After a Retail Anchor Closes
In today's economy, some big-box retailers are closing individual stores or going under entirely. But the loss of a major retailer does not have to spell doom for the smaller shops that share its shopping center space, says Deb Purcell, director of client services at Pitney Bowes Business Insight (PBI). If they employ smart strategies, retailers left behind after an anchor goes dark can continue in business and even thrive, she says. Purcell spoke recently to Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation follow.
How do small businesses react when they hear an anchor store in their shopping center is going to close?
There's a sense of panic that sets in when this happens. Whether they act on it or not is another story. We want to provide a level-headed approach to dealing with this situation. Knowledge is power, so the key thing is to try to understand what this is going to mean for you as a small operation. It could be devastating, or it could have a relatively minor impact.
You advocate a level-headed approach to the situation. Where should a small business facing this situation start?
They need to get some information—if they don't already have it—about what market the large retail anchor was pulling in from a geographic and demographic standpoint. Who did the store bring in, and how far were they driving from? They also want to learn how the traffic drawn by the anchor was benefiting them and other smaller operators. For instance, say there's a shopping center that has a Circuit City store on one end and a supermarket on the other end. It could be that the customer going to the Circuit City that's now closing was rarely, if ever, dropping by the dry cleaners or the florist or the nail salon, while the supermarket shopper was regularly making stops at the smaller stores in the center. As long as the supermarket stays in place, smaller retailers probably won't see a big drop-off in customers.
How do you discern this?
The landlord may be compiling that information about the large anchor tenant to use in advertising the vacant space. If it's not available, smaller retailers can conduct informal surveys at their cash registers. When your customers come in, ask them which other stores in the center they visited that day. Really good store managers probably have an idea about this already, but they may not have quantifiable information. So, take a full week—weekdays and weekend—to jot down the responses of your customers. Ask if they honestly would have come to your store if they weren't visiting another tenant. If half of your customers say they wouldn't come to your store if they hadn't already been making a trip to Circuit City, you'll need to brace for impact. If the majority say they came to your store specifically or they shop at other small tenants in the center regularly, you may not see as large an impact as you're fearing.
How should the small business owner react if it looks like the impact of a nearby closure will be difficult?
They need to recognize that the large tenant was acting as a marketing influence for them as far as advertising the location and bringing people in. A good counter is to increase marketing efforts and keep the location top of mind. If you're a unique retailer, make sure your marketing features your one-of-a-kind merchandise or points out that your store is the only place in town to purchase a service or designer label. If you don't have specific products or services that no one else is selling locally, you'll have to provide incentives, perhaps partnering with the landlord and/or the other small tenants, to make it worthwhile for customers to drive that extra distance even if the anchor is no longer there. Bundled services and cooperative advertising do help. For instance, the small businesses might put out joint coupon books or have a deal where customers who show a receipt from the pizza parlor get a discount at the hair salon or the coffee shop.
It's hard not to be depressed by the sight of a dead spot in the middle of a shopping center and worry about blight. How do you mitigate that reaction?
We associate blight with retail vacancies because the reason for the closure is often the declining population and demographics around the center. But this time around, it's different. The storefronts that are going empty are often in centers that are in otherwise vibrant communities. So depressing connotations and fears of blight may not be as well-founded now as they would have been in the past. But the small tenants should work together with the landlord on maintenance, lighting, keeping their own spaces as clean and bright as possible, and perhaps using the empty storefront as a place to advertise for the remaining tenants. Good landlords should be cooperative because they want to lease the space quickly.
When does an entrepreneur have to bite the bullet and relocate?
If they're in a center that was already suffering a decline, hadn't kept pace with changing demographics, or had been outpositioned by a newer center nearby. The good news for ancillary tenants in those kinds of centers is that a lot of commercial rents are depressed right now. If their lease comes up any time soon, they might move and benefit from getting into another commercial center where the demographics fit their target market better in the long run.