National chain stores in Bend outperform national averages. The retail sector here is growing faster than almost any other place in the state. What’s driving the boom?
Photos by Joe Kline
On an otherwise forgettable midweek winter’s day in Bend, with the mountains cached behind a gray film and no gift-giving holiday in sight, parking in the Old Mill District is tight. Shoppers ease along the brick and glass storefronts with bags of jeans, athletic tops and maybe a negligee or two. There are yoga classes and spa treatments. Satellite radio lends the air a little pep.
You couldn’t tell it at first, but something remarkable was afoot. For many of the 55-plus stores that anchor the core of this 270-acre site along the Deschutes River, seemingly average days like this over the past few years have added up to far-from-average results.
That Victoria’s Secret two doors down from the candy shop? Parent company L Brands says it was one of the chain’s top five performing stores in the nation a few years ago. Of the 76 Simply Mac stores around the country, only two of them sold more goods than the one in the Old Mill last year. No other privately owned Savory Spice Shop has sold more of its exotic culinary treats in the chain’s 33-store empire since 2012 than the one in Bend. REI, the Flip Flop Shops, Sunglass Hut: all of these Old Mill stalwarts have spreadsheets that can turn executives’ heads. What’s going on?
Bend’s retail climate as a whole is cooking. Retail jobs in 2015 in Deschutes County grew 9.6%, year over year, to 11,230 jobs, the vast majority of them in Bend. That means retailers have restaffed every position they lost during the recession. Shoppers last year pumped more than $503 million into the Deschutes County economy, the bulk of that in Bend as well, a 16% increase since 2012. Commercial real estate prices are up. Commercial building permit applications have returned to 2007 levels. All of this has outpaced population growth.
“Here we go, off like a rocket again,” says Josh Lehner, an economist with the Oregon Office of Economic Analysis. “This is what a typical expansion in Bend looks like.”
Retail follows rooftops, as the adage says, but what’s different is that Bend’s retail scene isn’t just drafting off the housing market’s wild ride of yore. Instead, while an uptick in population and a return to a healthy tourism heartbeat have undoubtedly helped sales in brick-and-mortar shops, the new Bend boom also hints at a secret sauce of sorts that has allowed the city to hit far beyond its weight class when it comes to attracting retailers.
“There’s no reason there should even be a city where Bend is—no interstate, no port, no major transportation hub and yet it has thrived despite all of that,” says Tim Duy, senior director of the Oregon Economic Forum at the University of Oregon. Why? “It is more about a story that got buried during the last boom, and that is that Bend, for many people, is a very nice place to live.”
That “nice place” is what a lot of the retail magic seems to hinge on these days, but it’s more than that, too. Bend’s location as a regional retail hub in the middle of nowhere, a broad range of “quality” consumers and a thriving tourism industry are all conspiring to make the city of 82,000 people a standout for retail, even against a national landscape. Few, if any, other cities in the state offer such a compelling recipe for success.
It begins with the fact that Bend can feel a lot like an island. Shops offering quality men’s clothing are scarce. There’s no Asian food store. Want to shop at Nordstrom? It’s a 170-mile drive to Washington Square.
And yet for many retailers, Bend occupies that rare corner of the map that’s profitable precisely because it is isolated—but not too isolated. That limits competition between retailers who can tap into a captive audience holding dollars that can’t wander too far afield. “We’re not some small place in Iowa,” says Noelle Fredland, marketing director of the Old Mill District. “For certain businesses in niche markets, we are in a really good place for them to be.” Where else but at that Savory Spice Shop are you going to buy shichimi togarashi for your Japanese noodles?
But what good is selling an exotic seven-spice mix if no one cares to use it? With direct flights to most major West Coast cities—and with Portland and the Willamette Valley within easy driving distance — Bend isn’t so removed as to pinch off the flow of outside ideas. “Bend over the decades has attracted a lot of interesting people, a lot of smart people, successful people who just want to be here, and that permeates the mojo of the community,” says Dino Vendetti, 54, who moved to town three years ago from the Bay Area and started the venture capital firm Seven Peaks Ventures. “There is a level of sophistication in Bend that you don’t find in other communities of the same size.”
That dynamic has helped downtown evolve from a boarded up wasteland of the ’80s and early ’90s into a lively experiential zone powered by leisure (art galleries, antique shops) instead of need (hardware store, office supplies). At a time when downtown areas are largely in peril, occupancy in the four square block area in Bend now holds steady in the 90-plus percent range.
