Dear Whittier: Even if We Use Our Retail Space, We May Still Lose It
- Chris La Farge
- Sep 6, 2018
- 7 min read
Updated: Nov 14, 2018
In this third installment of my series taking a critical look at the Whittier Boulevard Specific Plan, I explain why a few of our stores are closing and how one could be replaced by apartments or condos. (#whittier #retail #amazon #sears #stores #storeclosures #planning)
In my first installment of this series, I highlighted how the Whittier Boulevard Specific Plan (WBSP) allows multifamily residential developments to replace commercial and industrial uses all along the thoroughfare's six miles in the City. I presented different multifamily projects that have been completed or are under construction. We've become familiar with these developments and most of us don’t want them. Yet even as construction proceeds, at least one more project may end up in the pipeline because the WBSP is the City’s policy and because brick and mortar retailers are failing.
In the last month or so, we learned that Herbie's Natural Foods will be closing very soon along with Battels Hardware. Both are examples of small "mom and pop" shops that offer unique and specialized goods and service to Whittierites. Make no mistake, these are losses in customer selection, jobs, and sales tax revenue for the City that we've depended on for decades. In addition, I am sad to report that our Sears store at the Whittwood Town Center will most likely be closing within the next two years. Sears is an American retail icon and its closure will be a great loss.
These three stores, two small and one large, are dying for different reasons. I will attempt to shed some light and offer reasons. And in the case of Battels, it's possible that plans may soon be in the works for a new multifamily project because the Whittier Boulevard Specific Plan allows it.
Farewell Herbie's: The Difficulty Operating Effect
Last year after its landlord raised its rent by nearly 40 percent, Whittier saw the closing of its only bookstore, Half Off Books. With such a steep increase, the landlord made it difficult for Half Off Books to continue operating so the store closed and moved to Fullerton. This specific type of difficulty operating effect was induced by Half Off Books’ landlord. Its closing was a huge loss for us, and one year later, it’s storefront remains vacant in otherwise vibrant and thriving Uptown Whittier.
This year, Herbie’s Natural Foods struggled and decided to close. On it’s Facebook page, Herbie’s posted that it was evicted by its landlord and will be closing soon, possibly this week.[i] On 8/11/2018, it posted about its struggle, writing “We can’t make it” and implying that sales were not enough to cover its expenses. Therefore, Herbie’s experienced difficulty operating and decided to close.
This event illustrates the profound challenges that entrepreneurs and business owners deal with on a daily basis. When businesses rent or mortgage their space, survival becomes even more difficult when revenues fall or expenses increase significantly. Since there’s no safety net for small business owners, they are often forced out of business when they experience difficulty operating. Employees lose their jobs, landlords lose their tenants, customers lose their stores, and cities lose sales tax revenues. It’s a lose lose. And if multifamily residential projects replace these commercial uses in Whittier, we lose again.
Herbie’s shopping center is located in the Center District of the WBSP area. The District permits multifamily residential development without a discretionary conditional use permit (CUP). Therefore, if the shopping center ever becomes entirely vacant, it could be razed and developed into a three-story apartment building like the Catalina Apartments project. Fortunately, at least two other tenants remain so a new residential project, while possible, is not likely in the near term.
Good Bye Battels: The Amazon Effect
Whittier is losing it’s only old-fashioned, customer service oriented hardware store after Battels announced its closing last month.[ii] This independently owned store was staffed by helpful and knowledgeable employees, and being centrally located on Whittier Boulevard near Painter Avenue, it was closer than the larger hardware stores for many Whittierites and had ample parking in the back. We were privileged to enjoy it’s level of service and convenience for 75 years. The Whittier Daily News describes the regretful sentiment and statements of a few residents, including the Mayor, and many feel the same.
According to the Whittier Daily News, the owner decided to close shop because sales were flat due to competition from Amazon. This has become a well-known story. Over the last 25 years, Amazon has been expanding and competing with an increasing number of brick and mortar retailers of all sizes and goods. This is evidenced by Amazon’s expanding list of product categories. Amazon is aggressive at pricing as its goal is to take market share. This is great for consumers but hard on traditional retailers like Battels. It’s also hard on employees. Battels has ten employees and is helping them find new jobs, as reported in the Whittier Chamber’s August Business Focus.[iii]
While Herbie’s has the pressure of paying rent to its landlord, in contrast, Battels does not appear to share the same concern. That's because two years ago, the owner and a relative purchased the property as noted in the Whittier Daily News article.
So once the store closes, what will become of the old Battels store and parking lot properties? Business Focus reported “that the company is currently exploring options for the store’s building," which is owned by the owner's family. The parcels are located in the WBSP area in the Shopping Cluster which allows multiunit residential development above the first floor by right. Residential use is permitted on the first floor with a CUP. This indicates that we could likely see the store being sold, demolished, and eventually replaced by apartments, town homes, or condos in the not-so-distant future because the WBSP allows it.
