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kmart

The former Kmart store in Kingsburg was purchased through auction in February, and part of the space will become a State Foods supermarket. State Foods actually purchased the building.

published on October 26, 2018 - 7:00 AM
Written by David Castellon

After years of sitting vacant, the massive former Dan Gamel Camp America in north Fresno was given new life last month when the renovated 223,378-square-foot building opened as a Wal-Mart Supercenter.

But that grand opening is leaving behind a big vacancy, as the Wal-Mart across the street at the northeast corner of Shaw and Brawley avenues now sits vacant.

Though smaller – at 127,000 square feet –than the new locale, the building is a big, empty retail space that can be challenging even if big box stores were expanding.

But that’s not the case these days, as major retail chains have announced bankruptcies or dire financial straits that have forced them out of businesses or to close their least profitable stores to stay viable.

 

High-profile closures

In recent years, Sears and Kmart, which share the same parent company, have closed stores in Clovis, Hanford, Dinuba, Kingsburg and Tulare, among hundreds of others across the country. And some of those stores hadn’t yet shut down when it was announced less than two weeks ago that more stores – Kmarts in Visalia, Lemoore and Delano among them — were added to the list.

Months before that, Toys ‘R’ Us closed all of its stores, including those in Clovis, Fresno and Visalia, while Orchard Supply Hardware (OSH) currently is undergoing liquidation sales in preparation to close all of its hardware stores, some of which are in the Valley.

The latest big store chains downsizing are Fallas Discount Stores and Factory 2-U, which combined are closing 187 stores nationally, 10 of them in the South Valley, from Fresno – which alone is losing four stores – south to Bakersfield.

 

Dozens of spaces

An informal survey of economic development and city officials in Fresno, Tulare, Kings and Madera counties shows that at least 25 big box and not-quite-so-big box stores – like Fallas – are vacant or slated to be vacant in the coming months.

Certainly, the Valley has seen big stores close, from the demise of Woolworth’s in the late 1990s to the recent Great Recession claiming all Mervyn’s, Circuit City and Gottschalks stores.

But the current pace of big store closures may well outpace what has occurred before, as Lewis Smith, senior vice president for commercial real estate firm Retail California, noted, “I haven’t seen this many big box vacancies in 20 years.”

It’s not uncommon for big box-sized retail spaces or those slightly smaller to sit empty for up to a few years, though in some cases the waits have been longer. In Visalia, for example, the former Home Base – once a Home Depot-type hardware store – sat empty for a decade before a portion was renovated and opened in 2013 as a Burlington Coat Factory.

 

Snatched off the market

That’s not always been the case. For example, after the Kingsburg Kmart closed last year, it was quickly purchased in February at auction by the local State Foods Supermarket chain, which has announced plans to convert about a third of the 100,000-square-foot building into a market and lease out the rest of the space.

In just a matter of weeks, the Valley’s real estate market for big retail space has shifted, with new announcements of big store closings, and with so many such spaces available or set to become available, will it become a lot harder to sell or lease such spaces?

For his part, Smith indicated he’s not worried.

Though its true that “the department store is not expanding, and it seems it is a dying breed,” the demise of these “dinosaurs” is presenting opportunities for other retailers to fill their vacated spaces – just not the whole spaces, he said.

 

Part of the whole

A prime example cited by some following Valley development and commercial real estate markets is the former Kmart in Tulare, which rather than being filled by one big replacement store, has been divided into three spaces, two of which have been converted to a dd’s Discounts and a Ross Dress for Less that opened last month, while the third section remains vacant, though it’s rumored that Aldi Markets is eyeing the site.

“Everything gets absorbed, so nobody should panic,” Smith said.

John Andreini, a partner and investment sales broker for Capital Pacific commercial real estate in San Francisco, agreed, noting that despite so much news floating around about big box retailers failing – mostly due to competition from Amazon and other online vendors – that isn’t the case for the brick-and-mortar retail industry as a whole.

“There is, from a net perspective, more stores opening than more stores closing,” said Andreini, who has extensive experience selling retail spaces in the Valley. “There are more tenants that want to be out here.”

Despite the rise of online sales, people don’t always want to buy online and would like to touch and see and try on or try out what they’re buying. They just don’t necessarily want to do it in big, cavernous stores anymore, he added.

“People want and need to get out of the house.”

 

Kicking the tires

Andreini said there are people looking at these big spaces, noting that he has fielded inquiries about both the Visalia and Delano Kmarts, while Smith, said he’s involved in negotiations to lease about 75 percent of the Visalia OSH, which isn’t due to close until December.

“It seems the latest shift in the market is take these big box stores and break them up,” said Josh McDonnell, community and economic development director for the City of Tulare.

“I think it took awhile for market forces to shift to that kind of strategy – to shift from ‘If you have a big box, you need a big box.’ Now you can do a piece at a time.”

Visalia has a former Toys ‘R’ Us and Marshalls department store vacant, along with an OSH and Kmart in line to close, while the Best Buy store is due to be vacated after it moves into an empty sporting goods store down the street. Devon Jones, the city’s economic development director, said he’s also optimistic these spaces will find new tenants.

“It does seem like retail is adapting a bit, and it does seem like some new uses can come in,” he said. “I think property owners are going to have to work with these new concepts that are out there.”

 

Downside for landlords?

That may not entirely be happy news for the owners of these large retail properties, as having so many available at once may force some to cut rents or do other things to be competitive against those other properties.

“A lot of it depends on the owners of the properties and how aggressive they’re willing to be to lure national tenants,” which may include making upgrades, remodeling and, in many cases, likely incurring the costs of walling off big stores to divide them and dividing their electrical systems and other utilities, said Smith from Retail California.

Andreini, the San Francisco broker, said he doesn’t see that as such a burden to the owners.

“If you own a 100,000-square-foot box [store], you are not an idiot,” he said. “If you don’t have cash available, you need to sell it.”


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