Retail envy: Louisville needs downtown retail, but does Target need a new urban market?

An urban Walmart in White Plains, New York.

(Editor’s note: This post was updated at 5:20 p.m. on February 1.)

With a new arena, new restaurants and more people living there full-time, one could argue downtown Louisville is one big retailer away from becoming a modern, 24-hour hub.

Boutique stores have opened just east of downtown along East Market Street in NuLu. The area around Theater Square on the south side of the business district is thriving.

Now, imagine a Target or another big-box retailer – or at least a discounter with that range of merchandise – opening on the east or on the west of Fourth Street live.

The fact that the two biggest retail chains recently declared themselves urban pioneers means that’s not as unlikely in 2011 as it was 10 years ago.

Last September, executives at Minneapolis-based discounter Target Corp. announced they’d open their first new small urban format store in Seattle in 2012, with plans for expanding the concept to 10 more cities.

The smaller format means urban stores would range from 60,000 to 100,000 square feet, roughly half the size of Target’s suburban stores, according to media reports.

In October, executives at Bentonville, Ark.-based Walmart Stores Inc. announced they intend to do essentially the same thing.

Walmart executives told stock analysts they plan to open 40 mid-sized stores in the middle of cities from New York to California, according to media reports.

Those urban Walmarts will have somewhere between 30,000 and 60,000-square feet, again half the size of their suburban stores.

The question is, does Louisville figure into this?

Daniel Morales, communications director for the southern United States at Walmart headquarters in Bentonville, said his company “is always looking everywhere,” but has no announcements concerning Louisville.

Spokeswoman Amy Reilly at Target headquarters in Minneapolis said her company has plans to open new small-format stores only in the most densely populated urban areas. The three small-format, urban Targets on the books for 2012 are slated for San Francisco, Seattle and Los Angeles.

Target officials remain primarily focused on building full-sized stores, Reilly said.

But in cities with the highest demand for Target stores and the densest populations, “it’s no longer finding a site that can accommodate the store. Now, it’s fitting the store into the site,” she said.

The good thing/bad thing about downtown Louisville is there are so many parcels begging to be retrofitted including the corner at Second and Liberty streets where O’Malley’s Corner used to be, or the Iron Quarter block.

Initially, downtown Louisville won’t be on the radar of big-box national retailers, say commercial real estate experts.

Right now, national retailers are not so much looking for new markets, but rather trying to penetrate high-rent areas in major metropolitan areas that now offer deeply discounted downtown lease rates, said Justin Baker, vice president of retail properties at the Louisville office of global real estate giant CB Richard Ellis Group Inc.

For retailers, maximizing lease value is crucial at a time when it’s likely they’ve scaled back expansion plans, Baker said.

Downtown real estate prices in Louisville are fairly stable compared to Chicago, New York and Los Angeles. In some larger markets, even affluent cities such as Boston, rates are at historically low levels, “so retailers are taking advantage of below-market rents,” Baker said.

That’s not to say there haven’t been a fairly large number of retail executives who have looked at downtown space, he added, declining to identify companies.

If that hypothetical retailer plans to open 20 stores nationally, a store in Louisville would deduct from the number of expansions into major markets. Picking an arbitrary figure of $15 per square foot space, Baker said that Louisville rate isn’t going to change much in one year. “But that Boston property that went from $40 to $30 isn’t going to still be $30 if they wait,” he said.

They’ll be back to Louisville, but for the moment, they’re focusing on larger tier one markets first: “We’ve had retailers tell us that point blank,” Baker said.

Walt Wagner, managing partner at NAI Walter Wagner Jr. Cos. Realtors , says despite the number of new condos and apartments, Louisville still hasn’t reached a critical mass of permanent downtown residents that will satisfy retailers.

“I know it’s a cliche, but it really is a ‘chicken-or-the-egg’ issue,” Wagner said. He worked with Walmart executives who were interested in redeveloping the defunct Winn-Dixie supermarket just south of downtown in Old Louisville at Fourth and Oak streets. But those executives decided to take a pass because area incomes are too “diverse,” he said.

Insiders tell Insider Louisville a number of national retailers have at least considered space in the central business district including Framingham, Mass.-based TJX Companies Inc., which owns T.J. Maxx and two other discount brands. But TJX executives opted for a new Southern Indiana store on Greentree Boulevard in Clarksville.

Wagner noted the number of restaurants and local stores downtown has grown impressively during the past few years. As the national real estate recession drags on, chances remain remote that a large national retailer will open downtown.

That said, Baker added, you don’t know until you ask.

The new Eddie Merlot’s restaurant at Fourth Street and Muhammad Ali Boulevard is the Fort Wayne, Ind.-based chain’s first downtown location, he said.

“Eddie Merlot’s wasn’t saying, ‘Gosh, we want a downtown store,’ ” Baker said. “The deal opened their eyes and they said, ‘Take a look at this!’ “