The high gas prices grabbing U.S. headlines amount to yet another pressure on cash-strapped Americans in already tight financial times — which gives retailers even more reason to worry. In many places, higher gas prices are altering how consumers shop. They are making fewer trips to malls and trying to do all their buying at once.
In the rural Midwest, the issue has taken on an even sharper character. In recent years, some developers have built huge destination malls counting on shoppers to occasionally drive hundreds of miles to experience first-class shopping. For example, General Growth Properties opened the $200 million, 1.3-million-square-foot Jordan Creek Town Center in West Des Moines, Iowa in 2004 as a “retail resort” that includes a regional mall, a lifestyle center and a power center in one integrated location. The project is meant to draw in shoppers throughout the region.
Today, however, because of high gas prices, many Midwesterners may be foregoing trips to such large regional centers and instead staying closer to home. The net result of this may be that rural shopping centers, which had taken a hit in recent years because of the proliferation of regional destinations, may be seeing a rise in traffic in today's climate.
Overall, one dynamic that's at work is that shoppers are cutting back on spending on gas in order to keep discretionary spending levels relatively in line with what they were before. To do this, they may change where they're spending cash as opposed to cutting back on retail spending.
National studies as well as retail executives in Michigan, Nebraska and Ohio confirm that consumers appear to be curbing their mileage in order to reduce the number of times they have to pull up to the pump.
For example, shoppers in Kalamazoo, Mich., are making fewer trips and putting the brakes on discretionary spending for nonessentials, says Jodi Milks, managing director of the Kalamazoo office of Grubb & Ellis Paramount Commerce. This may reduce business for some retailers, yet Milks says overall spending at shopping centers could still remain steady.
A shopper might not drive across town to an outlet store for a bargain item and instead opt to buy a higher-priced substitute closer to home, just to save gas, explains Milks. “The price of gas makes it worth it,” she adds.
As of September 14, gas prices nationally averaged $3.80 per gallon, according to the American Automobile Association — up from $3.67 a gallon the prior week and $1.00 higher than the same period in 2007. In June, likely as a result of the escalating gas prices, Americans drove 12.2 billion miles in June 2008, a 4.7 percent drop in comparison with the same period in 2007.
The decline was especially evident in rural areas, where travel fell 4 percent compared to a 1.2 percent decline in urban areas. Yet driving less doesn't necessarily translate into spending less among consumers in more rural markets, who previously might have taken day trips to malls located in or near a major metropolis.
Out in Omaha
As in other outpost cities, shoppers in Omaha, Neb., appear to be cutting down on driving, but not on their shopping, says Rick Quinlevan, president of the brokerage arm of Omaha-based Lerner Co.
Omaha is one Midwestern city where habits appear to be changing, but not to the disadvantage of retailers, according to local observers. A factor may be the number of malls and shopping centers available to Omahans in their own backyard. The city has seen “phenomenal growth” in retail space in the past five years, according to a second-quarter market trends report by Omaha's Grubb & Ellis Pacific Realty.
There are no fewer than 14 shopping centers in or around Omaha, providing residents with more destinations where they can shop closer to home. Meanwhile, the population has only grown by 1.25 percent annually, Quinlevan says.
“Omahans are reevaluating their spending and shopping patterns and are becoming less likely to drive across the city to shop today, while at the same time they are still willing to shop,” states the report from Grubb & Ellis.
In times when consumers are consolidating their shopping trips, centers with a wide range of retail options may be in the strongest position to draw more traffic. That could be responsible for driving sales growth at General Growth Properties' Westroads Mall in Omaha. The 1.2-million-square-foot mall attempts to cover all the bases with its retail mix and recently added retailers, including Delia's, Forever 21 and Abercrombie & Fitch. A new movie theater is also under construction.
Visitors do in fact use Westroads as “a one-stop shop,” says Jim Sadler, senior general manager.
The increasingly gas-conscious shoppers who visit Omaha's Village Pointe Shopping Center come with an objective in mind, says Kim Jones, marketing director at the property owned by Scottsdale, Ariz.-based Red Development. The center has seen a slight increase in traffic within recent months, and shoppers more often leave stores with purchases. “While people are being more prudent in their gas expenditures, it hasn't affected shopping too much. They're not there to window shop,” says Jones. “They want to spend.”
