The ups and downs of retail

Chico is the retail center for Butte County and the mid-valley area. Shoppers come from miles around to visit the Chico Mall, as well as the stores on East 20th Street, Forest Avenue and Dr. Martin Luther King Jr. Parkway. Others drive in for Chico’s downtown.

But in the past few months, Chico saw Tower Records and Copeland’s Sports bite the dust. Austin’s Home Furnishings and Viking Sleep Center followed suit. The future of Gottschalks is uncertain, as it could be sold—but a huge new Kohl’s just opened its doors, and Wal-Mart has two proposed Supercenters in the area.

To add to the confusion, the housing market has slowed significantly, but consumer spending is expected to stay the same. So, what exactly does the future hold for Butte County’s retail hub?

No matter what you need to buy, be it a new outfit for work, the fourth season of Scrubs on DVD, a shower curtain or a sofa bed, you can find it off the East 20th Street exit of Highway 99. To the west is Dr. Martin Luther King Jr. Parkway (formerly Whitman Avenue), which is home to Petco, Barnes & Noble and Costco. To the east is the Chico Mall, Target, Best Buy, Toys ‘R Us and Wal-Mart off Forest Avenue.

First, let’s take a stroll through the Chico Mall. That’s the great thing about enclosed malls, after all—you can walk through them without having to go out to your car and repark. The modest, one-story center offers big-brand shops like American Eagle, Victoria’s Secret and Foot Locker. Its aisles are filled with kiosks. There are a handful of jewelry stores and surf shops. And if it’s a department store you’re looking for, it’s got JC Penney, Sears and Gottschalks.

The fourth mall anchor space, near the food court, used to be another department store, Troutman’s—the name is still etched on the building’s façade. Now it is home to the Furniture Depot. Its presence is unusual, but temporary. Lynette Myers, marketing manager for the mall, could not elaborate on just how temporary it is.

Gottschalks is having troubles of its own, on a corporate level. Late last year, the company announced it has set up a committee to discuss options—including a merger or buyout—to secure it financially. So, although Chico’s store is doing well comparatively, its future is uncertain.

The three main anchors all face competition from, their brand-spanking-new neighbor, Kohl’s, and Wal-Mart. Combined, the proposed Supercenters—one an expansion of the store near the mall— have the potential to pull millions of dollars away from existing retailers. An economic study released in December by local nonprofit Chico Advocates for a Responsible Economy predicts that, should both Supercenters be approved, one mall anchor store would be at risk of closing.

“Wal-Mart does what they do extremely well. They do a great job,” said Ryan Hursh, in what was probably his last interview as general manager for the Chico Mall. “But I don’t know that that’s our demographic. You’re not going to find [for example] those high-end cosmetics. We both do extremely well, but we’re different.”

As any mall shopper knows, it’s normal for stores to come and go. About a year ago, Baby Gap left a gaping hole next to American Eagle Outfitters. Chico Bike & Board recently abandoned its spot near the food court. And the toy store near Sears went out of business.

The most recent—and biggest—departure was Copeland’s Sports, whose 15,000-square-foot space was left vacant on the first of the year. (In comparison, Gottschalks is 84,500 square feet and the Furniture Depot 50,000 square feet.)

“I think with Copeland’s you’ll see a lot of logistics involved there,” said Hursh, who was recently promoted to general manager at the Moreno Valley Mall in Southern California. “We want to divide that up into two or three spaces in the next six to eight months. With us recapturing Copeland’s, it gives us the opportunity to lease that space out. This is actually a good thing.”

He doesn’t expect the dark stores to remain dark for too long. “National tenants are looking to come here. So, as opposed to driving to Roseville or Arden Fair—people won’t have to do that. In that past we’ve had a lot of leakage [to those malls].”

He’s right about national tenants—at least outside the mall. Chili’s is building a new restaurant near Marie Callendar’s, by Highway 99. It’s expected to open this spring. Kohl’s, a low-cost department store that has been known to compete with JC Penney, just moved in next door to the mall. The development, by Kassebaum and Zaat Investments, also promises eight to 10 other stores, which are still being built. The only concrete addition developer Dean Kassebaum would disclose is a 16,000-square-foot Shoe Pavilion. He also expects “dress shops and restaurants"—and, surprisingly, he doesn’t look at the center as competition for the mall.

“We consider ourselves an extension of the mall,” he said. While the two centers do not share parking and are a small hike from one another, they do share parking access, making it easy to drive between the two.

Looking at the trends of malls nationally, the addition of an open-air format like that in the Kohl’s center is natural. Many malls have transformed from enclosed to open, to add convenience and more of a cultural experience.

“From our perspective, we do believe that the enclosed mall has a place today and for years to come,” said Patrice Duker, spokeswoman for the International Council of Shopping Centers (ICSC). “But what we’re seeing is that we’re beginning to evolve into something other than just the enclosed mall. We’re seeing different tenants. In the ‘60s and ‘70s it was typically apparel—and that’s still the bulk of the tenant mix—but it’s now more a combination of sit-down restaurants, entertainment, nontraditional tenants, big-box retailers. Expansions and renovations are changing what malls look like.”

Aside from remodeling the space left by Copeland’s and adding Chili’s, the Chico Mall has no plans to expand or renovate, Hursh said.

