S.D. retailers face uphill battle for survival amid frequent market changes
South Dakota News Watch correspondent
Overall retail sales have climbed steadily in South Dakota in recent years, but who is getting the money and how they are getting it is changing.
Maintaining a successful brick-and-mortar retail business continues to be a challenge in South Dakota as online retail continues to surge, chain stores grow rapidly and low-price dollar stores pop up regularly in small towns.
The rapid and expansive transformation of the South Dakota retail marketplace has created uncertainty for many businesses and the more than 97,000 state residents employed within the industry.
The ongoing market disruptions are threatening some retailers, particularly in smaller towns.
Many employees and owners of some of the state’s roughly 13,900 retail establishments have felt the bite of rapid change.
Retailers face almost constant change ranging from the emergence of giant online retailers to evolving technology including delivery services to the rapid growth of low-price “dollar stores” that can hurt long-time local retailers in rural areas.
What emerges over the next decade will be a marketplace shaped by conflicting consumer desires for better convenience and lower cost versus a desire for something unique, social and enjoyable.
Transformation has always been part of the retail story. Since craftsmen gathered in open-air markets through the rise of department stores and shopping malls, shoppers have hastily embraced new trends and discarded old. Across the state, struggling shopping malls and aging rural main streets demonstrate this evolution.
Even in small cities that have been aggressive and progressive in promoting local retail, such as Sisseton in Roberts County, fears remain that some businesses won’t be able to keep up with the fast and frequent changes in the retail marketplace.
“It’s scary when you’re a smaller town, seeing people going out of town to buy groceries and gifts,” said Lacey Babekuhl, who works in accounts and marketing for a Sisseton building center and formerly served as a local housing and redevelopment official. “You really do run the risk of losing everything your neighbors have worked for all of their lives. Families, friends and neighbors have put their savings on the line for this community.”
Meanwhile, the constant change is creating opportunities for some retailers and business owners, particularly those willing to adapt and do so quickly.
South Dakota retail sales have grown in the past several years, climbing from $25.1 billion in 2013 to $28.5 billion in 2018, according to state Department of Revenue data.
Many local retailers have added their own online presence and try to stay up on successful business trends.
Debra Jensen, co-owner of Black Hills Bagels in Rapid City with her husband, Jack, said they strengthen their position in a competitive market by connecting with employees and customers in ways that chain stores cannot.
The business has endured a years-long construction project on the road it fronts and the arrival of a competing bagel chain directly across the street.
“We can’t compete on price alone,” Debra Jensen said. “But there’s a market for hand-formed bagels, custom sandwiches and enhanced customer service.”
Staying vigilant about trends and being nimble in reacting to them — while also holding firm to longstanding principles — has also helped the business thrive, Jensen said.
She said the couple realized long ago that for the store to remain successful they would have to pay attention to what the corporations were doing but do it better. Three years ago, Debra read an article that by 2020, 40 percent of restaurant business will be delivery.
They found people weren’t willing to pay for delivery service, but they weren’t willing to tip. Over time, larger business orders have compensated for the small ones, making the delivery system profitable.
For now, the pace of the current retail transformation toward online sales isn’t easing. Internet sales should account for 12.4 percent of all retail sales this year, up steadily from 6 percent in 2013. Online sales are predicted to account for 14 percent of the retail market next year, and the Centre for Retail Research expects online growth will continue for a decade.
Increasingly, online also takes a larger bite of Christmas sales. Amazon collects a third or its sales revenue during the fourth quarter, according to annual reports. This holiday season, sales at online and other remote retailers are projected to surpass those at brick-and-mortar stores, climbing 12 percent over last year.
Amid last year’s closures at Sears, ShopKo and Kmart, the Centre for Retail Research declared a retail apocalypse, but mostly it was 17 national chains with outdated business models that disappeared. Stores in South Dakota were among them, but that alone doesn’t signify the demise of local retailers.
