Retail market a tale of two cities – thriving in downtown Chicago, mixed-bag in the suburbs

Alama Drafthouse, a high-end dine-in theater, is targeting the Chicago market.

Alama Drafthouse, a high-end dine-in theater, is targeting the Chicago market.

by Dan Rafter

Illinois Real Estate Journal recently spoke with Patrick Owens, senior vice president of retail advisory services in the Chicago office of Transwestern, about the strength of the retail market in Chicago. Here is some of what he had to say about the new retailers targeting Chicago and the suburbs.

Illinois Real Estate Journal: I know this is a broad question, but how strong is the retail sector today in Chicago and its suburbs?
Patrick Owens: It’s been a relatively sound retail market, especially compared to the days of the recession just a few years back. It’s really a tale of two cities, though. The city is extremely hot when it comes to retail, especially in markets like the Loop, Fulton Market and Wrigleyville. National credit tenants are expanding in the city. New ones are targeting the area. The suburbs are more of a mixed bag. The closing of Sports Authority will lead to opportunities in the suburbs. But it will also lead to more immediate vacancies.

IREJ: What are some of the national retailers that are targeting Chicago and its suburbs? What are some of the new retailers we can look forward to seeing here?
Owens: The new expansions are clustered in three segments, the restaurant, theater and fitness segments. There are many restaurants with hot new concepts coming to town. Raising Cane’s Chicken Fingers out of Dallas is a 265-unit chain that targeted Chicago about a year ago. They should be here soon. PDQ, a barbecue chain out of Tampa, is also targeting Chicago. We should see continued expansions of Miller’s Ale House, Starbucks and Panera Bread in the Chicago area. These new users are pushing restaurant rents to premium levels we haven’t seen before.

IREJ: You mentioned theaters, too. Are you seeing new theater developments coming to Chicago and its suburbs?
Owens: AMC Theaters continues to be the market leader in Chicago. But we are seeing new entrants such as Cinepolis, a theater chain from Mexico, and Alama Draft House, a dine-in brewery theater concept. Another chain that is targeting Chicago is Imagine, a theater chain out of Michigan. So we are seeing a very active theater market. You usually don’t see that many new theaters being built on a regular basis, but we are seeing plenty of deals under discussion. Existing chains are also investing in their theaters, like AMC did with its Block 37 theater. They are putting in new, more comfortable recliners and adding better menus. We are seeing a lot of evolution in the theater segment right now.

Cycling-based fitness center Flywheel Sports plans to expand in Chicago.

Cycling-based fitness center Flywheel Sports plans to expand in Chicago.

IREJ: And with physical fitness? What trends are you seeing in the Chicago area when it comes to new physical fitness retailers?
Owens: We are seeing companies such as Flywheel Sports, SoulCycle and OrangeTheory Fitness opening new locations in Chicago. These are some of the smaller fitness retailers that are expanding in the market. Planet Fitness is very active on the discount side. That retailer continues to roll out new locations throughout the market.

IREJ: Are you seeing any other retail trends here?
Owens: The mattress build-up has finally slowed down. With Sleepy’s and Mattress Firm getting together, we are hearing about rumored closures in that segment. We are also seeing steady activity among discounters. Ross Dress for Less is continuing its large Chicago rollout. Duluth Trading Company has already started construction on new stores in the Chicago market. Tuesday Morning continues to expand and reposition itself. Discount is definitely another area in which we are seeing some solid expansion.

IREJ: How about trouble areas? What type of retailers are struggling today?
Owens: The office-supply segment faces some real concerns with the Staples and Office Depot merger being shot down. We still see too many big-box locations in the office-supply segment that don’t need to be nearly as large as they are. The entire market is watching to see what happens with Staples and Office Depot. With the closing of Sports Authority, we will see new vacancies, but that will also bring new opportunities for retailers. Some mid-boxes might get together to split those locations up. We might also see bigger boxes looking to take entire locations. I’m sure Dick’s Sportingn Goods is looking at some of those spaces.

IREJ: What are consumers looking for these days when it comes to retail?
Owens: The retail market is still largely in a state of transition. This was escalated by the recession. During the recession, the weaknesses of retail were exposed. Stores were too big. Customer service wasn’t there. The recession certainly hurt, but those weaker retail players were already having problems before the economy went bad. We will now continue to see more Internet shopping. No one believes, though, that brick-and-mortar stores will go away. That was the big fear 10 years ago. No one believes that will happen now, though. What retailers need to figure out is how they can manage both the Internet and brick-and-mortar side of things. The most successful retailers will be the ones who can make those two channels – or three channels if you count catalogues – work seamlessly. I can order something online. If it doesn’t fit I can take it back to a physical store to return it. Or I can order something online and pick it up at the store. L.L. Bean does this well. The customer service and the seamless integration of their online and physical stores has been there with them.

IREJ: Which retailers are struggling with this right now?
Owens: One that is still grappling with this is the Gap. The Gap has multiple outlets. If I buy something from Banana Republic, I can’t take it back to an Old Navy. Customers are looking for that convenience, and the Gap isn’t providing it right now.

IREJ: It sounds like you envision a future in which the brick-and-mortar locations of retailers work better with their online sales.
Owens: Yes. You keep hearing the Amazon brick-and-mortar rumors. I think those will come to fruition. I think it’s inevitable that Amazon will open brick-and-mortar stores. It will be interesting to see how that goes. Operating in the world of physical locations is nothing like operating in the online world. Being able to deliver that customer service in the brick-and-mortar world when you are relying on people instead of processes will be a challenge for Amazon. I think you need both to be operating well. If I have a book title that I know I want, I might not necessarily want to battle mall traffic to hit Barnes & Noble. I might just want to go online, make an order and have that title delivered the next day to my doorstep. But the next day, I might want to go to a Barnes & Noble, get some coffee, read some books and spend a few hours perusing what they have.

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