National Retailers Are Abandoning Small Town, USA

JASPER, Ala. — David Gifford, a preacher from Hamilton, Alabama (population: 6,800), drives nearly an hour to Jasper (population: 14,000) to shop at the JCPenney at the mall here in the northern part of the state.

As he saunters through the men's department, the 6-foot-3-inch, heavy-set Gifford cuts an imposing figure. But the leader of the Detroit Church of God in Detroit, Alabama (population: 237) is jovial, open and happy to chat.

In his hometown, there is a Walmart and a Dollar General. You can buy clothes at Walmart, sure, but while they are cheap, the retailer lacks selection. That is why Gifford hops in his used Town & Country and travels 50 miles east to shop at the Jasper Mall JCPenney to stock up on clothes for his family. 

He is supporting a stay-at-home mom and two children on his $70K church salary. To save money, Gifford shops the clearance rack and uses loyalty points for out-of-season clothes big enough for his kids to grow into when the calendar comes back around.

But come this summer, JCPenney will be no more in Jasper. It is among the more than 130 locations that J.C. Penney, its parent company, is shuttering as it struggles in the current retail environment, which is becoming a slaughterhouse.

Since the start of the new year, the retail market has undergone a seismic shift. Bankruptcies have skyrocketed to levels that have surpassed even the Great Recession, and it appears every week another retailer has announced a mass of store closings. In the past year, more than a dozen retailers have announced widespread store closures, including anchors like JCPenney, Macy's with 68 stores, Sears with 42 stores, Kmart (parent company of Sears) with more than 100 stores and HHGregg, which is liquidating all 220 of its stores.

“J.C. Penney owns a lot of stores where nobody lives," CoStar director of retail research Suzanne Mulvee said at a recent Bisnow event. "So these stores should close, and they will continue to close."

The thousands of people who live in and around Jasper, and the millions who live in small towns like it all over the country, would disagree. But there is no disputing the impact these closures are having on rural shoppers.

“This mall's going to be dead after this,” Gifford said as he browsed through clothes for his son. “When this one closes, it'll be Birmingham or it'll be Tupelo, [Mississippi]” to shop at the next closest JCPenney, 90 miles away.

While store closings are spread among urban and tertiary markets, many of these retailers have closed locations in smaller towns throughout the U.S. — community names like Pineville, North Carolina; Oveido, Florida; Harper Woods, Michigan; Milledgeville, Georgia; Decorah, Iowa; and Chanute, Kansas. Places similar to these have populations far lower than in major urban centers and communities where demographics and populations have sometimes remained stagnant, or maybe even fallen over time.

This dynamic has been demonstrated in recent years in Georgia. While urban areas of the state like Atlanta have seen a 4% growth in businesses, including retailers, rural parts of the state have lost 2%. Of the 159 counties in Georgia, 103 have seen more businesses close than open in the last six years, Georgia Chamber of Commerce CEO Chris Clark said.

“That's dramatic,” Clark said.

There are plenty of reasons for the retail Armageddon; the proliferation of online shopping, changing shopper habits, Millennials who would rather spend on experiences than goods. All those factors are hitting brick-and-mortar retailers across the country.

But rural America is taking the brunt of it, said Richard Green, the director of the University of Southern California Lusk Center for Real Estate and a professor at both USC's Sol Price School of Public Policy and the Marshall School of Business.

“Our towns are not … competitive places economically. There's not a lot of money around for retail or anything else,” Green said. He cited a program by the Canadian government that subsidizes rural businesses, including retail. “It's a cruel thing to say, but in the absence of massive government intervention, these towns are going to disappear."

When Luan Kendrick first heard reports of JCPenney closing, she jumped online to scan through the list of store closings. And sure enough, her local store in Jasper was among those on the chopping block.

“I'm like, 'Oh, no,'” Kendrick said. “This is the only place I shop for clothes in Jasper. Otherwise, I shop online.”

Kendrick was on break from work to shop at JCPenney at the Jasper Mall and returning to her car when she spoke to a reporter. It was a short walk, given the parking lot was practically empty. 

