Downtown Retail? Part I: Buckle Your Seat Belts, We’re in for a Bumpy Ride

The DANTH, Inc. 2008 Trends Assessment
Every five years – a period known as a lustrum – DANTH Inc. prepares a trends assessment. One of the areas we analyze is downtown retail. Following is a synopsis of the first part of our two-part retail trends study. (For the full report, email [email protected] or visit the trends page on www.ndavidmilder.com.)

What we’ve found is that downtown retailing is entering into a period of stresses – some old, some new – which are detailed below. However, we have also discovered that downtowns are experiencing a number of trends that can be leveraged to cope with these stresses. These more positive indicators will be detailed in our next report and blog posting.

So first, the Bad News. . .

1. There will be growing constraints on consumer spending:
• Income Growth Will Continue To Be Modest for the Next Few Years. And even as income grows slowly, the costs of a standard middle class life will likely outpace that growth.
• Home Values Are Declining. At this point, everyone must be aware of the subprime mortgage crisis and other factors bearing down on home values, which are not expected to recover for many years. As a result, Americans will have less home equity and less ability to leverage that equity for discretionary spending, as they avidly have done over the past decade.
• Energy, Medical, Child Care and Education Costs Will Continue to Rise. It is no longer inconceivable that gasoline could hit $4 or $5 a gallon. BLS data shows that medical costs have risen 168% faster than the consumer price index over the past ten years – a trend that is likely to continue. Child care costs – essential for working mothers – are also increasing faster than the CPI, and college education has experienced a growth rate in tuition and fees over the past decade that is the highest in 30 years. These are all creating pressure on discretionary spending.

2. Recovery From An Anemic Job Market Probably Will Be Slow. For some time the nation experienced scant job growth. We teeter on recession. It is taking longer for the nation to recover jobs after each recession. Trends indicate that the job market would probably take 46 months to recover the jobs lost from a recession.

3. Boomers Are At It Again. As the boomers soon begin to sell their large suburban homes, this will create further downward pressure on home prices. While many downtowns are basing their revival on attracting “empty nesters” it will be increasingly difficult for those nesters to get their money out of their homes.

4. Value Retailers Are Still Growing. Value retailers continue to gain market share on both price and fashion/design as retailers like Target and Kohl’s and, increasingly, Wal-Mart appeal to consumers with “cheap chic” products. More affluent consumers as well as lower-income shoppers are drawn to these stores as the tightness of discretionary dollars penetrates and seeps up the income ladder.


5. Trading Up May Be Stalling. The “New Luxury” or “Trading Up” retail trend –running counter to value retailing –has succeeded by pinpointing middle- and upper-middle-income consumers who are willing to spend more on certain goods that provide superior quality, performance and emotional appeal (think Coach, Calloway Golf, Williams-Sonoma, Tiffany, Trader Joe’s and Sam Adams Beer). This retail trend has supported the renaissance of many downtowns, but the factors presented above indicate that this behavior may be significantly diminished in coming years as discretionary incomes are constrained.


And now that we’ve got you drowning your sorrows in that Sam Adams (or perhaps you’ve traded down to a Miller Light), don’t despair! “Downtown Trends II: Revenge of the Mommies, the Foodies and the Indies” is coming soon and the news gets a little better.

This posting was written with the deft assistance of Mary Mann.