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Southern Comfort in the Gulf States

The Deep South isn't traditionally known for the deep pockets of its consumers. In fact, many national chains have yet to set foot in Louisiana, Mississippi and Alabama. But growing population, expansion of new industries and increased consumer spending could change that, as more retailers are finding reasons to include these states in their expansion plans.

"A strong economy resulting in expanded buying power of residents has attracted the interest of national and regional retailers to the Southeast region of the United States," says Drew Alexander, president of Houston-based developer Weingarten Realty Investors. "Because of the robust population and job growth inmajor cities in the Gulf States, retailers are either seeking to expand their offerings in the region or open their first stores in the area."

Retail sales in Louisiana were $41.1 billion in 1998, the latest data available, while Alabama sales were nearly $40 billion and Mississippi had $21 billion, reports research organization Demographics USA. According to economists and others, those figures are expected to remain robust in the new millennium.

"Retail sales are expected to increase at least 3% in Alabama, Mississippi and Louisiana," says Jennifer M. Stanton, vice president of research and market planning in the Charlotte, N.C., office of Dallas-based Trammell Crow Co. "Those states have reported strong economic indicators during the past several years."

The Southeastern economy is hardy, says Joe Boddie, managing director of the New Orleans office of Los Angeles-based CB Richard Ellis, which handles transactions in Mississippi, Alabama and Louisiana. "The trends are good," he continues. "Louisiana enjoys one of the top 10 spots in average sales per sq. ft., right around $200 per sq. ft. The gains in retail sales in New Orleans are consistent with rates of employment, and the area is enjoying less than 4% unemployment. Sales per household have grown 10% over 1998, and New Orleans is having a substantial increase in tourism."

Mississippi per capita income growth rate has exceeded the national average over the past decade, 79% compared with 63.9%, according to the U.S. Census bureau. Mississippi workers' hourly wage increases jumped 19% between 1989 and 1998 - the highest in the country, according the Economic Policy Institute in Washington, D.C.

Alabama boasts population growth as well, says Jim Wilson Jr., president of Montgomery-based developer Jim Wilson & Associates, owner of the state's top regional mall, Riverchase Galleria in Birmingham. "Alabama is up to about 4.4 million people now, about 1.9% growth per year," he says. "There are certain areas of Alabama that have done extremely well because big industries have given a jolt to their economies. The Birmingham area is the leader, with a Mercedes-Benz plant operating and a Honda plant under construction." Huntsville, home to a NASA space center and many high-tech jobs, has a Boeing plant in the works, Wilson says.

Potential in the Pelican State Retailers are letting the good times roll in Louisiana. Weingarten's Alexander says his company is working with Target, which is considering expansion possibilities in the state. "They are looking at cities throughout Louisiana, but haven't come to a final determination yet as to the number of stores they would like to open," he says. "Weingarten is putting the final plans together to build a 300,000 sq. ft. center at 70th and Youree in Shreveport, that will house a Target in addition to three other big-box tenants yet to be determined. We're also working with Target on several other sites in the state, some of which are under due diligence."

Site selection is a challenge for retailers in New Orleans, the state's largest city, explains Rich Stone, vice president and director of commercial properties at Latter & Blum, a locally-based real estate company.

"New Orleans is a mature market, with so many natural boundaries - the lake, the river and the swamps," he says. "Retailers want to be in New Orleans, but it's a tough market to break into. Best Buy is searching for sites. Lowe's is making a foray into the market and has just locked up three sites in the metro area. Also, Burlington Coat Factory is opening its second store on the West Bank."

New upscale retail is also coming to the Crescent City, notes Kimberly Williamson, executive director of the Downtown Development District in New Orleans, a group that promotes and enhances the revitalization of the downtown area. "One of the significant new upscale developments is the conversion of the former Maison Blanche Department Store on Canal Street to a Ritz-Carlton hotel, which will include luxury outlets at the ground level," she says.

Though the hottest retail expansion in the area has occurred in the past three or four years, it may be cooling off, says Marty Mayer, executive vice president at Covington, La.-based Stirling Properties.

"I think it's slowing down a bit because of the cutback in the oil industry," he explains. "That has put a bit of a damper on things. But sales growth has been very positive. What's happening is that a lot of retailers, who had skipped the area in their expansion plans, have come back and seen lot of potential."

