Competition from retail centers in Burlington, Mount Vernon and, possibly, a future site such as the Swinomish Reservation is the biggest challenge facing retail sales in Anacortes, and recapturing money headed to the malls and tourist dollars passing through town are among the biggest opportunities, according to a new study by consultants Berk & Associates.

But attracting big retailers to Anacortes will be difficult under existing conditions and doing so may hurt some existing businesses, the study concluded.

Few surprises are found in the retail market study, which was commissioned by the Anacortes City Council to gather information for its major update of development regulations.

“I’m not sure that it told us a lot of things that we didn’t already know,” said Mitch Everton, executive director of the Anacortes Chamber of Commerce.

The council spent $20,000 for the study. When they commissioned it, some councilors hoped the findings would influence the Port of Anacortes to consider retail development on a 6-acre parcel across from Rite Aid. However, the port has moved forward with plans for a marine skills center at the site.

The city’s ultimate goal was to use the study to help it form economic development and land-use strategies to forestall anticipated revenue gaps as Anacortes approaches build-out and revenue from building permits drops. Although the implementation of new “streamlined” sales tax may help the city’s bottom line, the study expressed uncertainty about what the impact of that change will be.

Councilors had hoped the consultants’ “fresh eye” would provide new insights on citywide retail options, such as specifics on optimal siting and impacts of retail expansion on existing businesses — useful information for the zoning and development code update this year.

The study does touch on a number of issues. As well as listing challenges and opportunities of attracting big retailers, it encourages upstairs condos in downtown Anacortes and opposes a ban on chain or formula businesses. It said a mixed-use development with a hotel and convention center on Fidalgo Bay would benefit the downtown core, but that similar commercial growth is unlikely to materialize in the West End. It said population growth and the increasing affluence of the community will fuel greater demand for additional shopping options.

On probably the most controversial topic, the concept of allowing large-scale retail at March Point, the study provides plenty of numbers and a list of pros and cons, but leaves it to the city to decide if it’s a good idea or not.

“Based on the initial project scope, we had hoped to see some quantification of the effects of additional retail on existing business, which was not done,” Everton said. “Specifically, what is the estimated cost in potential lost sales to the CBD/Commercial business zones versus the benefits of addressing current retail leakage?”

City Finance Director Steve Hoglund said the study was reviewed by an economic development committee, which includes himself and Everton, three council members, the mayor and planning director and other citizens.

“It was evident there were things in the study some members were hoping to see but weren’t included,” Hoglund said. “It didn’t give that kind of detailed information.”

He said the data was clear on what goods are needed, but not on where retailers should go or how to find them.

An independent group, the Anacortes Futures Project, is also working on a retail assessment of the community, Hoglund said. The committee decided to support this group any way it can and see if it can take the study and fill in some of the blanks by the end of the year.

“It will give us an idea if we should change the comprehensive plan next year,” he said.

In the meantime the city and committee will monitor the impact of the streamlined sales tax, which will be implemented July 1.

“We’re kind of in a holding pattern,” he said.

The retail survey begins by outlining existing conditions.

“The city’s economy, anchored by strong marine industries, excellent marinas and the port has enough industrial and commercial development to support the tax base and provide necessary services. This has allowed the city to provide necessary infrastructure to support economic development,” it said.

The quality of life attracts retirees and higher income residents who form the retail base, although there is an active working-class economy. The spending power of local residents has grown notably.

“The most significant shift is in the share of households with incomes more than $75,000, increasing from 21 percent in 2000 to 29 percent in 2007,” the study said.

Population growth is limited by available land, and the “primary trade area,” Fidalgo and Guemes islands, is expected to grow about 1 percent per year.

Based on projections of future demand for retail space and a range of capture rates for the primary and secondary markets, Anacortes will generate demand for 138,000 to 194,000 square feet of retail development over the next 18 years. This equals five to 10 additional restaurants, a grocery store, possibly a drugstore and several specialty retailers, the study said.

“Retailers can only expect to capture a portion of this new demand since much of the spending, particularly in the ‘other retail’ category, will be captured by the regional retail competition in Burlington and Mount Vernon,” it said.

But two important sources of potential additional demand are not included in that estimate: Recapture of sales leaking to the malls and additional tourist spending.

“If Anacortes were to attract a large-scale general merchandise retailer to March Point or elsewhere in the city it would recapture a significant portion of sales leakage. If Anacortes retailers were able to capture more tourist spending or if the city’s tourism strategy boosts visitor counts above existing levels, a larger retail base would be supported,” the study said.

Everton said the chamber would like to have seen its tourism development efforts considered in greater length in the report.

Anacortes has been named as a major destination by a number of regional/national magazines, and it recently hosted Trawler Fest, he said. “This will continue to be a major economic driver as we move forward.”

Growing affluence colors citizen expectations, the survey said: “The wealthier the local population becomes, the greater the demand will be for additional specialty grocery, restaurant and retail options.”

A chief recommendation of the study is to hire a leasing professional to lead targeted recruitment of retailers and to help major retailers see the opportunities here.

“Anacortes is a unique market that may not be as well understood by national retailers or others in the development or leasing community,” the report said.

A professional could help refine the city’s vision for commercial areas and actively marketing opportunities to retailers who would meet local needs and fit appropriately along Commercial Avenue.

The city provides a welcoming business climate, the study said, and those responding to a survey generally support development in line with the city’s plans.

The report noted Anacortes’ successful pub and restaurant cluster, and a number of strong specialty retailers. While the city performs well in sales categories such as autos and parts, food and drink and health and personal care, it lacks general merchandise retailers.

