THE NEW NORMAL REQUIRES MORE DYNAMICALLY MANAGED DOWNTOWN ORGANIZATIONS

Introduction

Since even before the onset of the Great Recession at the end of 2007, a new normal for downtowns has been emerging. Downtown retailing, office use, entertainment niches, housing development, population growth, transportation use, etc. have all experienced significant changes. From my discussions with downtown leaders and merchants, municipal economic development officials and developers, my reading of many articles, my participation in online discussions and my assessments of a number of revealing recent RFPs, I have concluded that the vast majority of downtown leaders and their organizations are not adjusting to these rapidly occurring changes. Too often they demonstrate that they are scarcely aware of them, let alone adjusting their operations to deal with them. Some of these changes represent potential growth opportunities, while others pose strong existential threats.

Downtown Retail’s New Normal

In this posting I will focus on retail. Over the past five years the demand for retail space has changed dramatically. For example:

  • There’s been a paradigm change in consumer behavior with the emergence of the “deliberate consumer” who spends less and with greater deliberation, considers needs more than wants, and who uses credit far less often.
  • The Internet is now involved in over 45% of all retail sales — if retailers are not in on the search, they are unlikely to be in on the sale
  • An integrated multichannel approach to retail is increasingly necessary– brick and mortar, internet, b2b sales, trunk shows, concierge services, etc. —  for merchants large and small.
  • The impacts of the internet and the recession have been strongest on GAFO merchants, with the big box stores and small merchants among them hit the hardest. Small downtown merchants who sell GAFO type merchandise are at a growing disadvantage if they do not have an effective presence on the Internet to complement their brick and mortar stores, yet most lack the required resources and skills to create and maintain such a presence. Without an effective e-commerce capability, these small merchants are likely to fail and produce more vacancies that are hard to fill.
  • In many medium and large downtowns, small independent merchants are disappearing at alarming rates because of unaffordable high rents, decreased consumer demand and strong e-commerce competition.
  • Nationally, the amount of retail space decreased by 259 million SF between 2001 and 2011 and is expected to drop by another 210 million SF by 2016. (1).  The number of real estate experts who recognize that the nation has far too much retail space has grown substantially.
  • The suburbs are saturated; growth opportunities are shifting to dense urban areas and possibly some ex-urban areas.
  • Today, only about one-third of the 1,300+ malls in the U.S. are high-growth, investment-grade properties; another one third are in deep trouble and prone to either closing or being re-purposed. (5) The successful malls are increasingly taking on the look and functions of successful downtowns and adding many non-retail functions.
  • Big box and category killer stores – e.g., Best Buy, Staples, Circuit City, etc. – have been hit hard by both the recession and strong e-commerce competitors.
  • Generally, retail chains are looking for fewer and smaller locations. Internet sales mean that many now require less on site storage space for inventory (4).  Many use the resulting cost savings to pay for improvements in their own e-commerce capabilities, while others are developing the smaller formats to ease entry into tight urban contexts.
  • But, the smaller formats eventually may also go into suburban and ex-urban locations, once the chains master them. This may mean that Walmart, Target, Best Buy, et al may be trying to enter more, not fewer communities.
  • Banks are no longer gobbling up prime downtown retail sites with their branches as a result of e-banking, especially the growth in mobile.
  • Many downtowns continue to report significant vacancies and that, when filled, the likely new tenants are personal and professional service operations, not retailers.
  • Downtown food related operations (e.g. groceries and restaurants) and personal services have been the most successful sectors from 2007 through 2012.

Current Response Patterns

Here are some of the response patterns I have observed:

