Phoenix: an economy making the rebound - Phoenix, AZ

Discount Store News, Oct 4, 1993

Until three years ago, home-grown retailers such as Smitty's, a supercenter operator, Factory 2-U, an apparel closeout chain with some hard lines, and Popular, a sporting goods chain, had the Phenix market to themselves--with the exception of Kmart. Sam's Club, for example, has yet to enter Arizona. But the arrival of national retailers, most recently Wal-Mart, Target, and The Sports Authority, along with upheavals in the Mexican economy, forced local chains to overhaul their operations.

This report and a trio of accompanying articles (right, and on p.16-17) by DSN associate editor Richard Halverson describe how they have adapted to changing conditions in a metro market that is showing strong signs of recovery from the '91-92 recession.

PHOENIX -- The Phoenix metro market, ninth largest in the United States, shows signs of recovering, with retail sales, personal income, population growth and job development on the upswing.

"People think things are going to get better and that Phoenix is a good bet," said Tracy Clark, senior economist for the Economic Outlook Center at Arizona State University, Tempe. "I'm fairly optimistic."

Personal income is growing at the rateof 6.4%, up from 4.6% last year and 3.5% in 1991, Clark said. For 1994, he predicts a further increase of 7.4%, or real growth of 3.4% after adjustment for local inflation.

Population growth is up from 2.3% in '92 to 2.5% this year, with a further gain to 2.6% next year. A tenth of a percentage point is significant growth in population, Clark said. More than half of Arizona residents, 2.2 million, live in the Phoenix metro market--57.9% of the state total of 3.8 million.

"The economic outlook is improving," he said, and the population growth curve is sustaining growth in single family housing--good news for retailers of bed, bath, furniture and lawn and garden items. Widespread mortgage refinancing also is fueling sales, he added.

As the Arizona Department of Revenue reported, taxable retail sales, including auto and restaurant and bar revenues, improved from a puny 1.8% gain in '91 to a 7.5% increase last year. Although sales will slip to an estimated 6.1% this year, they will hit at least 6.6% in '94, Clark said.

For the first seven months of 1993, general merchandise sales for Maricopa County, which encompasses metro Phoenix, rose 4.6% to $1.05 billion, reportd the First Interstate Bank in its latest monthly report on retail sales. That compares with a 4.3% growth for Arizona as a whole.

In keeping with national trends, apparel and accessory stores in Pheonix posted a minuscule gain of 0.8% to $320.5 million from January through July, the bank concluded, compared to 6.4% for building materials stores and 5.1% for furnitures stores.

Job growth shows a less-robust picture, Clark conceded. The number of jobs rose 1.1% in '92, after falling a bit in '91, and should gain 2.4% for '93. Next year, total employment should rise by 3.3%, he said.

The Arrowhead Towne Center, a 1.3 million-sq.-ft, shopping mall, will add 3,000 jobs when it opens next week in the understored northwest sector of the market. Co-anchor's are Mervyn's, Target's sister department store chian, Robinson-May's, Dillard's, JCPenny Dillard's JCPenney and Montgomery Ward.

A recent Target store, one of 10 in Phoenix, operates across Bell Avenue from Arrowhead in the North Valley Power Center, as the Phoenix retailer community calls malls that feature a number of destination stores. Home Express, a bed and bath housewares chain based in Hayward, Calif., is set to open a unit there next month. The opening will put store count at 14 and mark the chain's first expansion since it emered from Chapter 11 bankruptcy.

Kmart has 17 stores in the market and Wal-Mart eight. A 30-year-old local chain, Smitty's Super Valu, operates 22 supercenters, combining general merchandise and food.

In warehouse clubs, Price dominates with six and a seventh under construction in a power center. Pace has three clubs, and has opened a new prototype in Tucson, the state's second largest market, where it will face two Price Clubs.

Popular, a Phoenix-based sporting goods chain, opened another unit last month in the suburb of SCottsdale.

The Scottsdale Pavilion, on an Indian reservation on the Salt River, is another example of retail strength. It is considered another power center, and features a Home Depot and Sears furniture store.

The metro Phoenix market, referred to as The Valley, encompasses 9,226 sq. miles, and residents are used to driving distances to shop.

The new Arrowhead mall may well be the last regional shopping mall for the area. Phoenix discounters prefer to build standalone stores, such as the new Wal-Mart and Smitty's on Bell Avenue, rather than anchor a mall.

Wal-Mart opened in May its foreign trade zone project, featuring a 1.2 million-sq.-fit. distribution center, in Buckeye, 30 miles southwest of Phoenix. The 200 DC employees process goods that Wal-Mart imports either for use in the United States or in foreign markets, such as Mexico.