Big-box stores, the elephants of the suburban retail savanna, face growing threats to their survival.
The evolution of technology, combined with society’s growing comfort with buying online, are taking their toll. It’s a national trend that is most notable in so-called “category-killer” segments like consumer electronics, and it’s playing out in the Las Vegas Valley.
As it does, Southern Nevada’s commercial real estate brokers are watching closely and adjusting their sales tactics.
“The big boxes that handle merchandise that is readily sold online, those are the ones that are in trouble,” said Jeff Waddoups, an economics professor at UNLV.
In addition, as products become smaller, many stores simply don’t need as much floor space. Vinyl record albums, for example, are three to four times larger than a compact disc. And today, most consumers don’t buy those, getting their music instead from online sources, which are loaded on devices many times smaller than the sound systems sold 10, 20 and 30 years ago.
“I think the real problem with the big-box store is that if you’re going to get no service, you may as well buy it online,” said Stephen Brown, director of UNLV’s Center for Business and Economic Development.
Consumers have found that the delivery of goods in online transactions is getting better, and because dominant online merchants like Zappos.com and its parent company, Amazon.com, have fulfillment centers in Nevada, purchases arrive quickly, sometimes with shipment on the day of the order.
Some see the potential for local economic development in the trend. The fact that Nevada has a fiber-optic infrastructure, great transportation and shipping options, low tax rates and a business-friendly attitude lends some hope that warehouses and fulfillment centers like Amazon’s facility in Fernley could find homes in the big-box sites that commercial real estate brokers are trying to market.
The consumer electronics sector is where most of the big-box downsizing is occurring, and Southern Nevada has seen the impact.
Circuit City is gone. So are Borders and Ultimate Electronics.
Last week, Best Buy announced that it would close 50 big-box stores and open 100 of what it’s calling Best Buy Mobile stores by 2016. The company hasn’t disclosed whether any of the closures or new stores would be in Nevada.
Some say the big-box concept isn’t suffering in all categories, noting retail giants Wal-Mart, Target and Costco continue to open large stores — but Wal-Mart and Target also are opening smaller operations, primarily to compete with grocery stores.
In Southern Nevada, WinCo Foods, a supermarket that could be considered a big-box like outlet for groceries, opened two stores last month.
“The effect on the commercial market is that I think we’ll see more interest in small spaces and less on big spaces,” Brown said. “And we may see more interest in warehousing. We’re in a good place to ship into California without actually being in California.”
Las Vegas’ location on Interstate 15 and Reno’s position on Interstate 80 are ideal for shipping centers. Both cities also are on primary freight rail lines, and McCarran International Airport is unsurpassed as a cargo hub, with flights to more than 100 cities daily.
As the big-box trends play out, commercial real estate professionals in Southern Nevada are watching closely and adjusting their marketing efforts accordingly.
David Grant, senior vice president of the retail division of Colliers International in Las Vegas, is among those who are skeptical that the big-box era might be ending. “Unfortunately, in a down economy and a down real estate market, vacancies are going to occur,” Grant said.
He cited the arrival of WinCo as an example of how not every category is being affected by an apparent big-box downturn. The trick, he said, is finding new customers to fill the spaces left behind by former tenants.
Grant agreed, however, that technology is changing the landscape. He cited the Hollywood Video and Blockbuster chains, which had several outlets in Southern Nevada. Today, Hollywood is gone and Blockbuster has a fraction of the stores it once had. Why? Because consumers who rent videos go to a more convenient place to rent them — like Red Box vending machines — or they take delivery of their movies through the mail or with online downloads.
“The Red Box model is so simple,” Grant said. “You can rent a video at a McDonald’s in the morning as you’re going out of town, play it on a portable player on a plane and then drop if off at a Red Box machine in Chicago. That’s great. But it really hurt Hollywood and Blockbuster brick-and-mortar stores.”
Penny Mandlovic, a senior associate with CBRE, said the shifting trends force commercial real estate brokers to be more creative in their sales tactics.
Planet Fitness, Dollar General and Harbor Freight Tools now occupy a commercial center once anchored by a Vons store at Sahara Avenue and Nellis Boulevard.
“When Vons was the anchor, we never could have located a fitness center there,” she said. “We have to keep up on those restrictions as some of the big-box tenants look to mid-size and junior boxes.”
Mandlovic added that when the Great Recession hit, it scrambled plans. Brokers now have to be nimble to work out deals with compatible tenants.
“It’s like eHarmony, we have to match companies, and that’s hard to do when things change so rapidly,” she said. “We were working with a center at Fort Apache and Tropicana that was supposed to be anchored by a Smith’s (supermarket). Then, it was going to be a Raley’s and then it was going to be a furniture store. Eventually, Hobby Lobby located there and it’s been great for them, but we had to work to create potential where there might not have been any before.”
Trend shifts in big-box stores and the growth of online retail are pushing an old issue to the front burner: If Internet transactions continue to grow while terrestrial sales shrink, legislators are going to be asked to step in. Federal lawmakers have already drafted House and Senate versions of legislation addressing how — or if — online transactions should be assessed sales taxes.
Bryan Wachter, director of public and government affairs for the Retail Association of Nevada, said there are growing disputes about the sales tax issue, with online retailers saying they should be exempt and brick-and-mortar-only outlets arguing that they should be taxed at the rate of the buyer’s home. That likely would play against Nevada, which has a higher sales tax rate than most states.
Some online retail outlets have said they would relocate their warehouse and distribution centers if states were to impose a sales tax on their transactions.
Wachter said his association advocates that all companies operate on a level playing field and that online transactions shouldn’t warrant an exemption. But he said it’s too early to say whether the association would submit any proposals for the Nevada Legislature to consider in its 2013 session if federal lawmakers fail to act.
But the fact that online sales seem to be trending up as the number of big-box stores decline suggests that the issue will be something lawmakers will have to contend with soon.