Mike Bennett sets up a display Wednesday at Target in the Kingsport Pavilion in preparation for Black Friday sales. David Grace photo.
KINGSPORT — What will this year’s Christmas retail season hold for Model City merchants?
Local retailers gave mixed predictions but were optimistic, while an area economist said Kingsport’s recent sales tax revenue increases eventually will reverse as a Tri-Cities market realignment is completed but the recession continues.
According to Sullivan County budget reports earlier this month, the most recent sales tax numbers marked the fourth time this fiscal year that monthly sales tax revenues came in more than the same month last fiscal year.
In August, sales tax revenues were up $263,782 over August 2007; in September, sales tax revenues were up $243,866 over September 2007; and in October, sales tax revenues were up $281,717 over October 2007.
That means year-to-date, sales tax revenues countywide are up $949,298.
Further, the report and city figures indicated Kingsport sales drove the increase.
Model City sales tax collections were up 8.48 percent in the November report representing September sales, and up 10.8 percent for the fiscal year that began July 1, according to city data.
“If you look back to 2006, we’ve had well more than $370 million in new investment in the community since that time,” City Manager John Campbell said in a recent news release. “The result of those investments in retail, hospitality, housing and tourism are resulting in the overall diversification of our economy, and leading to these positive results.
“As for the November report itself, it is a bit of a lagging indicator, and we are of course concerned about what the December number will look like. But given that the last week of August brought a major gas spike with sporadic shortages around the region, September sales look to have held up well.”
For the fiscal year, sales tax collections are $368,313 above budgeted amounts; leaving a cushion for later in the fiscal year should sales sour.
Kingsport realized $43.8 million in new construction and investment in September and October, highlighted by the addition of 110 rooms at the MeadowView Marriott Hotel and continued work at Eastman Chemical Co.
“I can’t emphasize how important tourism is to our local economy,” Campbell said. “Tourism is the sixth largest employment sector in Sullivan County, and accounts for $200,000 a day in employee salaries.”
Sales tax growth sectors through the summer include manufacturing, up $48,000 over 2007; general merchandise, up $39,753; food stores, up $30,078; restaurants, up $59,073; miscellaneous retailers, up $49,959; and auto dealers and service stations, up $22,580.
“We should have a bit of good news to look forward to in early 2009 as well, with Decorators Warehouse set to open before Christmas, while Best Buy should come online early in the year, and we have the mall (Kingsport Town Center) renovation beginning the first quarter of 2009,” Campbell said.
Matt Klucher, store “team leader” for the Target at Kingsport Pavilion, said Black Friday is the “first big indicator” for how the holiday sales season will go for retailers. However, the biggest shopping day of the year is usually the Saturday before Christmas.
Although retail sales up, bad economic times loom
Up to this point this year, as retail sales nationwide and in the region have fallen or remained flat, Kingsport has experienced a surge in sales tax revenue that city leaders and East Tennessee State University economist Steb Hipple attributed to the new retail that has opened in Kingsport.
“We can’t wait for the rest of it to fill up,” Klucher said of the Pavilion. “I just hope we can get a restaurant soon,”
A Pizza Hut Express and Starbucks inside Target help but aren’t enough to make the Pavilion a destination for a day’s shopping, Klucher said.
Decorators Warehouse opened Nov. 22 and Best Buy is scheduled to open around March.
Target, Kohl’s and other retail opened at the site about a year ago, with outparcels and other areas continuing to develop over the year.
Retail development has also come to other places around town. Reedy Creek Terrace has opened across from the East Stone Commons shopping center, which is a redevelopment of the old Kingsport Mall.
“Retail activity in Kingsport is increasing greatly,” Hipple said. “Kingsport’s growth is coming at the expense of other retail centers in Johnson City and Bristol.”
Kingsport leaders have said the Model City is simply reclaiming retail “leakage” by attracting a wider variety of stores, which helps keep Kingsport area residents shopping in Kingsport and attracts shoppers from areas like Hawkins County and Southwest Virginia to Kingsport instead of Johnson City.
An example, Hipple said, is the Pavilion’s Ulta cosmetics store, which does not have a Johnson City location. He said his wife shops there, and Campbell, a Kingsport native but former city manager of Johnson City, said he’s had women from Johnson City ask him how to get to the Ulta store in Kingsport.
