By N. David Milder
Given that the demand for retail space and storefront locations has dropped significantly, and so many downtowns are having a tough time finding tenants for vacant stores, one might argue that some out of the box thinking might produce some positive results. Well, it has made me think again of an idea I came up with about 15 years ago about how to make it easier for downtowns to attract quality retailers. Unfortunately, when I shared it with the leaders of various statewide organizations dedicated to downtown revitalization, their reactions led me to believe that they saw the idea was so out of the box that it was somewhat kooky and impractical. Allow me to take you through the thought process that took me to this idea and then to explain it. Readers are then invited to decide if the idea is so whacky and impractical or if there are enough kernels of truth to it that they may want to explore it themselves.
DOWNTOWN BUSINESS RECRUITMENT
Around 2004, I was writing my book on downtown business recruitment and my musings led me to notice that in many downtowns, even those in relatively small and medium-sized communities, there is usually at least one store, and often several, that are pretty successful. These stores are popular and viewed as assets by local residents. Their owners are making money and their success is an operational demonstration of their strong business skills in downtowns of the type their stores are located in.
My thought was that it be great if these operators could somehow be nurtured into creating small and medium-sized chains that specialized in operating in other comparable downtowns within reasonable driving distances. These operators are not newbies, and know how to succeed in downtown environments. In fact, such chains have indeed emerged in many of our dense urban and ethnic downtowns in the NY-NJ metro region such as Jamaica Center, Downtown Brooklyn, Fordham Road, Midtown Elizabeth, Bergenline Ave in West New York, etc., but they have not appeared in middle to upper income small and medium-sized downtowns. Why, I asked myself?
While for business recruiters such successful small business operators are exactly the kind of tenant prospects they are looking for, finding them is difficult and expensive – far more expensive than identifying a retail chain that is a legitimate tenant prospect. Another problem is an anti-poaching professional ethic that means the business recruiter does not want the small merchant to move, but to replicate in a new location – in effect, to have the merchant start a new chain.
Getting successful small merchants to open another store is often challenging became so many of them are satisficers who are happy to settle with a comfortable income and reasonable working hours.. Fewer are the maximizers who want to maximize their incomes and/or the size of their economic empires. Identifying the maximizers is another recruitment filter that increases the complexity of the recruitment effort, the time it needs to succeed, and its costs. A final problem is that even among the maximizers there very often are knowledge and networking deficits. They may not know how to select a good location or even how much space they will need or the features they should look for in a new storefront. They also may not have access to the financing their expansion might need, or even have a firm idea of what that might cost, or have access to people with the knowledge who could guide them about such matters.
PARTICIPATING DOWNTOWNS WOULD HAVE TO GIVE, IF THEY WANT TO GET
It struck me that if several downtown EDOs could identify the local merchants who were successful and were interested in becoming a chain, then several chains would be growing, and they would be encouraged to locate in one of the other cooperating downtowns by an incentives package. Such incentives might have some financial component, but preferably take the form of helping the new retailer through the various steps needed to open a store in that downtown such as finding a storefront, possible funding sources, technical assistance providers and getting through the town’s permissions and approvals process. This could considerably cut the cost and complexity of identifying quality retail tenant prospects as well as reducing the complexity, costs and hassle of a retailer opening in a new location.
However, few if any of these downtown EDOs could be expected to directly provide the chaining merchants with the technical assistance they need because so few of them saw providing such a service as part of their missions or had the staffs or budget to do so. Their real role would more likely be that of a networking broker who connects the needy merchants to the direct TA providers such as a SBDC, local college or local commercial broker or banker, etc..
Around that time I was active in Downtown New Jersey. It struck me that any program aimed at cultivating the creation of new retail chains that would focus on locating in our downtowns would be best executed by a statewide organization dedicated to downtown revitalization. That would assure the inclusion of a sufficient number of downtowns. My discussions with DNJ’s leaders produced smiles, thanks and a polite rejection of the idea based on it being seen as impractical because:
- It was outside of DNJ’s mission and its traditional focus on such functions as the transfer of information and facilitating the networking among downtown leaders and stakeholders across the state
- DNJ lacked the skills, staff and financial resources to do it.
- They doubted that the chaining retailers could be steered to opening new stores in any of the other downtowns in the program.
I also discussed this idea with the managers of three state Main Street programs with no bites. Here the issues were again their limited resources, and its unorthodoxy as a Main Street program.
My Updated Thoughts
The need for such a retail chain building program that would help our downtowns has never been greater.
My recent analysis of the empty storefronts problem in our small communities, say with populations under 10,000, is that the problem is not so much with consumers on the demand side as with the lack of new small retailers on the supply side. Startups are off and I fear that all the media attention to a retail apocalypse has discouraged many potential new retail merchants from appearing in these downtowns. GAFO stores, the ones that have been under the most stress in recent years, never had a big presence in these towns. Most of the shops responded to local needs such as food for the home, food away from home and drugstores items. The demand for these goods is relatively inelastic.
My initial program concept had, I think, two major weaknesses. The incentive package for the chaining firms to locate in other downtowns participating in the program was too weak. Those incentives need to be bolstered. One possibility is for the initial store leases to start off with low rents, perhaps based on a percentage of the retailers annual sales, that then increases with growth in the sales. Free participation in downtown niche marketing programs for X number of years might also be offered. Furthermore, some locations in these downtowns might offer access to the new OZ investment incentives. I am certain downtown leaders can come up with still other meaningful incentives without having to become rocket scientists.
The second weakness was Looking at the wrong types of statewide organizations. However, creating retail chains probably would fall under the missions of state development corporations such as the Empire State Development Corporation and the Wisconsin Economic Development Corporation. They also could mobilize the financial and personnel resources needed to operate programs aimed at achieving this objective. Of course, there are also parts of state universities that could play this role, such as Cornell Extension which already runs the state’s Main Street program. The business school at Ohio State or any of the other Big Ten schools could do it, too. Such a program might provide useful field experiences for their students.
Is this idea now ready to fly? I think not quite. More thought is needed on several points such as how to: get the downtowns on board, improve the incentives package, and how to sell the state EDCs and universities. However, I do think it is certainly worthy of more attention and wider discussion. What do you think?
A New Crazy Idea
There might also be another possible play to creating these new retail chains: one downtown sets out to become THE place that specializes in their creation. Such a downtown would need a strong existing entrepreneurial environment that includes lots of available TA providers, cooperative landlords, a strong band of local angel investors, and an extremely competent and far sighted EDO. Ah, another kooky idea? I don’t know. I took a close look at downtown Cortland, NY, last year. I thought it had terrific, if under-utilized, assets to help new and expanding micro and small businesses, including a branch of SUNY. With the right leadership and organization, it might well pull off such a strategy. This is a subject for another day.