Store Closings Likely to Spike 7 Percent Increase Predicted This Year By Industry Group

Wednesday, August 06, 2008 9:55 AM

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By Joyzelle Davis

At the Linens 'n Things store at Belmar, bright yellow and red signs blanketing the windows proclaim "Store Closing Sale, "Everything 40 to 70 percent off" and "Store Fixtures for Sale."

The scene is an increasingly familiar sight at shopping centers around the country, as a parade of retailers declare bankruptcy or shutter underperforming stores. The International Council of Shopping Centers last month projected that store closures will spike 7 percent this year to 144,000, the largest increase since the industry group started keeping track 14 years ago.

In Denver, the impact has been somewhat milder than elsewhere in the country, helped by the region's surging population and relatively strong job market. Still, Front Range shopping center owners are acutely aware of dramatic cooling in the retail environment.

"We're certainly seeing the velocity of leasing and new tenants to the market slowing down," said David Goldberg, principal of Alberta Development.

Alberta built Southlands in Aurora and is opening the Streets at SouthGlenn in Centennial and Cornerstar later this year.

Linen 'n Things joins other retailers that have sought bankruptcy protection in recent months, including Sharper Image, Bombay Company and teen retailer Steve & Barry's. A slew of other companies including Ann Taylor, Zales and Starbucks are closing stores.

Consumers have grown cautious under pressure from the housing downturn and higher costs for food and fuel, said Sam Chandan, chief economist at real estate research firm REIS in New York.

Steve & Barry's has stores in Westminster and Littleton's Southwest Plaza, where it moved into the bottom half of the former Dillard's store last year. Steve & Barry's hasn't yet said whether it plans to close any locations, although it did scrap previously announced plans to build a store at Colorado Mills.

Vacancies for shopping centers can be particularly troublesome because "each retailer depends on the presence of other retailers in the mall to generate traffic and create a shopping experience," Chandan said.

Smaller retailers often can negotiate lower lease rates when an anchor store space remains vacant.

Store closings aren't bad news for every mall. At Cherry Creek Shopping Center, action-sports retailer Adrenalina is building its first store in Colorado in the former space of Chevy's and Sam Goody. The 15,000-square-foot store will feature a FlowRider wave machine, which lets customers test surfing equipment on a simulated wave.

As soon as Sharper Image signaled that it would be closing all its stores, the mall had "immediate interest" from retailers who wanted that space at Cherry Creek, said Nick LeMasters, the center's general manager. The mall isn't ready to announce the tenant yet, he said.

Alberta's Cornerstar should be around 90 percent leased when it opens in October, Goldberg said, thanks in part to its location in a high-traffic neighborhood in southeast Denver.

That echoes the experience of mall owners nationwide, with centers in densely populated areas or near public transportation centers faring the best, while big-box retailers and grocery- anchored strip centers near newly built subdivisions have been hardest hit. Vacancy rates at Denver-area strip malls climbed to 9.2 percent as of June 30, up from 7.9 percent just six months ago, according to REIS. That's ahead of the nationwide 8.2 percent vacancy rate.

Cherry Creek and the northwest metro market are classic examples of markets that have remained tight, with vacancy rates of 5 percent and 7 percent respectively, according to CoStar Group and real estate firm the Laramie Co.

"Denver as a whole is still in demand because we have these fundamentals that continue to grow," said Mary Beth Jenkins, president the Laramie Co., citing projected population gains. Most of the retail real estate vacancies "are more of an East Coast-West Coast issue."

INFOBOX

Stores struggle

Retailers feel the effect of consumer belt-tightening

* Recent high-profile bankruptcies

Steve & Barry's

Linens 'n Things

Sharper Image

Bombay Co.

Lilian Vernon

Mervyn's

* Companies closing under- performing stores

Gap