Newcomers add sizzle to hot market - discount store chains in Chicago - Regional Analysis: East North Central

Discount Store News, May 8, 1989

Newcomers Add Sizzle to Hot Market

CHICAGO -- Chicago is both understored and overstored; thriving and solidifying.

For instance, The Chicago Tribune estimates that retail square footage has expanded by some 20 percent over the past four years, and will probably continue to grow at a similar rate, about 5 to 7 percent, over the next three or four years.

On the other hand, Professor Louis W. Stern, a marketing lecturer at Northwestern University's Kellogg Graduate School of Management, said flatly that Chicago is "overstored."

They both may be right. Urban Chicago, which is heavily stocked with Venture, K mart, Zayre, Marshall Field and a host of other retailers, may well be overstored in certain areas, as is the case with many of the city's major suburbs.

However, Cook County (mainly, urban Chicago) has only 12 square feet of retail selling space per resident, vs. a national average of about 15, and several suburbs are below that figure, according to Tribune marketing manager Bruce Kramer.

In contrast, relatively affluent suburbs like Du Page and Lake Counties boast 25 square feet to 27 square feet of shopping space per capita. With the blitz by consumer electronics superstore retailer Silo last fall (14 stores and 11 more within Marshall Field department stores), Bloomingdale's entry into the downtown scene (also last fall), and the recent opening of an Auchan hypermarket on the city's perimeter, the retail market is becoming increasingly competitive.

"The hypermarket will have to take consumers away from existing retailers," said Northwestern's Stern, adding that, with the latest developments in power specialty stores and hypermarket formats, mass retailing should probably be referred to as "massive" retailing in the future.

The consumer electronics market has been particularly hot in Chicago over the last year. Apart from the Silo invasion, Highland Superstores has been growing, Montgomery Ward's Electric Avenue outlests have been successful, and Best Buy is rumored to be looking at the market. This year will also see the debut of Sear's Brand Central stores in Chicagoland.

There may be a bloodbath coming. Major players, in market share order, include Service Merchandise, Radio Shack, Sears, Highland, Venture, Montgomery Ward, K mart, Fretter, JC Penney, Zayre (now owned by Ames) and Polk Bros., according to a Tribune market study. Fretter is reportedly under pressure, and others will probably follow in 1989.

Marshall Field ranked only 12th in market share and nearly dead last in converting shoppers into buyers, but that will probably change as Silo becomes more established.

Fashion apparel is another growth area, with traditional department stores like Field and Carson Pirie challenged by the media circus created by Bloomingdale's opening. Bergner stores, basically a secondary market retailer, is also strong in the area, and has just made a $20 a share bid to take over Carson Pirie Scott.

Home center superpowers like Builder's Square dominate Chicago's booming building supply market, which is in the process of heavy gentrification. Housing costs are extremely high in downtown Chicago, and the practice of rehabilitating existing structures is both aesthetically and financially rewarding.

Wal-Mart is in the process of ringing the city in the outer suburbs, and is already a major player there. As it continues to open stores, it will put pressure on both K mart and Venture, and even more on Zayre, which recently closed several stores.

City Unkind to Warehouse Clubs

The city has also proved to be highly resistant to the warehouse club concept. The Warehouse Club failed miserably, as did American Wholesale Club, and BJ's has had a long, hard road to profitability.

Chicago is the third-largest market in the United States, with a population of 6.2 million, after New York and Los Angeles. It has the second-largest black population in the U.S. (about 1.5 million of the city's residents) and contains the country's fifth-largest concentration of Hispanics.

Support is lent to the understored theory about Chicago by its relatively poor standing in per household retail sales. Chicago is third in the country in total retail sales, about $38 billion, but only 170th in per household retail sales, less than $17,000 per household.

However, it appears that inner Chicago is undergoing something of a renaissance. In recent years, an exurban migration has boosted mall sales in the suburbs at the expense of the inner city. That seems to be turning around somewhat, as gentrification has attracted new retailers. North Michigan Drive, which Chicagoans are promoting as the "Rodeo Drive of the Midwest," has become home to Bloomingdale's, high-end specialty retailers, several luxury hotels and may soon host the ultra-hot Nordstrom department store.

The net result, according to The Chicago Tribune, should be a sharp increase in retail sales in the Chicago MSA from $52.4 billion in 1987 to $78 billion in 1992. Per household retail sales are expected to rise to $25,600 from 1987's $17,800.