20/20? No Clear Vision for Retail
Retail is dead. Amazon killed everything. Or the millennials ruined it. So goes the theme of many headlines in recent years.
But the truth, as always, is more complicated. Brick-and-mortar retail is changing and evolving, as it has always done. E-commerce is growing, without question, but brick-and-mortar stores still count for nearly 90 percent of all retail sales. For the third quarter of 2019, preliminary estimates from the U.S. Census Bureau showed 11.2 percent of sales came through e-commerce channels.
You’ve seen the stories: malls transforming themselves into town centers to avoid extinction; digitally native brands, which killed some of the old mall staples, turning around and opening physical stores in their place—think Warby Parker, Bonobos, and Casper, all of which now have a brick-and-mortar presence in the Twin Cities. Big-box stores are opening smaller urban prototypes, like Target stores in Uptown, Highland Park, and Dinkytown, while specialty chains go big—like Restoration Hardware’s 60,000-square-foot, mansion-style RH Gallery and rooftop restaurant in the Southdale parking lot and lululemon’s 19,700-square-foot “experience center” at Mall of America, complete with smoothie bar, fitness studio, showers, and a meditation room.
But the more things change, the more they stay the same, with experiential concepts choosing Mall of America for its national draw and luxury retail gravitating to Galleria. The Southdale and Rosedale trade areas—including the strip centers near both regional shopping malls—continue to be attractive to local and national retailers, says Stefanie Meyer, senior vice president and principal of Mid-America Real Estate-Minnesota. The biggest change, she says, is that today, when retailers are considering Twin Cities locations, “the North Loop comes up all the time. They all want to be by Whole Foods, but there’s just no space around it.”
So where does that leave Nicollet Mall? What about Uptown, which has lost more high-profile stores than it has gained in recent years? And Grand Avenue, once a regional draw for its lively mix of independent boutiques and restaurants, seems to be sputtering, clinging mainly to the same chain stores found at the malls.
Will we be shopping these neighborhoods a decade from now? Will our shopping centers survive? To take stock of who is best positioned for the future, we raised some tough questions about four key retail areas that are currently at crossroads.
Should Calhoun Square be bulldozed?
“Our group is very cognizant that Calhoun Square currently isn’t working, and it hasn’t worked in a number of years.” That’s Sam Ankin, managing principal and co-founder of Chicago-based Northpond Partners, which just acquired the urban shopping mall in late October. Northpond is the fourth owner of the troubled property in the 15 years since Calhoun Square developer Ray Harris and partners sold it in 2004.
Calhoun Square is both the anchor and the anvil of the Uptown retail area in south Minneapolis. Once upon a time, it was a bustling, thriving retail destination. But for many years, the mall has struggled with eyesore vacancies and the steady churn of tenants closing up shop. Famous Dave’s and Libertine restaurants both shuttered in recent months. High-end outerwear retailer Arc’teryx fled for a Mall of America address, where it can be near North Face and Columbia Sportswear, which both shuttered their Hennepin Avenue stores across from Calhoun Square in 2019.
One commercial real estate broker with deep Uptown experience is encouraged that Northpond is the new owner.
“I think that it’s a really positive thing. Calhoun Square has its challenges, but they’re a group that understands urban,” says Jeff Herman, president of Minneapolis-based Urban Anthology, a firm that has a big focus on Uptown retail.
But has the time come for a more radical solution? Should Calhoun Square be razed to give the site a brand-new start?
Ankin says that’s not the plan, but that the mall may look very different in the future. Ankin says Northpond is planning “significant physical changes” to the building. But since the ink on the deal is barely dry, it’s not clear what that will look like. “We’re looking at everyone. We’re open to all uses. The definition of retail constantly changes,” says Ankin.
“That may be the right mindset—to say you’ve got to blow it up and start over. It probably needs a complete brand repositioning to be successful.”
—Jay Scott, principal, Solomon Real Estate Group
At the end of June 2019, Cushman & Wakefield Minneapolis-St. Paul reported a vacancy rate of 12.7 percent at Calhoun Square. But the exits of Famous Dave’s, Libertine and Arc’teryx emptied another 20,000 square feet of space, which will push the vacancy rate closer to 25 percent.
“All enclosed retail is struggling across the country. So, to the extent that Calhoun Square continues to have enclosed retail, it will face the same challenges others do,” says Kelly Doran, founder and principal with Bloomington-based Doran Cos.
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Jay Scott, principal with Eden Prairie-based Solomon Real Estate Group, once a minority mall partner, says Northpond paid too much just to knock the building down, but he says that’s the type of audacious thinking that might be needed to revive the property.