Costco and Wal-Mart obviously have faith in their markets and locations on MLK Parkway and Forest Avenue respectively, because they have both proposed expansions. Costco hopes to increase its retail space in addition to putting in a new gas station. Wal-Mart wants to turn its store into a Supercenter, which would offer more general merchandise as well as a large grocery section.

Also brewing in the area is a new center, the Galleria, which is in the works for the corner of Forest Avenue and East 20th Street. Its only known tenant right now is Michaels, which will leave its North Valley Plaza location for a space with more pass-by traffic.

North Valley Plaza—also known as the “old mall” to some—at East Avenue and Cohasset has had its share of losses and gains over the years. When the Chico Mall moved into town in 1988, there was immediate competition. JC Penney was eventually lured down to 20th Street, and the “old mall” floundered. The Tinseltown theater and wildly popular Trader Joe’s seem to keep the place kicking. The loss of Michael’s, one of the plaza’s “anchors,” however, will be quite a blow.

David Klein, the center’s property manager, couldn’t elaborate on what would happen with the hole Michaels will leave when it relocates later this year. He has hopes for new construction in the plaza, though. Possibly a new restaurant.

“There’s some exciting stuff coming up—not today, not next month, but a year or so down the line,” he said from his office at PZ Partners in Dana Point.

A Wal-Mart Supercenter is, of course, also proposed for north Chico—where the Sunset Hills Golf Course now stands. Aside from that, however, real estate brokers and city planners agree that the market for big retailers in Chico has slowed down.

“We’re going to see more growth in neighborhood-sized retail development rather than the larger strip centers,” said Bob Summerville, senior planner with the city.

Already there are a number of smaller-scale centers popping up. (Just look up Starbucks in the phone book—you’ll find one near you.) Many of these are made up of coffee shops, fast-food and service-oriented businesses like nail salons and dry cleaners. In the near future, new retail will likely come by way of mixed-use developments like New Urban Builders’ proposed Meriam Park, which would blend retail, services, businesses and homes.

New developments aren’t the only ones eyeing the mixed-use model, either. Downtown Chico might be in for a makeover, with the addition of residential units.

“We’re going to begin thinking of filling the second floors with strong businesses and residential units,” said Katrina Davis, executive director of the Downtown Chico Business Association. She looks at 555 Main Street, which houses the Black Sea Gallery furniture store, several offices and two penthouse condos, for inspiration. (Black Sea, however, recently announced it is moving to a new location.)

“When that project was completed, that really spurred a lot of people into thinking about residential and how there can be more than just college students downtown—like families and professionals. It got people thinking outside the box.”

Other additions to downtown will include a shoe store, which will take over half of the former Tower Records space. There are also rumors of another hotel, which have been unconfirmed.

In the 22 years she has lived in Chico, Davis has seen the downtown change quite a bit.

“It’s changed in that we have a lot of retail sprawl going on in Chico, so downtown has had to be competing against that. It has to retain that competitive edge because of things like Wal-Mart—all downtowns have had to.”

Frank Ross, owner of The Group real-estate brokerage, has worked in Chico’s commercial and retail real-estate market for eight years. He sees retail destinations as being driven by convenience, safety, variety and pricing. The mall, for instance, is fairly convenient, it’s safe, it certainly offers variety, but it may be a bit high on the price scale. “Downtown is relatively safe,” he said, “but I don’t know that it’s convenient.”

One drawback of downtown, as many business owners in particular are quick to point out, is parking. Or lack thereof. It costs money, and it isn’t as convenient to trek a few blocks to a downtown destination as it is to park outside Kohl’s and walk right in.

Still, Davis said, “downtown Chico is clearly well-loved and very much appreciated by the community. The trick is finding one vision that everyone can agree on, and then it’ll morph into more of that cultural and retail destination—more than just a retail center.”

So, what does the future hold for Butte County’s retail hub?

There will definitely be some degree of growth along the 20th Street strip. And it’s a pretty good guess that most businesses will do all right, though sales will be slow.

“Kohl’s didn’t come in here because it thought the market was going to diminish,” Ross said.

The ICSC’s Duker predicts 2007 will be a slow year for retailers. “You have to look at the bigger economic picture—gas prices, the slowing of residential growth. We expect to see the first half of the year be a little slower, then for it to pick up at the end of the year. Probably the retailers who are focused on home goods—furniture and furnishings—will see a softness.”

North Valley Plaza will lose an anchor while smaller neighborhood centers continue to pop up. It’s the revolving door of retail—one store opens, another closes down.

“Retail is very important to Chico’s economy,” said Martha Wescoat-Andes, the economic-development director for the city of Chico. “We are a regional center for retail. But we also have the neighborhood retail element as part of our general plan. One of the things we’re considering is where the gaps in retail might be, based on our population.”

“We’re looking at [residential] developments with a mixed-use neighborhood core,” Summerville said. “[Developments that are] not destination-oriented. Maybe the city at this time is heading in that direction.”

So, as for the future of Chico’s retail, the big bucks are going to hang out around that East 20th Street exit of Highway 99. No one in Chico can quite compete with that. But after a few more projects in the area, growth is going to stop. There are traffic concerns—which the city will be addressing in the coming years—and basically there just isn’t much room to grow anymore. So, what that means for Chico is no more big boxes (unless, of course, Wal-Mart succeeds in sprouting a new Supercenter in north Chico). Residents can look instead to smaller, neighborhood-sized centers to fill those everyday needs.