The mall was once a hub of retail here. The Chick-fil-A in the mall shuttered and moved up the highway. A number of stores remain boarded up. Last year, its anchor, Kmart, closed. JCPenney is next. For Kendrick to shop, she will need to travel nearly an hour to Cullman, Alabama (population: 15,000), a city that avoided being part of this round of closures.

The New Normal

Brick-and-mortar retail Armageddon hitting small town America particularly hard makes sense from a retailer's perspective, said Garrick Brown, the director for retail research for global real estate firm Cushman & Wakefield. Small towns have typically seen unemployment rates well above the national average, especially in the Deep South and the Midwest.

A town of 10,000 people can be the largest retail market for 150 miles all around, Brown said. That means for residents in those towns, traveling farther and farther to shop at stores has become "the new norm.”

“There is a bit of a void, I think, in small town America,” Brown said. "But then again, this is where the weakest economic growth has been."

Rural settings are also getting left behind in household formation. According to Cushman & Wakefield, urban and suburban markets will command some 94% of household growth through 2025, while rural markets will take 6%.

That is a far cry from the rampant retail growth seen during the 1980s, 1990s and even early 2000s, especially among publicly traded retailers that used new store growth as a means to increase sales. That has led to an environment where an overwhelming amount of retail square footage is simply beyond obsolescence.

“There’s about a billion square feet of retail space that needs to go away, that needs to be converted, for the market to get healthy,” Mulvee said.

Some of the country's biggest retail landlords have gotten that message as well. National REITs like Kimco and RPAI have either sold, or are trying to sell, all of their properties outside of the 25 most-populous metropolitan regions. If communities do not fit in that category, they are not considered a viable retail option. 

Newer And Better

Over the past 15 years, Art Barry, a partner with Coldwell Banker Commercial, Eberhardt & Barry, has seen a shift in the retail landscape in Macon, Georgia (population: 89,000). Macon Mall was once the largest mall in all of Georgia, a sprawling retail fortress built along what was Macon-Bibb County's main retail thoroughfare. Back in 1997, the mall underwent a $50M expansion that added Dillard's and Parisians (before Parisians was purchased by Saks Fifth Avenue, then Belk).

Both stores are long gone from the mall, and Hull Property Group — which purchased the mall in 2010 — has razed the 1997 addition. Now, the JCPenney is closing.

“There's a shake-up going on," Barry said. "You always have an earthquake before the recovery. I would be interested to see who fills the void for [JCPenney], if anybody.”

To be fair, many of Macon's retailers simply moved to the northern part of the county, where newer power centers sprang up to cater to the area's more affluent neighborhoods. But with those moves came a culling of multiple stores, Barry said.

“Anybody who had two stores here now has one,” he said. “The third-tier towns in the state have been crushed.”

He likens retailers to gardeners: If they only have a few seeds to plant, they are going to plant them in the places with the most fertile soil. And retail fertility is all about population growth and strong demographics.

“Coming out of the recession, why are we not experiencing the growth here? Only the areas that have the population growth models are receiving new nationally anchored retail and restaurants,” Barry said.

“I'm not picking on my community. I'm really not," he added. "But if you can't demonstrate population growth after this ball-buster of a recession,” then retailers will think twice before considering a new store.

Hits To Communities

The closing of retailers in small town America's shopping centers can have effects far beyond empty spaces. In some cases, the job and the sales tax losses can impact the overall community.

Case in point, Clark said, is Darien, Georgia (population: 2,000), a city 50 miles south of Savannah in McIntosh County. The biggest economic driver for Darien was the Darien Outlet Center off Interstate 95. A decade ago, the center touted 80% occupancy with such retailers as the Gap, Tommy Hilfiger, Liz Claiborne and Nautica. Then a newer outlet center opened in Savannah, and the center saw its occupancy drop to 25% in 2015.

The result: McIntosh saw an 80% drop in county tax revenue, Clark said.

Mayor David O'Mary, now more than 180 days into his first term, surveys Jasper from a second-floor office in the city's downtown. It is still reeling not only from the recession, but, like the rest of Walker County, also suffering from job losses associated with the coal mining industry.

Alabama's current unemployment rate is 6.2%, well above the national average of 4.7%. Walker County is at 7.2%. And O'Mary said the city's unemployment rate is a full percentage point higher than that. And that is a big reason in his mind why J.C. Penney has selected its Jasper store to shutter.

