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The East Village has become a Des Moines retail success story. A few entrepreneurs along one street have expanded into an outdoor shopping district spanning several blocks that is unlike the suburban shopping centers that in recent years have drawn retail sales out of Des Moines.

Heading west, “for lease” signs line storefront windows, the first floor of the Kaleidoscope at the Hub is mostly empty, and in its first year of business, the Davis Brown Tower has only been able to lure a bank and Josephs Jewelers.

These are signs of the battle downtown continues to face in building a retail base, especially with competition from booming retail centers in Ankeny, Altoona and the western suburbs.

But Des Moines officials, building owners and retailers remain optimistic. The Kaleidoscope will undergo renovations and possibly bring a retail presence back to its first floor, and the Younkers building – once a sign of failed retailing downtown – has been purchased by a developer who plans to transform it into a mixed-use development. The city is looking at a tram system, which it hopes will bring more people downtown and spur more business growth, and a soon-to-be-completed world-class sculpture garden in Western Gateway Park is helping revitalize that district.

All of this retail development, officials say, is important to the vitality of downtown and supporting its office and growing residential sectors. As an example, said Matt Anderson, economic development administrator for the city of Des Moines, “You probably wouldn’t have Aviva (USA) and Wells Fargo Home Mortgage with their huge new campuses out on Jordan Creek Parkway if there weren’t the mall and all the attraction that comes with that. So clearly the mall and the retail base they’ve created there have served as a catalyst for other development in the area.”

The success story

Retail “has been successful in pockets” downtown, Anderson said. “The East Village is probably our greatest success story. We all kind of held our breath; we didn’t know how the market would embrace East Village businesses. But it’s really been a tremendous success.”

The longevity of those businesses are a testament to that area’s success, Anderson said, given that the national failure rate for first-time entrepreneurs is high. SMASH has expanded its T-shirt store and hopes to expand again this fall to encompass about 4,500 square feet, four times the store’s original size. Baby Boomers Café is moving out of its 313 E. Locust St. location into the recently completed E5W building at East Fifth and Walnut streets, which will give it space to expand.

“The success of independent businesses that just kept expanding and filling in around there, to me that is precisely what downtown retail is about,” Des Moines urban designer Erin Olson-Douglas said, adding the compactness of the retail district and unique product mix make it a destination draw.

SMASH owner Mike Draper said sales at his store are up 130 percent from last year. Although customers are spending less per person, more people are coming into the store, he said. “It seems like every summer (traffic) makes a new leap forward,” he said.

John Burgeson, CEO of Iowa State Bank, also has noticed a rise in traffic around his new buildings along East Locust and East Sixth streets, which has helped draw interest to his recently completed Oxford Row and Village Place projects. The six apartment units at Oxford Row are leased, and he has had interest in the small office/retail spaces on the ground level, with one confirmed tenant. However, the 6,000 square feet of retail space at Village Place remains empty.

New retail nodes

As the Des Moines Area Regional Transit Authority faces pressure to move its bus transit hub off of Walnut Street so that the city can reopen the street to cars and possibly a tram line, property owners are making preparations for what they hope will be increased pedestrian traffic.

The Kaleidoscope is updating its building after two of its major first-floor users – Principal Financial Group Inc. and Citigroup Inc. – moved out. Last year, Kaleidoscope owner Hubbell Realty Co. renovated the interior with new paint and lighting, and a team spent a quarter of the year analyzing ways to update the mall on the first level, coming up with ideas such as better signs and lighting in the front entrance, a café setting along the street and easier street access to potential stores.

“We think it’s a great time to really look at those retail uses again,” said Colleen Johnson, vice president for CB Richard Ellis/Hubbell Commercial, noting that the nearly 25-year-old mall hasn’t had space for a larger retailer in a long time. However, Hubbell won’t finalize plans until it determines who will move into the first floor, which leaves it open for an office user to come in as well, said Krista Capp, vice president of property management.

After being 100 percent occupied for the first time a couple of years ago, the skywalk level of the Kaleidoscope now has about 5,000 square feet of space available. A computer accessories and phone store just moved into one of the bays in June.

The vacancy didn’t surprise Johnson, given the troubled economy and the fact that small retail bays tend to have a high turnover rate in most malls. Interest is picking back up, she said, but many retailers are delaying any store openings until next year.

“We see it as the hub of downtown,” Capp added. “There are more skywalks to the Kaleidoscope than any other building downtown and we’re just very excited about the opportunities we have to capitalize on that.” She noted 14,000 people walk through the mall every day.

The Davis Brown Tower on 10th Street also has been slow to fill up, with only Josephs and First National Bank of Iowa occupying first-floor retail bays. But Tamera Hanson, spokeswoman for Ladco Development Inc., the building owner, said interest has been picking up recently.

Anderson believes 10th Street and the buildings around Western Gateway Park could emerge as another pocket of retail. State Sen. Jack Hatch has retail space available in a renovated building at 1312 Locust St. and Nationwide Mutual Insurance Co. just confirmed that Smokey D’s BBQ will move into one of its first-floor retail bays in its new building on Locust Street.