Expected to cause uncertainty in the retail arena in Louisiana and the other Gulf States is the bankruptcy reorganization of Jitney-Jungle Stores of America Inc. The privately held company, based in Jackson, Miss., owned the regional chain of Delchamps supermarkets. It was the second major grocery chain in the area to seek bankruptcy protection last year. Earlier, New York-based investment firm KKR bought the bankrupt Schwegmann's grocery business.

However, the demise of Schwegmann's cleared the way for the expansion of other retailers. Sav-A-Center, an arm of Montvale, N.J.-based Great Atlantic & Pacific Tea Co., acquired seven former Schwegmann's. Renovations and complete rebuilds of these sites have helped Sav-a-Center double its local presence.

Developing the Heart of Dixie Business diversification has built a strong economy in Alabama, says John N. Hughey, executive vice president of the retail division at Colonial Properties Trust, a Birmingham-based REIT. "We're seeing more retailers looking at Alabama every day, and we're talking to others who are thinking of doing it," he explains. "The state has been under-stored for a long time, so there is a great growth potential for them."

Alabama is seeing an increasing number of transactions with national retailers, he adds, including Target, which is increasing its presence in Huntsville, and Home Depot, which is building two new centers in Birmingham.

Birmingham has become an increasingly popular mecca for upscale retailers, due to the affluence of consumers in the suburban areas of Mountain Brook, Vestavia Hills and Hoover. Spring 2001 should bring an even bigger boost once hometown chain Saks Inc., formerly Proffitt's, opens a 100,000 sq. ft. Saks Fifth Avenue at The Summit. The busy, open-air center on the busy Highway 280 corridor is owned by local developer Bayer Properties and features tenants such as Restoration Hardware, Williams-Sonoma and Ann Taylor.

In the state capital of Montgomery, retail is following the eastward migration of the city's wealthier residents. Local developer McClinton & Co. plans to open a 250,000 sq. ft. lifestyle center called Festival Plaza in the area. Anchors have yet to be announced, but they will be a mix of upscale national retailers and high profile local merchants.

Drug chains and discount centers are the driving force for retail growth in the Gulf States, particularly with Wal-Mart continuing to expand its number of super centers in the region, adds Don Kelly, a partner and senior executive vice president of The Mitchell Co., a Mobile, Ala.-based developer.

"Albertson's has expanded into the Mississippi area, and drug stores such as Walgreens and Rite Aid in particular are expanding with freestanding concepts," he says. "It's a new area for Walgreens. Rite Aid bought out two chains, Harco and K & B Drug, and is expanding."

Mississippi makeover Mississippi is catching up with its neighbor states fast when it comes to economic growth, says Jimmy Heidel, executive director of the state's Department of Economic and Community Development.

"Since 1992, we've announced more than 193,000 new jobs and more than $20.4 billion in private capital investment," Heidel explains. "Last year, we led the nation in the number of business start-ups and jobs created from those start-ups. Many of those were retail businesses. Our strong economy is good for business, and word is getting out that Mississippi is good for retailers."

Thanks to its expanding gaming industry, the state is enjoying a retail renaissance, says Boddie of CB Richard Ellis. "With all those visitors coming to the Gulf Coast, and with a lack of retail in the area, retailers are making up for lost time," he explains.

Boddie says the state's retail sales trends are on the rise. "In Jackson, there is a new center going up every time I visit," he says. "The economy is diversified, and we're going to see continued growth in retail."

Gaming and tourism are driving much of Mississippi's economy, agrees Eric Snyder, senior vice president and director of corporate leasing for CBL Associates Properties Inc., a Chattanooga, Tenn.-based REIT. "Tourism is strong in places like Biloxi and Vicksburg," he adds. "We're seeing a lot of retail success in Mississippi, and we don't see any downturn."

The influx of gaming tourists has made for an especially healthy outlet industry. The Vicksburg Factory Outlets, for example, recently added a 10,000 sq. ft. Gap outlet and a Fieldcrest-Canon linen shop. The outlet center, which clocks 4.1 million visitors annually, is currently pre-leasing an additional 75,000 sq. ft. to be completed in September.

As for the future, Weingarten's Alexander says the economies of the Southeast region seem bright, although a number of unforeseen factors including a potential, dramatic slowdown in the economy could affect the situation.

"So far it has been good, as companies have seen real productivity that has helped out the general economy," he says. "Layoffs recently announced by the big energy companies have been cushioned by the fact that, in this economy, people can get other jobs rather easily."

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