For small-business owners like Teague Hatfield, that growth cuts both ways.
“It’s great that people are flocking to Bend, but I would say it does drive up competition,” says Hatfield, who opened The FootZone, a sit-and-fit running shoe store, in the heart of downtown in 1995. “I wouldn’t say the growth of the business has taken off like a rocket ship, but it has been steady.” So steady, in fact, Hatfield was able to open up a second location three years ago, also downtown.
Elsewhere around town, shops along the US-97 north-south corridor cover Bend’s more workaday retail needs, but even there the sauce is strong; vacancy rates for buildings over 3,000 square feet hovered at around 5.8% for the third quarter of 2015, Compass Commercial Real Estate data show. Again, Bend’s role as a regional retail hub is hugely important. Consider that the next closest Target after Bend’s is a 2.5-hour drive over a serpentine pass in Eugene. Even though a mere 57,500 people live within a 10-minute drive of the Bend store—the second-smallest market area for any Target in the state after Albany—the Highway 97 location can thrive because who in half of Oregon doesn’t need toothpaste or a Rubbermaid bin from time to time?
“Go to Ashland, which is another great town with a cool downtown, no neon, all local shops, but the heavy lifting happens up in Medford with the big-box stores,” says Paul Schlesinger, an Oregon-based senior vice president with Buxton, an analytics firm with consumer data on 116 million American households. “In Bend, think of all the different types of retail, all within easy reach. They all seem to live in harmony and survive.”
Perhaps unsurprisingly, at 7.1% of GDP, retail still doesn’t drive the Bend economy as commandingly as in other cities around the state. In the Medford market area, retail accounts for 9.3% of GDP and in Eugene it’s 7.3%. Portland’s regional retail only accounts for 3.9% of GDP, figures from the Oregon Employment Department show.
In fact, while the Bend retail sector posted 7.6% growth between 2012 and 2014, it actually underperformed against the city’s overall economic output increase of 11.6%, says Damon Runberg, a regional economist with the Oregon Employment Department.
“Is the slower rate of growth concerning? No,” he says. Runberg notes that growth in Bend’s gross domestic product was largely driven by a rapidly improving housing market, a very large component of countywide GDP. More tellingly, growth in Bend’s retail industry “drastically” outpaced Oregon’s overall figures, up 4.1% over the past two years.
The reason has less to do with the size of the population than with the types of shoppers who come or live there. Bend’s stunning location against icy volcanoes and nearly 2 million acres of piney national forest means its underwhelming demographics can turn into a viable springboard for retail when you look at what Schlesinger calls the city’s enticing “psychographics.” Those are big-picture demographics—age, race, income level—that get drastically refined by data to tease out the “quality” of the consumers in any given Zip code for any given business.
In other words, Bend might look very white and rural next to Portland, but it has a surprisingly diverse population when it comes to spending habits, from well-off retirees to couch-surfing ski bums, many of whom are all united in a common desire to live well and play hard. That factors into why Bend got a Whole Foods in 2008, the first one east of the Cascades, while Boise, which has four times as many people, did not get a Whole Foods until 2012. Trader Joe’s came to Bend in 2008. Spokane, also about four times as big as Bend, didn’t get one until late 2011, and it still doesn’t have a Whole Foods.
From a retailer’s perspective: Bend’s location offers lots of worthy “experiences” that attract people to the region to live and visit, but sometimes you need to buy things to make those experiences happen—from the mundane (underwear) to the highly specialized (a full-suspension mountain bike). The options for going elsewhere are few; the market is wide.
“That is very different from Aspen,” Schlesinger says. “Aspen is a mountain town, too, but with a very narrow band of consumer. A lot of retailers in Bend could make the argument that they’re well suited to the people who live, work and play there.”
That could not be more true for REI, which provided a tidy metaphor for Bend’s changing economy when it set up shop in 2005 in what was once the old powerhouse for the now-defunct mills that gave the Old Mill District its name. Now you can paddle a stand-up board through the heart of the district or bounce in a kayak through a new white-water park. Last year about 22,000 REI members who live within the store’s market area bought something at the Old Mill REI. That’s a full 15% of the population.
“There aren’t that many REIs where the penetration is that high,” says Rick Creekmore, the Old Mill REI’s general manager. Mike Ferris, an REI national spokesman, sums it up simply: “Bend is a market where we just fit.” Indeed, that fit is so Gore-Tex glove-like, with sales that exceed goals and ample opportunities for community outreach, that REI headquarters in Kent, Washington, awarded the Bend store a “store of the year” award two years in a row in 2012 and 2013, the only time that has ever happened in the co-op’s 78-year-long history.
