Colorado discount stores are filling the big-box retail void

DollarTree is allocating 22 percent of its new store inventory across Colorado.
Erin Stafford

Erin Stafford
Managing director, North American CMBS, DBRS

When multiple big-box retail stores announced their closures in 2017, the U.S. saw massive closures nationwide. Colorado was not spared the onslaught, hemorrhaging chain retail businesses like Gymboree, Radioshack and Family Christian Stores LLC in the same year. Despite surprisingly optimistic numbers reported by many department stores during the 2017 end-of-year holiday season, 2018 is seeing some anticipated shutdowns across the centennial state. Meanwhile, the big-box retail void is slowly being taken over by discount stores like Dollar Tree and Dollar General.

Stephanie Hughes

Stephanie Hughes
Business writer, North American CMBS, DBRS

Nationwide, the biggest retail loser is ToysRUs, a big-box toy store founded in 1948, which operated 880 U.S. locations at the top of the year. This comes as no surprise as U.S. sales have been on the decline, dropping about 15 percent this holiday season from last year, according to Bloomberg. The company announced its bankruptcy and is expected to close around 180 locations across the U.S. based on retail metrics. American Apparel is next on the list of affected general stores as the apparel retailer is planning to close 97 stores nationwide. Though it has been a part of North American affordable retail since its opening in 1987, the mass closures stem from a history of financial issues within the company. Finally, Kmart is the last in the top-three hardest-hit retailers with a loss of 64 stores across 47 states. The big-box department franchise, which purchased Sears in 2004, operated 735 store locations as of January 2017, according to the Sears Holding Corp. annual report.

Colorado’s retail scene, on the other hand, has a much more positive outlook, according to metrics run by retail analyst group Creditntell. The state only reported four store closures from the previously mentioned retailers – ToysRUs, American Apparel and Kmart Sears – and reported many retail openings in late 2017, moving into 2018. This follows a retail cut-down in 2017 where companies like The Gymboree Corp. lost 10 locations in Colorado and approximately 329 nationwide during the same year; Radioshack lost 11 stores in Colorado and 561 nationwide; and Family Christian Stores LLC lost seven stores in the state and suffered a countrywide loss of all 252 locations.

In the midst of this retail void, discount retailer Dollar Tree is taking over with the greatest number of reported store openings in the state last year. This appears to be a nationwide trend as the company will open 320 new stores in 2018, according to Business Insider. Other massive discount companies opening stores across the states include Dollar General (900 locations) and Family Dollar (300). These new store openings highlight another trend: the rise of discount retail while other retailers struggle.

Reasons for the discount retail boom could coincide with the spike in population Colorado has been experiencing, which was a notable net gain of 77,000 residents in 2017. The increase was not enough to save large department stores, which still had severely high rental rates across broadly expansive square footage spaces. The large amount of soon-to-be-unused space is quickly becoming a burden across department store-anchored U.S. shopping malls and retail plazas as larger companies downsize or vacate entirely.

The retail development supply growth that the country saw in the late 1990s and early 2000s overshot the current demand companies require or can afford. Many industry observers point to the meteoric rise of e-commerce to be the main reason that department stores are seeing less revenue to help cover rental costs. In Denver, the retail space per capita stands at 49.7 square feet, according to City Observatory, showing that the space here is not overdeveloped and is in line with the national 49.2-square-foot space per capita.

When you combine the fact that Denver is not over-retailed with the steady population growth, it seems safe to expect that the existing inventory should be absorbed. If developers start building a lot of new retail centers, that could make areas vulnerable, but at the moment, developers seem mostly focused on apartment construction.

In the doom-and-gloom headlines of the retail apocalypse, Colorado’s 2018 outlook appears to be a bit of a safe haven as it is opening more stores than it is losing. Furthermore, it is a strong market for discount retail locations like Dollar Tree, which is allocating approximately 22 percent of its new store inventory across Colorado cities, and Dollar General, which is opening four of its new locations here. Picking up on the shortcomings of the retail industry is the discount retail business – and areas like Colorado are taking center stage.

Featured in CREJ’s March 7-20, 2018, issue

Edited by the Colorado Real Estate Journal staff.