Alaska’s New Mall Tenants
An Orangetheory Fitness promotional photo shows the team-based exercise approach using treadmills and rowing machines. The first Alaska Orangetheory Fitness recently opened in Anchorage.
IMAGE COURTESY OF ORANGETHEORY FITNESS
Local malls bring national options to Alaska consumers
Nationally, much of the retail industry faces an existential crisis from the growth of online shopping. Locally, Alaska is headed into its second year of recession. Neither of these factors has stopped business owners, including some major national brands, from investing in Alaska malls and shopping centers this year.
It’s been a bad year for some existing national chains, most notably Sports Authority, which left four empty big box storefronts (three in Southcentral and one in Fairbanks) when the chain liquidated in the summer of 2016. Department stores have also struggled in Alaska, as they have elsewhere. This category’s workforce shrunk by more than 13 percent during the past five years across Alaska, according to Anchorage Economic Development Corporation data. Discount department stores shed more than a quarter of their employees during the same period. Nevertheless, franchise, chain, and independent retail businesses are finding opportunities in Alaska’s various malls.
Among new entrants to Alaska’s retail shopping scene are the state’s first Dave & Buster’s restaurant and arcade, a new Sportman’s Warehouse in Juneau’s Nugget Mall, Alaska’s first Victoria’s Secret store at Anchorage’s 5th Avenue Mall, a series of indoor trampoline parks around the state, two Cricket Wireless cell phone stores, and new fast-casual restaurants including Smashburger and Wild Wings ’N Things.
Here’s a look at some of the changes Alaska’s malls and shopping centers are undergoing.
The Anchorage Retail Market
There are recessions and then there are retail recessions. So far Alaska’s largest commercial real estate market is in better shape than during the Great Recession, which hit the retail market especially hard, according to Andrew Ingram, a commercial real estate licensee at Jack White Real Estate in Anchorage.
As part of his job, Ingram watches vacancy rates for commercial properties and keeps track of the amount of time they stay on the market. By these standards, Alaska’s largest retail market is in pretty good shape. “It’s still a tight retail market. It’s still a good market,” says Ingram.
Anchorage had a retail vacancy rate of nearly 7 percent when Ingram gave a presentation in January at the Anchorage Building Owners and Managers Association. He predicted the rate would increase by 2 percent during 2017.
In July, vacancy rates remained on an upward trajectory with the expectation that vacancy rates will hit close to 9 percent by the end of the calendar year. But Anchorage’s retail vacancy rate remains below many Lower 48 markets including Phoenix, Spokane (Washington), and Boise (Idaho), Ingram says. It’s also stronger than during the Great Recession.
Alaska weathered the Great Recession better than the Lower 48 in terms of employment numbers, but that same recession was especially hard on Alaska’s retail sector. “Retail stocks were getting killed. That was causing the big nationals not to come to Alaska,” Ingram says.
Earlier this year, Ingram predicted property owners would try to quell rising vacancy rates by offering tenants incentives such as property improvements or periods of free rent. But later on, in July, he still hadn’t seen those incentives being offered.
The number of empty storefronts varies widely by property type. Anchorage shopping malls were about 6 percent vacant in January and were the only category of Anchorage retail space that saw fewer vacancies over the course of 2016. Anchorage strip malls were roughly 8 percent vacant. Power centers were 2 percent vacant. A power center is a large outdoor shopping center typically made up of three or more large category-dominant stores like warehouse or home improvement stores.
Building Up for Dave & Busters
It took an act of the Alaska legislature to make possible the newest tenant in Alaska’s largest enclosed mall. In 2016 the legislature passed Senate Bill 157, a change to the state gambling law nicknamed the “Dave & Buster’s Bill.” The bill, signed into law by Governor Bill Walker, clarifies that skee-ball, air hockey, and arcade-style games at businesses such as Dave & Busters and Chuck E. Cheese’s do not constitute gambling.
Dallas-based Dave & Buster’s is a combination restaurant, sports bar, and arcade that caters to adults and families. Anchorage’s Dimond Center reported in a news release that it is spending $11 million to get the mall ready for the new business, and Dave & Buster’s is investing an additional $10 million. Building the new restaurant involves raising the roof by six feet over a section of the mall that previously held a library.
According to its website, Dave & Buster’s usually seeks markets of between 700,000 and 1 million people within ten miles of the business, a market far larger than Anchorage. An attorney for the business said at a legislative hearing last year that the business chose Anchorage even though it doesn’t meet their typical criteria because of the city’s role as a statewide hub and the fact that it’s an international tourism destination.
At 44,000-square-feet, the new Anchorage location is larger than the businesses’ usual site requirements. The Anchorage Dave & Buster’s is scheduled to open in 2018.
Going National in Juneau
In Juneau, a community shopping center has gradually been growing and attracting national businesses. Last year the Nugget Mall added a Sportsman’s Warehouse, a major new anchor that took up space previously used for smaller stores, says Kellie Windham, the mall’s marketing director and bookkeeper.
The Nugget Mall opened in 1974 with two main, locally-owned anchor tenants, the Nugget Department Store and Nugget Rexall, a drug store.
