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DALLAS — Retailers here were shielded from some of the worst fallout of the recession because of the diverse economy, population growth and revenue from the oil and natural gas industries.
This story first appeared in the October 15, 2009 issue of WWD. Subscribe Today.
But as key sectors adjust to new fiscal realities, the region is absorbing the impact of job cuts, rising store vacancies and home foreclosures.
Some economists predict recovery in the state will outpace a national rebound. Experts at the Federal Reserve Bank of Dallas expect minimal, modest growth in Texas in the first half of 2010, said D’Ann Peterson, a business economist at the Fed.
“Compared with the rest of the country, I think we are poised to come out of this,” Peterson said. “Our contacts don’t want to commit that the rebound is here…but they all say conditions are better than they were at the beginning of the year.”
Comparisons with other states in far worse economic shape, including California and Florida, are a recurring theme.
“There is no question that Texas as a state has held up better than the rest of the country,” said Karen Katz, president and chief executive officer of Dallas-based Neiman Marcus Stores and executive vice president of Neiman Marcus Group. “I always tell people, ‘You think it’s tough [here], but it’s so much tougher in other parts of the country.’”
Neiman’s, which reported revenue fell by $907 million to $3.64 billion for the year ended in July, has cut 956 employes this year, reduced salaries and shortened hours at some of its 41 stores.
The consumer spending decline also curtailed expansion and capital spending at J.C. Penney Co. Inc., which is headquartered in Plano, Tex., a Dallas suburb. The company had been opening about 50 stores a year but scaled back to 36 in 2008 and will launch 17 this year, with fewer than five expected next year.
“I keep hearing we’re better than the rest of the country, but I’m not feeling that,” said Crawford Brock, owner of Stanley Korshak, the Dallas luxury emporium that offers contemporary and designer fashions in 65,000 square feet of space near downtown. “We ran down 20 percent last fall in total [sales], so we have a chance of running flat in the fourth quarter. Next year we will start seeing some increases on [comparable sales of] 30 and 40 percent down.”
Brock has beefed up affordable lines while maintaining the core of luxury labels for which Korshak is known.
“The moderate business is not as hard, but you have to sell a whole lot of it to equal one Kiton jacket,” he said.
Terry Clower, director of the Center for Economic Development and Research and the University of North Texas, said shoppers will continue to be “very, very cautious” during the holiday season.
“Folks are going to buy their children clothes but instead of four new outfits or pairs of jeans maybe they get two,” he said. “And maybe it will be Wrangler versus whoever is the hot designer.”
Many of North Texas’ big employers, including American Airlines Inc., AT&T Inc., Texas Instruments Inc. and A.H. Belo Corp., among others, have furloughed thousands of workers.
In the Dallas-Fort Worth metroplex, which has 6.3 million people and recorded the biggest population gains of any metropolitan area in the last two years, the unemployment rate didn’t begin to rise until January. It now stands at 8.3 percent, compared with 5.3 percent in the year-ago period and 9.8 percent nationally.
Part of its resilience is because of the area’s Barnett Shale natural gas field, one of the largest in the U.S., which was pumping royalty payments to landowners, especially in Fort Worth. But that income — along with jobs in drilling and production — has dried up with the erosion of natural gas prices over the past year, Clower said.
Despite economic challenges, Dallas is pushing ahead with ambitious redevelopment. The linchpin is the $354 million AT&T Performing Arts Center, which opened Monday in the Arts District on the north edge of downtown.
A few blocks away, construction is to begin this month on a five-acre park, which will cover a recessed freeway and create a pedestrian link between the downtown and uptown sections of the city.
On the southwest side of downtown, workers broke ground in September on a city-owned $550 million convention center hotel to open in 2012 that will be operated by Omni Hotels. The project is part of an effort to attract more convention business.
A $115 million bridge designed by famed Spanish architect Santiago Calatrava is being built across the Trinity River, and plans are under way for a $185 million Perot Museum of Nature and Science supported by a $50 million gift by the children of data services magnate H. Ross Perot, a Texas native son.
In addition, the Dallas Cowboys last month opened the biggest football venue in the NFL — the $1.15 billion Cowboys Stadium in Arlington, located between Dallas and Fort Worth.
Texas consistently ranks at the top of surveys of economic indicators. Six Texas cities, including Dallas, Austin and Houston, were in the top 20 in second-quarter economic performance of the 100 largest U.S. metropolitan areas, according to a Brookings Institution study.
