Changing times challenge retailers

Staff Writer

 A sign advertises available space in the Epicentre shopping plaza on Route 9 in Manalapan. The vacancy rate for retail space in central New Jersey climbed to 9.8 percent in the second quarter of 2013.  STAFF PHOTOGRAPHER ERIC SUCAR A sign advertises available space in the Epicentre shopping plaza on Route 9 in Manalapan. The vacancy rate for retail space in central New Jersey climbed to 9.8 percent in the second quarter of 2013. STAFF PHOTOGRAPHER ERIC SUCAR Storefront vacancies have blemished many of New Jersey’s busiest retail corridors in recent years, and experts say there is no shortage of reasons why.

According to a report published by retail broker R.J. Brunelli & Co., Old Bridge, the retail vacancy rate in central New Jersey climbed to 9.8 percent in the second quarter of 2013, up almost a full percentage point from the previous year. That amounts to 2.95 million square feet of vacant space on routes 1, 9, 18 and 35 in Middlesex, Monmouth, Mercer and parts of Ocean counties. If added up, the unoccupied space is equivalent to the size of about 20 vacant Walmart Supercenters.

But Walmart and other big-box stores of at least 20,000 square feet have been doing relatively well. According to Brunelli’s data, 225,000 square feet of previously unoccupied big-box space was filled by tenants over the past 12 months.

 Empty retail buildings sit alongside Route 18 in East Brunswick. Empty retail buildings sit alongside Route 18 in East Brunswick. However, that positive trend was not enough to offset increasing losses of smaller spaces.

“Much of the small-space woes can be attributed to … the inability of small chains, mom-and-pops and franchisees to take advantage of … vacancies, because financing for new ventures or business expansion remains so difficult to get,” Brunelli’s report states. “Until the economy improves and banks genuinely start to loosen the spigots, it will be difficult to make much of a dent in the small-store inventory.” The impact of the 2008 financial downturn should not be understated when analyzing data like Brunelli’s, according to New Jersey Retail Merchants Association President John Holub.

 PHOTOS BY KAREN KESTEN/STAFF PHOTOS BY KAREN KESTEN/STAFF “Clearly, the economic environment has changed since 2008-2009, and I think businesses as a whole are continuing to scratch and claw their way out of the worst downturn in 70 years,” Holub said. “But it seems that every few years there are fits and starts and ebbs and flows, so I don’t think the [recent] decline [in occupancy] is entirely surprising.”

Economic uncertainty may just be another punch to roll with for area retailers, but competition from the Internet presents a much more sizable concern, according to Robert Burchell, professor and co-director of the Center for Urban Policy Research at the Rutgers University Edward J. Bloustein School of Planning and Public Policy, New Brunswick.

“A rising tide lifts all boats and a decreasing tide puts all those boats back on the ground, so the economy is always present and a major influence on American life,” Burchell said, adding that Brunelli representatives and analysts are very well-respected in their field. “But there will be a long-term future increase in vacancy rates [no matter how the economy fluctuates] because of the competition of the Internet.”

Right off the bat, many online retailers enjoya7percentpriceadvantageoverphysical stores, because they are not required to charge sales tax if they do not have a physical presence in New Jersey, Holub said.

“[They] have an unfair advantage. They’re able to exploit a tax loophole … that does not reflect the 21st-century marketplace. All brick-and-mortar shops are asking for is a level playing field,” he said.

About 20 U.S. senators support that idea and have sponsored the Marketplace Fairness Act of 2013. If passed, it would require outof state Internet retailers to collect state and local sales taxes, according to the Institute for Local Self-Reliance, a nonprofit community advocacy group.

The legislation would address an issue that Debbie Schaeffer, third-generation owner of Mrs. G TV & Appliance in Lawrence Township, has been trying to tackle for years.

“This issue is part of the reason you’re seeing more empty [retail] spaces. In our business, 7 percent is a huge percentage of profit,” Schaeffer said. “Besides, if the retailer doesn’t charge the consumer sales tax, then the consumer is responsible for paying it within 21 days of the purchase date.”

According to a 2011 Rutgers University study commissioned by the New Jersey Retail Merchants Association, less than 1 percent of consumers declare their tax-free online purchases. The study concludes that, by 2015, the disparity will leave New Jersey with $300 million in uncollected sales taxes.

“When the Marketplace Fairness Act passes, I truly feel that you’ll see retail start to come back, especially in the small-business sector,” Schaeffer said.

