After Office Depot announced that it wanted to open a store in downtown Duluth’s Holiday Center in March 1999, it took nearly 10 months for the retailer, the mall’s owners and the city to reach a final lease deal.
After Office Depot opened its doors in June 2000, it took little more than six months for the retailer to decide the store was “underperforming” and needed to be closed.
Such was the brief, tumultuous run of Office Depot in downtown Duluth…
The Office Depot store at the Holiday Center in downtown Duluth, Jan. 3, 2001. (Bob King / News Tribune)
March 17, 1999
OFFICE DEPOT SET FOR HOLIDAY CENTER
By Paul Adams, News-Tribune staff writer
Holiday Center and Duluth city officials confirmed Tuesday that Office Depot has signed a letter of intent to locate a 25,000-square-foot store on Superior Street, fulfilling a long-standing goal of attracting a major retailer to the city’s downtown.
The office products store will occupy much of the Holiday Center’s vacant street level, including the space currently occupied by a McDonald’s restaurant and the Renegade Comedy Theatre. Where those tenants will relocate was unclear Tuesday.
The deal would be a coup for the Holiday Center and Duluth Greater Downtown Council, which have made filling the vacant retail space a top priority.
However, the deal didn’t come without some strings attached.
The Duluth City Council must first agree to vacate the public corridor, or hallway, that runs in front of the Holiday Center at street level. In order to create a large enough space, Office Depot needs to include the corridor in its floor plan.
Also, the Duluth Economic Development Authority must agree to provide the Holiday Center’s owners a forgiveable $450,000 loan to make improvements in the center’s courtyard, public restrooms, storefront and skywalk areas.
Labovitz Enterprises, which owns the Holiday Center with other partners, would not have to repay the loan as long as Office Depot remains a tenant for at least 10 years.
If the company closes the store before the term is up, the landlord — the Holiday Center — would be required to repay the portion of the loan that remains.
“I really don’t see any stumbling blocks,” said Duluth Mayor Gary Doty at a press conference announcing the deal.
A News-Tribune article identified Office Depot as the likely tenant Jan. 15. But Holiday Center officials were still negotiating with the city at that time to satisfy Office Depot’s requirements.
The retailer said it will invest an estimated $1.3 million to renovate the space. It is estimated that the store will employ 30 to 40 people and be open in time for the holidays.
Bruce Stender (left) of Labovitz Enterprises and John Mutch of Office Depot officially announce on Jan. 5, 2000, the closing of the deal that will bring the retailer to the Holiday Center in downtown Duluth. (Derek Neas / News-Tribune)
January 6, 2000
OFFICE DEPOT SIGNS LEASE
OFFICIALS HOPE HOLIDAY CENTER LOCATION WILL ATTRACT MORE BUSINESSES DOWNTOWN
By Paul Adams, News-Tribune staff writer
It’s not exactly a Daytons or Target or even a Wal-Mart, but the opening of an Office Depot this spring will give downtown Duluth the closest thing to an anchor retailer since Glass Block and Wahl’s department stores left the city’s center nearly 20 years ago.
The 26,400-square-foot office supply store also gives the Greater Downtown Council its first victory since launching a newly funded effort in 1998 to recruit retailers downtown.
Combined with nearly $100 million in other recent construction and renovation projects in and around downtown, city officials are hopeful Office Depot’s new superstore in the Holiday Center will attract other retailers to Superior Street.
“I think it will strengthen downtown retailing and attract even more tenants to the downtown area,” said Bruce Stender, president of Labovitz Enterprises, which owns the Holiday Center. Those comments were echoed by Mayor Gary Doty at a press conference announcing the deal Wednesday.
But Office Depot’s example may illustrate just how hard that goal will be to accomplish. The retailer, which is expected to top $9 billion in sales in fiscal year 1999, took more than a year of difficult negotiations to finalize its lease with Labovitz Enterprises.
In the end, the lease required $450,000 of city subsidized improvements to the Holiday Center’s public areas; the vacating of a once public hallway; and the removal of three tenants from the center, including the Renegade Comedy Theatre, McDonald’s restaurant and a Duluth Transit Authority information booth.
The McDonald’s in the Holiday Center downtown closed its doors on Sept. 3, 1999, to make way for the new Office Depot store. (Bob King / News-Tribune)
Labovitz Enterprises also accepted a below-market rent to secure the 10-year commitment from Office Depot. However, Stender said the lower rent is mitigated by Office Depot’s agreement to pay for its own buildout, which was expected to cost about $1.3 million.
“It is one of the most sophisticated leases that I’ve ever seen,” Stender said.
The Holiday Center is also stepping up renovations at Porter’s, the Holiday Inn’s anchor restaurant and meeting center. Labovitz Enterprises is investing more than $500,000 to renovate the space and expand the meeting rooms.
Though some analysts say downtowns are enjoying a retail revival, the fact that Office Depot is locating a superstore in a downtown location is still uncommon. Only a small number of the company’s more than 850 stores are located in core downtown areas, including those in New York, Minneapolis, Miami, Washington, D.C., and St. Louis. A spokeswoman at Office Depot’s Florida headquarters couldn’t say whether any downtown stores are located in comparatively small cities such as Duluth.
“I think it’s a bit unusual because of the size (of Duluth),” said John Mutch, district manager for Office Depot in Minnesota. But after numerous trips to Duluth, Mutch concluded downtown was where Office Depot’s market is located.
“We do a lot of homework on where our customers are, where the businesses are. This is home,” he said of the Holiday Center location.
