Retail Woes? A look into the 2018 tri-county economy

AMANDA MORRISON / NNY BUSINESS
The Gander Mountain in Watertown was slated to remain open after another company acquired it, but remains closed.

BY:MARC HELLER

Greg Gardner, professor of business administration at SUNY Potsdam, was going over reports on the retail industry when two statistics jumped out at him: Jefferson, Lewis and St. Lawrence counties lost about 8 percent of their retail businesses between 2005 and 2015 – but retail employment grew by almost double that rate.

                To Gardner, those numbers mean the region lost small, mom-and-pop stores, and big-box retailers made gains – not a shocking trend, given the growth of Fort Drum and big retail chains’ ability to invest in technology on a large scale. But the statistics foreshadow a growing challenge as big retailers, now, suffer as well: the north country is more reliant on them than ever and will have to find a way to ride out big changes in the way customers shop.

                “Local mom-and-pop stores will only face harder times as they are unable to make serious investments in technology,” Gardner said, adding that customers can be drawn by “superb and interesting service” that they can’t find online. “The ones that will survive are those that can turn shopping into an experience.”

                Northern New York has seen a spate of closures among national chains, from the Bon-Ton Stores Inc. location in Massena to J.B. Robinson Jewelers and Gander Mountain at the Salmon Run Mall in Watertown, as well as Kmart across Route 3 from the mall. Other big stores, such as Sears, have held on but their future remains cloudy on a national level.

                “We could lose some very heavy hitters here,” said Cheryl A. Mayforth, director of the Jefferson County Department of Employment & Training at the WorkPlace.

                Shopping woes translate into broader economic trouble because retail and service is the number-two industry for employment in Jefferson County, behind Fort Drum and other government-related jobs, Mayforth said. Sluggish hiring in retail, which normally swells in preparation for Christmas, helped increase the county’s unemployment rate to 6.8 percent in November, second-highest in New York, she said – and that came on top of the typical loss of seasonal jobs the region sees in late fall.

                The trouble isn’t limited to Northern New York. Fung Global Retail & Technology, an industry analysis and research firm, reported that 6,985 store closures were announced nationwide in 2017, an increase of 229 percent from 2016. The biggest losses include 1,470 Radio Shack locations, 700 Payless Shoes locations and 358 Sears and Kmart stores.

                Payless, in bankruptcy, said it would close its location at the St. Lawrence Centre Mall in Massena, and its store at the Salmon Run Mall in Watertown was included on a list of stores that could be closed as part of the negotiations.

Business boosters say smaller stores and downtowns may be able to cash in on big retailers’ troubles by luring customers to shops that offer goods or services the big chains don’t provide. But Gardner said he remains cautious, convinced that small, independent stores will continue to have trouble keeping up with the industry’s increased reliance on online sales, even as big-box retailers shrink in number.

                “I am not a retail expert and I hate to be gloomy, but this situation does not look promising for most of our local retailers, including many big chains,” Gardner said. “I don’t think anyone really knows what will happen over the next few years, but every major retail chain seems to be going through all kinds of strategic gyrations trying to find that happy spot in the market.”

                At the St. Lawrence Centre Mall in Massena, general manager Erica Leonard isn’t giving up on retail – but she doesn’t put much hope in bigger department stores, following the announcement that Bon-Ton Stores Inc. will close there at the end of January. The Bon-Ton departure follows the closure of other anchor stores at the 543,000-square-foot mall, including Sears in 2015. One original anchor in the mall, J.C. Penney, remains – but Penney closed 138 stores nationwide in 2017, according to Fung Global Retail & Technology, and reported $242 million in losses in the first half of 2017.

                “Big-box retail is going out of style, unfortunately,” said Leonard, who figures retailing in the north country will rise or fall on locally owned businesses. “It’s not going to be run on corporate America. It’s the small, locally owned business that’s going to keep us going.”

                Leonard pins her hopes on businesses such as North Country Showcase, which sells locally made crafts and food. The store has grown to 100 vendors, from 33 when it opened last year.

                “They’re a huge success,” she said.

                Leonard said other promising types of mall shopping include experiences such as laser tag or paintball, and offerings of a wider variety of food. Movie theaters, long a feature of malls, promise hope too, she said, although movies also face their challenges; the industry reported the fewest movie-goers in a generation in 2017, as Netflix and similar services cut into the business.

                One of the early hopes in Massena, of drawing customers from Canada to the mall to support the big stores, now seems farfetched, Gardner said. “It would take a serious decline in the U.S. dollar to make that effective, and even then, most retailers won’t be able to justify opening a new store where profits depend on currency fluctuations.”