Still, Hipple predicted Kingsport sales will peak and fall when the realignment is over.
“At some point, these two ... trends will collide,” said Hipple, professor of economics at ETSU’s Department of Economics and Finance, and a research associate with the Bureau of Business and Economic Research in the College of Business and Technology at ETSU.
“What you’re seeing is a short-term readjustment of market share,” said Hipple, who does quarterly retail sales reports on the Tri-Cities. “It (a downward trend in Kingsport) could happen after Christmas. It could happen in the fourth quarter.”
Hipple said the regional and national retail sales as a whole won’t change until at least the middle of 2009 or possibly into 2010.
“We’re just starting the process of the worst recession in a generation. It will be long and deep,” Hipple said, comparing it to the 1981-82 recession in intensity and length. “All of the retail chains are forecasting lower sales for the year. They have cut back on their orders for goods.”
He said federal government intervention will keep it from being a depression like the Great Depression that began in 1929 and lingered into the late 1930s, with the economy booming in the years after World War II.
As for retail sales, Hipple said stores will cut prices earlier than usual to move inventory.
Kingsport Town Center changes on way in 2009
Kevin Harmon, general manager of the Kingsport Town Center, said he agreed with Hipple and Campbell that the Pavilion and other newer developments have helped all retail in Kingsport.
“I don’t think there’s any question that the performance of the new stores in the Pavilion ... have grown business by increasing the numbers,” Harmon said. “We have a nicer Target than Johnson City, so people are coming over here.”
Harmon said lower gasoline prices, down in the $1.70 a gallon range compared to $4 or even $5 per gallon earlier this year, will help retail sales, although people are still cautious.
“People still have one eye on their wallet even though gas is down,” Harmon said, adding that he believes shoppers are more thrifty than last year because they realize gas might go up again.
And he said those cars running on $1.70-a-gallon gas have trunks of electronics, televisions, video games and toys, although he said that gift cards have become increasingly popular.
Looking forward to next year, the Pavilion is expected to continue building out and plans are in the works for phase two of the makeover of the Town Center — formerly known as Fort Henry Mall. In the first quarter of 2009, the mall is to begin undergoing a $30 million or more renovation and expansion, including an expanded J.C. Penney store, new food court and interior floors and walls, new exterior facades and the development of outparcels in the far corners of the parking lot. It also may get some new stores inside the mall.
The project, which could run about $35 million plus up to five outparcels, is to be completed by 2011, but Harmon said the exact timing would depend on the economy and willingness of retailers to commit to opening new retail stores.
Why open a store now?
One such regionally based store, however, has done just that at Kingsport Pavilion.
David Kelley, owner of Decorators Warehouse, already had locations in Johnson City and Bristol, Va., the headquarters, before committing to the Pavilion earlier this year and opening Nov. 22.
Friday was the grand opening of the Kingsport store. The chain also has locations in Roanoke, Charlotte, N.C., and mostly recently opened a store in Winston-Salem, N.C.
Founded five years ago with a store in Johnson City, followed by one in Bristol, the business is a “lifestyle center” for those who decorate, Kelley said.
Items for sale include framed art, lamps, accent pieces, furniture, floral items, gifts and knick-knacks, Kelley said.
The Johnson City store is 50,000 square feet, while the Bristol and Kingsport stores are 10,000 square feet, which he said was the prototype for future stores.
“There is a time of uncertainty out there,” Kelley said. “We obviously believe in the Kingsport market.”
He said the Johnson City and Bristol stores drew customers from Southwest Virginia and the Kingsport area, and that the business is known through advertising and word of mouth.
“It’s easier for us. A lot of people know who we are,” Kelley said, emphasizing that the business tries to keep prices reasonable and that drastic percentage reductions usually occur at the end of a selling season, not as a gimmick to reduce regular prices that were too high anyway.
Kelley said he’s been in retail for more than 25 years and was once a vice president at Kirkland’s, ran the now-defunct Dixie Pottery near Abingdon and worked for a chain of Hallmark stores.
So far, he said his Tri-Cities stores are doing well this holiday shopping season and that having Target, Dick’s Sporting Goods, Kohl’s and soon Best Buy as anchors should help boost all the businesses at the Pavilion, on Black Friday or any day.
“Black Friday is a good weekend for us, but we’re not a 4 a.m. store,” Kelley said. “We just try to offer a lot of value for the money.”