Sibling Rivalry

Not so very long ago, two local developers battled to win the hand of one very high-end retailer. The skirmish commenced around a handful of downtown Bellevue blocks. On one side: Bellevue’s native son, Kemper Freeman Jr., who turned his father’s original 1946 open-air collection of 16 stores into a nearly 200-shop powerhouse mall, Bellevue Square, now anchoring a conglomerate that includes Bellevue Place and Lincoln Square and their mix of hotels, condos, restaurants and a 16-screen cinema. On the other: Wyoming-born retailing upstart Dan Ivanoff, co-founder of Seattle-based Schnitzer West; he had ambitions for a new 1.6 million-square-foot complex of luxury retail spaces, restaurants, residences and offices, called The Bravern, to be located just a block away from Bellevue’s busy Interstate 405 exits. The linchpin to his plan? Neiman Marcus, which Freeman also sought to lure into his mall.

“Neiman Marcus was the A-number-one target we had to go get first,” admits Ivanoff, “then Louis Vuitton, Hermes, Jimmy Choo and all those names that … at any major center that Neiman Marcus is in, those kind of retailers are next to.”

The Dallas-based fine fashion purveyor had long been courted by Freeman, who even financed some of the demographic research Neiman Marcus needed in order to pull the trigger on its first-ever Northwest location. However, Ivanoff’s luxe vision and The Bravern’s blank-slate site appeal ultimately won over Neiman Marcus. Ivanoff’s other wished-for signature shops soon followed suit, joining Neiman Marcus in The Bravern.

This tug-of-war tale might seem like just a drama set east of Lake Washington, but the very fact that it was centered in Bellevue and not Seattle raises the question: Has Seattle’s sibling city become a worthy cohort or a worrisome rival set to siphon off shoppers and threaten Seattle’s reign of retail supremacy?

Their respective retailing personalities couldn’t be more different. Bellevue presents a cohesive cluster of largely indoor malls wrapped in SUV-friendly wide streets, ample free or low-cost parking, and a Singapore-style orderliness. (At his malls, Freeman employs 75 security guards and cleaning crews armed with cold-nitrogen-blasting machines to obliterate offending bubble gum traces.) Downtown Seattle counters with a series of distinctive retail corridors, expensive and elusive parking, and streets bristling with dynamic disorder: Whether targeting Urban Outfitters
on Fifth Avenue, Tiffany’s in Pacific Place, the galleries of Pioneer Square or the hand-made goods of Pike Place Market, shoppers rub up against a big city’s mix of rushing office workers, confused tourists, loud buskers and, yes, pesky
panhandlers.

“The scale is all different in Bellevue,” says Matt Griffin, who led the development team for Pacific Place and who is a minority owner of Seattle’s highly popular University Village. “It’s made for cars. It’s not fun to walk … and I’m a big believer in walking the streets.”

For him, Seattle’s very urbanity ensures its preeminence. “When you think of the great cities around the world, you don’t think of individual stores or storefronts. You think of great streets to walk … [and] dynamic urban places-theater, symphony, arts-and office workers and real streets with all the things that go along with real streets. Seattle’s fortunately got a whole bunch of those good things going on.”

Freeman is also more than happy to tick off Seattle’s strengths: “It’s where the biggest [Northwest] accounting firms are, the biggest law firms, the biggest government offices, sports stadiums, arts centers, banks….” On the other hand, he says, Bellevue is trying to be the regional center for the east side of the lake. “It’s not trying to be a twin city of Seattle or even a competitor of Seattle.”

Maybe not, but merely by giving eastsiders a backyard alternative for their disposable dollars, via a buildup over the past two decades of an attractive inventory of retail, restaurants, hotels and entertainment options, Bellevue has skimmed from Seattle’s pool. The pivotal point in its evolution from a slim-pickins shopping suburb to a robust retail
hub was stemming the exodus of its own shoppers.

“In 1980, Bellevue customers were only shopping in Bellevue for 59 percent of what they bought; 41 percent were leaking to Southcenter, Northgate, downtown Seattle and other places,” says Freeman. “There’s no leakage now.”

And the eastside has accrued a population built for buying. “They’ve become some of the best potential shoppers in terms of affluence and age and interest,” he says. It is a customer base to be envied and mined. While the collection of cities making up the eastside is half the population of Seattle, it is home to 18 of the 20 wealthiest zip codes in the Puget Sound area and, through the second quarter of 2009, nearly succeeded in equaling the size of Seattle’s retail sector. Although Seattle is the region’s main magnet for tourism dollars, the suburbs now draw like-minded shoppers from around the West and western Canada. Freeman estimates up to 15 percent of his business comes from this tourism sector, and that’s where he’s focusing his latest marketing efforts, including a first-time ad campaign in Vogue magazine. “We could double our business, not by building another square foot, but just by effectively marketing what we have to this area,” he predicts. “I mean, that’s the sweet spot.”