However, a June 2008 study by Columbus, Ohio-based TNS Retail Forward, a consulting and market research firm, indicates that the drop in driving is taking some toll on shopping patterns, even if they're not cutting back on spending. The study of 4,000 members of an ongoing tracking survey found that 68 percent of respondents had reduced driving in response to gas prices. Of them, 75 percent were planning errands to minimize driving and conserve fuel. And, 58 percent sought to fulfill all their shopping at one stop whenever possible — which could explain why power centers saw a 4 percent increase in traffic from June 2007 to June 2008, according to TNS. In addition, 55 percent of respondents said they were staying closer to home or work when running errands, and 47 percent were leaving home less often. One quarter said they were doing more shopping online to save on gas.
Retail executives confirm the study's findings. Consumers are paying more attention to their spending and to how many trips they take, says Gary Stevens, vice president of development for Visconsi Companies Ltd. in Pepper Pike, Ohio, outside of Cleveland. In addition, “they're decreasing what we would call ‘sport shopping,’” Stevens says. “They're sticking with the necessities.”
Some residents of Kalamazoo, Mich., and the surrounding region drive to Chicago or Detroit for shopping trips, says Tim Timmons, vice president of Meyer C. Weiner Co., a developer in Portage, Mich., south of Kalamazoo. But in a time of high gas prices and other economic pressures, those trips may now appear less practical. “It would seem to be a pretty easy time not to take those trips,” says Timmons.
Jones at Omaha's Village Pointe, however, notes that neither the weak economy nor the high prices at the pump detoured a group of friends who travel approximately 100 miles every October from Sioux City, Iowa, to Omaha's Village Pointe Shopping Center. The women, who usually charter several tour buses, were planning their excursion a month in advance this year.
CB Richard Ellis' Omaha office vice president Dennis Hoth says shoppers may be responding to the trend of arranging “staycations” and are cutting down on other vacation travel.
“You can only do your normal routine for so long,” Hoth says. He cites traffic at centers in Omaha and nearby Council Bluffs, Iowa, that appears to be on the rise.
Milks of Grubb & Ellis in Kalamazoo says the growing trend of drivers' reluctance to travel long distances or make frequent trips to the mall is reinforcing retailers' inclinations to rein in or jettison prior expansion plans. Rather than open a new store a few miles away from a current site, retailers and franchises such as sandwich and coffee shops will try to draw more traffic to existing stores.
However, those pressures have yet to show a negative impact on the overall health of retail in Kalamazoo, says Milks. The city is home to fewer vacant retail locations in comparison to other cities around the country, which has helped to keep rents stable.
One tactic that some malls have started to employ is to use gas card promotions as a way of providing incentives to shoppers.
Barrington, Ill.-based GK Development, for example, held gas card promotions at two Iowa malls — College Square Mall in Cedar Falls and North Grand Mall in Ames. The promotion coincided with Iowa's annual sales tax holiday in early August. In both cases, customers received gas cards with purchases of goods at the shopping centers.
Old or new?
Given gas prices are pushing consumers to develop new habits anyway, Sorenson Park Plaza, a Woltemath-Otis Development Inc. property that opened in Omaha a few years ago, may also be poised to capitalize on the emerging trend.
“When you build a new shopping center, you're always asking people to break old habits,” says Jim Otis, vice president of Woltemath-Otis.
The 600,000-square-foot lifestyle center is an in-fill redevelopment on the northern edge of Omaha's central area, near older houses and a rash of new construction.
Before the development of Sorenson Park Plaza, nearby residents routinely drove more than 10 miles to shop at a center of its caliber, Otis says.
Older centers may lose traffic to the newer centers serving residents closer to their neighborhoods. The Grubb & Ellis report cites that competition among Omaha centers will continue to intensify. Retail space in Omaha has increased at a yearly rate of 6 percent since 2001.
Otis and other developers emphasize that their impressions of the influence of gas prices on shopping habits stem from anecdotal evidence, at least for now. Numerous factors influence shopping habits, especially in difficult economic times, and untangling them is not easy. Otis says Woltemath-Otis Development plans to track the gas-price trend when its sales figures come out in the first half of 2009.
“It'll be interesting to see if that did have an effect,” he says.