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Model City, former retail powerhouse, comes full circle

Sharon Caskey Hayes • Nov 21, 2007 at 12:00 AM

In the late 1990s, Kingsport leaders knew the city was losing retail sales dollars to neighboring communities. But they didn’t know how much.

At the city’s economic summit in November 1999, a consultant from Economic Research Associates in Washington, D.C., painted a grim picture: Kingsport was losing a whopping $850 million in retail sales every year because folks here were driving elsewhere to shop.

The city, once known as the retailing center of the region, had lost its competitive edge.

“The bottom line — there is a great deal of wealth in Kingsport, but a lot of that wealth was being spent outside of Kingsport, and we had to figure out a way to keep it here,” said Miles Burdine, chief executive officer of the Kingsport Chamber of Commerce.

At the economic summit in November 1999, city leaders decided to make retail development one of the city’s top priorities. That decision couldn’t have come soon enough. A month later, the latest retail report showed Kingsport was indeed falling behind. Johnson City, with its new stores and shopping centers, had surpassed Kingsport in quarterly retail sales for the first time in history.

“We went through a period where we had all the retail outlets in the Tri-Cities — I mean, we were the only city with Service Merchandise, we were the only city with Montgomery Ward. And we didn’t think we had to do anything,” said Jeff Fleming, assistant city manager for development. “Suddenly when the environment changed, we had to work. We had to work hard to convince people why this was a place to invest.”

The city had watched its existing retail base erode. Service Merchandise closed its doors in 1999. Montgomery Ward announced in December 2000 it would close its Kingsport Mall location. Other Kingsport Mall anchors, including Ames, Heilig-Myers and Carmike Cinemas, followed suit.

The only major anchor still operating at the Kingsport Mall was Office Depot.

Roger Ball, a Tazewell, Tenn., businessman who had acquired the mall at auction in 1994, remembers those days well.

“The whole business lineup deteriorated. But we had lease contracts on those buildings that extended for another 25, 30 years. We could not do anything,” Ball said. “Everybody tried to blame me.”

Across town, Kingsport leaders were pinning their hopes on another retail project. In August 2000, an Atlanta-based developer announced plans to build a $75 million, 1 million-square-foot retail complex called Meadowview Pointe off John B. Dennis Highway. The center was expected to house up to 80 retail tenants in a “shopping village” concept accommodating 5,000 parking spaces. Construction was expected to begin by the end of that year, with phase one opening by November 2001.

“We had the Meadowview Pointe development on paper, ready to go. And then what happened? 9-11,” said then Mayor Jeanette Blazier. “Everything in the retail sector just came to a screeching halt. We were really grieved about that.”

By September 2002, the city’s economic development director, Scott Welmaker, was quoted as saying Meadowview Pointe would become reality in the next six to 12 months.

The city actually planned a groundbreaking for the project for the spring of 2003.

Instead, city leaders conceded that spring that Meadowview Pointe was dead.

Back across town, Ball began demolishing the old Kingsport Mall in March 2003 after clearing up the leases held by Montgomery Ward, Heilig-Myers and Ames. A year earlier, the Kingsport Board of Mayor and Aldermen had declared the mall site as a redevelopment district, eligible for tax increment financing to encourage new development.

In May 2003, the Kingsport Housing and Redevelopment Authority gave Ball the go-ahead to redevelop the mall property. His new East Stone Commons would feature 275,000 square feet of various retail stores and restaurants.

By December 2003, Ball had secured letters of intent from several national retailers to move into the new development.

Fleming said the failed Meadowview Pointe project actually helped Ball because many national retailers had already been contacted about locating in Kingsport.

“The preliminary work had already been done,” Fleming said.

Ball first was able to secure Hobby Lobby, which wasn’t part of the original Meadowview Pointe project. But his second big signing came when T.J. Maxx joined the lineup.

“That was the thing that broke the ice,” Ball said. “Tax increment financing allowed us to offer bargain prices to those two retailers to lure them here. I don’t know if we could have made the breakthrough at that time without it.”

Developers can get help funding projects through tax increment financing, which uses the increase in property tax revenue that would result from redevelopment to help fund that redevelopment.

Eventually, Ball was able to bring Ross Dress for Less, Pier One and PetSmart to East Stone Commons.

Goody’s also joined the property, moving from the Green Acres Shopping Center on Eastman Road to its new location. Restaurants at East Stone Commons would include Chili’s, Salsarita’s Fresh Cantina, Marble Slab, McAlister’s, Tomy Thai and Cootie Brown’s.