  • There is a strong propensity to believe that, once the ill effects of the Great Recession are overcome, there will be a return to the way things were prior to 2007. Few are aware of the structural changes in the demand for retail space and many of those who are have not really grasped their full implications.
  • There seems to be little recognition that for the foreseeable future it will be much harder for most downtowns to attract retail chains than in the pre-2007 years and that if they want to have any significant retail, they increasingly will need to:
    • Accurately know which retail chains they can realistically expect to attract
    • Go beyond traditional retail marketing and promotions and get deeply into economic gardening type operations aimed at developing and growing small merchants.
  • No one is talking about whether, in the new retail environment, a small “big box” store, like a 15,000 SF Walmart, could be a good thing for their downtown. But, I bet that within the next five years this will be an issue for a surprising number of communities.
  • As talk of downtown multi-use projects has started to come back, the inclusion of retail seems to be divided between those who see retail returning to its pre -2007 days and those who believe retail is now too risky to include at all. Perhaps there is a viable middle ground of fewer retail tenants who can be recruited to and succeed in such downtown projects.
  • Local political leaders too often still expect new downtown mixed use projects will attract a bevy of trophy retail tenants.
  • A surprising number of downtown leaders will acknowledge the need for local merchants to develop a multichannel approach with a strong e-commerce component, but not want their organizations to get too involved in assisting their merchants make this transition. This seems to be largely due to their own lack of knowledge about e-commerce , often age related, and their organizations’ financial constraints.
  • On the other hand, a good number of downtown leaders do want to help get their merchants involved in e-commerce and some have programs to do so. However, too many of these programs are simply e-directories and do not provide the merchants with needed marketing and transaction functions. Few appeared to based on a knowledge of how websites, emails and the social media are used by shoppers and which market segments are most drawn to each of them.
  • The complexity of developing an effective downtown program that can facilitate small merchant e-commerce capabilities is evidenced by the fact that our largest retailers are still trying to figure out how to merge their e-commerce and brick and mortar operations and how to effectively use the social media.
  • The recently announced reorganization of Staples is a good example of this. Motivated by declining sales, adverse consumer trends, the growing importance of its online sales, Staples’ new strategic plan calls for: increased investment in its online and mobile capabilities, further enhancing its multi-channel strength by uniting the management of its online and brick and mortar operations, expanding the range of the merchandise it sells, and an overall 15% reduction in retail store square footage to increase their productivity. The later will entail both store closings and downsizings. (2, 3).
  • Few downtown or Main Street organizations have tried to strategically face the problem of what to do with their excess and often vacancy –prone retail spaces.
  • Faced with vacancies, many downtowns have welcomed, as inevitable, personal and professional service operations as tenants for vacant prime retail locations. However, the lack of enough high quality retail spaces has long been a fundamental barrier to revitalizing downtown retail sectors, so communities following this tack may be severely harming their long-term retail prospects. Admittedly, filling these vacant prime storefronts is highly desirable, but perhaps more innovative and retail-friendly responses could be developed, such as:
    • Tying rentals to service operations to a high vacancy rate (say 12%) in the downtown or blockface
    • Targeting the vacant prime storefronts for such uses as a retail incubator or a location for other types of start-ups
  • The vast majority of the staff and financial resources that downtown organizations now allocate to improving their district’s retailing still goes for old style events and marketing programs. Few of these programs have been evaluated to determine their ability to stimulate more sales and customer traffic. Too often, however, their expense and organizational inertia leaves few dollars left for the development and testing of new and more effective marketing programs.

What Is Needed

The response patterns described above strongly suggest that if downtown leaders and their organizations continue in their “same old, same old” views and operational behaviors, painful failures and missed opportunities are highly probable. What is happening with retail is also frequently happening in the office and entertainment sectors.

Downtown leaders need to recognize that the new normal has emerged and that it is very dynamic, characterized by a frequently changing socio-economic environment. This means that their organizations’ strategies and programs must be frequently assessed and updated to assure their continued relevancy and efficacy. It also means that downtown organizations need to have strong line items in their budgets for developing and testing out on new programs, program evaluations and strategic updates. It also means dropping or down-sizing longstanding, but ineffective programs. All of these are now quite anathema in too many downtown organizations.

