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Tuesday, August 13, 2019

Who'll turn the lights out in Aberdeen?

I heard a woman make some angry comments about shopping in Aberdeen while waiting for my car to be serviced recently.  She apparently was raised on a farm in a nearby community, and recalled when coming to Aberdeen to shop meant visiting a number of stores in the downtown area, eating at a restaurant, and going to a movie.  She was in the state to attend the birthday party of an aged relative and wanted to buy a gift.  So, she went to the downtown area and found nothing but health spas, pawn shops, and consignment shops.  Then she looked for department stores.  Within the past year or so, Aberdeen lost most of its major retailers, including:

  • Kmart
  • Shopko
  • J. C. Penney
  • Herberger's 
  • Sears
  • Conlin's 

The woman asked if the shopping mall was being converted into a mausoleum.  Walmart and Target remain  on the other side of Highway 12.  Kohl's moved in where J.C Penney left in the mall.  A number of other retailers have moved in and out of the mall, but the choices for people are slim.

The internet is cited as the main factor in the store closings.  Kmart, which is a part of Sears, J.C. Penney, Shopko, and Herberger's all were closed by parent companies whose sales were lagging because of competition from internet sales.  So they say.  But some people who study the retail markets have a different perspective.

A college classmate of mine got into the market analysis business and formed his own firm.  Many years ago when some broadcast media in the Aberdeen area were up for sale, his firm was hired to assess the potential for the market.       The results of the study performed were not encouraging.  Aside from economic factors, the study found some cultural attitudes that affected the Aberdeen market.  Analysts found that the community was diffident about supporting and sustaining new enterprises, whether they be restaurants or  technologic ventures.  The interest was just not there. People had developed the habit of going to Sioux Falls, Fargo, or the Twin Cities for their serious shopping. And there was a strong vocal opposition against any kind of enterprise that carried "liberal" connotations.  

When I moved to Aberdeen, there had been a real estate boom.  I moved into a brand new house that had been on the market for quite a long time.  The boom was spurred because of what seemed to be a trend toward growth.  When I moved into town, a new residents organization acquainted me with other people who moved into town. Two of them came from Illinois, as I did.  The town seemed headed for development in high tech.  The two Illinois men were executives in a factory that had been purchased and enlarged by a company that specialized in power transmissions.  The computer company Control Data had a plant with 800 employees.  3M had opened a new plant.  

The town had a population of about 25,000 and economic developers were predicting that it would soon be over 30,000,  (It is currently about 29,000.)  But instead of growth, there was a downturn in population.  Control Data moved its production to the Pacific Rim.  The transmission company sold its plant back to local owners.  This left retail businesses in an uncertain state, where they have hovered until recently, when the internet intensified the competition and local retail closed so many stores.

But those other perspectives raise questions about whether the closing of stores is actually in response to declining business locally.  All of the stores listed above are owned by large corporations.   Some of those corporations have failed, and others decided to close selected stores throughout the nation.  At the corporate headquarters, Aberdeen is just one site on a list.  In some cases, their Aberdeen store may not have been generating a profit.  But as corporations are loathe to reveal corporate data, local people will not know whether an Aberdeen store was failing or whether some executive just decided the company did not want to bother with it.

Over the years, many large companies, for example Walgreens and Osco, have dropped Aberdeen as a site.  Market researchers can make informed assessments of how well stores are doing from sales tax data, but that is not like being able to examine an actual financial statement.  However, past experiences with the closing of retail outlets in Aberdeen have shown that large corporations periodically review their operations to see where they might cut costs in order to increase stock dividends and values.  A store may be holding its own, but the corporate heads want to give a quick boost to their bottom line and just do not want to be bothered with management details in podunk.  And sometimes corporate headquarters make decisions regardless of what is going on with the local market.

Aberdeen was very late in developing a shopping mall.  In fact, when it opened its mall, some malls in other parts of the country were shutting down.  And many of the businesses that opened in the Aberdeen mall were transients--they came and went.  Some of those businesses did not fit the local market.

One market researcher pointed out a puzzling decision that the management of J.C. Penney made when it moved to the mall.  Two of its major departments in its downtown store were men's workwear and children's clothes.  They took up prominent space in the store, were popular with shoppers, and did a brisk business.  When the store was moved to the mall, the new store was more in line with the "boutique" stores that are standard in malls.  Such stores are fashion trend oriented and they are designed to operate with seasonal inventories which turn over fast. Men's workwear and children's departments were considerably reduced in the mall store.  The merchandising strategy was set by the corporate offices, not by local managers who knew their market.   J.C. Penney's became a different store when it moved to the mall, and did not seem to cater to its old clientele.

An unusual aspect of retail in Aberdeen is that  two major grocery operations are locally owned and managed. Their main competitor is Walmart.  Another merchandise area in Aberdeen that has undergone a shift  is hardware.  When I first came to Aberdeen, it did not have a full-scale hardware store.  To get hardware to finish off the new house I moved into, we had to go to Fargo.  Then a local family started up Prairieland, a farm-and-fleet-type store that carried a full line of hardware.  It was later purchased by Runnings, a regional company that operates a chain in the northern tier of states.  Then Menards came to town.  These two businesses, which serve contractors as well as farmers and home-owners, have busy parking lots from  early in the morning into the evening.  They clearly meet a local need.  A contractor who has done work on my house says he when he needs some supplies, he checks the two stores through the internet to make sure they have them and then goes and gets them or sends someone to do it.  This is a procedure that can be done at Walmart and Target.  You can search for particular items on their websites which will indicate if the item is in stock at their Aberdeen stores.  The internet can be used  in this way to enhance local sales as well as be competition with local stores.  Food and hardware are two areas in which retailing is stable in Aberdeen.