“That may be the right mindset—to say you’ve got to blow it up and start over,” Scott says. “It probably needs a complete brand repositioning to be successful.”
He adds that parking remains a perennial challenge in Uptown. The city’s overhaul of Hennepin Avenue, which eliminated all street parking between Lake Street and 31st Street, has rankled most Uptown retailers.
“Over time, they’ve done things to strangle the traffic. There’s virtually no place to park anymore,” says Denny Magers, owner of Magers & Quinn bookstore, which has been in business in Uptown since 1994. Magers believes the city’s long-running construction project was a factor in recent store closings: “If they had enough traffic to remain there, they would have remained there.”
Despite those frustrations, Magers is staying afloat: “I’m still there and I’m still alive and I’m not losing money.” Around 15 years ago, there was talk of adding housing to Calhoun Square. Solomon even secured the necessary city approvals with majority owner Des Moines-based Principal Global Investors. Principal and Solomon owned the mall from 2004 to 2007; those plans never moved ahead.
Scott says that empty stores in the mall may not be a bad thing for a new owner. “The vacancy can be helpful as an owner coming in. The more vacancy there is, the more flexibility there is to go ahead and implement change.”
Northpond paid $34.5 million for the property—half of the $69.5 million sale price in 2014. Ankin says that given the lower price that his group paid for Calhoun Square, they will have more resources to drive big changes.
The previous ownership group took over the property in 2014 with similar promises to reinvigorate the mall. While the Minneapolis-based Ackerberg Group was the local face of the deal, the bulk of money came from New York-based JPMorgan Chase & Co. Ackerberg CEO Stuart Ackerberg did not return calls seeking comment.
Northpond already has a portfolio of unique urban Twin Cities properties: The Broadway in northeast Minneapolis, Icehouse Plaza in south Minneapolis, and Vandalia Tower in St. Paul. Along with the 170,000-square-foot Calhoun Square mall, Northpond now also owns the 730-spot parking ramp and a vacant site along Lake Street just to the east. Although it’s in a standalone building, retailer CB2 is a Calhoun Square tenant.
Across the street from Calhoun Square, the Columbia Sportswear space is now home to franchise hair salon Salons by JC, while the former North Face store is occupied by General Store DOA, a shared workspace concept for local companies. The new denizens underscore that the future of retail isn’t necessarily retail but may tilt toward service businesses and other alternatives. Herman is handling the leasing for the Victoria’s Secret space at the corner of Lake and Hennepin, which has been vacant since 2018. He says there has been interest, but no deals have been signed. Urban Outfitters remains open, but its space has been listed for lease.
“It’s apparent that a lot of retailers have not been successful in Uptown for a number of reasons. A lot of the national retailers were destination stores that you wouldn’t frequent on a daily, weekly, or even monthly basis,” says Ankin.
Ankin says Northpond will seek out “local, more unique operators.” He specifically mentions Sooki & Mimi, the Mexican restaurant that nationally acclaimed restaurateur Ann Kim plans to open this winter in the space the iconic Lucia’s restaurant occupied, and cites that news as a reason to be bullish on Uptown.
“With the density and the amount of people that live in Uptown,” he says, “it’s a very desirable neighborhood.”
Will the Dayton’s Project save downtown retail?
A few decades ago, Nicollet Mall in downtown Minneapolis was lined with large department stores: Dayton’s, Donaldson’s, Powers, Young-Quinlan, JCPenney and Harold Department Store. In 2001, Dayton’s became a Marshall Field’s and finally a Macy’s. It was the last department store in downtown when it closed in March 2017. Shortly thereafter, Barnes & Noble closed its two-level store on Nicollet Mall, another blow to what was once downtown’s main retail corridor.
“Nicollet did really have a prominent retail identity because of those department stores,” says Steve Cramer, president and CEO of the Minneapolis Downtown Council, recalling when he first moved to the metro in 1979. He notes that today, Fortune 500 companies like Target Corp. and U.S. Bank have headquarters offices on the mall.
Early in 2019, the Downtown Council unveiled a plan to try to attract brick-and-mortar retailers to Nicollet Mall between Fifth and 10th streets. The business group created a task force, touted market statistics, focused on improving public safety, and started a pop-up store program. But Cramer can’t yet point to a single lease that’s been signed as a result of those efforts.
Many downtown boosters are investing a lot of hope in the Dayton’s Project, which has billed itself as a rebirth of the landmark Dayton’s building. The rough concept calls for 750,000 square feet of office space and 250,000 square feet of retail, which would be one of the largest retail footprints in downtown. The only retail tenant announced so far is a food hall concept. Last spring, project developers pushed back the opening to spring 2020, which seems unlikely at this point.
