This article is a follow up to “The Changes in the Retail Industry That Are Impacting Our Downtowns” which can be found at:
It is the first of a three article series that will explore how the changes in the nation’s retailing are manifesting themselves in different types of downtowns. The changes this series of articles will look at are:
- The emergence of the deliberate consumer
- Reduced demand for retail spaces
- The growing strength of e-commerce
- The continued growth of a broadly defined “value” category of retailers
- The decline of traditional department stores and traditional specialty retailers
- The uneven opportunities for small merchants
There are all sorts of downtowns. I have selected a few that I know well because I either am a frequent visitor or have done research projects about them. Sometimes, both conditions are applicable.
Many of the conclusions and observations I make below should be treated as hypotheses, since I cannot claim that they are based on a rigorous, wide reaching, systematic research effort. There were obvious limits to my resources that made such a research effort impractical. Instead, I hope that the discussion below convinces readers that I have done enough number crunching, field visits, personal interviews and analytical thinking to warrant my observations and conclusions being deemed worthy of serious attention and consideration. That hope is tied to one of my main objectives for this article: to get downtowners to start thinking about how the new normal is impacting on their downtowns.
Many of the old rules of the retail game are still in effect. For example, the trade area population size and household incomes of a potential store location are still deciding factors for many retail chains. Not many GAFO retail chains (but a special few) will enter addressable market areas where the populations are relatively smallish, but many food related and neighborhood type operations certainly will. Also, the dynamics of constructive economic destruction mean that when some chains falter in a market, others will enter to try to capture that lost market share.
Downtowns in Rural Towns and Cities
Smaller Towns, With Under 10,000 Populations, May Be Better Positioned Than Many Think. As can be seen in the table below, which is based on research done by a Bill Ryan led team at UWEX’s Center for Community and Economic Development, the size of a community has an important impact on the types of retail that will take root in their downtowns. Although the study covered 300 downtowns in WI, the patterns it found probably hold true for many other states.
One of the most striking findings of this study is that the percentages of downtown sales accounted for by GAFO retailers – general merchandise, apparel, furniture and home furnishings, other miscellaneous retail stores – in all the communities with populations of 25,000 or under, ranging from 4.4% to 15.6%, are relatively low. In contrast, in downtowns in communities with populations of 25,000 to 50,000, the GAFO shops captured 44.9% of the sales.
The table’s food category contains shops that sell food for the home products and eateries and watering holes. The auto related subcategory does not contain car sales, but gasoline and car repair equipment and services. Note that:
- In all of the communities, food related shops captured most of the downtown’s sales. These are and will be for the foreseeable future the core retail operations in the vast majority of the downtowns in these communities.
- Together, the food related and car related establishments accounted for over 70% of all downtown sales in towns with populations under 25,000.
What this strongly suggests is that many smaller rural communities – and their downtowns or Main Streets – are not very susceptible to being impacted by the reduced demand for retail space exhibited by national and regional GAFO retail chains. Indeed, most of these communities have addressable trade areas that are smaller and less affluent than GAFO retail chains traditionally look for. The Village of Sherwood, WI, for example, has a population of about 2,800 and an addressable trade area population around 6,000 people; the Borough of Washington, NJ has a population of about 6,600 and an addressable trade area population around 46,000 people; the tourist strong Meredith, NH, has a population of about 6,200 and around 14,000 people living within a 15 minute drive shed.
The smaller downtowns certainly experienced retail vacancies as a result of the Great Recession. These were most probably caused by unemployment, wage stagnation and the emergence of deliberate consumer behaviors that translated into significantly reduced consumer expenditures. The few independent GAFO operations in the really small towns were probably hit hard, harder than the local food related and auto related establishments, because the latter were more likely to involve household needs rather than wants. On the other hand, these small towns, if sufficient household wealth is present, can attract chains in those sectors. For example, after the recession, Sherwood, WI (median household income around $93,000) attracted a 20,000 SF supermarket, the second store of an aspiring chain and Meredith attracted a Hannaford Supermarket prior to the recession.
For the small rural towns, it is doubtful that e-commerce has raked away sales revenues from their downtown merchants – their merchants are primarily in retail sectors that are least impacted by e-commerce. In contrast, e-commerce, may often have become a great benefit for local residents. For them, shopping for GAFO merchandise has always been a problem and they probably would shop for GAFO type merchandise in larger distant towns that had stronger retail, with their trip frequency dependent on the strength of their needs, the magnetism of the distant retail base and the difficulty of the trip.
