of Internet retailing up 15 percent to more than $161 billion nationwide in 2011 is stifling many of the companies that typically locate in mid-sized retail spaces, northern Nevada retail specialists say.

Mid-sized retailers, or junior-anchor tenants, usually occupy spaces ranging from roughly 20,000 to 60,000 square feet. Junior tenants often are located near larger anchor tenants, such as a Target, Lowe's or Walmart.

But junior retail businesses face increased competition from savvy consumers who are shopping online in growing numbers for better deals. National e-commerce spending in the fourth quarter of 2011 totaled nearly $50 billion, says comScore, a Reston, Va.-based company that tracks digital business statistics. The fourth-quarter spending represents a 14 percent rise from the same quarter a year earlier.

Stores that sold books, movies or music many of them junior-sized tenants have been decimated by the growth of e-commerce and digitalization. Gone are venerable companies such as Borders, Blockbuster and Hollywood Video.

Electronics is another industry heavily impacted by Internet retailing, and the sector has consolidated with the departure of Circuit City and The Good Guys to leave just Best Buy standing alone in northern Nevada.

It's not the first time the retail landscape has undergone seismic changes, says Kelly Bland, senior vice president with the retail properties group at NAI Alliance. Several decades ago, Bland says, mom-and-pop stores evolved into the larger formats and national formats seen today.

Contraction is a natural part of the retail industry, he says. Despite the dark retail storefronts plaguing shopping centers throughout the Truckee Meadows, there always will be a need for brick and mortar stores, Bland says.

"If (stores) can provide good service, maintenance and give a complete package, they have an opportunity to compete. But it is making people look at the priorities of customer's needs and wants," he says.

Overall retail vacancy in the Reno-Sparks market was nearly 16 percent at the end of 2011, says a recent market report compiled by the Colliers International retail team. Empty mid-size boxes many of which are expected to stay dark for several years include the two former Safeway locations in Reno and Carson City, the old Circuit City and Good Guys stores, Borders and DBShoes. In the Meadowwood submarket alone there is more than 300,000 square feet of mid-size box space available, says Rick Casazza, senior vice president with the retail properties group at Colliers International.

Vacancy rates could improve with the addition of some new brands in the region. A great deal of the mid-size retail space in primary and secondary markets throughout much of neighboring California has begun to fill, Casazza says.

Some of those concepts eventually may spill over into northern Nevada (Fresh & Easy Neighborhood Market has long planned a store at Pyramid Highway and Eagle Canyon Road) but many retailers have a tough time seriously considering expanding into Nevada due to the state's protracted economic downturn.

"California, with the exception of the Central Valley, a good portion of its boxes are filling up," Casazza says. "We are seeing a lot of grocers Sprouts, Sunflower and Henry's Farmers Markets backfill some of that stuff, as well as Hobby Lobby. The question is: Are we over-retailed for our population? Is that why they aren't filling?"

Ken Mattison, senior vice president of retail division of Coldwell Banker Commercial Clay & Associations, says Legends at Sparks Marina and Summit Sierra added many new brands to the market, but most national retailers seek a bigger pond in which to swim.

"We are really a tertiary market," Mattison says. "The MSA we have here is 500,000 and under, and that is not really big on lot of national guys' radar."

Excluding malls and retail spaces under 10,000 square feet, there was 15.4 million square feet of retail space in the Reno-Sparks market at the end of 2011, with another 360,632 under construction, the Colliers market report says. Lowe's at Legends and Walmart in Lemmon Valley account for 77 percent of new construction.

Casazza says northern Nevada may see some smaller grocers come into town, as well as some of the junior-anchor spaces subdivided and leased to dollar store concepts such as Dollar Tree and Family Dollar.

"Eventually they will fill with some existing concepts or with concepts that aren't in the market, but it will take a while," Casazza says.

Mattison of Coldwell Banker Commercial Clay & Associations estimates that there are at least 20 mid-size spaces available throughout the Truckee Meadows, and getting the lights back on in those locations could take several years.

"A book is a book, and the print industry has been hit pretty hard by e-commerce," he says. "Books don't change from one location to next, and price wars are very telling of sales.

"But nothing can replace trying on something to see how it looks on you. People always will want to try on clothing, or look at sporting goods; some of those things are not going to change. There will be lot of products that will continue to hold their own in the brick-and-mortar approach."