For active outdoorsy types, REI is a trusted brand. In a way, that holds true for Bend itself. National Geographic Traveler magazine recently called the city one of the world’s 25 best ski towns, putting it up there with Chamonix and Zermatt. Travel + Leisure in 2014 named the Old Mill’s Les Schwab Amphitheater a top 10 outdoor venue. The Huffington Post, the Los Angeles Times, and Men’s Journal magazine have all sung Bend’s praises.
To be fair (and to offer a full disclosure), I’m responsible for some of that coverage. I’ve tooted the town’s horn in Outside magazine (best getaway for stand up paddling), twice in the New York Times (“my very own Switzerland”), and in magazines from Britain to Germany, among many, many others. Articles full of superlatives help convince readers that a trip to Bend is worthy of their vacation days.
That’s important because a strong tourism industry in Bend over the past several years has played a crucial role for retail, says Lehner, the economist with the Oregon Office of Economic Analysis. Namely, tourist spending can offset sales lost to online vendors or even pad the damage of a recession. In 2012, when Bend was still adrift in the economic doldrums, consumers spent on average $15,000 per capita on retail goods in the Central Oregon city. That’s 13% more spending per person than the national average and 20% higher than statewide figures. “That speaks to me of an influx of people,” he says.
Runberg, the Oregon Employment Department economist, says the effects of that influx also show up in the sectors of retail that appear to be growing. For instance, jobs for people selling new furniture—a task that usually targets locals, not visitors—are down, but jobs in the “sporting goods, hobby, instruments, and book stores” group, a group that can be heavily influenced by visitor purchases, have grown 25% since 2006, Runberg says. That’s the fastest-growing sector for area retail employment.
In all, visitors to Central Oregon in 2012 logged about 7.8 million visitor nights in the area, the bulk of them in Deschutes County and Bend, an April 2015 study by Dean Runyan Associates shows. By 2014 visitor nights had increased 5% to 8.2 million, helping to infuse about $1 billion in economic impacts into the region. Retail sales to visitors meanwhile climbed to $80 million in 2014, which mirrored that 5% increase in visitor nights over 2012 levels.
But how long does Bend have before the sauce begins to spoil? Retail business owners in Bend often worry what the city’s increasing home prices and tight rental scene will do to the labor market. During the last housing crash, unemployment soared to nearly 16%. Already the median home selling price in Bend had jumped by 67% in December 2015 to $330,000 over 2012 levels, Zillow reports. Meanwhile, average retail trade workers in the area today earn about $30,000 a year, which is 8.4% less today than a decade ago.
Bend isn’t just getting more expensive for workers but for businesses, too, especially as more national brands look to expand into the city’s retail scene. Russell Huntamer, principal broker at Compass Commercial Real Estate, says three national sandwich brands, a national bakery/coffee shop and a few national cell phone retailers are all looking for spaces to open in Bend. Sadly, he has no word on a Nordstrom. Interest like that is driving up lease rates. Some new buildings on Northeast Third Street, or Highway 97, are now leasing for as high as $3.75 a square foot a month. A few years ago, during the recession, Huntamer says some businesses were only paying 80 cents a square foot. “Now everyone is competing for spaces,” he says. “To some degree that pushes out the local tenants unless they can compete with the nationals and what they can pay.”
Hatfield, the downtown running-shoe store owner, says the best strategy for retailers like him moving forward is to keep the plays conservative and strive to manage the realities of the business against expectations. Providing an experience while shopping is key, as is remembering who your market really is. “To stand out in Bend you really need to be unique and genuine,” he says. “Bend supports things that are unique to Bend.”
In the end, Bend’s retail scene downtown is likely to become more boutiquey, while more nationals are likely to discover the Old Mill District’s viability. More people will come for a visit and more will stay. “Right now everything feels not too big, not too small, but just right,” says Steve Barham, the former head of LinkedIn’s global sales team, who recently moved to Bend. “It’s Goldilocks.”
For other isolated towns looking to give their own retailers a hand, replicating the Bend sauce sounds like a recipe for heartburn. Communities like Prineville, Oakridge and La Grande all have some of the same great ingredients that Bend began with, but mixing them doesn’t come easy. Boosting tourism, wooing a diverse group of consumers and attracting a critical mass of those interesting, ambitious outsiders often threatens a way of life that dies hard in those parts. For them, the Isle of Bend will always be just a fun place to shop.