But what it could look like remains a blank slate. Dayton’s Project representatives declined or could not be reached for comment. New York-based 601w Cos. has now owned the property for almost three years. In a September interview with Twin Cities Business, Tricia Pitchford, who leads retail leasing on the Dayton’s Project for Mid-America Real Estate, said her team is looking “beyond the obvious mall tenants” to find unique or first-to-market specialty stores. “The importance of this project is not lost on us,” Pitchford said. “We’re really trying to create a unique opportunity to eat, shop, and be entertained. We want something unique that embraces the character and history of the project.”
What do other retail real estate experts think the Dayton’s Project and downtown need?
“Really what we need is some kind of flagship store. It’s got to be something experiential too,” says Andrea Christenson, senior director with Cushman & Wakefield Minneapolis-St. Paul. “What we really need is a department store. I really miss Macy’s. I personally grieve it. It’d be really nice to have a department store. If you put in a Von Maur or some other concept in there, I think it would do very well.”
“You’ve got 200,000 paychecks walking around downtown. That’s a lot of buyers.”
—Jim Durda, general manager, City Center for Ryan Cos. US Inc.
Nicollet Mall, however, does not lend itself well to the smaller-scale retail shops that work well in the Linden Hills neighborhood in Minneapolis or the North Loop. “This is the problem with Nicollet Mall. It would be really nice to do boutiques; the problem is all of the floorplates on Nicollet Mall are big,” says Christenson. “All of the landlords up and down the mall, they’re office landlords first.”
That makes retail an afterthought for many property owners. Christenson suggests that the city could institute a retail-specific tax abatement program to offer landlords an incentive to do retail deals, noting “it would be a drop in the bucket for what a stadium costs.”
At the end of June, Cushman & Wakefield Minneapolis-St. Paul reported the downtown Minneapolis retail vacancy rate at 12.8 percent. While that’s higher than the overall market vacancy rate of 9.7 percent, it was lower than the vacancy rate of 15.2 percent posted for the metro’s eight large regional malls. Part of the reason is that there’s not that much retail space downtown anymore. Per Cushman & Wakefield, downtown Minneapolis accounts for more than one-third of metro office space but only about 2 percent of leased retail space in the Twin Cities.
Across the street from the Dayton’s Project to the north, the aging City Center is completing a $3 million faÃ§ade upgrade and looking for new tenants.
“We’re working on one deal that’s more experiential retail. I think there’s a variety of types of retailers that are not downtown and could be downtown,” says Jim Durda, general manager of City Center for Minneapolis-based Ryan Cos. US Inc. “We’ve been in negotiations with Brooks Brothers for a completely new store. They’ve got a whole new look that they’re rolling out.”
The new Brooks Brothers store would be in the skyway across the hall from its current City Center location. Durda says that City Center’s retail space is currently 76.8 percent leased. He sees a lot of untapped potential in downtown’s retail market.
“You’ve got 200,000 paychecks walking around downtown,” says Durda. “That’s a lot of buyers.” There are a few bright spots. Nordstrom Rack opened in the IDS Center in September 2017. Target invested $10 million in upgrading its two-level Nicollet Mall store. In late November, the 801 Chophouse chain opened in the former Barnes & Noble space.
Bob White, owner of the Hubert White menswear store in IDS Center, says that ongoing construction—first on Nicollet Mall, then South Eighth Street—has taken a bite out of business. Has the new Nicollet Mall helped business? “That’s an impossible question to answer until they finish the Eighth Street construction,” White says.
As for the Dayton’s Project, White doesn’t know what to make of it yet: “You hear retail, you hear residential, and you hear office, but I haven’t seen any announcements.”
His own business, he says, is solid. “Our type of retail, which is relationship-driven and service-driven, is good.”
Roughly 50,000 people now live in downtown Minneapolis, more than ever before. Shouldn’t that support more retail? Cramer points to new downtown grocery stores and expansion of some service retail. “I think that clearly is driven by the residential population,” says Cramer.
Cramer was on the Minneapolis City Council in the late 1980s when it voted to raze what it saw as seedy businesses on Block E, including the notorious Moby Dick’s bar. The site sat as a surface parking lot throughout the 1990s. That was replaced by a short-lived retail/entertainment complex.
Cramer says that the city’s attempts to drive redevelopment of Block E prove there’s no magic formula for saving downtown Minneapolis retail: “If there’s a lesson to be learned from knocking down Moby Dick’s, it’s that there’s no silver bullet.”
Can Grand Avenue be revitalized?
