Chicago: A diverse economy blows through the Windy City
The Chicago metro area has seen its share of ups and downs, but it always seems to bounce back stronger than before.
The area includes about 9.5 million people and has the third-largest metropolitan area nominal gross domestic product at $670.5 billion in 2017, an increase of about 3% over 2016. It is considered a highly-diverse economy, and is home to the headquarters of 57 Fortune 1,000 companies, including Deerfield, Ill.-based Walgreens.
In addition to its status as a transportation and distribution hub, the Chicago area is home to major food processing, manufacturing, printing, publishing, finance and insurance businesses. In fact, Chicago’s economy reflects, to a large degree, the U.S. economy overall, with no single industry making up more than 12% of employment, according to local business leaders.
Chicago also has seen an influx of digital innovation, with an average of more than 300 new digital start-ups launched per year between 2011 and 2016, according to public-private nonprofit World Business Chicago.
The Chicago area has seen a fair number of retail closures in recent years, even amid new store openings. The exit of grocer Dominick’s contributed to an overall decline in square footage in the city and its close-in suburbs.
“The combination of nearly 1 million sq. ft. of Dominick’s space being absorbed by the market leaders over the past 24 months, combined with short-term bankruptcies and the ever-present threat of Amazon’s launch into grocery, has created a stall and step backwards in urban Chicago,” said Dan Tausk, principal and director of urban tenant brokerage at Mid-America Real Estate, who authored a recent study of
the market along with intern Dan Maentz.
The bankruptcy of the Central Grocery cooperative last year also added some turmoil, forcing its 400 independent members left to find new supply sources. That also led to the closure of three Ultra stores and one Strack & Van Til store Central had operated. Other recent closures included two of Meijer’s small-format locations, though it maintains a strong presence in the Chicago suburbs. Walmart also recently closed two Neighborhood Market stores and all of its Walmart Express locations.
Chicago has long been a leading market and a testing ground for Walgreens, and in 2012 the chain built a new flagship location on the corner of State and Randolph where a Walgreens store had stood from 1926 to 2005. Walgreens has debuted several initiatives in the market, including its first click-and-collect service in 2011 and what is believed to be the first net-zero energy store in the U.S., in Evanston, Ill.
Among the other drug chains, CVS Pharmacy has less than half the presence of Walgreens, according to reports, while Camp Hill, Pa.-based Rite Aid has no stores in the market, though its pending acquisition by Albertsons could bring its presence to the Boise, Idaho-based grocer’s Jewel-Osco chain — one of the longtime leading food retailers in the market, with 51 stores in the city and the close-in suburbs, according to the Mid-America report. Aldi, based in nearby Batavia, Ill., had 49 stores.
The market also is home to Kroger banner Mariano’s Fresh Market, which is expanding with large, experiential stores throughout the market. In the past year, new stores from both Mariano’s and Whole Foods have opened in the region.
“Gourmet grocery will continue to drive shopping center growth and provide an anchor for higher-end, junior-box tenants in the Chicagoland area,” said Andy Bulson, a principal in Mid-America, in a report on the Chicago shopping center growth outlook.
In addition, Target has been one of the more aggressive retailers in the Chicago area, with eight of its smaller-format stores already open and at least one more planned for 2018.
Dallas-Fort Worth: Healthy economy added 100K jobs in 2017
The Dallas-Fort Worth market is projected to continue to have a robust economy in 2018, with broad-based job creation driven in part by the state’s oil wealth.
The market added more than 100,000 jobs last year, and unemployment remained below the state level of about 4%.
The Dallas-Fort Worth metropolitan area’s economy is the fourth largest in the country in terms of nominal gross domestic product at $577.5 billion, according to the U.S. Bureau of Economic Analysis. That represented economic growth of nearly 13%, the strongest in more than a decade.
The Dallas-Fort Worth Metroplex, as the market is called, is the fourth-largest metropolitan area in the United States, with a population of more than 7.2 million, and in 2016 was the fastest-growing major metro area in the United States in terms of population.
The area is home to one of the largest concentrations of corporate headquarters of any metropolitan market in the United States, and as a result, business management and operations represent an important component of the economy.
CVS Pharmacy and Walgreens have fairly even market shares in the Dallas-Fort Worth Metroplex, according to a 2015 research report from Barclays Capital. Rite Aid does not have a presence in the market. CVS Pharmacy was reported last year to be gearing up to open the only drugstore in downtown Fort Worth, a two-story location that was scheduled to open this year.
The area also is Walmart country. According to Metro Market Studies data reported in the Dallas News, Walmart captured 28% of the grocery market in 2017 with 135 stores, nearly double the market share of the second-largest grocer, Cincinnati-based Kroger, which garnered 14.3% of sales from its 93 locations in the market. The chain added seven stores in the market between 2016 and 2017, and added more than a full percentage point to its market share, according to the Metro Market Studies data.