“This category, which includes large-scale general retailers like Costco or Fred Meyer, is noticeably nonexistent in the Anacortes retail mix. These stores typically want to locate in high-traffic areas with good transportation access and high surrounding population density,” the study said.

A disproportionate share of people go to Mount Vernon or Burlington for apparel and general merchandise. Anacortes could recapture these sales dollars, but in-town sites are unlikely to interest big retailers because of low population and traffic counts.

“In particular, apparel stores typically locate in larger retail nodes with major anchors and other complementary clothing stores in close proximity,” the study noted.

March Point may be more attractive to big retailers, but several respondents said such businesses would cannibalize existing retailers.

“Another challenge to efforts to expand retail offerings in Anacortes is the resistance of some stakeholders to bringing in retail competition that could draw sales from existing locally owned businesses,” the study said.

The lack of competition has helped small businesses succeed.

“The local assortment of specialty retailers are supplying many of the goods and services typically offered by these large-scale stores. Aside from apparel, the Anacortes retail mix is supplying many of the basic goods and services desired by consumers,” the study noted.

Many survey respondents said there’s room to grow boutique retail, galleries, restaurants and hotels to attract tourists.

The study added that the city should encourage renovation of older buildings: Much of the building stock downtown needs significant upgrades, and this hampers new business starts.

The study advised against prohibiting chain stores: “Plans to ban format or franchise retail would be a challenge to retail development in the city.”

Downtown would benefit from mixed-use multifamily projects, the study said, noting that more residences would increase foot traffic and vibrancy. However, current market dynamics do not support mixed-use development farther south.

The recent slowdown in the housing market has tabled several planned mixed-use projects downtown, but these may return when the market improves. Another barrier to such small-scale developments is parking. Land values are not high enough to justify the cost of underground parking, so projects must rely on surface parking. The report said the city may want to revisit parking and other mixed-use zoning requirements if desired new developments do not emerge soon.

The city should continue work on trails linking downtown and the Fidalgo Bay waterfront, so when development occurs on MJB or port property the central business district will benefit from the new activity.

“City staff should continue efforts to collaborate with MJB in developing the CM1 zoned property as a mixed-use, pedestrian-friendly transitional zone,” the study said, adding that further analysis may expedite the process. “Feasibility of some of the special uses being considered for the MJB site such as a hotel or conference/meeting facility could be determined through additional targeted market analysis. The city should consider supporting this type of analysis if it could advance planning and development efforts on the site.”

Everton said a convention center would provide the city with trade shows and indoor activities during off seasons and a financial analysis is needed to help justify such a project.

“This wasn’t addressed in the report but it is intrinsic to our ability to make this happen,” he said.

The study noted the auto-dependent commercial zone on Commercial Avenue south of 10th Street is seeing a fair amount of redevelopment, and land is becoming scarce. Most projects involve demolition of old buildings and prices are up to about $40 per lot square foot, with peak sites as high as $60. This creates market pressure that should drive the redevelopment of the remaining small residential lots.

Retailers prefer a corner with a traffic light, but few such parcels are available, the study said. There is a potential for more commercial development if allowed on R Avenue.

On Highway 20 at March Point, rezoning to allow large retailers offers unique opportunities and risks, the study said. Currently the area is limited to light manufacturing/industrial uses and auto and boat dealerships.

A key opportunity of such a change is to improve the diversity of retail offerings in Anacortes and make shopping more convenient for local residents, the study said. It also would allow Anacortes to recapture sales leaking to the malls and improve the city’s long-term financial situation. The risk is to existing businesses.

“The biggest risk to opening the March Point Highway 20 corridor up to large-scale retail development is the potential cannibalization of sales from existing Commercial Avenue and downtown retailers,” the study said.

The study did not conclude how damaging this would be.

“If a large general merchandise retailer such as Costco, Target or Fred Meyer were to locate in the city, several of the specialty retailers along Commercial Avenue and the CBD would likely experience a loss of sales,” it said. However, it added, “many other niche retailers in Anacortes offer specialized products or services and would not overlap significantly with most types of large-scale retail. It is possible to minimize the negative impacts by working with land owners and developers to recruit retailers that don’t compete as directly with current city businesses.”

If the city does not rezone the Highway 20 corridor, new retail development may take place on Swinomish Tribe property or in Oak Harbor. Such development could make it more difficult to create a retail development at March Point in the future.

The study estimates 32,000 vehicles use Highway 20 at Reservation Road daily.

“According to interviews with local real estate brokers and developers, there has been interest by large-scale retailers to develop along the March Point Highway 20 corridor to take advantage of the high traffic counts and potential customer base in Anacortes, Oak Harbor and the San Juan Islands,” the study said.

As prime waterfront industrial land is used up, March Point may provide land for businesses that don’t need waterfront access. If the area is used for retail development, the city may run out of land for the important shipbuilding sector. To reduce this risk, the city should assess its long-term industrial land supply, the study recommended.


March Point retail development

Opportunities if retail is allowed:

• Proven interest of large-scale retailers because of high-traffic intersection and potential customer base in Anacortes, Oak Harbor and the San Juan Islands.

• Recapture of sales currently leaking to neighboring retail centers.

• Improved retail offerings and convenience for residents.


Risks of allowing retail:

• Potential cannibalization of sales from existing Commercial Avenue and downtown retailers.

• Desired market may not materialize.

• Potential loss of industrial land supporting the important shipbuilding sector.