Economic Fears Follow Shopko Store Closures In S.D. Small Towns

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KELO Shopko

The pending closure of ShopKo department stores may have devastating effects on six South Dakota small towns that will suffer job losses, decreased access to basic necessities and reductions in sales-tax collections that could limit municipal services.

The announcement that the retail chain will close several stores has stunned city and chamber of commerce officials in Chamberlain, Custer, Dell Rapids, Redfield, Wagner and Webster who say their economies and residents will suffer from the closures. They say shoppers will soon have to drive up to an hour each way to buy home and living products, and they worry that opportunities for future growth of their towns could be hampered.

The Wisconsin-based retail chain said in December that as part of a restructuring strategy it will close more than three dozen ShopKo stores across the Midwest. The closures in South Dakota will take place in six towns under 4,000 in population that do not have another department store. Five of the towns are geographically isolated.

Analysts say the closures are being driven by the increased ease of online shopping and the growth of mega-stores like Walmart that combine a traditional department store with a full grocery. Furthermore, some experts say the explosive growth of discounters like Dollar Tree, Dollar General and Family Dollar – all of which operate in the South Dakota towns losing their ShopKos — have squeezed mid-sized retailers that cannot compete on price.

Officials from ShopKo did not respond to several phone and email messages from South Dakota News Watch. But in previous press statements, the chain that has 363 stores in 24 states said it chose locations for closure based on a review of “the long-term outlook on profitability, sales trends, and potential growth.” The chain announced four South Dakota closures in December and added Chamberlain and Custer to the list in early January.

In isolated rural areas of South Dakota, the pending closure of the ShopKo stores – all of which opened within the past four years – has exposed the fragility of small-town economies. The store closures are taking both an economic and emotional toll on residents, business owners and those who work to ensure a vibrant future for their communities.

“I was born and raised here and I have a passion about my community and small towns in general,” said Kelsey Doom, director of economic development for Wagner Area Growth. “But I’m starting to wonder, ‘How are we going to make it as a small town?’”

Major ‘trickle-down’ effect expected

The shifting nature of retail has led to store closings and financial concerns in both urban and rural areas of the country. Sioux Falls and Rapid City have been hit by the downfall of Sears, Herbergers and K-Mart, which is about to close its last South Dakota location in Rapid City.

Consumers in larger cities are protected by the diversity and depth of remaining retail offerings. However, the closure of a single business, particularly one with a wide variety of merchandise, can cause a ripple effect through the economy of a small town.

“It definitely hurts more than it would in a larger city,” said Gianna Lantero, executive director of Grow Spink, an organization that pushes economic development in Spink County, of which Redfield is the county seat. “It’s a huge deal when you have something like this close because it affects a lot of people and other parts of the community.”

In the six South Dakota towns losing a ShopKo, the closures are causing concern on several levels.

Each closure will cost about 15 to 25 people their jobs in communities where skilled labor positions are plentiful but decent-paying retail positions are hard to come by.

The towns will each lose their only major retail outlet and access to the wide variety of clothing, toys, small appliances, food and other home goods typically sold by ShopKo. Though all six communities are home to dollar stores, residents in Chamberlain, Custer Redfield, Wagner and Webster will have to drive roughly an hour and those in Dell Rapids about 20 minutes to shop at a comparable retail outlet. The lack of access to retail goods may cause a hardship for some populations, particularly lower-income and elderly residents.

“People don’t want to travel all the way to Aberdeen, and some just can’t,” said Lantero. “We serve a good-sized elderly population in Redfield, and some don’t drive but they knew they could shop for those goods right here in town.”

Inconvenience, however, is only part of the problem.

The closures, officials say, could also inhibit future growth by limiting retail options that entice new residents and businesses that are critical to long-term economic stability in small towns. Having a large building sitting vacant at the entry point to their downtowns won’t help encourage growth, either.

While overall the economy has been strong in Webster, a town of about 1,900 along U.S. 12 in Day County, losing a prominent, highly visible retail outlet is a significant setback.