Grand Avenue is St. Paul’s strongest retail corridor. (Downtown St. Paul? Forget it.) But there are no malls or department stores here. It offers quaint, cozy, and comfortable shops along a street that truly feels like a small-town neighborhood. So when stores close, it rattles the residents.
Some thought the end was at hand in 2004 when the beloved Ruminator Books (originally Hungry Mind) shut down after 34 years on Grand Avenue. But today, the spot is home to the only Patagonia store in Minnesota, a retail destination.
Recent turnover again has people fretting about the future of Grand. The biggest loss was when locally owned Traditions Classic Home Furnishings closed in January 2019 after 31 years in business on Grand Avenue (stores in St. Louis Park and Naples, Florida, stayed open). In 2019, D’Amico & Sons, another Minnesota business, closed its Grand Avenue location after 22 years on the street and the Bonfire restaurant shut down after a 15-year run. Creative Kidstuff closed in June, but in that case, the entire company went out of business; the Grand Avenue store was one of six in the Twin Cities.
“We have some notable vacancies still and that’s mostly the fault of the building owners not wanting to rent out to local business owners.”
—Dan Marshall, co-owner, Mischief Toy Store on Grand Avenue
Despite the neighborhood’s vocal preference for shopping local, Grand boasts a healthy roster of national retailers including Patagonia, Pier One, Anthropologie, Pottery Barn, lululemon, J. Crew, Chico’s, Penzeys Spices, Pure Barre, CVS, and Walgreens. Local chains include Evereve, Punch Pizza, Caribou Coffee and Red Rabbit. The largest retail footprint belongs to Kowalski’s Markets, which opened its Grand Avenue store in 1983. (In 2016, the St. Paul Pioneer Press reported that both Apple and Banana Republic were scouting for stores on Grand Avenue. Neither has materialized.)
In response to recent closings, the Summit Hill Association, Macalester-Groveland Community Council, and the Grand Avenue Business Association worked together to create the Future Is Grand Task Force to survey business owners, landlords, and residents about the retail climate.
One veteran commercial real estate broker says the sky is not falling.
“There are tenants out there looking for space in St. Paul and Grand Avenue. There are local, national, and regional people looking,” says Ned Rukavina, an executive director with Cushman & Wakefield Minneapolis-St. Paul. “Lunds & Byerlys is trying to do something there—that’s hugely positive, I think.”
Edina-based Lund Food Holdings Inc. has floated a concept for a five-story building with a grocery store and about 70 apartments. The site had been home to Restoration Hardware and the North Face. City zoning for that section of Grand limits height for a mixed-use project to three stories or 36 feet.
“We will be seeking a variance for that development,” says Aaron Sorenson, spokesman for Lunds and Byerlys.
“I think Grand Avenue is healthy and it’s one of the best shopping corridors in the Twin Cities; that said, there are some things working against Grand Avenue,” says Dan Marshall, who co-owns Mischief Toy Store with his wife. “I think it should be a lot denser than it is.”
But it’s not a popular point of view. If history is any guide, the debate over building height could be a brawl. Many nearby strongly oppose anything that would change the street’s down-home character. They want a vibrant Grand but don’t want developments that add traffic or noise. “They’re very vocal, they’re very active … and they have influence,” Rukavina says.
Case in point: a proposal from previous St. Paul mayor Chris Coleman to add parking meters on Grand Avenue. Coleman had argued that the plan could benefit businesses because it would create faster turnover for parking spaces to make way for the next wave of customers.
Marshall also liked this idea. “Doing some sensible things like putting in parking meters would free up some parking space on Grand Avenue,” says Marshall. “It’s a dense urban neighborhood; having parking meters is one way to manage that. I think in general, parking meters would be a benefit to finding a spot.”
The proposal was dropped in 2015, however, after a firestorm of opposition from businesses and residents. Another issue, says Marshall: Building owners, which might be out-of-state pension funds, prefer to land deals with large national tenants with good credit. “We have some notable vacancies still and that’s mostly the fault of the building owners not wanting to rent out to local business owners,” he says.
The bias toward nationals is a real thing, says Rukavina. “Construction costs continue to climb; property taxes continue to climb. Retail’s really hard. The people that do it well make it look easy. And it’s not.”
Maybe the only thing that anyone along Grand Avenue can agree on is that property taxes are too high—and keep climbing. The task force’s recommendations include slowing the rate of growth of taxes, fees, and other costs of doing business.
That hasn’t chased away every business, however. The Red Balloon bookstore, which focuses on kids and teens, recently marked 35 years in business on the same block of Grand Avenue and isn’t going anywhere.
“We’re constantly talking about what brings people in,” says Holly Weinkauf, who has owned the store since 2011. She says many shoppers don’t know exactly what to buy, so they turn to booksellers for advice and recommendations. “People really like browsing and discovering what they didn’t even know was there. I also think people come because they like connecting. It’s very much a community place.”
