The New Normal for Downtown Retailing: I. Introduction

Across the board key Federal officials, renowned economists, and powerful business leaders agree that our Great Recession finally has bottomed out. The latest GDP data support this view. For downtown leaders this is a very appropriate time to ask: “What’s next?” Are we returning to the same challenges and opportunities downtowns faced prior to the recession? Or to conditions similar to those of the earlier parts of the decade? Or are we facing a “new normal”, with its own array of fresh challenges and opportunities that we must learn about and deal with?

The evidence points toward a new normal. Responding effectively to this situation will require some insightful, hard-nosed analysis and then a lot of innovative and practical problem-solving. This is absolutely not the time for puffed-up marketing, fluffy analysis or laissez les bon temps roulez attitudes, but there are still viable paths for growth and redevelopment.

Though much remains to play out (e.g., gasoline costs and consumption), in coming email blasts and postings to my Downtown Curmudgeon blog and DANTH, Inc’s website, I will start to detail some of the characteristics of this new normal. Among the topics I will discuss are:

  • The biggest single new factor that downtown merchants have to face is the rise of the “deliberate consumer.” Americans are poorer and feel less affluent. Consumer credit is harder to get and to keep. Also, the housing piggy bank is kaput. Shoppers are more value conscious, more calculating and less impulsive. They are still buying — but differently.
  • Capturing consumer expenditures now requires an even higher level merchant skill set than before the Great Recession
  • Increasingly important to this skill set is a “social marketing” component that has face-a-face and online dimensions
  • Downtown merchants will struggle to define what “value” means to the consumer – it does not always have to be low price
  • Many retail chains that liked downtown locations have either folded, been severely weakened or stopped putting new stores in downtowns. As a result, more than ever, the strength of a downtown’s retailing will depend on high quality independent merchants.
  • Baby Boomers are now retiring in increasing numbers, but are poorer, more frugal and finding it harder to sell their homes. Those that do “gray” our downtown residential projects will likely provide less lift for nearby retailers than previous “empty nesters”
  • Even after we climb out of the recession, doing downtown redevelopment projects as we did over the past 10 to 15 years will be far more thorny because of legal constraints, political challenges and difficulty in finding tenants and financing
  • A significant number of downtowns will have their growth constrained not only by malls or big box retailers, but also by nearby downtowns that already have been successfully revitalized
  • Young single knowledge workers have ignored and will continue to ignore living in most small and medium-sized downtowns. Some of these downtowns, however, are attracting artists and crafts people because of their comparative low costs, good quality of life and decent access to major arts markets
  • A surprising new factor: the luxury retail market will be weakened for some time to come, with diminished middle class “trading up” and “treasure hunting” shopping, and guilt constrained luxury buying. Also, significantly fewer at the top of the income ladder have a positive assessment of their personal finances – it is at the lowest level in 20 years. Many of the suburban “lifestyle downtowns” are vulnerable to the impact of this trend
  • Affordable luxuries will come back first. Larger mass luxury purchases requiring new credit lines will lag
  • Home and hearth niches will recover slowly following the housing market, with big ticket items lagging the most. Nevertheless, HDTVs, other “cocooning” related merchandise and children’s furniture will do relatively well.
  • It is far more difficult for downtown merchants to finance new locations, inventory, facade improvements, etc. Retailing will be stronger in districts where downtown organizations can help merchants cope with these problems
  • Low-price powerful warehouse retailers continued, even during the Great Recession, to increase sales and their market share. Downtown merchants have typically been poor at playing the low-price game. Big box and supermarket chains are more serious about rolling out smaller stores with a scale more appropriate for downtowns. Although contrary to their commitment to small independent local operators, should downtown leaders consider recruiting some small format, national, low price retailers?
  • Through the recession sales continued to increase for food away from home establishments. Downtown eateries that provide comfort food, good value, friendly service and a venue for friends and family to meet will continue to do well. Their strength also shows the continued importance of convenience and quality family time for dual income households and those with children
  • Non-comparison, convenience retail has been a steady rock for the vast majority of downtowns – e.g., food markets, drug stores, etc. – and will continue to be in the foreseeable future
  • There has been a significant decline in Americans’ participation in the arts, especially attendance at legitimate theaters, concert halls, museums, art galleries, etc. The recession deepened, but did not induce the decline. The audiences for these arts venues have become significantly older. Middle and lower income and younger folks are increasingly “cocooning” and consuming arts performances at home electronically.
  • Shops and restaurants that featured locally grown or produced products tended to fair much better than others during the recession and they will have increasing strength as the economy improves and the sustainability movement gains traction
  • Though online retail sales tanked more on a percentage basis during the recession than regular retail sales, “backdoor retailing,” both electronic and brick, will increasingly define successful downtown merchants
  • Ethnic downtowns did comparatively well during the recession. They will continue to fare relatively well because of population growth, upward mobility, unique sourcing of merchandise, language and cultural affinity. Also, they provide access to dense populations for many retail chains that see ethnic markets as untapped growth opportunities
  • More and more communities want downtown commuter rail stations. These stations will be cornerstones for strong downtowns – and their retailers
  • Another and perhaps most important cornerstone will be establishing the downtown as the community’s central social district with well activated and attractive public spaces and popular eateries having pivotal roles

Your comments are welcome.

N. David Milder