Area Economy

Is West Michigan in danger of retail ice age?

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Mighty mastodons once dominated the North American landscape. Yet today, their remains, such as the 13,000-year-old beast discovered last fall in a Michigan field, are found only in museums. Some may see the extinction of this noble beast, which fell victim to changing conditions during the Ice Age, as a possible precursor to the fate of brick-and-mortar retail stores. Indeed, the national press has been forecasting an impending “retail ice age” caused by the rise of internet commerce and leading to the demise of brick-and-mortar retail behemoths. Throughout the country, once-household names and mainstays of many communities, like Sears (265 stores closed this year), JCPenney (138 stores) and Macy’s (100 stores), continue to announce mass layoffs and store closures.

Yet despite the national trend, retail conditions in Michigan appear to be stable, at least for now.

Still, the deleterious impacts of internet sales and e-commerce on local economies have spawned worry that brick-and-mortar retail properties across the country will lose tenants and be unable to find replacements, leaving stranded structures on the terrain, like carcasses on a frozen tundra.

Is West Michigan in danger of entering a retail deep freeze? It depends on how one measures retail activity. The share of retail as part of total employment for West Michigan is well below the shares for both the state and the nation. But while the retail index over the past five years appears to be volatile, the 12-month moving average finds that sales for retail are slightly up over the past year. So, even though consumers are buying online in droves from Amazon and other retail vendors, brick-and-mortar stores continue to be strong in the region. Jack Kleinhenz, chief economist for the National Retail Federation, reports 90 percent of retail sales nationally during the 2016 holiday season were from brick-and-mortar stores.

Furthermore, according to CoStar, which provides data and analytics on the commercial real estate market, retail markets have added about 4 million square feet since 2008 and now are at 144.3 million square feet. For the same period, vacancy rates have been cut in half, from 7.6 percent to 3.7 percent. However, the quoted rate for a square foot of retail space has declined from $10.29 in 2008 to $9.91 now, reflecting some downward pressure on prices.

One commonly watched market is that of malls. According to CoStar, West Michigan contains 15 properties considered to be malls. That number has been relatively constant since 2008, as has the total square footage at just over 10 million square feet. Vacancies in those malls have dropped from about 4.5 percent to just under 3.0 percent, and rents are up for mall space.

So are we in a retail ice age in West Michigan — i.e., an era in which conditions change so radically that traditional retail is threatened with, if not extinction, then at least decimation? Probably not, according to the meteorology of retail. The share of employment from retail is down, it is true. But available space is stable, vacancies are declining and sales are slightly up, according to the retail index.

Most important, demand appears to be strong: In a study of retail market demand done for the city of Kalamazoo by the Gibbs Planning Group, the consultant notes there is plenty of additional capacity for retail in West Michigan, as both Grand Rapids and Kalamazoo made the list of the 20 most underserved retail markets in the United States. Therefore, it would seem the mastodon brick-and-mortar stores are not yet succumbing to the onslaught of internet purchasing and will live to lumber into the future.

The W. E. Upjohn Institute for Employment Research, based in Kalamazoo, is an American independent research organization that finds and promotes solutions to employment-related problems.

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