Albertsons also has a significant presence in the market through both of its namesake Albertsons stores and its Tom Thumb chain, acquired in the Safeway merger, along with the Market Street format, a division of Lubbock, Texas-based United Supermarkets, which Albertsons acquired in 2013.
Other chains that have been growing in the Dallas market include local operator Brookshire/Super 1, which added seven new stores for a total of 34 and a 2.5% grocery market share; Fiesta Mart, with five additional locations and a 4.1% share; H-E-B, which operates both traditional stores and its upscale Central Market banner in the Dallas area, for a total of 11 locations and a 2.5% share.
Austin, Texas-based Whole Foods Market also has a 2.5% share with its 13 locations, three more than in 2016, according to Metro Market Studies. Phoenix-based Sprouts Farmers Market added two stores and captured 2.1% of the grocery market.
One of the biggest changes in the food retailing landscape is coming from Boise, Idaho-based big-box discount retailer Winco, which now has nine stores in the market and 3% market share, up almost a full percentage point over a year ago.
The market also is one of a handful where Amazon launched same-day grocery delivery from its Whole Foods banner through its Amazon Prime Now service.
According to a recent report from Weitzman, a Dallas-based real estate brokerage firm specializing in retail space, many consumables retailers are finding locations in existing retail centers rather than building new centers.
“Due to the lack of development options in built-out markets, grocers such as Winco Foods, Tom Thumb and Central Market are adding stores by backfilling vacancies in existing community centers,” Weitzman’s report said.
St. Louis: Value in focus in vie for Gateway City shoppers
A declining population in the St. Louis metro area is exacerbating a competitive retail marketplace dominated by Schnuck Markets, Walmart and Walgreens. Meanwhile, no-frills discount chain Aldi is ramping up the pressure on traditional grocery retailers. Lidl, a similar German-owned chain, is rumored to be opening stores in the area soon.
Analysts said a declining population could mean everything from price wars to declining sales potential to flat growth, which may lead to operational changes and sometimes even store closures. Certainly, St. Louis is not a robust market for building or remodeling stores — unless the retailer is Aldi.
The German discount chain is renovating dozens of its stores in the St. Louis metro area. About $49 million is being spent to spruce up stores and become more of a retail factor through a nationwide remodeling program.
Since the discount chain’s calling card is lower prices, its stepped-up presence will apply considerable pressure on traditional grocers Schnucks and Dierbergs Markets. The former controls a 28.6% market share, while Dierbergs stands at 10.4%, according to ARM Insight. Walmart has a significant share with 27.4%.
And then there is Amazon.
The dot-com giant — always a market disruptor — will open its first fulfillment center in St. Peters, Mo., in May 2019. The warehouse’s legendary robotic technology will efficiently give Amazon Prime customers in the St. Louis area next-day, and perhaps even same-day, delivery of thousands of products.
“Stores that are most vulnerable to online competition will likely feel more pressure and may be the first retailers squeezed out of the market,” said Douglas Munson, principal at MTN Retail Advisors, said. “Declining population will eliminate current struggling chains and force the surviving chains to reconcile their existing store network.”
Lari Harding, vice president of product strategy and marketing at Inmar, doesn’t believe that a declining population and decreased foot traffic will automatically result in a store closure. Changing marketing conditions could first lead to other less dramatic responses, such as limiting labor hours.
“If sales do dip enough to make closing a store a serious consideration, it will not be a quick decision,” Harding said. “Retailers will consider several important factors, including real estate and unionized stores, as part of the decision-making process. For real estate, do they rent or own the land? What are the conditions of the lease? When is the lease up? In the case of unionized stores, closing is further complicated by the likelihood that the retailer may have to offer senior, higher-paid employees jobs at another store — potentially shifting labor costs to other stores that may be facing similar challenges.”
In the drug channel, independent pharmacy’s market share is almost gone. Walgreens has more than an 80% share of the drug store business in St. Louis, while CVS has a 14% share.
Inmar’s Harding urges supermarkets to open in-store pharmacies to give the drug chains some competition. Inmar’s 2018 Shopper Behavior Study found that more than 44% of shoppers rate the ability to shop for groceries at the same location as “important” or “very important” in selecting a pharmacy to fill their prescriptions.
Schnucks operates pharmacies in two dozen stores in St. Louis. Dierbergs Markets operates pharmacies in its half-dozen urban stores.
“These retailers, responding to the growth of retiring baby boomers, will have to execute an assortment change that recognizes and enables the shopping habits and preferences of this group,” Harding said. “ “This change represents an opportunity for retailers to drive additional sales in a number of categories, particularly in health care and personal care where retailers can elevate OTC medications and beauty aids.”