Macy’s will close two underperforming tri-county stores in Santa Barbara and Simi Valley, signaling a continued shift in shopping habits and an evolving retail landscape.
The big-box retailer will close its Paseo Nuevo store in downtown Santa Barbara in early spring and its men’s, children’s and home furnishings store at the Simi Valley Town Center mid-year, Macy’s announced on Jan. 4 following disappointing holiday sales that dropped 2 percent from last year.
The women’s Macy’s at the Simi Valley Town Center will remain open as will the more parking-friendly Macy’s at the La Cumbre Plaza in Santa Barbara.
Tri-county brokers expected neighboring Macy’s stores to close as the retail giant has looked to consolidate as sales have continually slid. More shoppers are buying online, picking up orders in store and shopping on their phones, the company said, and it will pivot to its digital business, discount stores and Chinese operations.
The two tri-county locations are among 68 stores that will shutter in 2017 as part of a planned 100-store downsizing. The locations have a combined 182 employees and cover more than 330,000 square feet. Macy’s plans to shed about 10,000 employees overall.
“We are closing locations that are unproductive or are no longer robust shopping destinations due to changes in the local retail shopping landscape, as well as monetizing locations with highly valued real estate,” Macy’s Chairman and CEO Terry Lundgren said in a news release.
It will save the company an estimated $550 million a year that it will use to invest $250 million in its digital business, and grow its Bluemercury beauty shops and Macy’s Backstage off-price stores, the company said.
While Target has long been eyeing Santa Barbara, it is unlikely Macy’s will be replaced by one tenant, said Austin Herlihy of the Radius Group. It could house some eight different tenants and repurpose to more of a mixed-use concept with office or residential on the upper floors and retail below, possibly mixed in with some alcohol or food vendors, he said.
“I don’t think State Street has ever seen a tenant of that size vacant,” Herlihy told the Business Times. The Paseo space is 141,000 square feet with 77 employees while the Simi store is 190,000 square feet with 105 employees. “I could see pairing a bunch of different uses in one area.”
Big-box retailers have been increasingly closing up shop partially due to online pricing pressures while many larger spaces have been divided or dedicated to discount stores. Santa Barbara has seen an influx of discounters like Marshalls, H&M and Saks Off 5th push out independent stores and deteriorate the mix of retailers.
The downtown core has experienced an historic number of vacancies as property owners have refused to budge from inflated lease rates. While the corridor is poised to rebound from lower State Street development like the Hotel Californian coming to fruition, it is risking its reputation as a retail destination in the meantime, said Maggie Campbell of the Santa Barbara Downtown Organization.
“It affects the entire community,” said Campbell, adding that sales tax revenues from downtown businesses are one of the main sources of revenues fueling the city’s General Fund. “We need to recognize the importance of the economic vitality of State Street and its long history of retail experience that drives the local economy.”
The downtown organization recently earned approval to conduct a $50,000 retail study, performed by Seattle consultant Downtown Works, which aims to provide a quantitative and qualitative perspective on the mix of retailers, shopper demographics and what they are buying, among other measures. The hope is that the data will draw more tenants, Campbell said.
In the meantime, retailers are embracing a more experiential shopping atmosphere to combat cheaper e-commerce alternatives.
Whether it’s a unique Spotify playlist or wine tasting, retailers are adding value to the shopping experience to bring people into stores. They are embracing online shopping and using their stores as a point of distribution.
The Closet Trading Co., which has several resale clothing stores in the Tri-Counties, saw an increase of about 10 percent over last year’s holiday season despite pressures from online retailers, said Johanna Zlenko, CEO and founder of The Closet Trading Co.
As more customers turned to e-commerce to purchase gifts, the Closet Trading Co. shifted its focus to clothing, she said.
“We have had several in-store events, inviting our clients to relax, have a glass of champagne and enjoy our complimentary styling services to help find the perfect outfits,” Zlenko said. “This personalized, hands-on approach, combined with the attractive pricing unique to luxury resale, separates our business from both big box and online competitors.”
The Plum Goods in Santa Barbara also had an increase in sales of about 8 percent this holiday season, said owner Amy Cooper. While some of that growth can be attributed to the recently expanded storefront, Plum Goods offers locally and ethically sourced, organic and hand-crafted goods that aren’t attainable elsewhere. It also offers a unique atmosphere with a curated Spotify playlist.
Mixed-use communities that are sprouting up throughout the Tri-Counties will create more opportunities for resident-serving businesses. As the idea of an anchor tenant shifts, shopping centers will likely offer an array of businesses to provide a one-stop-shop experience, said Bill Hagelis of the Hagelis Group, which was acquired by the Radius Group last year.
It all comes back to what retailers need to do to create a sense of place, he said.
“We saw a lot of movement with the grocery industry and saw the industry evolve with different types of concepts and ways to create value,” Hagelis said. “It is similar to what we have seen with restaurants reinventing themselves with smaller footprint and different types of healthier foods.”
The Macy’s closure will give Santa Barbara and Simi Valley a unique opportunity to refocus their retail sectors.
“It’s time to figure out how to reinvent our downtown,” Campbell said.
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Summary of market insights and analysis from Q2 2019 South Coast commercial sales and leasing activity: Download the complete report here …