Downtown Spokane Retail Mix

Of Leakage, Retail Trade Areas, and Losing Downtown Department Stores

The City of Spokane is about to lose its second Costco. The first one closed in the year 2000. Not in the history of downtown development is it a good thing to lose an anchor like Macy’s — alas, downtown’s last true department store. Costco needs more space (as did the first one that abandoned the city in 2000), and Macy’s is downsizing its portfolio.

It hardly needs to be said but both closures are significant hits to Spokane’s retail environment, each for its own reasons. What does this all mean? How can Spokane better compete in the retail recruitment (and retention) game? Fortunately, the International Council of Shopping Centers (ICSC) has an answer to these questions.

ICSC is the development community’s industry group. Like urban planners have the American Planning Association, real estate developers and the retail tenants they seek have the International Council of Shopping Centers — in the end, two sides of the same coin. Indeed, both parties could learn a thing or two from each other.

The ICSC defines a hierarchy for retail destinations – from regular old strip malls all the way up to big-city downtowns. For perspective, let’s place metro Spokane into ICSC’s retail hierarchy.

Strip Center. This is your everyday garden variety strip mall. Drive down any Spokane street; it won’t take long to spot a strip center.

Neighborhood Center. The shopping center at 29th and Grand, with Super 1 Foods and Ross, is a neighborhood center. The primary trade area for neighborhood centers is about 3 miles.

Lifestyle Center. Urban planners tend to like lifestyle centers. The Riverstone development in Coeur d’Alene is a lifestyle center. Catering most to upper income shoppers, the trade area for lifestyle centers is 8 to 12 miles. It should also be noted that lifestyle centers, because of their mixed-uses and walkable design orientation, are trendy economic developments. Riverstone was a tax increment deal courtesy of the Lake City Development Corporation (Urban Renewal Authority). It’s not uncommon for lifestyle centers to receive public incentives. In fact, it could be argued that, unto itself, River Park Square is a lifestyle center.

Community Center. Shadle Park Shopping Center is a textbook community center. Community centers tend to have a grocery store anchor and discount retail anchor. In Shadle Park’s case, Walmart and Safeway fit the bill. The trade area for community centers is about 3 to 6 miles. Another good example is Lincoln Heights, which is mostly community center but one could make an argument that it’s also a (see below):

Power Center. The retail mix for power centers can pull from a larger trade area, about 5 to 10 miles. Power centers are dominated by abundant retail square footage, numerous anchors that sell a wide variety of products, and not all need be connected. Two good Spokane examples include the Walmart, Costco, Lowes, Home Depot complex on Sprague just west of Fancher. Another good example is Franklin Park Mall on north Division Street.

Regional Center. Metro Spokane has two regional centers: Northtown Mall and the Valley Mall. Is it any coincidence that both Spokane’s regional centers are malls? Probably not, says the ICSC: “A typical regional center is usually enclosed, with an inward orientation of the stores connected by a common walkway, and parking surrounds the outside perimeter.”[i]

Superregional Center. And now we get to the heart of it. Despite the loss of Macy’s, downtown Spokane is still the metro’s superregional center. These are defined by having a deeper level of merchandise and shopping choices, along with a larger trade area that supersedes most, if not all, other retail destinations in the market. The fact that downtown Spokane is still the region’s superregional center speaks well for metro.

Many cities throughout the country have consciously employed strategies to attract restaurants and retailers. Although the City of Spokane’s strategy has yet to truly crystalize, there is increasing acknowledgment that actively engaging the retail sector is a worthwhile economic development strategy.

Recruiting retailers does nothing but help the commerce of a municipal corporation. The challenge is doing it the right way and not just welcoming every Walmart that wants to move into the city. For instance, the now shuttered Costco on 3rd Avenue near downtown migrated to its present location in the Spokane Valley in the year 2000 and city leaders at the time hardly batted an eyelash.

What folly!

Where once the 3rd avenue Costco captured the migrating sales tax from Spokane Valley and other locations outside Spokane city limits, as well as the sales tax from within Spokane city limits (namely the South Hill), now the City of Spokane takes the double hit of losing the Valley’s sales tax dollar, as well the South Hill’s sales tax dollar. And a similar story holds when the north side Costco shutters for greener pastures outside city limits.

There’s a term for this in the industry; it’s called leakage. To add insult to injury, the area just outside Spokane city limits and just inside Spokane Valley city limits is now a big-box power center that captures the bulk of the South Hill’s retail desires.