“This comes on the heels of the coal industry taking a major downturn,” O'Mary said. “The perception I hear on the street is the coal industry is driving this.”

According to a J.C. Penney spokesperson, 40 employees will be affected in the Jasper store, among the 5,000 nationwide that will be laid off once the stores close in July. Some employees may be relocated to other stores, and those being laid off are slated to get separation benefits "including an on-site career training class," a J.C. Penney spokesperson said in an email.

There are economic development implications. While Jasper has seen some new stores enter the market — discount grocer Aldi, TJMaxx and Hobby Lobby all opened stores there in recent months — JCPenney is among a wave of closures, including Kmart and Goody's. (Planet Fitness has since backfilled that store's space.)

The closings in particular of two major anchors at Jasper's only mall gave one retail prospect looking at the city for a location pause, O'Mary said.

“When they see this sort of thing, [they] put you under more scrutiny,” he said. 

Taxes garnered through retail sales are critical to the city. Jasper recently finished developing a new high school for more than $50M, paid for by a bond that is funded by portions of a penny tax on retail sales in the city, he said. 

The biggest employers in Jasper today include Walker Baptist Medical Center, Bevill State Community College, the poultry processing company Marshall Durbin and Walmart. The city and the county have been pushing for economic development opportunities to bolster local jobs, focusing on small, industrial players. They have seen an influx of auto parts makers, including HTNA Hayashi Telempu and Nitto Inc., since the turn of the new millennium. But O'Mary said the city needs more of that.

“I'm putting a great deal of emphasis on industrial sites for smaller manufacturers,” he said. “The only thing that's keeping us off our A-game is jobs, and I'm going to remedy that.”

Nickel And Diming

A local retail resurgence will likely not be rural and tertiary markets' saving grace, although Brown said there has been a return of locally owned businesses filling a void left by the loss of national retailers.

“It's almost like a return to the old general store,” he said, adding that some retailers have even begun experimenting with smaller format stores in some rural markets. “But I'm not holding my breath for the revival of small town retail.”

In many small towns, Walmart is the dominant retailer, even after it shuttered a number of its smaller community stores in rural markets over the past couple of years. Beyond Walmart, Brown said dollar stores have taken rural America by storm in recent years.

During the past five years, 7,000 new dollar store formats have opened, many in rural markets, Brown said. That breaks out to about four new stores a day. And this coming year alone, Dollar General has announced plans to open 1,000 new stores.

"They really have become the mantel of small town retail,” Brown said.

Dallas-based Site Selection Group CEO King White said it makes sense that the discounters like dollar stores and rental centers are growing in tertiary markets. They are more easily scaled in those markets compared to big-box and department stores.

“The bigger box in some of these markets, the greater the risk,” White said.

But Brown is even concerned about the dollar store sector: There are too many stores and not enough same-store sales growth. They are not losing money like Sears and Macy's, but many of them are not seeing sales in existing stores grow. It means the sector could be approaching a saturation point, which could again hurt rural areas.

“There's so many of these in the marketplace,” he said. “That sector itself has grown so much, my big fear is that in the next year to two years, we're going to be due for a shakeout.”

'We Can't Get Anything In This Town'

Hyacinthe Boyd frequented Kmart when it was at the mall. But despite TJMaxx replacing it, the 37-year-old said she prefers to drive 40 minutes to Birmingham, where there is a much wider selection of apparel shops, especially catering to her more youthful taste, while still getting a bargain.

“Really, there's not anything that's cool or places that younger people like to shop” in Jasper, Boyd said. “I mean, they have Belks, but that's about it.”

Jennifer Christian said she also prefers to travel to Birmingham to shop. And finding bargains in Jasper is harder to do than in the bigger city.

“We don't have a lot, and [prices] are a lot higher here in Jasper,” Christian said. “We can't get anything in this town.”

In Macon, Barry is about to be a grandfather for the first time. But there are no baby stores to buy gifts. When asked where he plans to shop for his new grandchild, Barry did not hesitate to answer.

“Atlanta,” he replied.

It is 85 miles away.