                Downtowns across the north country have been losing business to big stores in the malls for years, but big-box retailers’ woes might offer downtown stores a glimmer of hope, said Kylie Peck, president and chief executive officer of the Greater Watertown North Country Chamber of Commerce. Affordable, locally owned clothing stores, for instance, could have potential, as can restaurants, she said. The city is using a $10 million revitalization grant to explore ways to attract customers downtown, and Peck said officials want to see more locally owned retailers.

                “We really like to see local dollars made and spent here locally,” Peck said.

                The global consulting firm PwC said in an annual retail report that although online shopping – especially through Amazon.com – continues to cut into brick-and-mortar retailing, consumers still like to touch, feel and try on items before buying them. That gives traditional stores a potential edge if they can make the shopping experience more interesting or attuned with consumer taste, the firm said.

                An “inviting, appealing in-store environment” and suitable store location make store visits more attractive, and retailers can consider special events such as musical performances or book readings to draw customers, the firm said. In addition, stores that also offer goods online should offer Web-based orders for items that aren’t in the store, PwC said.

                Businesses trying to compete with big online sellers such as Amazon should focus also on customer service, PwC said. And smaller chains with a handful of locations should offer private labels and other goods that can’t be found in other places, protecting against being undersold, the firm said.

                Customer service is addressed through hiring and training. Although the north country’s unemployment rate is high compared to the rest of New York, seasonal numbers tend to skew the results, and the region actually has a labor shortage, Mayforth said.

                Nationally, the picture for retailing isn’t dark — it’s just changing, said Ana Smith, a spokeswoman for the National Retail Federation. Retailers who’ve been hurting could see help from more friendly national policies and were heartened by a tax code overhaul that will lower  tax rates while preserving some deductions, she said.

                Another group, National Federation of Independent Business, said the tax law will spur small businesses to invest more in their operations, hire more workers and pay them more. Technology is key, too, business groups say; PwC’s report made 10 recommendations for retailers in the next year, eight of which were focused on technology.

                Whether lower taxes have any effect on broader trends in retail remains to be seen. The “Amazon effect” is well known across retailing for taking business away from brick-and-mortar stores. More than a third of respondents to a global survey by PwC said they check prices for items on Amazon, even if they don’t buy them on the site. But some big-box retailers such as The Home Depot and Target have taken a lesson from Amazon, shipping items directly from their stores to take advantage of lower transportation costs, the NRF said. The Home Depot has stores in Watertown and Massena, and Target has one store in the north country, in Watertown.

                Good roads, well-designed infrastructure and other solid businesses nearby are as important as ever in attracting and keeping stores. In Watertown, developer Patrick M. Donegan pushed the city for several years to build a connector road through the Stateway Plaza, saying he could attract a big-box retailer to an adjacent 18-acre site if the road were built — an arrangement that will be put to the test if the road is completed later this year as the city predicts. He’s had success in bringing Hilton Garden Inn, Holiday Inn Express, Ruby Tuesday and other businesses to the area off Arsenal Street, near Interstate 81, but the additional effort has been slow, and he said there isn’t much exciting going on for the moment in Watertown retail.

                Some retail analysts see a more positive picture for brick-and-mortar stores. Another retail analysis firm, IHL Group, said in August that retailers were opening about 4,000 more locations in 2017 than they were closing, and that for every chain with a net closing of stores, 2.7 companies showed a net increase in store locations for 2017.

                “The negative narrative that has been out there about the death of retail is patently false,” said Greg Buzek, president of IHL Group, in a news release. “The so-called ‘retail apocalypse’ makes for a great headline, but it’s simply not true.”

                Specialty clothing retailers are seeing the most closings, with a net loss, IHL said. But off-price retailers and dollar stores, convenience stores and grocery stores are expanding, the firm’s research showed. In total, chains are opening a net 14,239 stores and closing 10,123 stores, IHL Group said.

                In Northern New York, dollar stores appear to remain solid — for now — Gardner said.

“I think they are just running on some economic inertia, as even very low-income shoppers are turning increasingly to online shopping,” Gardner said. “And the online retailers will quickly figure out how to reach those markets even more efficiently.”

                At the St. Lawrence Centre, Leonard sees a half-empty mall and isn’t counting on any Bon-Ton type stores to come back soon.

                “Now we have to reinvent ourselves to be successful without big box retail,” Leonard said.