Endnotes:

  1. Mark Heschmeyer, “Storefront Loss Equals Warehouse Gain”, CoStar Group News: National, Dec. 14, 2011
  2. Joe Weisenthal,  “Staples Announces Major Store Closures — Will Take A Charge Of More Than $1 Billion”, Sept. 25, 2012, 8:21 AM Business Insider www.businessinsider.com/staples?store?closures?2012?9
  3. Lisa Eckelbecker, “A change of space: Staples again finds smaller is better”, Worcester TELEGRAM & GAZETTE, June 26, 2011
  4. Mark Heschmeyer, “ Virtual War Games: Brick and Mortar Retailers Battle Online Retailing,” CoStar Group News: National, November 09, 2011
  5. Randyl Drummer, Can This Mall Be Saved? Elements Needed for a Turnaround Include Lower Debt, Deep Pockets, CoStar Group News: National , October 10, 2012

Downtown Multichannel Retailing

DANTH, Inc. has just released a research paper I wrote on downtown multichannel retailing.  I prefer to think of it as backdoor retailing, with electronic and non-electronic variations. In any case, the topic is important because downtown retailing is undergoing an enormous change — one that will not be reversed even when the economy recovers from our Great Recession — towards multichannel/backdoor retailing. Downtown merchants and leaders who do not adapt to this new paradigm will be left behind, more dross produced by capitalism’s creative destruction.


You can download a free copy of the research paper at: 
http://danth.com/storage/pdf/Multichannel.pdf

N. David Milder

On the Passing of Steve Jobs

I greatly admired Steve Jobs for his ability to innovate, but most of all for his view about how to live your life. The latter is captured in this quote from his 2005 commencement speech at Stanford University:


“Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.” 


Too many downtown organizations are staid and stale. A strong dose of Steve Jobs’s philosophy would do them a world of good. They need to follow an important Jobs dictum: Think Different!  Also, they certainly could benefit from a Jobs-like fanaticism that their programs are well-designed and actually work, producing strong positive results. As a downtown business recruiter, Jobs, who strongly opposed asking consumers about the new products they wanted, would never ask local residents for the names of specific retailers that recruitment efforts should target. 


 These organizations also could definitely benefit from the kind of strategic vision that Jobs displayed since he returned to Apple’s helm. 


And one more thing.  In 2007, I bought an iMac  and immediately had a lot of problems with it. On a whim, I emailed Steve Jobs and detailed my problems. In response, I received a call from Apple and about a week later a technician came to my office and completed a thorough overhaul of my iMac. Is there another CEO in the USA you can email and get a similar response?

GETTING THEIR STORIES TOLD — WHAT PETITE BUSINESSES NEED FROM E-MARKETING

Morristown’s Treasured Businesses
  
France Delle Donne, the director of development at the Morristown Partnership (in NJ), recently sent me a link to a new posting to their website called Morristown’s Treasured Businesses.  I took a look and thought it was just terrific! One of the best things I have seen on any downtown organization’s website in a long time. It’s so different from the dull, static, list-based or e-business directory like structures that I typically see on the webpages of these organizations that deal with merchants. It got me thinking about what I liked so much about it and why. I concluded that, though it had many attractive aspects, it was its ability to provide a narrative for each of these business operators that was most important. Storytelling is a critical factor in successfully marketing a downtown and its businesses, though too often overlooked. Branding is a more widely accepted marketing concept, yet the strongest brands gain their power from denoting some kind of story, even a short one. 
 
The High School’s Involvement Was Critical 

Morristown High School’s Broadcasting and Journalism departments approached the Morristown Partnership about doing a project on Morristown.  After an initial meeting and assessment of resources , the Partnership brought them a proposal for   “Morristown’s Treasured Businesses.”  With significant development taking place in Morristown’s business district over the past five years and an influx of new businesses moving in, the Partnership felt it timely to focus on independently-owned businesses that have been in operation for 25 to over 100 years and weathered a variety of economic cycles. According to the Partnership: 

“We wanted to use this opportunity to connect established businesses with the younger constituency in our community. The hope was to raise a cross-generational awareness and appreciation about treasures in Morristown, including businesses and the human connections associated with them. It had all the components to tell a great story. The High School embraced this idea.”

 
Fifteen of the 55 businesses that fit the selection criteria were then interviewed and filmed by the students. A total of 48  students were involved in all phases of completing these merchant “documentaries.” The finished films were then posted on the Partnership’s website for the public to view and vote for their favorites.

 
Downtown organizations seldom have the resources to do everything they want, so having other organizations, such as the local high school, get involved is a really good idea. In Morristown, the high school faculty and students not only got involved, they did so for a novel, needed and effective program.
 