Toby Joseph, president of Josephs Jewelers, said the move to the Davis Brown Tower from the Equitable Building a year ago “has been very good for us.” The new store draws from a larger base of nearby workers, and free parking above the store has made it easier for customers to stop by, especially its older clientele, he said. He expects sales to continue to improve as more retailers move into the area and the Hotel Fort Des Moines across the street completes its renovations.

All of these are signs of a changing climate, Joseph said. “I don’t think the city has really been interested in retail the last 20 years to be honest with you, and now what happens when you aren’t interested in retail has happened and they realize now they better start getting interested,” he said.

Downtown has many vacant storefronts, especially in the once vibrant corner of Sixth Avenue and Locust Street, where Josephs left. Highland Park, Ill.-based Bridge Investments said in a May 2006 press release that it was in discussions with “quick-casual” restaurants and local high-end retailers to fill the retail space in its Bank of America building at 317 Sixth Ave. Three years later, it still has not announced a tenant.

Sherman stays focused

Rather than compete with all the available retail space, Jackie Nickolaus, vice president of development for Minneapolis-based Sherman Associates Inc., said her company has planned for just one retail node along Southwest 11th Street and West Martin Luther King Jr. Parkway in its Gray’s Lake Office Park development. “Retail is a tough thing,” she said, “and you don’t want to replicate something that’s a mile away. We don’t want to replicate Court Avenue or the East Village.”

Des Moines, like many metropolitan areas, has been facing increasing competition from the suburbs, especially West Des Moines, Altoona and Ankeny, which have attracted the big-box retailers that many people are drawn to during an economic downturn, said Iowa State University Extension economist Meghan O’Brien.

“We have so much retail and we’re finding that people are trading down and substituting away from more expensive retail options, so it’s kind of hard in some ways to maintain that base and to attract people to a different area just to shop,” O’Brien said. She added that most retailers rely on a conglomeration of shops to draw business, which makes areas such as the East Village more successful.

An Iowa State University Retail Trade Analysis Program report for Des Moines showed a decline in retail sales even before the recession hit. In the year ended March 31, 2008, Des Moines retail sales fell 0.4 percent. Meanwhile sales increased in many of its suburban locations, including 2.6 percent in Ankeny, 4.1 percent in Clive and 1.2 percent in West Des Moines.

To reverse the general decline in downtown retail, O’Brien said it takes “a lot of leadership and vision. You have to have a strong commitment to the revitalization and you have to have a strong sense of community, so it tends to be more local and tends to occur in pockets.”

Des Moines, however, has some features that could help it succeed compared with other communities, she said, including regional attractions such as Principal Park and Wells Fargo Arena in close proximity to each other. However, job losses downtown and expected vacant office space once Wellmark Blue Cross and Blue Shield and Aviva USA move to their new headquarters could be a concern.

Olson-Douglas said that Des Moines’ retail space offerings could position it to take advantage of retail growth once the national market corrects itself. “I think downtown has the gamut of opportunities to offer to retail, from existing lease space to small new development sites to larger-format sites,” she said. “So I think we’re well positioned to respond to any retail retooling as it moves forward out of recession.”

New vision

A recession also gives cities a chance to think about incentives and infrastructure they can put in place to help encourage development once conditions improve, Olson-Douglas said. “I think this span of time, no one wishes upon ourselves but it allows you to think strategically and holistically at what (the city) should be,” she said.

The city has conducted a tram study in the past year and has proposed a four-mile loop around the downtown core that it believes would encourage major redevelopment. It is working on finalizing a report summarizing the study’s findings as well as financing for the $100 million project.

SMASH owner Draper also has been leading discussions for a zoning ordinance specific for the East Village, which would limit surface parking and other types of development typical of chain stores and fast-food restaurants that he feels could jeopardize the look and feel of the historic district. Draper has been talking with developers, building owners and retailers about the change and is looking, along with the city, at what other communities have done.

“People have differing opinions,” Draper said. “Retailers would probably like stricter rules on national chains, but the developers and any real estate owner doesn’t want rules too strict to limit who can move in.”

“We don’t want to limit development in the East Village,” Anderson said, “but we want to regulate it to the degree that it maintains the uniqueness that makes it successful.”

Downtown still has its “wish list,” with the most common request from residents being a grocery store, Anderson said. But he admits it’s a challenge without the residential base to drive it. The Village Market and River Bend Trading Co. closed after not getting enough business. “There just wasn’t the residential base to sustain them and I don’t know when we’ll hit that threshold,” Anderson said

He also sees the days of downtown department stores, such as the flagship Younkers store on Walnut Street, as being over, though Joseph argues that there is room for a well-managed department store downtown.

One success is a growing restaurant and entertainment base, especially around the Court Avenue area. “The quantity of quality restaurants available downtown has really blossomed,” Olson-Douglas said, which helps encourage more people to utilize downtown retailers and restaurants before a major event.

These successes show that Des Moines is best positioned to provide a retail experience that’s different from those offered by shopping centers featuring national chains, officials say.

“I think as a city we need to have that urban retail to complement the whole scene of retail opportunities,” Olson-Douglas said.