Landlords get creative redeveloping large retail amid national sales slump
BISMARCK — Kasha Nels made a quick Kmart run Friday, Oct. 19, before picking her kids up from school. They're out of toilet paper.
Proximity has made the retailer a convenient stop for Nels when she needs a household item or two. But depending on pressure from lenders, that may not be the case much longer.
Unable to make a $134 million debt payment Monday, Kmart's parent company, Sears Holdings, filed for Chapter 11 bankruptcy. The filing follows round upon round of store closures in the past couple of years, which already swallowed up the Sears location across State Street.
Though Sears says it plans to stay in business with as many stores as possible following the bankruptcy proceedings, other companies with the same plans have failed. The list is long of large retail chains that have folded nationwide in the wake of online shopping trends.
Bismarck's Kmart continues to avoid the cutlist, for now. But with each locked door, the city takes a sales tax hit and the shells of former retail giants dot the community and other towns across the country.
"Retail, as you can see, is not doing very well right now; it's not doing very well at all," said Bismarck developer Bob Savageau.
He should know. Online sales have impacted his son's business, Savvy Skate & Snow Shop, where he often lends a hand.
"We can't compete with Amazon," Savageau said. "These kids, online, they can buy it almost as cheap as we can. ... It is really, really tough."
But Savageau also has experience rebuilding a fallen retail space. He's among the partners who took ownership of the former Home Depot property when it closed in 2008, along with 15 other locations lagging in sales.
"We were fortunate that we kind of had one of the tenants lined up," Savageau said.
The state's IT Department moved offices into the space. Later, the state Department of Human Services would take over the lease.
"We felt much more comfortable going and getting more stable tenants like the state and Sanford," Savageau said.
Last June, Sanford POWER athletic training facility, made its home in the other half of the space.
"It's actually the perfect set up," said Mike Salwei, Sanford POWER manager in Bismarck. The high ceilings work well for sports and the training facility needed more room than it had at its Lovett Avenue space.
Should the Kmart building go on the market, commercial Realtor Kyle Holwagner said he thinks a new tenant would take over quickly. Proximity to Interstate 94 works in its favor.
There's an Upper Midwest development group watching the property closely, Holwagner said. The company has already redeveloped five other Kmart locations back to retail, often something more specialized than a one-stop-shop department store.
"You're going to see more of this happening as e-commerce continues to play a role," Holwagner said of retail chain closures.
Retailers are having to redesign their business models. One model that might work better in Fargo, Holwagner said, are distribution centers with a small retail front. In Bismarck, he says, it's been more medical services coming in.
Planet Fitness moved into the former Hancock Fabrics store at Gateway Mall in north Bismarck this summer. Franchisee Dave Leon said, when announcing the opening, he looks for those types of struggling spaces in mall properties because they often have the parking he needs.
"With these large spaces, landlords are having to consider all types of options," said commercial Realtor Scott Ritter. "For every big box that has closed and filed bankruptcy, everyone is trying to find the next up-and-coming thing."