Today the mall’s anchors include a Jo-Ann Fabric and Crafts and free-standing OfficeMax and Petco stores. The mall has 210,085-square-feet of gross leasable space, less than one-third the size of Anchorage’s Dimond Center.
Sportsman’s Warehouse is a Utah-based outdoor equipment company that now has five Alaska locations in Juneau, Soldotna, Anchorage, Wasilla, and Fairbanks.
A new wireless cell phone company expanded to Alaska, with storefronts at two Alaska malls in 2016 and 2017. AT&T subsidiary Cricket Wireless is a wireless phone service provider that has more than 4,600 storefronts around the United States. The first Alaska store opened at Dimond Center in 2016, followed by a location at the Bentley Mall in Fairbanks in June 2017.
Like other mall wireless cell phones businesses, the Alaska stores offers customer service and a place to browse cell phones. A key difference between Cricket and other wireless service providers is that Cricket specializes in pre-paid phone plans with no contract requirements.
Cricket’s Pacific Northwest Marketing Director Matthew Cave declined to discuss the company’s reasons for adding Alaska stores this year, citing business competition concerns. He says the business is always looking for new authorized retailers.
Case Study: Jumping into the 49th State
A new category of family entertainment centers landed in Alaska in 2015: the trampoline park. Trampoline park chains have proliferated in the Lower 48 for the last ten years, with more than 400 opened in the Lower 48. In 2015, a franchise of the Utah-based Get Air business opened next to Anchorage’s O’Malley Center Sports Complex.
Competitor Shockwave opened in 2016, filling what had been a standalone OfficeMax in Anchorage’s Northway Mall complex.
The inside of the new Shockwave trampoline park in Anchorage. The owner converted the former Northway Mall OfficeMax into the indoor park.
PHOTO BY BARRY JENKINS
Shockwave co-owner Barry Jenkins is a general contractor and garage door company owner in Scottsdale, Arizona. He got into the trampoline park business for the first time five years ago and now
co-owns two Arizona trampoline parks, in addition to the new Anchorage business. He’s also on the board of directors of the International Association of Trampoline Parks, a trade organization.
Jenkins had never been to Alaska before making his first scouting trip in 2015 to research the possibility of opening his first trampoline park outside Arizona. The harsh weather and Anchorage’s high income drew him to Alaska’s largest city, he says.
Median household incomes in Alaska’s urban centers are considerably higher than the US average of $56,516, although the most recent US Census figures are from 2015, before the onset of Alaska’s current recession. Anchorage’s median income was $78,326 as of 2015. Shopping centers often advertise their city’s high incomes to attract tenants.
For Florida-based Orangetheory Fitness, another national chain that recently expanded to Anchorage, a minimum of a $75,000 median household income is the benchmark demographic for a city to be considered for an Orangetheory Fitness studio, according to the company website. Alaska’s first Orangetheory Fitness opened at Anchorage’s Target/Cabela’s power center.
IMAGE COURTESY OF ORANGETHEORY FITNESS
For trampoline parks, “bad weather” is good for business because people are less likely to visit if it’s nice outside. In Arizona, the busy season for the park is the summer because it’s too hot to play outside. Having a business in a cold winter state is especially helpful to counteract the seasonal fluctuations in Arizona, Jenkins says. “In Arizona, eight months out of the year it’s beautiful and you do everything outside. Come summer and you’re looking for anything with air conditioning. It’s the polar opposite in Anchorage,” he says.
Jenkins chose the Northway Mall OfficeMax for Shockwave in part because of the building itself. Trampoline parks have ceiling height requirements that happen to be covered by box stores like OfficeMax. Jenkins needed a building with ceiling clearance of between eighteen and twenty-two feet. In the early days, trampoline parks tended to open in industrial spaces where developers were more likely to find cheaper real estate and the type of buildings that would work for trampoline parks. With increased competition, such parks are choosing more visible locations, Jenkins says. The Northway Mall location also comes with services including security and snow removal.
“You do pay higher rent, we understand that. But location and exposure in a competitive market also helps,” Jenkins says.
It cost almost $1 million and four months to remodel the office supply store into a trampoline park. Jenkins used all Alaska construction workers except for three, he says.
Like many new entrants to the Alaska market, Jenkins says transportation logistics were one of the most challenging parts of starting the business. Jenkins says he paid about 30 percent more to ship equipment to his Alaska location as compared to his Arizona locations. During construction, a shipper lost an entire pallet of foam pads, which delayed the opening of one of Shockwave’s courts by about six months.
So far Jenkins hasn’t made any plans to open additional parks in Alaska, but a few other companies have planned expansion. In June the Alaska Club announced it was converting part of its main Fairbanks facility to a trampoline park. A Facebook page was also set up for a Fairbanks Get Air park, but the company has not yet announced a location.
SAM FRIEDMAN IS A FREELANCE REPORTER. HE LIVES IN FAIRBANKS.
In This Issue
Junior Achievement Turns 100
Locally, Junior Achievement of Alaska has been helping students better understand business and economics for forty-six years. Based in Anchorage with a staff of three, Junior Achievement of Alaska serves more than 14,500 students in fifty-five communities around the state. Many past Junior Achievement students have gone on to become successful professionals and continue to serve as classroom volunteers to help raise the next generation of business leaders.