Downtown stores tend to cater to a different market than their suburban counterparts, Mutch said. That will likely mean a slightly different product mix and different hours for the Duluth store.
Suburban Office Depot’s are typically open well into the evening. The chain’s store on the Nicollet Mall in Minneapolis opens at 7 a.m. and closes at 7 p.m. Busy times are in the early morning hours and lunch, rather than in the evening.
The Duluth store will employ 30 to 40 people. The store is expected to open early in the second quarter of this year.
Ted Thompson walks through the doors of the new Office Depot during it’s first day of business on June 23, 2000. The 26,000 square-foot store, located in the Holiday Center, will remain open this weekend, and hold its official grand opening on Monday. Office Depot employs 26 people. (David Rochkind / News-Tribune)
January 4, 2001
DOWNTOWN TO LOSE OFFICE DEPOT
By Bob Linneman and Mary Thompson, News Tribune staff writers
Just six months after opening, Office Depot announced the closing of its downtown Duluth store.
The store, along with 66 others in North America, is “underperforming,” the company said Wednesday.
The loss of Office Depot, which gave Duluth a 10-year commitment when it signed a lease with Labovitz Enterprises last January, will leave a gaping 26,000-square-foot hole in the Holiday Center.
Lauren Garvey, a corporate spokeswoman for Office Depot, based in Delray Beach, Fla., said stores will likely close at the end of March or in early April.
The Duluth store, which opened June 23, employs about 20 people, she said. About 1,400 employees companywide will lose their jobs.
Bruce Stender, president of Labovitz Enterprises, which owns the Holiday Center, said he was shocked by the news of Office Depot’s closing.
“I don’t know how you can call a store underperforming when it’s only been open six months,” Stender said, adding that a search will commence immediately to replace Office Depot.
“As far as I know, the store was doing well,” Stender added. “The general manager was pleased; at least that’s what we were told.”
The Office Depot store at the Holiday Center in downtown Duluth on Jan. 3, 2001, the day it was announced the store would be closing. (Bob King / News Tribune)
About noon Wednesday, 40 shopping carts sat unused outside the store. Only a handful of customers were inside.
Eileen Dunn, vice president for investor and public relations for the company, said projected earnings for the Duluth store were not high enough to merit keeping it open.
“Even though it opened only a short time ago, we weren’t getting the returns we needed,” Dunn said.
Office Depot moved into downtown Duluth amid much fanfare. City officials hailed the store’s arrival as a big step in revitalizing downtown.
Mayor Gary Doty conducted a news conference last January, saying Office Depot would be a key downtown tenant and could help attract other businesses.
Doty said Wednesday he was disappointed by the company’s decision.
“It seems to me they couldn’t have a good indication of how this store was going to operate in such a short period of time,” he said.
Doty said he preferred to focus on the positive aspects of the short-lived venture, including Office Depot’s estimated $1.3 million investment to renovate the retail space.
“It’s going to be easier for us to market the facility to other retail businesses,” Doty said.
The Holiday Center’s owners have strong incentive to find a new tenant.
They have six months to fill the space before they are obligated to begin making payments on a $450,000 municipal loan that paid for improvements to the center’s restrooms and public areas.
Payments on the loan were deferred as long as the center had a major anchor tenant. If the space remained occupied for 10 years, the loan would be forgiven.
Doty said the Holiday Center’s owners assured him Wednesday they would honor their payment obligations.
“We’ll work with the city and of course meet our obligations,” Stender said.
City Council President Greg Gilbert called loans and other incentives used to lure businesses such as Office Depot “one of the hazards of dealing with out-of-town companies.”
“As long as we continue to do things like that, we’re vulnerable to these kinds of shutdowns,” Gilbert said. “The company has no regard for the hardship it places on employees. I’m concerned for the people who had jobs there. I’ve talked to some of them, and these jobs meant a lot. To be cut off creates a significant hardship, so I’m sorry for that.”
Customers comb nearly bare shelves for sales items as Office Depot prepares to close its Holiday Center store on Feb. 28, 2001. (Bob King / News Tribune)
The Office Depot closings are a symptom of a general slowdown in the nation’s economy, said Chuck McDonald, who follows Office Depot for the Chicago-based investment firm William Blair & Co.
With the slowing economy, two-thirds of publicly traded companies have revised their earning estimates downward for 2001, McDonald said.
While the general economy faces a predicted slump, retailers that specialize in supplying small-business owners can really feel the pinch.
“Small businesses are living hand to mouth,” McDonald said. “When they get scared, businesses like Office Depot feel it.”
The chain of office supply stores, the largest office retailer in the world, said it plans to open 50 new stores this year, all in areas where its stores are well-established.
Office Depot is abandoning large markets such as Boston, Cleveland and Phoenix.
The company is encouraging the Duluth workers to seek employment at other Office Depot stores.
There are 13 Office Depot locations in Minnesota — all but the Duluth and St. Cloud stores are in the Twin Cities metropolitan area.
Managers and employees at the Duluth store contacted Wednesday declined comment, referring all questions to the company’s headquarters.
In addition to Duluth, an Office Depot store in Minneapolis is also being closed.
“We needed to do what’s best for the business and the shareholders,” Dunn said.
– end –
The next day, the News Tribune reported that Office Depot officials said they would honor the financial terms of the 10-year lease they signed; whether they ultimately did or made some other arrangement, I don’t know.
The space sat vacant until Brownie Furniture opened there in the the fall of 2002; it remains there today.