“With our businesses, it all adds up to a well-rounded community, which attracts people to come here for a job, to move here or for an industry to locate here because the more you have, the better off you are,” said Webster Mayor Mike Grosek. “It gives you an uneasy feeling, and it’s a big downer when a corporation comes down and just says, ‘Thanks for everything, but see you later.’”

The towns losing their stores also will see the evaporation of a sizable chunk of sales tax revenue that could affect municipal operations ranging from police and fire protection to upkeep of streets and parks.

“In all these small communities, we live and die on the sales tax,” said Justin Weiland, city administrator of Dell Rapids in northern Minnehaha County. “You strip away some of that sales tax and you strip away the ability to pay for your police department or your park system or the street projects you planned for next year.”

Towns worked hard to land ShopKo stores

Officials and residents of Dell Rapids were surprised and disappointed that ShopKo had targeted the store in their community for closure.

The Shopko opened in a flourishing business plaza about 2.5 years ago on the northwest side of the city, said Weiland.

Sales at the store likely were hampered by an invasive 3-year road project that tore up Highway 115 in front of the store and between Dell Rapids and Interstate 29, Weiland said.

The ShopKo closure and the road construction project highlight the fragility of small-town economies across South Dakota and the country.

“It was a 3-year project that really disrupted the traffic pattern in the region,” Weiland said. “All of our retailers on that corridor, the entrance to Dell Rapids, said the traffic problems really affected them.”

Several small businesses saw a slowdown and the city experienced a corresponding decline in sales tax collections, Weiland said.

A down year for agriculture or another major industry can also hurt a local economy. With ongoing trade wars and losses due to tariffs, heavy rains that made harvesting difficult and low commodity prices, many rural South Dakota small towns took a hit in 2018.

Local officials and business leaders fear the ShopKo closures will have a significant economic ripple effect as patrons who now must leave town for clothes and other basic goods are likely to do more shopping in larger cities nearby.

In Wagner, a reservation town of about 1,600 people in Charles Mix County, losing ShopKo is likely to entice even more people to make the hour drive to Mitchell or Yankton to shop for basic necessities and more, said Doom.

She also worries that the town’s dozen or so retailers, as well as its service providers and two grocers, will lose money when shoppers leave town. Doom said some residents are connecting on social media to car pool or plan for multiple purchases when a friend or relative announces they are heading to a bigger city to shop.

“It’s going to be a huge trickle-down effect,” said Doom, who also heads the Wagner Chamber of Commerce. “When they’re at Walmart in Mitchell or Yankton, they’re going to grab all their groceries and have dinner and spend money that they’re not going to spend locally.”

Mayor Grosek of Webster seems like someone who might see an upside to ShopKo closing since he runs the town’s full-service grocery store, Mike’s Jack and Jill. The loss of ShopKo, which sold some dry goods and frozen foods, could at first buoy some businesses in Webster, including his own.

But ultimately, the closure will hurt his store and others when people leave town to shop for home goods, Grosek said.

“It’s nothing for individuals to hop in a car and drive 50 miles out and back,” Grosek said. “They may get out of town for an outing, but more times than not they’ll buy other things rather than get them here.”

The towns where ShopKo is closing are also losing out on investments made to lure the stores to locate there.

In Wagner, Doom said she worked with a local landlord to get ShopKo a favorable lease on an existing building. The city also entered into a deal to give ShopKo a sales tax rebate of up to $25,000 a year for five years, which saved the company about $70,000 in sales taxes over the past three years, Doom said.

In Webster, the city and local economic development group ponied up $50,000 in incentives to upgrade the building ShopKo inhabited, and in Dell Rapids a land swap between a private landowner and the local development corporation helped that city attract a ShopKo.

One town in North Dakota was able to save its ShopKo through the power of social media.

