Recession decimated outstate Minnesota retailers, but there are bright spots

New London, Minn. – This picturesque Kandiyohi County town seems a more likely spot for a historic feed mill than for a high-end women's clothing store.

But Alison Werder grew up here, so when she decided to move her home-based fashion business into a storefront, she chose downtown New London, a city of about 1,400 residents some 100 miles west of the Twin Cities.

Ali J Boutique has thrived since opening in 2011 in an empty grocery store. Werder employs three people here and recently opened a second location in Marshall. She credits her success to offering more than clothing. Her shop holds fashion shows and other events, offers personalized styling sessions and "does colors" for clients. Her target market is women aged 40 to 70, and they come to shop from as far away as the Twin Cities.

"We teach women to wear their worthiness," Werder, 37, said. "If I hadn't figured out how to offer something beyond our services, I could have been another business that came in with the best of intentions" and later failed.

It's a lesson many businesses in greater Minnesota might pay attention to. The Great Recession decimated the state's retailers. More than 5,000 closed between 2009 and 2015 — fully 12 percent of the state's total, according to new research by Bruce Schwartau and William Craig for the Center for Urban and Regional Affairs (CURA) at the University of Minnesota.

And the carnage continues. Well-known regional chains such as Herberger's have gone bust, along with cherished local institutions such as Norby's department store in Detroit Lakes, which closed last summer after 112 years. Target, Walmart and J.C. Penney all have closed stores in rural Minnesota communities as well.

Of the state's 47 largest retail centers outside the Twin Cities — generally cities with more than 5,000 residents — all but two saw a loss of retailers from 2009 to 2015. Many cities lost 20 to 30 percent of their retailers after the recession.

Yet, paradoxically, retail sales grew even as retail outlets declined. From 2009 to 2015, retail sales in Minnesota jumped about 10 percent, from $44 billion to $49 billion.

Two major factors explain that puzzle, experts say: the rise of online sales, which now capture 10 percent of Minnesota's shopping dollars; and the continued growth of regional retail destinations, which pull an ever-greater number of shoppers from small towns that once were the primary marketplace for their own residents.

"The overall trend is regionalization," said Ryan Pesch, a community specialist with the U's extension office in Moorhead. "You have customers that are attracted to a regional center because there is more choice. Then the stores there do better, then other stores want to be there."

The result is a lopsided retail map in which rural counties lose their stores — and their dollars — to neighboring counties that offer more and larger shopping options. The "pull factor," as it's called, has created winners and losers across greater Minnesota.

For example, Blue Earth County, with Mankato as its shopping hub, has a pull factor of 1.65, according to an estimate by CURA — meaning it grabs about 65 percent more sales than would be expected for its population. Meanwhile, neighboring Le Sueur County logs a pull factor of 0.29, meaning that about 70 percent of its expected sales are going elsewhere.

"Unfortunately, it is a zero-sum game, with entrepreneurial cities winning market share from less enterprising ones," Schwartau and Craig wrote in their study, to be published in the CURA Reporter.

Werder isn't the only thriving retailer in New London.

The Happy Sol, selling "better sportswear," also opened downtown in 2011. Co-owners Stacey Roberts and Gina Lieser began with home goods and women's clothing, later adding men's clothes and a children's boutique. They said they draw customers from a 60-mile radius who are looking for higher-quality, more stylish options than they can get in a big-box store.

The pair haven't been afraid to make bold moves. Two years after their store opened, they bought a large, decrepit marina on the Crow River downtown, bulldozed it and built a new store. The demolition opened up space along the river that later attracted another new business, the Goat Ridge Brewing Co.

"There has been a huge change in seven years," said Roberts.

Added Lieser: "What we hear the most is, 'I can't believe this is in New London.' "

That's the kind of thinking it will take to succeed in small-town Minnesota retail, said Kim Ragan Sovell, a marketing instructor at the University of St. Thomas' Opus College of Business.

Do your customers work during the day? Then maybe you should be open from noon to 8 p.m. rather than 9 to 5, she suggested. Can you offer delivery? Because Amazon does.

"It's being friendly, being knowledgeable, being very curious about what your base customers want," Sovell said. "And then being willing to make the changes and sacrifices to offer what your customers want.

"I'm not saying this is easy. But this is what needs to be done in order to keep the doors open and keep traffic coming in. You can't say, 'It's a higher price because I'm a small business.'

"No. You've got to give them more."

Schwartau, program leader for community economics at U extension, said he believes there are good opportunities in rural towns.

"What we're seeing over the last couple of years is, the small businesses and the local entrepreneurs have been able to do all right," he said. Schwartau mentioned Fairmont, a city of about 11,000 residents in Martin County near the Iowa border, as an example of a town that's seen a revival of its downtown business district in recent years.

Runnings, an outdoors-oriented retail chain based in Marshall, has been growing, adding more than a dozen stores this decade for a total of 44 and expanding its footprint from Minnesota and South Dakota to the East Coast and Montana. The company is building a new store in Worthington and moving into a larger location in Aberdeen, S.D. Runnings looks for rural locations and prides itself on hometown values, said Dennis Jensen, a company spokesman.

"We offer carryout. We have stores that will deliver. We're pet-friendly," he said. "We push our managers to become involved in our communities, because our neighbors are coming to shop with us. We believe in helping the 4-H, the FFA, charities — we believe it's our responsibility to become involved.

"Is it maybe old school?" Jensen said. "Yeah, but it's basic business. Our philosophy is, it's a big sandbox, and we just stay in our corner and continue to do the best for our customers."

As the big retailers get bigger and the shopping world moves online, Main Street retailers will have to adopt an intense consumer focus to succeed. Werder, for one, embraces the challenge.

"Let the big boxes open," she said.

The story of her small-town boutique, she added, shows what's possible for "passionate people with a dream."