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SAN ANTONIO — Stanley Marcus, the visionary retailer, visited this city about 35 years ago to scout for a store location. His conclusion: It wasn’t Neiman Marcus territory.

Times have changed.

San Antonio, the second fastest-growing major U.S. city after Phoenix, is emerging as a retail center that generated a total of $7.2 billion in revenue last year compared with $4 billion in 1992, according to San Antonio Convention and Visitors Bureau statistics.

Neiman Marcus and other retailers have taken notice. The high-end chain will open its first store here next September at The Shops at La Cantera, a 1.3 million-square-foot open-air center being built by Rouse Co. that also will be anchored by Dillard’s, Foley’s and San Antonio’s first Nordstrom.

“San Antonio is really a city that took its time getting through the 20th century, but it is going to hit the ground running in the 21st century,” said Travis Tullos, a partner in Texas Perspectives, an economic research firm based in Austin, Tex. “We’re on the radar screen in a way that we weren’t 10 or 12 years ago.”

While The Shops at La Cantera is in the city’s northern tier, a growing white-collar residential community, developers also are trying to revitalize the downtown business district, which has about an 80 percent occupancy rate for both office and retail space on the streets near the River Walk promenade. They have renovated several properties on Houston Street, where the slick Hotel Valencia Riverwalk opened last year with most of the facade of the 1922 high-rise intact and a transformed interior featuring waterfalls and mood lighting. The new contemporary Tex-Mex restaurant Acenar is next door.

Several condominium and apartment projects are under construction or planned, including the conversion of the Frost Brothers department store into 45 luxury condos to open late this year, and 250 apartments are being built at the north end of downtown, said Ben Brewer, president of Downtown Alliance, a consortium of firms advocating development.

“We’re looking at soft goods retailing coming up next downtown, because there is more of a movement to downtown living,” said Mona Lowe, president of Reata Property Management, which oversees buildings on Houston Street as well as the suburban Alamo Quarry Market and Alamo Crossing shopping centers.

This story first appeared in the October 6, 2004 issue of WWD. Subscribe Today.

Though developers enthuse about a boom, some economists are more cautious.

“We’ve had steady, good growth, but not anything major,” said Keith Phillips, senior economist with the San Antonio branch of the Federal Reserve Bank of Dallas. “Due to changes in Medicare spending, we are seeing good growth in health care, and generally we are doing pretty well.”

In fact, San Antonio is faring better than some of its urban rivals in Texas, Tullos said.

“We maintain indexes on the rate of overall growth, considering employment and retail sales tax base, and if you look at that, San Antonio is in a stronger position now than Austin or Dallas in terms of the steadiness and progressiveness of its growth,” Tullos said.

In June, San Antonio passed Dallas as the eighth-largest U.S. city, reaching a population of 1.2 million, according to U.S. Census data. Dallas fell behind by 6,407 residents, though its metropolitan area has triple the population of San Antonio’s 1.7 million. And San Antonio draws 20 million visitors a year, including 450,000 Mexican nationals.

The population has grown as the economic base broadened. In the past few decades. The city has shed some of its reliance on military bases, though they are still important in a place that is known to members of the armed forces as “Military City, U.S.A.” There are three Air Force bases here — Brooks, Randolph and Lackland — and Fort Sam Houston Army Base.

Some veterans like the area so much that they return once their working days are over, according to the Greater San Antonio Chamber of Commerce. A poll this year by named Fort Sam Houston as the number one retirement choice because of its weather, amenities and services.

The medical community since the opening of the University of Texas Health Science Center in 1969 has expanded to become the top economic producer in the city. Medical treatment, biotechnology and cancer therapy research pump $12 billion into the economy each year and offer high-paying jobs.

Most medical facilities are concentrated near the South Texas Medical Center, about 10 miles northwest of downtown. The area houses the University of Texas Health Science Center, the university’s San Antonio Cancer Institute and nine hospitals. Outside its perimeter are several other medical facilities, including the Brooke Army Medical Center at Fort Sam Houston, the major training center for Army medics and the home of the Army Medical Service.

While many people come for medical treatment, most visitors are drawn by the city’s gracious, easy lifestyle that blends the laid-back influences of southwest Texas and Mexico.

The River Walk downtown is the heart of the city’s renaissance as a tourist destination. The 2.5-mile promenade curving along both sides of the San Antonio River below street level has outdoor cafes and bistros as well as hotels and shops. With its frequent tour boats, festivals and souvenir peddlers, the River Walk has something of a festival atmosphere, which is not surprising considering its overall plan was conceived in 1961 by Marco Engineering Co. of California, which engineered Disneyland.

San Antonio has plenty of other attractions that make it popular with families, including the revered Alamo mission, where 189 men held off a Mexican army of 5,000 for 13 days in 1836 during the Texas War of Independence until all of them were killed. The downtown historic site gets 2.5 million visitors a year.

Tourism and business appear to have increased this year, said Jay Adelman, who owns J. Adelman Antiques, Art and Estate Jewelry in the historic Menger Hotel on Alamo Plaza, where Teddy Roosevelt recruited many of his Rough Riders. “We have people coming from all over the U.S., and they are spending money on big-ticket items,” Adelman said.

Most of the better stores are about a 10-minute drive north of downtown around the affluent neighborhoods of Alamo Heights, Olmos Park and Lincoln Heights.

The granddaddy of retail is North Star Mall, built in 1960 and located 7 miles north of downtown and less than a mile south of San Antonio International Airport. Anchored by Saks Fifth Avenue, Macy’s, Foley’s, Dillard’s and Mervyn’s, North Star averages $540 a square foot in sales, which have edged up 2 percent this year, mall officials said.