Meanwhile, the ongoing proliferation of discount retailers further complicates matters for longtime retailers in smaller South Dakota towns. The rapid spread of dollar stores, following closely upon the spread of Walmart super centers, further erodes already slim profit margins there.
Dollar Tree, which operates 15,000 Family Dollar and Dollar Tree stores in 48 states, including 43 in South Dakota, planned to open 546 more stores nationwide.
Across the Northern Plains, the spread of dollar stores place additional pressure on local grocers. Over the past five years, 39 out of 137 full-service grocery stores in North Dakota towns with fewer than 2,100 people have closed or no longer offer full service, according to the North Dakota Rural Electric & Telecommunications Development Center. Anecdotal evidence shows the same trend occurring in South Dakota.
Nathan Sanderson of the South Dakota Retailers Association sees a resurgence on main streets among the whirl of retail change. In the era of decline of the shopping mall, some also see a downtown renaissance as customers seek unique social experiences and local wares.
“Take a look around at Sioux Falls main street and downtown Rapid City,” he said. “Look at what Main Street Square and the presidential sculptures have done for Rapid City.”
The market has seen a shift in consumer preference away from standard shopping malls toward the unique and special, the handmade items, he said.
“The determining factor is the extent to which the people of the community invest in that community,” Sanderson said.
These pockets of brick-and-mortar resilience belie the simplified narrative of local retail dying at the hands of expanding online.
“Internet sales are a growing component of retail, but that doesn’t mean the death of retail,” Sanderson said.
David Bruns, manager of the Food Center in Redfield, S.D., population 2,300, is doing what he can to keep his business thriving despite the challenges created by a Dollar General.
“They’re affecting all small towns,” Bruns said of dollar stores.
To build customer loyalty, the Food Center has launched a rewards program, offering points for every dollar spent, and a saver card, which gives stamps redeemable for glass products.
The Redfield Food Center has also switched warehouses to bring in different brands, hoping to distinguishing itself from other regional stores.
Redfield customers, Bruns said, still lament the town’s loss of their ShopKo, which also sold groceries. The closure, however, didn’t cause much of a bump in Food Center sales. If anything, he said, people now leave town for things that only ShopKo sold, so now they also may be grocery shopping outside of town.
The lack of local competition hasn’t affected his prices, Bruns said.
“I’m still trying to compete against Walmart and the bigger stores, so I keep prices aggressive as if there were two stores here,” he said.
The dollar stores will change the landscape, Bruns said. “It’s just they’re coming everywhere,” he said. “It’s kind of sad in my opinion.”
Over time, Lacey Babekuhl has developed affection for Sisseton. The Sioux Falls native vacationed in the town as a kid. As a teenager she couldn’t imagine living in a place with “nothing to do.”
Now, she can’t imagine living anywhere else, and saving the town is part of her new job. Sisseton has about 2,400 residents, and the population hasn’t changed much in 20 years.
The event that stimulated retailers to take action last summer was a major road and sewer reconstruction project that detoured shoppers around the town.
A few months ago, retailers formed a non-profit association, built and launched an app to bundle local sales deals — like an online shopper, and began recognizing local retail sales staff for exceptional service. The big focus is on educating the community about the importance of buying local.
“Amazon is not going to help fund your kid’s baseball team,” Babekuhl said. “That’s the local businesses that do all of that.”
Babekuhl works as an accounts specialist at Tri State Building Center with the understanding that promoting Sisseton is part of her job. The goal is to really connect with local customers and the community, Babekuhl said.
“At this point, we’re seeing a lot of engagement,” she said. The app for bundled sales promotions has been downloaded 800 times.
“Sisseton is seeing a comeback on Main Street and Veterans Avenue,” she said. “There are new shops, and boutiques more aimed at the younger demographic.”
Appealing to the next generation and creating a better experience for shoppers will be key, she said.
“This is about growing the community,” she said. “We want to make this a place where people want to visit and a place where people want to come back to after college.”