MC Sports knew for years before its bankruptcy filing this month that something had to change with its stores.
It designed bigger footprints, doubling its average store size. It sought better locations. And it grew into an anchor tenant in seven states as it expanded into 76 retail centers and malls.
But the direction turned by fall 2016. That’s when the Michigan-based retail chain closed 2 stores, planned to close 3 more – and hired a consultant to look at how it could stem losses of $5.4 million, recorded after $170 million in sales.
Berkeley Research Group came in to evaluate inventory management processes and to improve its margins. It also had a specific real estate-related task: “to rationalize (MC Sports’s) store base, and explore additional cost savings initiatives and strategies,” according to the bankruptcy petition filed February 14, 2017, and signed by Bruce Ullery, company president and CEO.
But holiday sales were weak after a lackluster Black Friday at the chain – and by January, officials in the Grand Rapids headquarters were exploring lease concessions with landlords and vendors.
That strategy didn’t work.
Now, the bankrupty of MC Sports is just the latest retail chain to announce it will cease operations, closing dozens of stores in a single move.
In Michigan, when MC Sports liquidation is final, the state’s retail landlords will have 23 new store vacancies totaling more than 400,000 square feet. While the volume of space is only equivalent to a few “big box” retailers, the locations cut across most of the state – and come at a time when many other retailers are downsizing and closing under-performing stores.
Within the year, many Macy’s, Kmart, Sears, Staples, and multiple mall-based apparel chains have closed in Michigan.
The situation for sporting goods retailers seems particularly volatile: Sports Authority closed in 2016; Gander Mountain is working with advisors on repositioning its 162 stores amid reports it may seek bankruptcy; and now Walmart recently acquired the 10 stores of Michigan-based Moosejaw.
“The retail industry seems to be a continually changing environment now,” said Robert Pliska, managing partner of SVN Property Investment Advisors in Birmingham.
That leaves mall owners vulnerable to underperforming stores and failing chains, too.
MC Sports’ annual lease obligations are $14,400,000, according to its bankruptcy filing. It owns no property, and leases stores, distribution centers and its corporate office space.
So far, eight of its leases have been ‘rejected’ in bankruptcy court, which allows retailers to exit leases with no obligations to pay rent. They are for five closed stores in Indiana, Wisconsin and Ohio, and three stores that will close February 28: Wooster, Ohio; Piqua, Ohio and Muncie, Indiana.
The remaining stores are scheduling liquidation sales, so the leases so far haven’t been rejected.
MC Sports stores in Michigan are located in a variety of shopping centers.
A few – like in Ann Arbor, Kalamazoo and Sterling Heights – are located in regional-destination malls.
Others are in retail power centers that tend to have high-draw tenants. The locations, like Battle Creek’s Harper Village, note MC Sports as a key tenant. In Alpena, the store occupies a 24,000-square-foot free-standing building on M-32 near other stores, according to property records.
Here is the full list:
- Alpena: 1064 M32 West
- Ann Arbor: Briarwood Mall
- Battle Creek: 12765 Harper Village Drive
- Big Rapids: 1286 West Perry Street
- Brighton: 8101 Movie Drive
- Cadillac: 8873 East 34 Road
- Jackson: 1164 Jackson Crossing
- Gaylord: 1517 W. Main Street
- Grand Blanc: 6248 Saginaw Road
- Grand Rapids area (4): 3160 28th Street in Kentwood; 3150 Plainfield Avenue in Plainfield; 4830 Wilson in Grandville; and the Ski Shop at Cannonsburg in Belmont.
- Holland: 2337 North Park Drive
- Kalamazoo (2) : 6272 S. Westnedge Road and 5157 West Main
- Lansing: 5002 Saginaw
- Lapeer: 863 South Main Street
- Marquette: 3020 W. Highway 41
- Mt. Pleasant: 1412 S. Mission
- Muskegon: 1755 E. Sherman
- Petoskey: 1614 Anderson Road
- Sterling Heights: 14600 Lakeside Circle
- Traverse City: 3450 S. Airport Road West
In one location, MC Sports replaced another Michigan-based retailer who liquidated with bankruptcy: Borders, which previously occupied the building housing the Brighton store before it, too, fell victim to changing shopping patterns.
Just a year can make a difference in retail. In 2015, MC Sports operated 76 stores, according to SGB Magazine, which ranked it that year at number 81 among the Top 100 sports retailers in the U.S.
That followed several years of expansion, both in the number of stores and in their size.
“MC Sports continues to remodel existing stores as it strives to create a consistent customer experience throughout all its locations,” according to the SGB listing. “Of the Midwest retailer’s 76 stores, 38 are now in its expanded format, which includes a complete hunting and fishing department.”
As stores got bigger, they made room for more products. When MC Sports doubled its store space in Ann Arbor in 2010 during a move to the high-profile Briarwood Mall, it planned to add baseball and softball items, soccer equipment, and custom uniforms for area sports teams along with hunting and fishing items.
Yet, according to the bankruptcy filing, while the stores were getting larger and requiring more inventory, consumer preferences shifted. So did sales from stores to online. And what the filing called “competing distribution channels”and specialty retailers gained ground.
Those changes in retail are affecting the entire industry, notably smaller anchor-type stores like MC Sports along with department stores.
“Malls are being challenged right now with the increased use of online shopping,” said Terry Bixler, broker at ROC Real Estate in Plymouth and president of Michigan’s Commercial Board of Realtors, in January as both Macy’s and Kmart closed many stores.
“It’s challenging the conventional retail formation of a regional type mall and the types of users that used to be considered anchors for those malls.”
While shoppers watch the makeup of their shopping centers change and investors increasingly turn to only the top-tier of retail properties, owners of retail properties may find opportunity from stores like MC Sports leaving their centers, Pliska said.
Shoppers may see landlords turn the spaces into more than one storefront for smaller stores that are doing well in today’s retail environment. That could include chains like Ulta Cosmetics and food outlets like Panera and Shake Shack, according to a report from Costar.
“Sometimes it ends up being a much better deal to the owner of the property – they got lower rent from MC Sports, and when they convert to smaller stores, it can increase value to their property,” Pliska said.
“The key is … if you’ve got a good location with a good building.”
Landlords also may explore alternative uses to traditional retail. Skyzone, featuring trampolines, already operates next to the closing MC Sports store in Brighton. Some large malls are experimenting with converting store space to offices. Lakeside Mall, which houses one of the MC Sports stores, already had close to 20 percent vacancy last year
Even self-storage could be an option in locations that are no longer prime retail spots, Pliska said.
“It’s just a matter of finding best use for that part store and what it can be used for retail wise, or converted to something else.”