A few miles southeast of North Star is the Alamo Quarry Market, which opened in 1998 in a former rock quarry, retaining the towering smokestacks of the old concrete plant as its signature. Alamo Quarry, located in Lincoln Heights, mixes specialty stores with big-box retailers in an open-air center flanked on two sides by golf courses. Women’s fashion tenants include Tootsies, Harold’s and White House Black Market, while the behemoths are Whole Foods, Office Depot, Bed Bath & Beyond and Borders Books.

“Gross sales have been on a steady rise,” said Lowe of Reata Property Management, noting that average sales per square foot are $400. “It is a rock-solid market ensconced in high-end neighborhoods.”

Sixteen high-end housing developments are situated in this area and north along Interstate 10 and the outer loop of Highway 1604. These clusters are about a 20-minute drive from downtown — outside of rush-hour traffic. And that’s where The Shops at La Cantera center is under construction.

The Shops at La Cantera will be a pedestrian-friendly, village-style center in a planned entertainment district. Its neighbors are a popular luxury golf resort, the Westin La Cantera, and Fiesta Texas amusement park.

“It’s unusual to find a market such as San Antonio that, for all practical purposes, is really under-retailed,” said Bill Hecht, vice president of leasing at Rouse Co., which owns North Star and is developing La Cantera with USAA Real Estate. “Given our results to date on leasing, we will activate our expansion of the project sooner than we thought we would.”

Traditional mall stores and theme restaurants have leased 70 percent of the 1.3 million square feet of space, and Hecht’s team is focusing on luxury tenants. Next year he expects to shift their attention to a 250,000-square-foot expansion. He declined to reveal any tenants except the four anchors.

The Rouse Co. is styling La Cantera with clusters of buildings, covered walkways, gardens, fountains and a playground. It even uprooted and maintained 40-year-old oak trees that will be replanted on the property.

“The timing was right,” said Neva Hall, executive vice president of stores at Neiman’s. “The economy has been strong, and San Antonio is one of the fastest-growing cities in Texas and probably the number one tourist destination in the state.”

Neiman’s 120,000-square-foot unit here is expected to perform among the chain’s middle stores, which would put it at about $55 million in annual sales, though Hall declined to project revenue. It will be one of a handful of Neiman’s to have a full-line Hermès shop.

“We didn’t think the market was strong enough for our own store, but we think we will do very well within Neiman Marcus,” said Robert Chavez, president and chief executive officer of Hermès USA, who grew up in San Antonio.

While acknowledging that competition will stiffen, city retailers welcome Neiman’s and La Cantera.

“The more retail that comes, then the more ambience there is,” said Steve Skoda, merchandise manager for Julian Gold, a better and bridge women’s fashion chain based in San Antonio with stores in Austin, Corpus Christi and Midland. “Our business is great.”

Julian Gold has prospered this year by adding Armani Collezioni and concentrating on mother-of-the-bride dressing to complement its three-year-old bridal salon, he said.

But there’s some question about how interested the local market will be in designer duds. Houston-based Tootsies, for instance, phased out almost all designer labels at its San Antonio unit over the past three years.

“There are a handful of people who can afford it, and [some] of those people shop out of town,” store co-manager Sharon Sizemore said. “San Antonio is really laid back, so we do a huge business with our contemporary lines, jeans and T-shirts, though we do sell dresses and cocktail suits for events.”

Chico’s FAS Inc. is considering opening a White House Black Market boutique at La Cantera but has to “make sure the economics work,” said Mori Mackenzie, executive vice president and chief stores officer.

“For the first time, San Antonio will have a mall with great luxury anchors so that is very exciting,” Mackenzie said. “I think the challenges will be, is the center a little too early or too high end? We see it as a new race car — fast, prestigious and everybody will want to test drive it.”

Chico’s has one White House Black Market unit at Alamo Quarry that performs at the chain’s national average, as well as four Chico’s in San Antonio that are at or above average, she said, without citing figures.

The Saks at North Star is strategizing about how to maintain momentum when La Cantera opens next year. Plans call for remodeling the store and adding 8,000 square feet for designer assortments.

“Our overall business has been extremely good,” said Bobby Dees, vice president and general manager. “Prior to this [spring] season, we had been outpacing the company.”

He attributed some of the gains to beefing up the selection of handbags by Chanel, Gucci, Prada and Louis Vuitton and adding Jimmy Choo and Christian Dior shoes.

San Antonio is quick to jump on trends partly because of its 51 percent Hispanic population — many of whom have been in the city for generations — and Mexican tourists, retailers said.

“Latinas adapt fashion early, and they want to lead it,” said Manny Fernandez, multicultural-specialty marketing director at J.C. Penney, which has five stores in the area and is building a full-line store at Rolling Oaks Mall in the northeast area of the city.

“People are getting a lot more trendy and knowledgeable and up-to-date on what’s in,” said Vanna Organ, co-manager of Tootsies.

San Antonio Facts

  • City population: 1.2 million

  • Metro area population: 1.7 million
  • Rank among 10 largest U.S. cities: 8
  • Household median income: $36,706
  • Texas household median income: $41,376
  • U.S. median income: $42,228
  • Unemployment: 4.8 percent
  • Annual tourists: 20 million
  • Visitors from Mexico last year: 450,000
  • Top economic generators: Health care and bioscience, especially cancer therapy; tourism.
  • Famous residents: Tommy Lee Jones, Dixie Chick Emily Robison,country singer George Strait.
  • Most famous landmark: The Alamo
  • Metro area ethnicity:
  • Hispanic: 51 percent
  • White, non-Hispanic: 40 percent
  • Black: 7 percent
  • Other: 2 percent

Sources: U.S. Census, U.S. Department of Labor, San Antonio Convention and Visitors Bureau, Texas Workforce Commission, Greater San Antonio Chamber of Commerce; North Star Mall.