The Old Kmart Corner Finally Filled Up. Now the Store Next Door Is Leaving.

In early 2020, the biggest building at Plaza North went dark. That started a problem at the corner of North McDowell Boulevard and East Washington Street that took six years to solve. By late August 2026 the old Kmart had reopened as three stores. Six days before the last of them opened, Raley's announced it would close its supermarket across the parking lot on Jan. 26, 2027.

So the east side's busiest errand corner isn't recovering in one straight line. The empty anchor is moving about a hundred yards. The groceries on that corner are also shifting, from a full-service supermarket toward a discount grocer. For anyone who buys groceries, prescriptions and craft supplies off McDowell, the map this winter looks different from the one that held for four decades.

Six Years in Seven Dates

The Kmart building took a long time to fill, and the path explains why it ended up as three stores instead of one.

1. 1980. Kmart opens at Plaza North across from Lucchesi Park. It stays the center's main anchor for four decades, with a dine-in restaurant and a garden department, according to the Petaluma Argus-Courier.
2. Early 2020. Kmart closes all its California stores. Apart from the occasional seasonal Spirit Halloween lease, the building stays empty.
3. January 2022. Gallelli Real Estate files plans to demolish the roughly 90,000-square-foot building. In its place would go a 107,891-square-foot Home Depot with a 28,216-square-foot garden center, a tool and truck rental center, and more than 450 added parking spaces, the Argus-Courier reported.
4. July 18, 2022. The City Council votes 6–1 for a zoning amendment. Under it, new stores larger than 25,000 square feet need a conditional use permit and a full environmental review.
5. Late July 2022. Home Depot withdraws its application for 261 North McDowell Boulevard.
6. Late 2024 to early 2025. A new plan goes to the city. It keeps the existing building and divides it into three suites.
7. July and August 2026. After about a year of renovation, Boot Barn opens in early July, Hobby Lobby follows by July 17, and Grocery Outlet opens between them on Aug. 27.

Why It Became Three Stores

The second plan worked with the building instead of replacing it. On the City of Petaluma's project page for 261 N. McDowell, the work is described as dividing a 92,643-square-foot building into three suites, with a new facade, updated loading areas, parking, landscaping, trees, pedestrian improvements and stormwater upgrades.

Three mid-sized tenants in a reused building is a different kind of project from one new big box, and that's the main reason the corner reopened. Six years is also how long it took. Over that stretch, the businesses around the old Kmart ran without a large anchor drawing people to that end of the lot.

The building is busy again. Boot Barn and Hobby Lobby sit on either side, with Grocery Outlet in the middle. The center's leasing materials now list Hobby Lobby, Boot Barn, Grocery Outlet and CVS as the Plaza North anchors.

Two Centers, One Parking Lot

Most people call the whole corner Plaza North, and even regional news coverage has done the same. The leasing materials split it into two sister centers. Plaza North holds the old Kmart building and CVS. The Plaza South, right next door, is anchored by Raley's, Trader Joe's, Petco and Big 5 Sporting Goods.

That split explains how one side of the lot can fill up while the other loses its largest grocery store. Each center has its own anchors. When one leaves, the vacancy moves across the asphalt.

Raley's has said its Petaluma store employs 48 people, and the company will offer transfers to "as many affected employees as possible" before the doors close, as reported in the Argus-Courier's August coverage. Petaluma is one of at least six Raley's locations in California and Nevada scheduled to close by June 2027. The company cited local market conditions and the long-term financial sustainability of those stores.

Onita Pellegrini, CEO of the Petaluma Area Chamber of Commerce, told the Argus-Courier that the closure "is certainly a loss for our community." She added, "We hope that the location will ultimately bring another strong business or community-serving use to Petaluma."

No replacement for the Raley's space has been announced.

The Corner's Grocery Map, Before and After Jan. 26

Grocery Outlet's timing is what makes the shift easy to see. The Argus-Courier noted that the new store opened "within a few minutes' walk of the soon-to-be closed grocery store."

After late January, the corner still has three places to buy groceries, and each one works differently. Lola's Market specializes in Mexican groceries. Grocery Outlet describes its stock as coming from "an opportunistic buying model." That means the shelves change depending on what the company buys, and the company promises savings of 30% to 60%.

The corner will no longer have a conventional full-service supermarket, the kind that stocks the same brand in the same aisle every week. Elsewhere in town, the Argus-Courier's list includes Safeway and Lucky stores, Sprouts Farmers Market, the original Grocery Outlet on Washington Street, and the locally owned Petaluma Market on Western Avenue.

The two Grocery Outlets have different operators. Grocery Outlet has grown since 1973 by handing individual stores to independent operators. Victor Soares runs the new east-side store, and Michael Billeci runs the River Plaza store on Washington Street, which is staying open. Soares has worked in grocery stores since he was 13 and learned the business in every department of a supermarket. Mayor Kevin McDonald led the ribbon-cutting at the late-August opening.

Across McDowell, More Work on a Deadline

The other side of the boulevard is changing on its own schedule. Lucchesi Park sits directly across from Plaza North. According to the City of Petaluma's Oct. 13 community update, a 23,000-square-foot skatepark is under construction there and expected to open in early 2027. The city began reconfiguring, repaving and relighting the Senior Center parking lot in early October, with completion expected in early December 2026.

Taken together, here's the sequence for this stretch of McDowell over the next few months. The parking-lot work at the Senior Center is set to wrap up around early December. Raley's closes Jan. 26, 2027. The skatepark is expected to open sometime in early 2027. As of this writing, nobody has said what goes into the Raley's building, and the old Kmart showed how long a large east-side space can sit while a plan comes together.

At SOCO PROPERTY, we watch stories like the old Kmart closely, because a large building that sits empty for years and then gets divided up is a design and planning problem as much as a retail one. If you own property near North McDowell and want to talk through what changes at that corner could mean for your plans, SOCO PROPERTY is glad to walk through it with you. Let's Talk.