Now we’ll touch on perhaps the most significant dilemma for advocates of new urban smart growth, such as myself, and the practical realities of trying to increase municipal revenue without increasing taxes. How do smart growth municipalities reconcile big boxes that will locate in the market regardless, on one side of the city boundary or the other? Either a city leaks all that sales tax revenue or a city captures all that sales tax revenue. Urban planners have yet to find a good answer to this question. We may advocate for kick-ass form based codes, but if there isn’t an outlet for a couple garden variety power centers within it, the neighboring municipality (or county) is going to reap the financial rewards.

In Spokane’s case, allowing the old 3rd Avenue Costco to migrate a couple miles down the road without even trying to entice them to stay was a huge blunder. Now a power center has developed just outside the city boundaries. It used to be that residents of the South Hill mostly shopped downtown; now they mostly shop at that power center. Sadly, now we get to relive the whole experience with the north side Costco. Mayor Condon, our city is losing money. Where are you on this one?

Here's where most of the South Hill shops.
What leakage looks like — the South Hill’s “power center” is in a different city.

At least in the case of Macy’s, all is not lost. Despite how terrible the Macy’s closure is on the surface, downtown’s retail mix still sits atop the metro, and chances are good that for the first two floors of the old Macy’s, a high-end retailer (or two) will fill the space.

Retail mix says a lot about a given market environment. Do you have a Nordstrom and an Apple Store or do you have a pawn shop and payday lender? Rest assured, Nordstrom and Apple Store are atop their retail hierarchy — at least as far as income attraction is concerned. In fact, I’d bet dollars to donuts that downtown’s Apple Store, on a per square foot basis, does more business per year than any other per square foot in the metro.

The table below is a side-by-side comparison of downtown’s retail mix to the metro’s other two regional centers – Northtown Mall and the Valley Mall – downtown’s closest competitors. Scanning the comparison, you’ll discover that there are very few similarities between downtown’s tenant mix and the other mixes; however, there are many similarities between Northtown and the Valley Mall’s tenant mixes. Some of this is due to the fact that they are under the same ownership – General Growth Properties (out of Chicago), who naturally have the same relationships with retailers regardless of where they locate. In Spokane’s case, why not put them in both locations?

You’ll quickly discover the synergy that accrues when you own the only two regional centers on opposite sides of the same metro, as the table below illustrates. Nonetheless, there are very few similarities between downtown’s tenant mix and our friends to the north and east. However, Northtown and the Valley Mall have the advantage of sheer volume. It’s much more difficult to grow a retail environment in an urban core than it is in suburban regional centers, which reveals an unsurprising gap in downtown’s retail market.

Comparing Metro Spokane’s Top Tier Retail Centers (January, 2016):

Comparing Spokane's Top Tier Retail Mix

By the looks of downtown’s retail mix, its primary market is the person looking to spend a few bucks. Smaller, boutique, top-tier national retailers have come to replace the larger department stores that once, not very long ago, dominated downtown Spokane. Not coincidentally, the last one standing – Nordstrom – is the highest tier retailer of all the old department stores that once called downtown home.

River Park Square is busting at the seams, so much so that the city just ceded a bit of right-of-way to accommodate the arrival of Urban Outfitters. Given the close proximity of the old Macy’s block to River Park Square, are we at all worried that one or two top-tier tenants won’t end up filling the first two floors of the old Macy’s structure (street level and skywalk level)? No need to show them a fancy market analysis; just show them the retail mix in River Park Square and where all the customers park, and they’ll see the profit making light right quick.

However, there is another worrisome factor (aside from Macy’s closing) regarding the health of downtown’s retail mix: the depth of retailers is limited to within River Park Square and directly across the street from it. That is to say, the retail magic has got to spread outward from River Park Square rather than be confined by it. If ever there is a gap in the market that screamed for public incentives, it is this.

Whether it’s ceding a bit of right-of-way for Urban Outfitters, incentivizing the revitalization of the old Macy’s block, converting into a two-way Main Street, investing about $64 million into Riverfront Park, or finally adopting the tools that enable the City of Spokane to provide incentives to fill obvious gaps in the market to proactively make the city a better place; if we don’t do these things, then turn off the lights. Party’s over. We’re just another hollowed out central city with all the stable households (and incomes) living and shopping in the suburbs.

We’re the central city. We’re the icon for the metro. We’re the reason there is a metro. As much as I love our municipal neighbors, we’re a better product than they are. However, if the big city product doesn’t get into the big city incentives game, then the big city will dwindle away.

Understanding the retail recruitment game is only one aspect of being a successful 21st-century city, and Spokane needs to improve toward both ends.

 

This blog is written by Mike Tedesco, officially a candidate for Mayor of Spokane, 2019. Check out his other totally awesome website at votetedesco.com.

 

[i] This quote and all retail center definitions are from: ICSC, NACO. “Developing Successful Retail in Secondary and Rural Markets.” 2007. ICSC Publishing.