Data is hard to find on the degree to which e-commerce has captured a share of this “outshopping” in the smaller towns. However, the table above provides some indication about the relative magnitudes of Internet and traditional outshopping. Based on survey data gathered by CBI in 2014, it shows how the outshopping in Laramie, WY (population of about 32,000) breaks down between respondents who take the Internet route versus those that still physically travel to out of town retailers. While the retail base in Laramie is certainly larger than those in most less populated rural communities, Laramie shares with them the trait of having comparatively weak GAFO retailing. The table shows that Internet outshopping is stronger than the traditional out of town outshopping on those items where Internet shopping is strong nationally – books and electronics, but otherwise generally lags the traditional mode of outshopping. Even so, the fact that 20%+ of Laramie’s shoppers primarily shop for clothing and shoes on the Internet is significant, since such sales are growing rapidly nationally. In these GAFO poor rural communities, the Internet is very probably not taking away sales from existing local merchants, but from the out of town merchants the outshoppers had previously patronized. This still leaves the potential for competent local merchants to appear who can claw back market share. It would be a different story, if the e-retailers were taking sales dollars from existing local merchants who were selling comparable merchandise. As I will note below, I believe that capable independent GAFO retailers can enter some smaller downtowns and win needed market share.
In these smaller communities, greater effective use of the Internet will be critical for local GAFO merchants to be more successful than they have been. It can enable them to electronically reach large numbers of potential new customers who are located in places thousands of miles beyond the boundaries of their geographically defined local trade areas. It also can facilitate quality of life retail recruitment, especially for those who are in the kinds of retail operations that are not dependent on local geographical assets or geographically defined markets.
Data on Internet use by small town rural merchants is, unsurprisingly, hard to come by. DANTH’s observations have identified three non-store e-retailers in some small rural communities, with populations around 1,500, 3,000 and 5,000 in IN and WI. They sell ceramics and clothing that could be worn by historical enactors or in theatrical productions. Their addressable markets are nationwide. One employs over 20 people, another about five. On the down side, while these operations were located on their towns’ Main Streets, they were basically closed to the public and two of them had facades that needed obvious improvements. The number of such operations in our rural small towns is hard to judge because of a lack of systematically collected data.
Most merchant online marketing in these towns probably is part of a strategy that combines it with a brick and mortar store. We have noted in several rural communities that the local EDO has advocated that local merchants use Facebook to establish their online presence because it is cheap to use and easy to create and update. How many rural small town merchants currently have e-stores is now hard to assess, but my admittedly limited observations suggest that number is relatively low. On the other hand, their use of websites and the social media for marketing, rather than sales transactions, seems to be growing. I know that everywhere I go I am seeing more websites and social media addresses listed on store business cards, internal signs, sales receipts and even on menus. This is especially the case when new shops are opened by Millennials.
Covered Bridge in Downtown Woodstock, VT
Woodstock, VT, is a town known for its parks and downtown’s attractiveness – appealing architecture, a beautiful covered bridge and an alluring town green. It only has about 3,000 residents, but there are lots of tourists visiting practically year round, a significant number of nearby second home owners and it’s the seat of a county having about 58,000 year round residents. Woodstock’s median household income is in the $47,000 range. The tourists and nearby second home owners probably have significantly higher incomes. That probably explains why its downtown has a relatively large number of retail operations.
I used photos I had taken on a recent trip to Woodstock and Google searches to identify 37 businesses in its downtown that I classified as retail. I then searched for their websites. My findings are displayed in the above table: 78% of the retailers have their own websites; a few lacked websites, but had Facebook pages, while only about 16% had neither. It was interesting to note that among those lacking an Internet presence were the supermarket and pharmacy, retail sectors where e-retailing has not been strong. In my opinion, Woodstock’s retailers are more skilled than their colleagues in most other small towns, so they are probably on the high side when it comes to having websites.
CBI’s Laramie study, though limited in geographic scope and the number of respondents (99 downtown business operators of whom 42% were retailers) does provide some additional evidence. Calculating from its reported raw data counts, I allocated all of the no website responses to the retailers and on that basis estimated that at least 57% of that downtown’s retailers use the Internet and/or a website to market their stores. I also estimated, in a similar manner, that at least 48% use social media for marketing purposes. How effective they find these e-marketing tools to be is an important, though now unanswerable question for me. Furthermore, downtown Laramie’s numbers are probably higher than other rural communities, since it has an active Main Street program as well as a SBDC and a university minutes away.
