'Going out of business' a sign of the times

Sunday: Foreclosures set a record the past two years in El Paso County, and an industry has sprung up around them.

Today: Retailers large and small are closing their doors in the wake of a national recession.

Tuesday: The effects of the economic slowdown can be felt across the community, from crime statistics to visits to the local Army recruiting office.

Lanonah Krumanocker never saw the end coming for her business, Shewmaker's Camera Shop, which was started during the Great Depression and survived more than a half-dozen recessions and downturns over more than 60 years.

While Shewmaker's sales had been eroded by online competitors and electronics giants, a worsening local recession dealt a fatal blow to a business that had survived and grown in Colorado Springs for generations, Krumanocker said.

The business was thriving a year ago but began losing money last summer before sales plunged this fall and prompted Krumanocker to close Shewmaker's longtime downtown location in a bid to stay alive.

"I spent the first two weeks of January with our consultant talking, looking at spreadsheets and trying to come up with a business model to go forward, but we couldn't find one that was viable," Krumanocker said just before Shewmaker's closed Jan. 31. "We lasted through a lot of ups and downs, but we couldn't do it anymore. It was the perfect retail storm. Everything was aligned: the trends in the industry, the economy, higher costs."

Shewmaker's is one of several dozen local and national retailers that have closed in recent months or are holding going-out-of-business sales.

They include three Circuit City electronics stores, two Western Warehouse clothing stores, a Macy's department store, a Ross clothing store, a Steve and Barry's sportswear shop, a Linens 'N Things home-decorating store, two local furniture stores and many smaller shops.

Just those 11 stores will put about 500,000 square feet of vacant retail space on the market. Vacancies were already at the highest level since 1994 - 8.5 percent - not counting space in the city's two enclosed malls, according to Turner Commercial Research.

When that 500,000 square feet is added, the vacancy rate will jump to more than 11 percent and could reach 13 percent by year's end, according to Paul Turner, the research firm's owner.

"You pull big anchors out of these shopping centers and the traffic goes down," Turner said. "That affects the small mom-and-pop retailers that will be part of the second wave of closures that will follow the bigger anchor tenants who are shutting down now.

"This is an ugly situation that is going to get uglier. You will eventually see shopping centers end up in foreclosure because lenders are calling loans due and the owners can't pay them back."

Krumanocker tried to sell nearly 10,000 cameras, accessories and other items during the two-week sale, hoping to recover her cost on most of her inventory to repay the store's creditors as much as she and husband and co-owner Jared Krumanocker could.

Still, the Krumanockers likely will end up filing for bankruptcy on both the business and personally because they signed personal guarantees for some of Shewmaker's debts.

"We could lose our home; we will probably lose the rentals that are our retirement funds and most everything else," Lanonah Krumanocker said. "We put everything into this business having faith that customers would care whether we survived or not. We had hundreds of dedicated customers; we needed thousands.

"We are in our mid-50s. This is pretty traumatic. We should have quit a year ago while we were still whole, but we never saw this coming."

Hundreds of retailers in Colorado Springs could end up failing during the current recession because of declining consumer spending, said Fred Crowley, senior economist for the Southern Colorado Economic Forum.

The group is forecasting that consumer spending in the Colorado Springs area will decline slightly this year, even with the arrival in the second half of the year of more than 8,000 troops who are returning from Iraq or moving from Texas.

"Retailers are falling like crazy right now," Crowley said. "I still hope for a resurgence in spending on cars, televisions and clothing with the arrival of the troops later this year, but you won't even see hints of growth until the third quarter.

"And I believe it will just stabilize the market and prevent any further deterioration, not provide any fuel for growth. All of the going-out-of business sales are just reducing future demand at a highly discounted value."

City officials are preparing for the worst. Terri Velasquez, the city's chief financial officer, said her office is forecasting that sales and use tax collections will decline by 12 percent this year.

That forecast doesn't include the effect of recent store closures or the arrival of the additional troops. Sales- and use-tax collections last year were down 7.72 percent, including a nearly 16 percent drop in December.

The hardest-hit retailers in Colorado Springs last year, according to a city analysis of 2008 sales by each major category of stores, were: building-materials stores, with sales down nearly 17 percent; auto dealers, with sales off 15 percent; department and discount stores, with sales down 7 percent; retailers that sell to other business, with sales off 8 percent; and furniture, appliance and electronics shops with sales down nearly 10 percent.

Chris Phillips decided to close his Home Furnishings Express and Office Furniture Express store in northeast Colorado Springs after sales plunged in December to the lowest monthly level in the 14-year history of the business.

He had already cut his sales staff in half to seven people to combat a "steady decline" in sales throughout last year, but he said "the tipping point" for him was a steep decline during the final quarter of 2008.

"The way economic conditions are right now makes it very tough to continue," Phillips said. "We did better in our second month in business than we did in December.

"We were hitting decent numbers until the fourth quarter, but I never saw anything like we saw in October. People just got scared and decided not to buy anything they did not have to buy to live. That hurt furniture stores, car dealers, home builders and electronics stores."

More retailers are likely to close in coming months because too many retailers are competing for customers in the Springs area, said Rich Walker, brokerage director for Springs-based First Properties Inc. and a longtime retail leasing agent.

Declining consumer spending likely will trigger consolidation to a couple of major players in most retail categories, from groceries and electronics to hardware and sporting goods, he said.

"We've always had way too much supply, and now we have even less demand," Walker said. "Colorado Springs and Colorado in general are 15 percent to 20 percent oversupplied with retail, so even in the best of times landlords struggle to totally fill their centers.

"The major players in each category are taking advantage of this market to acquire prime sites for much less than they would have paid two years ago."

Some shopping centers will end up having to convert retail space they can't lease to other uses, such as churches, entertainment businesses like the Mr. Biggs Family Fun Center or warehouse and distribution space, Walker said.

Some centers might be demolished and become a site for a different type of shopping center or another use, such as office or industrial buildings, when the local economy recovers, he said.

"Circuit City was marginal when the market was good," Walker said. "A significant retrenchment by consumers and retailers means marginal players fail and the strong cut back and survive.

"Retailing is like a tidal pool - a big wave comes in and brings in stronger, healthier fish, then rips back out to sea taking the dead and dying with it. It takes a couple of years to complete the process, but it happens regularly."

Robert Stuart is trying to make sure his Springs Spas & Home Recreation Inc. is one of those survivors. In December, he cut the size of his showroom at 6275 Corporate Drive by half, and he has reduced his sales staff from 22 to five.

He also is expanding the scope of his business to include appliance repair and pool installation and is writing articles for spa trade magazines to generate cash.

"We're going to stick it out," Stuart said. "We have told our suppliers we need different credit terms and will be buying in smaller quantities. We also are using part of our showroom to liquidate inventory from other retailers and have cut our retail prices."