Ball tried to get other retailers, including Books-A-Million and Old Navy, to locate at the development. Books-A-Million at the time said it wasn’t ready to enter the Kingsport market. Old Navy considered it but took too long in deciding, and Ball opted to move on to another potential retailer.

By the end of 2005, East Stone Commons proved a solid success. The development was drawing customers from across the region.

“There’s just been so much pent-up demand for services in this community, and it’s been exhibited by sales,” Ball said.

Last year, Ball sold East Stone Commons and announced he was reinvesting the proceeds to construct Reedy Creek Terrace, a 45,000-square-foot shopping complex that will include Starbucks, Panera Bread and Talbot’s on Eastman Road.

“And we’re hunting for other tenants now,” Ball said.

He’s also hoping to redevelop the old Cox Oldsmobile property on Stone Drive and establish a restaurant there.

That site is just up the street from new medical offices being constructed next to the Wellmont Outpatient Center.

“Kingsport’s been great to me,” Ball said when asked why he continues to invest in the city. Ball still lives in Tazewell. “I’ve made a lot of friends here. It’s become a second home, and I still think that Kingsport has a great future in front of it.”

A new study shows that Kingsport could use even more retail centers. Maryland-based consultants Basile Baumann Prost & Associates recently conducted a three-month analysis of Kingsport’s retail sales, housing market and potential redevelopment districts. In retail sales, the consulting company found that Kingsport’s businesses are capturing only 50 percent of the retail demand in the city and outlying areas.

According to the BBP report, Kingsport’s retail demand totals $1.18 billion. In 2006, the city posted $607 million in retail sales, thus capturing 50 percent of the retail demand. The unmet demand, or retail sales leakage — as BBP defines it — is $587.9 million.

Perhaps the city’s latest retail developments will help capture some of that leakage.

Lowe’s recently opened its second store in Kingsport, on the west side of town.

And the new Kingsport Pavilion, a $55 million, 500,000-square-foot shopping center along Highway 11-W, began opening stores such as Target and Kohl’s in October. Once completed, Kingsport Pavilion is expected to include more than 30 stores and restaurants.

Ironically, some retailers who didn’t join East Stone Commons chose to come to Kingsport Pavilion, including Books-A-Million and Old Navy.

“You get your name out there, and retailers and retail developments are always looking for opportunities to make money,” Fleming said.

He said if city leaders had not approved tax increment financing for East Stone Commons, all the new developments now under way might not have been realized. Kingsport is the smallest city in Tennessee to use tax increment financing for redevelopment.

“We did something that we had never done before. It was a bold visionary step,” Fleming said. “It would have been very easy for the city and the county to say, ‘Hey, that’s a developer’s problem. It’s not our problem.’ But you know, it really is our problem if this shopping center sits here dormant. So by being willing to put those tools in place, we were able to have a win-win for everybody.”

Tax increment financing is available for developers in areas approved as redevelopment districts. Another example of tax increment financing at work is the new Crown Point development, which includes the new Food City on Eastman Road.

Other redevelopment districts eligible for tax increment financing include the Stonegate Shopping Center off Stone Drive, the Greenacres and Southland shopping centers, the Borden Mill property, and the downtown area.

The Fort Henry Mall is also preparing for changes. The mall was acquired in January this year by Somera Capital Management. The company has since announced it plans to expand the mall and renovate the entire facility.

Mayor Dennis Phillips said each success builds on the next.

“Some people thought the Kingsport Pavilion would have a very negative effect on the Fort Henry Mall. But the Fort Henry Mall has just announced a major facelift,” Phillips said. “Success breeds success. And I think that’s what we’re seeing.”

As for the future, the recent BBP study made projections on Kingsport’s retail sales and capture rate for 2009, taking into account the estimated retail sales of Kingsport Pavilion, Reedy Creek Terrace and the new Lowe’s on Stone Drive. BBP estimates that city retailers will experience $651.8 million in sales and capture 64 percent of the projected $1.3 billion retail demand. The retail sales leakage is estimated to be $468.5 million.

Phillips said the city’s changing retail environment has evolved from top to bottom and back again.

“We woke up one day and we weren’t number one in retail sales anymore. We got a lesson in how to be humble,” Phillips said.

“It’s taken us many, many years to get the momentum back in our favor. Whether or not we’ll ever be number one in retail sales again will certainly be a challenge, and it’s a challenge we’ll work toward,” he added.

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