Also, DANTH’s research in Sherwood, Frederic and some other small towns in WI indicated that small town eateries and auto related operations have comparatively low rents and labor costs and need to capture a relatively small market share to be financially viable. This suggests that recession caused failures might have been easier to replace in these towns, with the return of consumer spending, than would have been the case in larger communities. Importantly, a recent analysis based Census Bureau data found that in 2015 the median household incomes in rural areas had increased by 3.4%. That was less than the 6% increase in Metropolitan Areas, but an important increase nevertheless.
Rural towns in the 5,000 to 10,000 population range also have long attracted national and regional chains providing fast food operations and convenience stores as well as a few national GAFO chains that have a saturation locational strategy, e.g., Sherwin Williams. For example, the Borough of Washington in NJ has a population around 6,500 people and Sherwin Williams, Quick Chek, Domino’s and Dunkin Donuts were located downtown before the Great Recession. Of interest, low-priced value retailer Family Dollar opened after the recession. In Gehring, NE, (popualtion 8,300)t here are a number of fast food operations that are the downtown’s strongest retail magnets as well as two dollar stores, with Family Dollar arriving post recession. The potential customer drawing power of these kinds of retailers should not be underestimated:
- The average McDonald’s serves about 1,900 customers per day
- A small town convenience store operator reported averaging 1,100+ transactions per day.
My field observations suggest that dollar stores, under the new normal are opening more and more stores in smaller rural communities. In no small part, this is because they only need a trade area population of about 8,000 to make their nut. Convenience stores are another category that appears to be increasing their presence in smaller communities. Of note: both the dollar and convenience stores are increasingly offering significant amounts of food related products.
Women’s Apparel Shop in Downtown Great Barrington, MA
Over the 40+ years I’ve been in the downtown revitalization field, I have visited a number of small rural and suburban towns that had downtown apparel shops. Toward the end of the 1990’s I began to notice that they were disappearing and this trend seemed to strengthen greatly through the Great Recession. To my surprise, on a recent road trip through western Massachusetts and Vermont, I noted a number of downtown apparel shops in Woodstock, VT, Rutland, VT (population about 16,600) and Great Barrington, MA (population about 6,900). There appeared to be two factors shared by these three downtowns:
- There were no traditional apparel chain shops located within about a 40-minute drive
- All were in towns that had both strong tourist traffic and a significant number of financially comfortable second home owners living nearby. My bet is that female tourists, especially those with some spending power, would rather visit an independent and hopefully unique apparel shop than visit the stores of chains they can easily find close to their primary homes.
Suburban downtown Morristown, NJ, (population 18,500) in the post recession years, has seen a strengthening of its women’s apparel niche. These retailers are overwhelmingly independents and they are Internet savvy. The downtown’s trade area is filled with affluent households (median income about $124,000) and numerous strong malls and shopping centers that attracted practically every highly desirable retail chain Morristown might want to court, but consequently cannot. The strength of the downtown rests on its robust captive consumer markets – office workers, hotel guests, students and many financially comfortable downtown residents – who make good use of the downtown’s restaurants, bars, community theater, cinema, library, churches and town green. In other words, it has strong central social district functions.
The similarities between downtown Morristown and the rural towns mentioned above appear to me to be:
- There were no traditional women’s apparel chains in the town
- The downtown is filled with a lot of financially comfortable visitors and users.
This analysis suggests to me that the weakening of traditional specialty GAFO chain shops under the new normal has given capable independent small town merchants revived opportunities for growth and success. The important thing for them is that this decline occurs where their town’s outshoppers were shopping. We should not assume that all of the local market share lost by department stores and traditional retail chains will be gobbled up by e-merchants and strong value oriented retailers, though gobble up they will. A significant amount may be left on the table for independent downtown merchants to compete for and capture. Those that succeed may be the founders of our new omni-channel retail chains.
In my opinion, the Great Recession, much like the Great Depression, altered consumer behaviors, triggering the appearance of deliberate consumers across the middle class and in all geographic areas where the recession took hold. It is this aspect of our new retailing environment that has had the greatest negative impact on our smaller rural communities.
How retailing under the new normal for our downtowns is playing out in:
- Rural regional commercial centers
- Suburban downtowns with lifestyle mall type retailing.
The third article in this series will cover urban downtowns and large neighborhood retail districts.