The day after ShopKo announced the pending closure of four ShopKo stores in North Dakota, including in Stanley, N.D., local bank branch manager Jenny Pummel-Gaaskjolen began an online petition to save the store. The petition drew nearly 1,600 signatures from in and around the town of about 1,500 people located 60 miles west of Minot.

About two weeks later, after the landlord of the ShopKo store agreed to reduce the rent and the petition drew regional media attention, ShopKo reversed course and announced the Stanley store would remain open.

“It really fills a basic need for us,” Pummel-Gaaskjolen, a South Dakota native, said of the ShopKo store. “Just the impact to the community; it would be hard to attract new people to town without it, and it’s hard to keep people here as it is.”

Expert sees closings as opportunities

Officials in the six South Dakota towns losing a ShopKo all expressed some optimism that their local economies will survive and may even thrive if something new and exciting can replace the shuttered stores.

A positive, proactive approach to planning may help that process, said Rand Wergin, an associate professor of marketing in the business school at the University of South Dakota.

Wergin specializes in understanding small-town economies with a focus on how those municipalities can attract spending by both locals and visitors.

Two keys to retail success in isolated small towns, Wergin said, are to push hard for locals to spend locally but also for businesses and development officials to create an experience and an emotional connection to their town that makes it a destination for visitors.

Wergin said Sioux Falls has used its art walk and a diverse offering of unique shops and eateries to make its downtown a destination, just as Rapid City has used its Main Street Square and presidential statues to create a place where visitors will spend both time and money.

In an isolated small town like Wagner, Wergin said the community could focus intently on its connection to hunting and fishing opportunities along the nearby Missouri River and Lake Francis Case to create a mix of retail and dining options that capitalize on and cater to that population of visitors.

“It’s either a threat or an opportunity for Wagner,” Wergin said of the ShopKo closing. “If they do nothing, they could shrivel up and die. But it’s a really interesting place because of its proximity to the lake and river, so they need to ask themselves, ‘What can we do to brand that?’”

Wergin has created an economic index called the Small Town Retail Pull Factor, which uses state population and sales tax revenue data to determine if a town pulls in more revenue from locals and visitors than it loses to other nearby cities and towns. If everyone in a town shopped locally only, the factor would be 1.0. A town with a factor higher than 1.0 is luring more outside spending and a town with a factor below 1.0 is losing local revenue to other areas.

Wagner, for example, is losing sales to outside communities and has a factor of .91, while Webster appears to be more of a regional hub and has a positive pull factor of 1.84.

For comparison, the small town of Lake Andes loses significant local spending and has a pull factor of only .29, and similarly Dell Rapids has a pull factor of .73 because shoppers have the easy option to head into Sioux Falls, Wergin said.

To improve its economy and fight the trend of rural economic shrinkage, Wergin said a small town should focus on making itself well-known for something or play up unique shops or restaurants that set it apart from other towns.

“We’re seeing that, in general, the retail situation is deteriorating in small towns; it’s not an alarm, it’s something we’ve been seeing for a long time,” Wergin said. “But there’s still room for small-town retailers to be successful if they can offer the experiences their customers want.”

As the ShopKo liquidation sales go on, economic officials in South Dakota are working feverishly to find replacement businesses to inhabit the soon-to-be-vacant buildings before they become worn.

In Wagner, Doom said she is pitching an idea to possibly divide up the 22,000 square-foot ShopKo building and turn it into an event hall, multi-use retail plaza or hub for offices. Doom said she would love to attract a family-oriented enterprise such as a laser tag facility to the site.

Grosek said he and others in Webster are trying to lure a new, similar retailer to the ShopKo site to replace the merchandise, convenience and jobs that will be lost.

“We’re not just letting this thing close up and do nothing about it,” Grosek said. “We’re making some calls and knocking on doors to see if there’s something comparable that we can get in there.”


SouthDakotaNewsWatch

This story is reported by South Dakota News Watch, a non-profit news organization. Find more in-depth reporting at www.sdnewswatch.org.

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