Sears is Dying a Slow Death: The Predatory Capitalist Effect
On August 17th, I visited Sears at the Whittwood Town Center to do a little Back To School shopping. Considering it was late afternoon on a weekday, we would expect few customers at most stores. However, up on Sears' second floor, it was a ghost town for most of the hour I spent there. Even with the great sales and markdowns on clothes, our local Sears struggles to attract customers unlike our Target, JC Penny’s or Kohl’s. Sadly, I fear this store will close in the not-so-distant future because Sears fell victim to a predatory capitalist. A predatory capitalist is one who unscrupulously exploits people and resources without pity, mercy, or compassion, in order to benefit a select few.
If you follow Sears, then you know I am referring to its CEO and Chairman, Eddie Lampert. Lampert is a Wall Street guy who started at Goldman Sachs before founding his own hedge fund, ESL Investments, at age 26. In 2005, he merged K-Mart with Sears to create Sears Holding Corporation (SHLD). Today Lambert and his hedge fund own a combined 54 percent of SHLD. In 2005, SHLD was a leading brick and mortar retailer with 3,500 Sears and K-Mart stores and a valuable portfolio of assets, including popular name brands like Kenmore and Craftsman, billions in cash, and billions in commercial real estate.[iv] Their primary competition was other large brick-and-mortars, like Wal-Mart, not e-commerce leader Amazon. Therefore, Sears was well positioned for continued success.
Unfortunately, Eddie had other ideas. Rather rather than investing in its stores to remain competitive, he decided to buyback $5.8 billion worth of Sears’ stock from 2005 to 2010.[v] Stock buybacks are a balance sheet trick that diminishes the number of outstanding shares and therefore equity and cash. With fewer shares outstanding, it has the short-term effect of driving up earnings-per-share (EPS), a gauge of corporate profitability. This, in turn, usually causes the share price to rise for a while.
In 2007, Sears moved its Kenmore, Craftsman, and DieHard brands into a subsidiary, sold it off, and then paid to license the brands from the new company. That same year, Sears’ stock peaked at $100 and things seemed to be looking up. However, things were about to take a downward turn. By the time the Great Recession of 2008 – 2009 hit, Sears had been stripped of two of its three primary assets: its cash cushion and its valuable brands. Sadly, things were about to get worse for Sears shareholders, employees, and customers.
In 2015, Lampert sold off Sears’ last set of assets: its most valuable real estate holdings. He created a new subsidiary, Seritage Growth Properties (SRG), which was founded by a group of Sears’ shareholders and ESL with a $3 billion initial investment. Seritage purchased 266 of Sears’ most valuable properties for $2.7 billion and leased them back to Sears, becoming Sears’ landlord. This arrangement provided Sears with desperately needed cash and ensured that the properties would be saved in the event of a Sears bankruptcy.
Over the last 13 years, the number of Sears and K-Mart stores has fallen from 3,555 to 894 because Sears was forced to shutter them due to its perpetual cash crunch. The company has been losing money since 2012. Had it not been for loans, including a few from Lampert’s hedge fund, Sears would have entered bankruptcy already. It has $3 billion in debt due next month. All the while, the stock has fallen 99 percent from its all time high of $100 in 2007 to about $1.41 today. Things are not looking good for the legendary retailer.
Our Sears will either be on a forthcoming list of store closures or it will close when the entire company goes bankrupt, probably by 2020 as forecasted by one analyst.[vi] On the contrary, through his various financial transactions, Lampert has positioned himself to not lose much money and possibly even benefit from Sears' coming bankruptcy, while other shareholders have been wiped out. One restructuring expert characterizes the latter stages of Sears’s 125-year history as "the longest-running corporate liquidation probably in history." [vii]
Founded in 1886, this coming bankruptcy will be a shameful fall for America’s greatest retailer. While discount retailers target low-income customers and high-end retailers target wealthy shoppers, Sears is one of a very few chains that caters to the middle class. But that is only one of its distinctions.
Sears, with its mail-order catalogs, was the shop-at-home Everything Store a century before Amazon was. The full selection of consumer goods was accessible to city shoppers. Sears made that full selection also available to customers and farmers in rural areas, just as Amazon does today. In this way, Sears is an icon of American innovation and will be missed sorely by its millions of loyal customers and employees in Whittier and across America.
Of course, I will miss our Sears. On that Friday last month, I picked up a black pair of Levis 501s for the great sale price of $39.99. I honestly can’t think of any other physical store that allows one to shop a pair of jeans, children clothes, a large-screen TV, a lawn mower, a mattress, and a refrigerator in one trip, if one so chooses. So enjoy it while it lasts, because the predatory capitalist has nearly killed his prey.
[ii] https://www.whittierdailynews.com/2018/08/02/battels-hardware-store-in-whittier-is-closing-after-75-years/
@mwrisney Thanks so much for your comment! It's really sad to see our Sears so empty . On the flip side, for those of us who still shop there, we have the whole store to ourselves and don't have to wait long to pay.
Absolutely agree with the write up. I am surprised Sears has lasted to this point. As empty as our store is, I can not imagine how deserted the previously closed stores must have been !