Modesto business community hopes Gottschalks survives

Modesto area business leaders hope Gottschalks, which has served the city for 32 years, will survive despite Wednesday's bankruptcy filing.

"Certainly, nobody wants to see a retail outlet that is so critical to this community go into bankruptcy protection," said Joy Madison, chief executive officer of the Modesto Chamber of Commerce. "A lot of people in the community count on it as a store."

Under the Chapter 11 filing, the Fresno-based chain plans to continue operating its 58 department stores. They include two in Modesto — at Vintage Faire Mall and at Century Center on Oakdale Road — and stores in Sonora, Merced and Tracy.

Retail experts warned that the going could be tough, with the area hard hit by unemployment and the housing collapse. The Gottschalks filing came soon after the closure of the Mervyns chain, which failed to get back on its feet after its bankruptcy protection filing last year.

"If you look at those who have had the most difficulty, it has been regional department stores," said Ken Perkins, president of Retail Metrics, a research company based in Massachusetts.

Shoppers have traded down from midtier department stores to hunt for bargains at discounters, or they hold back spending altogether, he said.

Modesto entrepreneur Dan Costa said Gottschalks could do better if it expanded its online offerings.

"There's a big change in the way consumers are shopping today," he said. "A lot of it has to do with the economy, but a lot of it has to do with convenience."

Costa said 30 percent to 40 percent of the sales are made online at his company, 5.11 Tactical, which supplies clothing and accessories for public safety personnel.

He said change is constant in the business world: He owned the Velvet Ice Cream company in the early 1980s, but it fell victim to a trend against small producers. He then opened Mallard's, a large restaurant that would be hard to operate with today's preference for smaller eateries.

Gottschalks has been an anchor tenant at Vintage Faire since the mall opened in 1977. It moved into a larger site vacated by Weinstocks in 1996.

"Gottschalks is an amazing retailer and has been for years," said Anita Walker, spokeswoman for Macerich Co. of Santa Monica, which owns the mall. "If we were to hear anything about one of our stores leaving, we would move right away to fill the space."

The Century Center store opened in 1984 and expanded twice. Both it and the mall store are prime retail sites, the chamber's Madison said.

"Obviously, we would be under-retailed (if Gottschalks closed), and at that point we would be considered a location that would be attractive," she said.

Anchor stores help smaller ones

Large stores in a mall help their smaller neighbors, said Ham Shirvani, president of California State University, Stanislaus, whose background is in architecture and urban planning.

"Shops near anchors have higher rents," he said. "What will (a closure) do to stores near them? There will be less traffic. It's a domino effect."

In an interview with The Fresno Bee, Gottschalks Chairman James Famalette said some of the chain's stores are profitable, but he declined to name them.

In the past, the two Modesto stores have been among the chain's sales leaders.

But traditional department stores such as Gottschalks are getting hurt by high-end specialty retailers and big box discounters, analysts say. Smaller retail chains are particularly fragile because they can't buy goods as cheaply as their bigger competitors.

That cost disadvantage can hurt Gottschalks because its customers tend to be more price-conscious than those who shop at more upscale stores.

Another handicap for Gottschalks is geography. Running from Fairbanks, Alaska, to Indio, it primarily serves far-flung, second-tier markets. Such a network stretches a company thin, increasing distribution and other operational costs.

Still, Gottschalks was making a go of it until the recession hit, overwhelming the company with a string of operating losses. Its stock price tumbled, and Gottschalks was unable to forge an alliance that would provide a financial lifeline.

The Fresno Bee and The Associated Press contributed to this report.

Bee staff writer John Holland can be reached at jholland@modbee.com or 578-2385.

Bee staff writer Eve Hightower can be reached at ehightower@modbee.com or 578-2382.

This story was originally published January 15, 2009 at 1:43 AM with the headline "Modesto business community hopes Gottschalks survives."