It is widely accepted that internet sales are responsible for the massive closings of retailers.  When it comes to store closings, economic development workers are confronted with a problem of  not having complete information about why individual stores close.  Their parent companies  send out a notice that a store will close, and that's it.  Local managers are forbidden to say much other than that they will abide by the orders and stick to the closing schedules sent down from headquarters.  Consequently, it is difficult for economic analysts to know if a store was closed because it wasn't performing, or if the store was eliminated because a company wanted to downsize, or wanted to get rid of a store that requires extra effort to serve.  Knowing the actual circumstances of a closing is essential for city planners and prospective businesses.

The closing of Herberger's in Aberdeen left customers and business people a bit stunned. The parent company, Bon Ton Stores, at the time one of the biggest department store chains in the U.S., went bankrupt and closed all of its 256 stores, which employed 23,000 people.  People in the know said its Aberdeen store was doing well and it was unfortunate that a thriving business could not be taken over by a more successful company.  But running a department store on the scale of Herberger's is a complex business that involves buyers who can anticipate what kind of inventory customers will purchase, personnel in advertising, marketing, and sales who can appeal to and create a clientele, and logistics personnel who can get merchandise from manufacture to market at just the right time.  It is not a business that local and regional businesses are equipped to take over.

In the struggle to compete in the contemporary world, retailers have tried to save themselves by mergers into larger companies, a strategy that nearly always results in failure.  Banks can be too big to fail, but retailers can be too big to succeed.  Huge corporations are too blubbery and slow-witted to make timely decisions in meeting the conditions of the evolving retail market.  Walmart, Target, and Costco lead the field, but their strategies do not apply to more upscale stores.  Bon Ton ran seven chains--including Bon-Ton, Bergner's, Boston Store, Carson's, Elder-Beerman, Herberger's and Younkers--but no one has identified the successful stores among the 256 or devised a way to keep functioning stores open.

And so, Aberdeen loses not just five major department stores, but its largest upmarket retailer.  Officials attribute the closings to the routine trends in retailing and assure residents that the town will survive.  However,  retail sales tax figures from the state and city budgets indicate that retailing in Aberdeen has declined in three out of the last five years.

Fiscal YearAmount of retail sales tax due AberdeenAmount of retail sales tax budgeted by AberdeenChange from previous year budgetedPercentage of change


The 2019 Aberdeen budget reflects the loss of retailers, it would seem, but the overall sales tax receipts for 2019, which include sources other than retail, show an increase to $9,074,000.   However, revenues collected from the financial services, insurance, and real estate sector have fallen from $13,719,539 in 2014 to $7,804,388 in 2017, a 43 percent drop in three years.  2018 and 2019 figures for that category were not yet available.   But available numbers show a drastic change in the kind of business activity taking place in Aberdeen.

(It should also be noted that in 2015 the sales tax rate was raised from 4 percent to 4.5 percent, which skews comparative figures a bit.)

Market analysts look at retail sales as a prime indicator of growth in communities.  The retail sector in Aberdeen in terms of the number of retail operations and the revenues generated shows a marked decline.  While internet sales are a factor, the ability of local business enterprises to serve and sustain the citizen population defines the viability of a community.  Online shopping may be a competitive factor, but it may also offer Aberdeen residents the only shopping choice they have.  There is certainly little reason for people in the surrounding area to travel to Aberdeen to shop. 

Aberdeen is hit especially hard by the wave of store and mall closures.   It is part of a national trend.  It is futile to look for national companies to come in and rescue the retail business.  Huge corporations have shown that they do not understand what is taking place in the retail business.  People who work retail do not make enough money to shop.  At a meeting of employees of one of the stores being closed, they made the point that they had neither the money or time to shop.  They were too busy trying to make enough to pay their bills, and when they did need something, they did it on the internet when they found the time.

If retail is to survive, it will have to face the fact that in a time of economic expansion, the people who do the work are struggling.  Some companies around Aberdeen have complained that they cannot find workers, and workers complain that they cannot find jobs that pay enough for them to meet their needs.  

If people who study the economy cannot focus and shed some light on the way the economy works and does not work,  they may have to close shop and turn out the lights.


larry kurtz said...

Six month winters, rampant racism, chilling effects on civil rights and an extremist legislature are par for the course for most South Dakotans. A population that’s too frightened to go into a supermarket is the future Amazon wants.

Porter Lansing said...

Give the people what they want. Sounds simple, huh? I live downtown in a once thriving retail area of a 41,000 person little town just like Aberdeen. On the edge of town is an aerospace factory. In 1985 forward thinkers had downtown designated a National Historic District which stopped the old buildings from coming down. Main was made one way. What’s here now on Main Street and one parallel street are ... six nice restaurants (most offer breakfast on weekends), six coffee shops, three yoga studios, three barbers, four beauty salons, a general store. A cheese shop, a wine shop, two banks, two investment banks, a picture frame shop, the original Post Office, the Town Hall Arts Center for plays and musicals (seats 175), a boutique women’s clothing store, a crafts store, a printer, a cattle trader w/ Prime Angus beef retail store. Two of the restaurants are part of small, local chains of five or less but all the rest are independently owned. People are buying their stuff from Amazon and these are the other places they spend money. Vacancies are rare and rents are high. The two malls have become fitness centers because all the stores closed years ago.

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