Internet retailers get another leg up because they trump physical stores in many of the areas that consumers depend on most — product variety, ease of price comparison and overall convenience, Burchell said.

“If I want a workbench, I can go on Craigslist or eBay and get 50 times the variety I would at a [local department] store,” he said.

But computers, advanced as they may be, don’t stack up to the firsthand assistance of actual human beings when it comes to meeting customer needs, according to several area retailers.

“The No. 1 thing [retailers] can do to distinguish themselves is to provide unparalleled customer service,” said Stuart Davis, certified commercial investment member with the National Association of Realtors.

Superior customer service is what has allowed Mighty Young’s Appliance on Route 9 in Howell to thrive for seven decades, owner Gene Young said.

“We’re an old-style store, and we offer the same type of customer service we were offering in the ’40s and ’50s,” Young said. “We have [customer] trust built into us. The theory is: If you’ve been around as long as we have, you must be doing something right.”

In addition to his role as president of Mighty Young’s Appliance, Young complements his income as the landlord of several area retail spaces. He said the capricious economic climate has stalled the flow of cash between apprehensive renters and commercial landlords.

“It’s true capitalism when it comes down to it — you raise the price [of your property] and the market shrinks; you lower the price and you increase your market share, but maybe don’t make as much as you need,” he said.

Landlords will have to shoulder the blow and lower rental prices, Burchell said, if they want to their spaces occupied during what he believes will be a lengthy period of high vacancy rates.

“It’s a new world out there, and a lot of the space is not going to be used,” he said. “And it’s not only retail space. An attorney who wanted to have some visual presence on a busy street can now advertise on the Internet.”

Landlords who want to retain their tenants would also do well to ensure their buildings are attractive, inside and out, Davis said.

“If you want to attract good tenants, you need to be able to provide a nice building with good signage,” he said. “You see a lot of new construction being occupied where old stores are getting passed up, because looks matter.”

Business housekeeping is an issue that both online retailers and storeowners face, but hiring a skilled web designer usually costs far less than investing in capital structure improvements, so online retailers gain the edge once again, Burchell said.

However, there will always be retailers that consumers cannot do without, and for which the Internet cannot provide a substitute, he said.

“Stores that provide basic needs, like convenience stores, seem to be doing well enough. We seem to need a deli, we seem to need nail salons and liquor stores,” Burchell said, adding that those types of stores face little online competition.

As the landlord of a local liquor store, Young supports that concept.

“It’s one thing to be a professor and look at theory, and another to be in business and look at reality. But I own a liquor store — and the worse the economy does, the better business is for me,” he said.

Other retailers, like Lighthouse Cigars in Hazlet, are able to weather the paradigm shift even while selling luxury products, because the aficionados that support the company want to see and smell cigars before buying them. They also know that long shipping trips could compromise product quality, owner Ralph Seber said.

“We make sure our humidor is always set to keep the cigars fresh — the drawback of buying online is they don’t have anybody maintaining that,” Seber said.

Because the products he sells are so small, Seber’s modest shop provides plenty of space to house a large inventory, which is refreshed constantly and helps to keeps his customers coming back, he said.

For storeowners like Young and Seber, staying relevant means studying the art of customer service and scrupulously managing inventory. For others — like John Orlick, owner of Hy-Way Music, a musical instrument store on Route 18 in East Brunswick — it means completely shifting the focus of the business.

When national chain instrument shops like Guitar Center and Sam Ash moved to the area, Orlick started to see instrument sales — his former bread and butter — plummet. Not keen to throw in the towel, he adapted by marketing his business as the premier destination for musical instrument service and repairs.

“You do things fair and honest, [because] a fair price keeps people coming back. If you figure the first time you see a customer is the last time, then you charge them as much as you can, but I go for the repeats,” Orlick said.

In an environment that favors the big-box over the mom-and-pop store, business owners will have to pull out all the stops if they want to survive as small fish in a big pond, Burchell said.

“The Internet is a reliable alternative means of getting goods to people and produces a lack of demand for retail spaces,” he said. “That’ll result in a high vacancy rate, and there’s not much good to be said about that.”

But the prospect of stiff competition should not be enough for diligent storeowners to board up the doors and apply for a job at the adjacent big-box, Holub said.

“The best retailers out there are innovative and creative and do whatever it takes to attract their customers,” he said. “If they’re not going to sell online, brick-and-mortars have to harness the power of the Internet in other ways, like through social media. Those that are able to adapt will thrive.”