Impact of new Walmart will reach beyond Saline area
Walmart anchors the largest retail development in Washtenaw County that’s been completed in recent years, adding more than 200,000 square feet of store space to the US-12 corridor at South State and overnight converting the Saline area into a regional shopping destination.
That Walmart will convert the area around the store into a high-traffic retail center is not in doubt. But who will gain or lose amid that transformation is undetermined.
The store’s scheduled 8 a.m. grand opening on Wednesday will be celebrated by many shoppers, who experts say likely will travel from a 35-mile radius.
Yet area retailers and other business leaders will be watching the opening and its aftermath for signs of how the discount retailer - an aggressive competitor, thanks in part to its pricing leverage with suppliers - will alter the county’s shopping patterns.
The 177,000-square-foot Supercenter will generate over $100 million in sales per year, according to projections by Regency Centers, the Jacksonville, Fla.-based publicly held developer of the adjacent State Street Crossing strip center.
That projection, said leasing agent Ryan Ertel of Regencys, “is based on the demographics and trade area, and the fact that the Ypsilanti store is not a Super Walmart.
“This one will be a little more successful than the other Walmart projects that we’ve done.”
Photo slideshow by Angela J. Cesere
Groceries face the most competition
The Supercenter’s full line of groceries carries the most risk for other area retailers.
“It’ll have its greatest effect on the closest food operators,” said Becky Maccardini, a national retail expert based in Ann Arbor.
The nearest groceries are both outlets in local chains: Country Market and Busch’s. Two of three Ann Arbor-area Meijer Inc. stores are within seven miles of Walmart; nearly as close are two Kroger stores, in addition to Whole Foods.
“Any of the grocers in the area will have to have a clear understand of who their current customer is and why they shop at their stores,” Maccardini said. “If it’s price, they’re likely to be hurt.”
Yet while smaller retailers’ fears about a new, proximate Walmart have been well documented across the United States over the last two decades, downtown Saline may be in a good position to weather the shopping shift.
Bill Kinley, a local developer of both downtown Saline buildings and The Oaks, a strip center along Michigan Avenue, said most operators of downtown Saline storefronts already have made the switch to unique concepts or the types of services that a big-box retailer can’t replicate. Instead of being a feared competitor, he said, Walmart “might bring more people downtown.”
But in the shopping centers between downtown and Walmart, the smaller stores that depend on the grocery anchors for traffic could feel the biggest impact.
“The strip malls will experience some intense competition from the grocery store end of it, “ Kinley said, “ and the secondary stores close to them that depend on them for a draw will see some effect.”
Larry Oesterling, president of the Saline Area Chamber of Commerce, has studied the impact of Walmart moving into a community since the store was proposed - and fought by many nearby residents - several years ago.
“I think they’re not so much in competition with the community (retailers) as they are with other box stores,” he said, citing as an example the Walmart location between two Ann Arbor area Meijer stores.
Reaction among Michigan chambers to Walmart entering a community “has been across the board,” Oesterling said. “Some felt they were not engaged. Some felt it revitalized (shopping).
“It certainly changes the rules,” he said. “ So far we have nothing but positive signs from them.”
Changing growth patterns
The county’s development outlook has changed dramatically since Walmart plans were submitted to the township in 2004.
Home development - once projected to grow rapidly as communities near Saline fielded requests for 1,000-home-plus subdivisions - now may not top 100 new units in 2009.And both commercial development and leasing have dramatically slowed in response to multiple factors, including a drop in available credit, the lack of market growth and tightening consumer spending.
Retail vacancy is up to about 10 percent in the county, said Jim Chaconas of Colliers International in Ann Arbor. Large chain retailers have closed - like Circuit City and Linens N Things - leaving major voids in shopping centers, and some smaller retailers are struggling to pay their rent. National outlets, which once heavily shopped this region because of its high household income and growth potential, now are contracting expansion plans.
Pittsfield Township Supervisor Mandy Grewal said she and her staff are treating the store like any business in the township, servicing permit requests and supporting it with other services as needed.