In fact, its juicy demographics and abundance of buildable land convinced Neiman Marcus to choose Bellevue over
Seattle. “We knew we might be giving up some of the tourist opportunity by not going to downtown Seattle,” says Wayne Hussey, Neiman’s senior vice president of store development and real estate. “[But] studies showed that we could do
more business out of the eastside.”

Particularly persuasive were the encouraging “psychographics,” a marketing research term relating to a group’s attitudes and interests, concerning the “propensity for people to buy fashion-branded goods,” he says. Although Bellevue Square has a very good midmarket retail center, explains Ivanoff, the region was hungry for a one-stop luxury offering. As proof of the appetite for a Euro-style, high-end shopping experience (14 Bravern retailers are new to the region), he points to one simple fact: “We opened 85 percent leased in one of the worst economies in history.”

Of course, in the short term, both Bellevue and Seattle have to contend with a volatile economy. “Vacancies are soft in both markets,” says Greg Wendelken of Seattle’s Marcus & Millichap, which specializes in retail real estate investment and produces the closely watched National Retail Report. Wendelken predicts a further shedding of stores in both markets in 2010. His firm’s 2009 third-quarter investor report on Puget Sound-area retail noted the sharpest spike in vacancies were on the eastside, up 6.7 percent from 2008. However, highlighted as bright spots for the eastside were The Bravern’s opening and Bellevue’s ongoing retail construction and, for downtown Seattle, the completion of a rash of new apartments and condos and Link Light Rail stations, as well as the line’s extension to Sea-Tac Airport, all potential retail boosters.

Kate Joncas, president of the Downtown Seattle Association (DSA), isn’t sweating downtown Seattle’s retail outlook. “There’s a lot of competition in the region, but we still have things that differentiate our market and give us a competitive advantage.” Advantages such as large-scale civic collaboration (this past holiday season, the DSA for
the first time partnered with the Seattle Center, the Convention and Visitors Bureau and the Metropolitan Improvement District in a retail marketing blitz), robust tourism (every cruise ship docked in 2008 brought $1.7 million into the
downtown economy) and increasing urban density (2,991 new residential units were under construction in 2008), including the new condo developments Escala and Olive 8.

“You can’t make a causal relationship between the condo growth and retail in downtown because there are too many factors that impact retail,” Joncas admits. “But, in addition to Uwajimaya and Whole Foods, there’s now the IGA [grocery store] right down on Third and Pike, and that had to be driven by the growth of residents downtown.”

Other coming retail drivers Joncas points to are Amazon’s new headquarters in South Lake Union, the Children’s Hospital Research Institute’s ambitious expansion in the Denny Triangle, potential expansion of the convention center and the viaduct replacement, set to bring new vehicle traffic into the heart of Pioneer Square and to its retailers as well as provide open waterfront space for pedestrians. Connecting downtown’s retail venues via pedestrian-friendly, landscaped spaces, such as a four-block park planned for Belltown, is one of Joncas’ ambitions.

One area where she gives the edge to the eastside concerns street safety. “Statistically, the downtown [Seattle] crime rate is really low,” Joncas says, “but the perception is that it doesn’t feel good to people sometimes.” A recent survey of downtown residents, she notes, revealed ongoing concern for open-air drug markets and aggressive panhandling. Solutions being pursued include partnerships with the park department to engage locals with tackling trouble areas, as was recently successful in Westlake Park, and backing the passage of a stronger panhandling ordinance, under review by the city council as of press time. The city council finally repealed the dreaded business and occupation “head” tax last November, which small businesses particularly hated.

A recent study sponsored by the Seattle Business Coalition notes that while eastside cities have been gaining private-sector jobs since 2000 (19,200 for Bellevue), Seattle has lost 7,900. A contributing factor, according to the study, is Seattle’s significantly higher overall business taxes. For example, it cites, in 2007, while Seattle hit up businesses for $175 million in taxes, Bellevue demanded a relatively paltry $30 million.

Math and demographic parsing aside, an argument can be made, and is, mostly by eastside players, that our
two primary retail markets add up to one stronger region as a whole. Says Schnitzer West’s Ivanoff, “I think they’re complementary more than they are adversaries.”

Perhaps, but there’s also one inescapable truth. Unlike Bellevue, the pressure is on Seattle to maintain a thriving retail core or risk losing its world-class status. So go the burdens of the firstborn.

Seattle vs. Eastside: By the Numbers

	Seattle	Eastside
Population	570,792	298,773
Avg. Household Income	$75,197	$104,532
Median Home Price	$399,950	$504,450 (Bellevue only)
Personal Crime Incidnets (per 1,000 residents)	6	1
Taxable Retail Sales (2nd quarter, 2009)	$3.8B	$2.8B
Retail Sector Size	$1.2B	$1B

More Interesting Stats

• 46 percent of Seattle’s
  population is aged 25-49
• 40,000 millionaire
  households are within a
  10-mile radius of downtown Bellevue

Sources: Downtown Seattle
Association; City of Bellevue; Kemper Development Co.; Money magazine
(2009); Washington State Department of Revenue