Housing prices in the state have fallen, but less than in other places. For example, Dallas area home prices slipped 1.6 percent for the year ended in July, compared with an average 13.3 percent drop in the nation’s 20 top metro areas, according to the S&P/Case-Shiller Home Price Indices.
However, fashion retailers are hardly unscathed by the downturn. Sales have slipped during a year that merchants describe as uneven and unpredictable.
Joanne Teichman, owner of Ylang 23 designer jewelry store at Galleria Dallas, said business softened last year after a record 2007 and has been up and down this year. She expects December sales will match last year’s.
“If it’s beautiful, unique and irresistible, it will attract the buyers who are in the market,” Teichman said.
One cause for concern is the Dallas-Fort Worth retail vacancy rate, which was 9.5 percent in the second quarter — one of the highest in the U.S., according to CoStar Group Inc., a research firm. That’s partly because 978,000 square feet came onto the market, the most of any market nationwide.
Dallas-Fort Worth is considered over-stored with 336.7 million square feet of total retail space — roughly 53.4 feet for each of the 6.3 million residents, according to figures from CoStar and the North Central Texas Council of Governments. The national average is 46.6 feet.
“It is such a consuming market that it can support too much retail, frankly,” said Alan Shor, president of The Retail Connection, a Dallas-based brokerage, consultant and developer. “But when the recession hit it was the perfect storm of too much retail, consumer spending decreasing and unemployment rising, and you see a bunch of empty space now. I think that will continue.”
Four major developments have had trouble filling storefronts and drawing traffic: Park Lane mixed-use center across from NorthPark Center mall in Dallas; Victory Park downtown and the suburban Village at Allen and Village at Fairview complexes about 35 miles north of downtown.
Park Lane, which opened in March, features Nordstrom Rack, Dick’s Sporting Goods and Aveda Institute as anchors and awaits Saks Fifth Avenue Off 5th, Old Navy and the Splitsville Lanes upscale bowling venue. But many of the smaller spaces are vacant, and observers criticize the center’s unwelcoming concrete-canyon design.
The Village at Allen, which opened last year, has big-box tenants such as SuperTarget and freestanding restaurants, but much of the space for smaller stores is empty. The situation is similar across Stacy Road at its sibling property in Fairview, where anchors J.C. Penney and Macy’s opened in August.
“Developers paid top dollar to buy and build a project and don’t have retailers willing to pay the rent,” Shor said. “It’s a tough, tough situation, which is why we will see a lot of retail properties going back to the banks. That cycle [of commercial property defaults] hasn’t even hit yet, and it will be even bigger than home mortgages.”
There also is the failure of retail at Victory Park, the ambitious $3 billion mixed-use project anchored by American Airlines Center and W Dallas Victory Hotel and Residences. Foot traffic has been scant, and many stores have closed, including J. Lindeberg, Quiksilver, Henry Beguelin, LFT and Jolie, plus several restaurants. Haven home furnishings and Noka Chocolate moved to centers with more traffic.
But the market is not without positive retail indicators.
Stephen Summers, a partner and director of leasing at the luxury Highland Park Village shopping center, said, “Our numbers are very good compared to the decline we have seen in the market. People like Hermès and Anne Fontaine are up.”
Tory Burch’s store at the center, where tenants include Anthropologie, Polo Ralph Lauren, Chanel and Carolina Herrera, is flourishing.
“Dallas has been one of our best stores because we have had a strong following in Texas from the beginning,” Burch said. “Dallas has also been one of our top performing cities for our wholesale business. ”
Designer brands continue to set up shop at NorthPark Center. Louis Vuitton, Hervé Léger, Henri Bendel, Bulgari, Buckle and Betsy Johnson are all preparing to open this year at the mall, which draws 100,000 visitors on an average Saturday, said Chris Szalay, marketing director.
Some independents also are optimistic. Laura Bartlett, owner of L. Bartlett at West Village mixed-use center, opened Uptown Makeup cosmetics shop in September directly across from her three-year-old fashion boutique.
“It’s funny because we really started dong well as the economy was turning down,” Bartlett said. “We moved locations in February ’08 to a better-trafficked area in the West Village. And when things started to change we tried to go with the flow and offer good products at more reasonable prices. We ramped up our accessories business because a fun, statement necklace is an easier and cheaper way to freshen an outfit instead of a $200 blouse.”