Big Lots looks at bigger stores

Big Lots boasts 1,400 stores around the United States and logged $1.5 billion in sales in the fourth quarter of 2010, but has never had a much of a presence in the Twin Cities market.

That's about to change.

The Columbus, Ohio-based deep discount chain in March up snapped 90,000 square feet of vacant or soon-to-be vacant "junior box" space in three top-flight suburban locales with plans to launch a big push into the Minneapolis-St. Paul area -- welcome news for a still-ailing local commercial real estate industry. The three stores will open later this year.

Welsh Companies senior associate Bob Minks, who brokered the deals, said the company is looking to establish itself here after past efforts to do so were stymied by high rents and poor locations.

"Big Lots had a number of stores in this market in the past, but they were small stores and were in second- and third-rate locations," he said. "Those stores have pretty well all failed. They were not good real estate.

"But with the downturn, they came back a year-and-a-half ago and said, 'We want to take another run at the Twin Cities market. What's going on with rents?'"

The answer: They're lower.

Big Lots is taking advantage of that situation to use the Twin Cities as a test market for its drive to broaden its appeal from the "dollar store" shopper to a more well-heeled suburban clientele by signing leases in "A" locations and building bigger, better stores.

"We tried to take advantage of the current market conditions," Minks said. "They're doing a new prototype, which is more upscale. It's not just aimed at middle- to lower-income customers but also medium- to upper-income customers."

Big Lots concentrates on closeout and manufacturers' overstock merchandise at low prices. The stores feature a wide and ever-changing variety of categories, including indoor and patio furniture, clothing, kitchenware and home furnishings, which are sold off as the consignments become available from the manufacturers, much as "dollar stores" do on a smaller scale.

The biggest of the stores, at 31,000 square feet, will be in a rehabilitated former Target store at Maple Grove's Dunkirk Square; another, at 27,000 square feet, will take over the soon-to-be-vacated Office Depot in Eagan Town Center; and a third will be in Woodbury's Tamarack Village, taking a 27,000-square-foot spot once occupied by CompUSA.

Minks said he is actively scouting out two more locations for Big Lots and that the company is looking at ultimately putting 12 to 15 stores in this market. It currently has two smaller stores here of about 15,000 square feet each: one in Brooklyn Center and another in St. Louis Park.

A call for comment to Big Lots' corporate headquarters wasn't returned, but company officials said last month in a conference call that they're pursuing a strategy of leasing "A-type locations." Of the 80 new stores opened in 2010, 33 were in such locations. Some 90 new stores are planned for 2011, with 25 to 30 of them in more upscale shopping centers around the country.

"They're the best retail centers in a given market, often power strip centers, with strong co-tenants, strong population density or household income or all of the above," Chuck Haubiel, executive vice president of real estate, said during the call. "In many of these locations, we're seeing [a] new customer."

Eight bigger stores in "A" locations that were opened as tests in 2009 performed "very well" last year, he said, averaging more than $4 million in sales and above $180 per foot, while generating around $300,000 per store in cash.

It's a continuation of a larger trend in which deep discount retailers are coming into the market to replace more up-market stores that have gone belly up in the recession.

"We're happy to get the junior box space filled," said Kim Meyer of the Robert Muir Co., owner of the Tamarack Village super-regional shopping center in Woodbury, noting that another discounter, Gordmans, recently opened there after the center had lost a Circuit City and a Cost Plus World Market.

Dave Brennan, co-director of the Institute for Retailing Excellence at St. Thomas University, said Big Lots has historically preferred to lease space formerly occupied by other retailers.

He voiced a note of caution about Big Lots' plans for the east metro, noting that it competes with Gordmans in some of its merchandise categories.

"Is there enough room in Woodbury?" he asked. "It's not exactly a downscale community, and it's really not as big as people think. Its total number of households is not huge."