But, as a supervisor who wants to drive economic growth in the township, she’s also building on some of the concern expressed during the divisive years in the township to pursue a unified development vision.
Pittsfield just launched a master plan revision, which should come before officials by the end of 2010 with “the types of land use we want in Pittsfield Township.”
There will be space for commercial development and land preservation, she said.
“When the economy picks up, we will face development pressures again,” she said. “We want to be ready for when the pressures come.”
Room for more stores
State Street Crossing is ready to absorb additional retail demand as the Michigan and State intersection builds traffic via Walmart.
The center - located in front of the Walmart store on the same corner - was developed and opened before Walmart. Some stores signed leased and opened, anticipating a high-traffic center.But as the economy turned and construction was extended into this fall, the wait has taken its toll on progress in the center.
“(It’s been) phased in a strange way,” Maccardini said. “That’s probably more indicative of the economy.”
The site, she said, “will function primarily as a Walmart as opposed to a shopping center until they’re able to fill some of the other spaces.”
An indicator of how Walmart’s opening will affect the center can be seen in leasing activity: “We did two deals this month,” Ertel said.
That’s despite, as Kinley said, about the overall market, “retail is not expanding anywhere.”
Of the three buildings, the middle is fully leased, one has 2,800 square feet available and the third - the southernmost- remains vacant.
There also are five outparcels available for development, Ertel said, that likely will end up restaurants - including fast-food drive-thru - or banks.
“Initially when the project kicked off, (interest) was really strong and we were 50 percent pre-leased before we started construction,” Ertel said. “Things changed when the economy turned.
“We expect with Walmart opening, a lot of retailers will re-look to open there.”
Rental rates tell the story
Another indicator of expected Walmart-fueled demand at the property is the rental rate: State Street Crossing spaces rival some of Ann Arbor’s higher-traffic established centers. State Street Crossing has asking rates of $21 per square foot, compared to about $19 at Westgate on the west side of Ann Arbor.
In comparison, Country Creek - about 30,000 square feet just south of Michigan Avenue - asks $14 per square foot.
The highest non-campus retail rates in Ann Arbor are found along Washtenaw Avenue, where Arborland, at over 400,000 square feet, can ask up to $40 per square foot for smaller spaces and Huron Village is asking $35 per square foot. Traffic counts drive that asking rate, thanks in part by the US-23 exit. Daily traffic counts near Huron Village, for example, are about 34,000 vehicles. That compares to about 24,000 vehicles per day on Michigan Avenue near State.
But those numbers will climb simply because of Walmart. Marketing materials at Lakritz-Weber, the new leasing agent for State Street Crossing, said the location could cater to 80,000 cars per day.
“We expect traffic at that site to (grow) exponentially from the site today,” Ertel said.
That surge in traffic should feed ongoing development at the corner, experts said, even with the slowdown in household growth.
Impact on Ann Arbor
There is a big question over how successful Walmart will be in drawing customers from the Ann Arbor market, which remains the region’s population center and retail driver - thanks to high incomes and population density. There are 1,541 people living within one mile of the new store, but nearly 75,000 within five miles.
The location on South State will give access from the I-94 exit, while traffic from the east can use Michigan Avenue. Still, Maccardini said, it’s not a primary location for most Ann Arbor shoppers.
“It will be interesting to see whether folks will be drawn from the south side of Ann Arbor,” Kinley said. “ It may affect some of the south side Ann Arbor businesses more than people can anticipate.”
The Briarwood Mall and Arborland may be insulated from the effects, Chaconas said. Unclear is the Oak Valley Centre near Ann Arbor-Saline Road, and the Carpenter Road corridor.
“That size store will definitely change shopping habits,” Maccardini said. “Walmart is an extraordinarily competitive retailer.”
Oesterling says it’s inevitable that national chains would enter the Saline area.
He and others in the region are looking to judge Walmart’ success not just on sales, but on how it forges relationships in the community.
“As long as they’re willing to play fair and compete openly and honestly,” Oesterling said, “there’s room for them.”
Paula Gardner is business news director for AnnArbor.com. Contact her at PaulaGardner@AnnArbor.com or 734-623-2586.