Has the ‘retail apocalypse’ hit San Marcos, Kyle and Buda?

Closures of high-profile retailers have developers, cities rethinking strategies

On June 6, Sears Holdings Corp. announced plans to close 72 stores throughout the nation. That news followed the revelation earlier this year that the retailer was closing 180 additional stores nationwide. Similar announcements have come from retailers such as JCPenney Co., Payless Shoe Source, CVS and RadioShack.

The recent trend of national chain retail closures—including a former Hastings Entertainment store that anchored a 450,000-square-foot retail center at the intersection of Hwy. 80 and I-35—have resulted in vacancies at prime San Marcos retail locations. The closures may also signal a shift in consumer habits, and cities are taking notice.

“Industries have to be realistic,” Kyle Economic Development Director Diana Blank-Torres said. “When trends are changing, they have to change with it, and if you’re not fluid you’re going to be the one who’s left holding the bag.”

Changing retail landscape

Buck Cody, principal with Endeavor Real Estate Group, the firm redeveloping Springtown Center in San Marcos, said his company has taken notice of consumers’ changing habits. The company is placing more emphasis on creating interesting spaces where customers want to spend time, he said. 

“Ultimately our goal is to deliver projects that have a sense of place and a reason for the customer to be there—be it because of a unique tenant mix, better landscape, architecturally interesting buildings or some combination thereof,” Cody said. “We are really focused on creating environments that are unlike others within the marketplace.”

“Experiential retail,” or retail that places an emphasis on experiences in addition to consumption, is a key driver behind some of the redevelopment projects taking place in San Marcos.

Springtown Center features traditional retailers such as Twin Liquors and Total Nutrition in addition to a Gold’s Gym and the Spot, a multifaceted entertainment complex. The Crossroads Center, located at Guadalupe Street and Martin Luther King Jr. Drive, will feature a craft brewery, a fitness studio and restaurants among its retail spaces when it opens this fall.

“Instead of just shopping for ‘x’ items, people want to go to a space they’ll enjoy being at,” Torres said. “They can take their families; they can hang out; they can do multiple things in that one area, and it’s an enjoyable experience.”

Andy Crosland, executive vice president of Dunhill Partners, which owns San Mar Plaza, where Hastings was once located, said retail is a constant evolution, and recent downsizing and store closures are a sign of that.

“No one needs 35,000 square feet anymore, he said. “[Retailers] might need 12,000 or 15,000 square feet now.”

Kevin Burke, economic development administrator for the city of San Marcos, said he sees the shift in retail as a factor of people’s economic

According to the Economic Policy Institute, a nonpartisan think tank, inflation-adjusted annual wages for the bottom 90 percent of earners in the nation between 1979 and 2014 increased 16.73 percent. For the top 1 percent of earners, inflation-adjusted annual wages increased 149.37 percent during the same period.

“In real terms, wages have not increased for the vast majority of the population,” Burke said. “You’ve got 80 percent of the population taking home an ever-smaller share, and you’ve got this 70 percent of the economy that is supposed to be based on what those people are earning and spending. Well how is that supposed to work?”

Burke pointed out that big-box retailers are still expanding locally. In May, Five Below, a retailer selling a variety of home goods and clothing items priced at or below $5, opened at Stone Creek Crossing. The opening of Five Below was followed by the opening of Tuesday Morning and Michaels, two stores that bill themselves as discount and closeout retailers. Stores that offer deep discounts—and appeal to workers whose wages have stagnated—appear to be doing fine in the changing retail landscape, Burke said.

According to CoStar, a commercial real estate analytics firm, San Marcos, Kyle and Buda’s commercial real estate space increased 65 percent between 2006 and the first quarter of 2017. The three cities have nearly 7.8 million square feet of commercial space.

Blank-Torres said she does not see that trend of retail growth reversing in Kyle. Studies indicate the city has capacity for additional retailers, she said. But whether those retailers will occupy big-box stores or smaller storefronts remains to be seen.

“If we’re all being honest, nobody knows exactly what’s going to happen, but nobody thinks retail is going to go away completely,” she said.

Burke said he is equally optimistic about San Marcos’ chances of withstanding the changing retail landscape. Sales tax revenue generated at the outlet malls accounts for about 15 percent of the city’s general fund revenue, which funds the city’s operations.

“We have some confidence that the outlet malls are going to continue to be durable for us because they fit into that sector,” he said. “Regardless of how many malls close or how many of the department stores or higher-end retailers close down, the outlet malls are probably still going to find a market.”

Going digital

In 2015, the city of San Marcos approved incentives to facilitate construction of an Amazon.com Inc. fulfillment center. Torres said fulfillment centers have become one of the prize economic development engines. That is a shift from 10 years ago, she said.

“Back then we weren’t really thinking about fulfillment centers as a big opportunity,” she said. “Now it’s like, ‘Wow, they’re going to generate a lot of new tax base.’”

Although the city of San Marcos is not collecting sales tax at the Amazon.com fulfillment center, it will begin collecting sales tax from a recently opened Best Buy call center this fall. The city expects that when it begins collecting the sales tax, the call center will be one of the largest taxpayers in the city, Burke said. 

“That’s sort of the changing face of retail and how cities can still participate in that and even take advantage of it,” he said.

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