For her part, Weinkauf is optimistic about the future of Grand Avenue.
“I know that a lot of the news has been a bit of doom and gloom,” Weinkauf says, “but there’s great energy that’s happening here with the existing businesses and the businesses that have come in.”
Is it time to tear the roof off Southdale?
What’s hotter than a country club in Edina? A $43 million, 204,000-square-foot fitness center, co-working space, and indoor soccer complex that replaces JCPenney (and then some) at Southdale Center. Life Time brings an energy—and level of traffic—that the 64-year-old mall hasn’t seen in years as it has struggled with the highest vacancy rate among regional centers in town—higher even than Burnsville Center, according to the latest Cushman & Wakefield report. With a rooftop pool, spa, and sushi restaurant, the priciest Life Time in town expects to draw as many as 4,000 members each day. But will that activity spill down the long corridor and into Southdale’s eerily quiet center court?
“I don’t see that yet,” says Stefanie Meyer, senior vice president and principal of Mid-America Real Estate-Minnesota.
“The long halls and layout make it impossible to lease down those cavernous hallways,” Meyer says. “It isn’t how people shop anymore.”
Amy Brace found that out the hard way when she decided to expand her Hopkins-based business, Amy’s Cupcake Shoppe, to what she thought was a primo spot inside Southdale, near Macy’s and Banana Republic. Like any neighborhood-based business in Minnesota, traffic at Amy’s Hopkins store ebbs and flows depending on weather. “We were looking for year-round consistency,” Brace says of the decision to open at Southdale in July 2018. “Every month we were more and more disappointed.” She partnered with Dave & Buster’s in the mall to capitalize on birthday party business, to no avail. “The mall just isn’t that busy.” She closed her Southdale store in December.
Southdale general manager Judy Tullius says the mall, which is owned by Indianapolis-based Simon Property Group, the largest mall operator in the country, is always looking for first-to-market retailers and top local brands. But in Meyer’s extensive leasing experience with Mid-America Real Estate, she says the national brands looking to expand to this market are interested in the Southdale trade area, not the mall itself. Instead, some of those interior spots that once housed stores like Musicland and Hallmark are now occupied by a Hennepin County Service Center. A new Hennepin County library will soon take over part of the old Herberger’s space. (Actually, it isn’t that old—Herberger’s opened a brand-new store at Southdale in 2011, just seven years before its parent company declared bankruptcy in 2018.)
“It isn’t how people shop anymore.”
—Stefanie Meyer, Mid-America Real Estate-Minnesota
While Life Time does connect directly into the mall, it faces out—and that’s where most of the redevelopment is happening. The imposing new RH Gallery sits on the southwest corner of the mall parking lot. Shake Shack built a freestanding restaurant outside the mall, where there’s also a new Homewood Suites by Hilton and upscale apartments. The mall perimeter seems to be the new center court.
The same is happening at Ridgedale Center and especially at Rosedale, which recently announced plans for a $100 million expansion that will include a grocery store, housing, medical office building, and co-working space. But Meyer says those malls have been more successful at drawing upscale retail—Nordstrom at Ridgedale and Von Maur at Rosedale. The east metro mall has also made a concerted effort to attract local makers at its mall-run Rose & Loon store, as well as local food vendors at the new Potluck food hall (a redo after a food hall concept by an out-of-state operator bombed).
Southdale’s Tullius says the mall is “exploring exciting renovations for the food court space.” She said new services including health and wellness are under consideration as well, but she did not offer specifics.
While center court is no longer the most coveted retail location in the mall, Meyer says it’s too soon to write off retail at Southdale—some stores are doing high enough sales that it’s not in dire straits. “That’s the difficult part—some parts work; other areas, like the second level near Dave & Buster’s, it’s tough to figure out what to do with them.”
Overflow from Life Time Work, perhaps? The co-working space was 65 percent occupied two months before opening at Southdale. It, too, opens onto the parking lot, not into the mall.
Burl Gilyard is senior writer at TCB. Allison Kaplan is editor in chief.
TCB Talks: Retail 2030
The conversation continues. We’re gathering experts in e-commerce, product development, commercial real estate, and more for a look at the future of retail. Our panel includes Mall of America senior vice president of business development Jill Renslow, Mid-America Real Estate-Minnesota senior vice president of leasing Tricia Pitchford, Target senior vice president of marketing Michelle Mesenburg, and Proozy CEO Jeremy Segal.
When: January 21, 2:45 p.m.
Where: Parkview Event Center, Mall of America