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Retail's Dirty Little Secret: Empty Store Space

Store for lease
Squeakymarmot
Store for lease

From Office Depot, to Target, to Nordstrom to Costco, so many stores have mentioned the sales weakness that they’re suffering in these formerly booming areas.

Two weeks ago, I decided to travel there and see the reality of what so many retail analysts have said. What I found are the dirty little secrets of retail: the empty Mom and Pop stores in strip malls.

Driving around Southern California’s Ventura and Los Angeles counties, we saw many of those boarded up stores or “for lease” signs in small businesses. In Oxnard, California the local retail organization told me that these areas are getting “redeveloped” but store owners were much less optimistic.

Tracking firms like Costar and Reis report that formerly hot real estate markets in Southern California (also Arizona and South Florida) have seen a lot of new store additions over the past 5 years and are now showing rising vacancies.

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Costar reports that particular parts of California are feeling real pain. Vacancy rates are up around 6% in Sacramento and the Inland Empire (outside L.A.) Orange County and Los Angeles saw a vacancy around 3% in the first quarter. These numbers don’t include small businesses.

There are two factors at play. Retailers were chasing the new rooftops in formerly hot real estate markets like California and Florida by building new stores in those locations. Now that consumer wealth is receding, those new stores are seeing traffic like they once were. Some national chains have gone bankrupt ( Linens N Things, Comp USA) and others have closed down stores to save money (Ethan Allen, Home Depot, etc.)

Wall Street is just starting to see this problem. Main Street America though has been struggling with store closures for awhile now. Many Mom and Pops simply don’t have enough capital to stick out the economic slowdown. Some national retailers have more access to credit and just have deeper pockets of capital.

This is a threat to consumer confidence. The boarded up stores and ‘for lease’ empty spaces are yet another weight on the consciousness of consumers. Local business closures hurt local employment. That will cause cutbacks in spending.

Don’t mistake me here. Places like California and Florida are still valuable to retailers in the long-term. The market will find a balance and those empty condos and homes will find buyers. But the issue right now is whether stores have enough capital to wait out the return of the consumer and the calming of the housing crisis.

Questions? Comments? retaildetail@cnbc.com

Retail

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