Additionally, as the Partnership recognized, high school students are an important retail market segment in Morristown — and in many other downtowns — so relationship building with the high school and its students is a good idea for the Partnership as well as many other BIDs and SIDs. 

 
Coping With the Longing for Trophy Retailers Syndrome 
  

Another reason I liked Treasured Businesses so much is that it addresses a critical problem faced not only by the Partnership, but by many other downtown organizations as well: local residents focus on the trophy retail chains that are not in their downtown, but do not acknowledge or appreciate the good small merchants who are there. 
  
Another is its use of the dynamic short movies to enable the local business operators themselves to talk about their shops and their histories in the community. As they tell their stories , these merchants become alive to the viewer, allowing the latter to develop some involvement in the stories and some attachment to the merchants.
 
The Decline of Storytelling About Local Businesses That Has Accompanied Downtown E-Marketing

For many years, from roughly the mid 1980s until fairly recently, many downtown organizations found that doing newspaper inserts and special magazines were strong marketing tools. They gave these organizations the  capability to send strong editorial content, that they created and controlled, to both potential consumers and commercial tenant prospects. At the heart of these publications, their most effective components, were stories that convincingly conveyed to the reader that the businesses or the downtown characteristic covered by that story were interesting, unique and/or — most importantly — a discovery. But, the times are “a-changin.”  Downtown organizations are quickly shifting their attention to e-marketing and their websites, e-newsletters and Facebook pages. My visits to many of these websites suggest that this shift from print to electronic marketing has been accompanied by a steep decline in the story-telling their marketing utilizes.

One reason for this trend may be that the easiest, cheapest and quickest ways to present information about local businesses on websites are in list/directory formats that primarily focus on category descriptors of business functions combined with basic contact information. In a few instances a short descriptive paragraph or two, perhaps even a photograph is provided. But, even fewer if any of these formats produce real stories about the local businesses. It’s more like name, rank and serial number, slam, bam, thank you mam. Also, using text to tell a story usually takes more words and time to read than most “webmeisters” advise for a webpage. 
 
The short movies provide an e-commerce, non-text technique for effective short storytelling. It has a strong personal component to it and thus can evoke viewer feelings and involvement.

Storytelling May Be How E-Marketing Can Best Help Really Small Merchants  
 
Since my work on the ‘deliberate consumer” I have been concerned about how the small business operators , say those “petite” firms with annual sales under $300,000/yr

   

  • Can be stimulated to make the management and operational changes they must implement if they are to survive
  • And how downtown and Main Street organizations can help them to make these changes. 

As I have written in some recent postings to this blog, having an effective e-commerce presence is probably one of these necessary innovations, but:
 

  • A full-fledged e-store is probably too complex and resource demanding to be a viable option for these merchants 
  • The directory type formats on either the business’ or a downtown organization’s website, even when blown up into full webpage formats, do not have sufficient impact to warrant the time and effort needed to create and maintain them.

 
I would argue that the best thing that their website or a page on their downtown organization’s website can do for one of these “petite” businesses, is to tell their story. That is what Morristown’s Treasured Businesses does for these businesses. It provides a model for other downtown organizations to emulate, even if some tailoring to their situations probably will be needed. 
 
Again, the teachers and students at Morristown High School are to be strongly commended for their participation in this program and for doing such a good job on it!

  
N. David Milder

Some Interesting Research About E-Commerce

The Online Articles

A May 5, 2011 posting on ClickZ,  “Is Facebook Marketing Behind Macy’s Online Sales Jump,” suggests that that Macy’s efforts to pick up Facebook “likes”, which in 2011 grew to 800,000 was responsible for the 50.3% rise in the Macys.com and Bloomingdales.com monthly sales. The article also mentions that Foursquare and Twitter were used in this campaign.


A May 10, 2011 posting to the Business Insider by Pascal-Emmanuel Gobry, “Turns Out Social Media Marketing Doesn’t Work” reports on recent research done by Applied Predictive Technologies. The research tested “how much location-based services like Foursquare and Facebook Places can help local businesses.” It found an impact that is just “close to 2%.” (There is no clarity as to what the 2% refers to in the article, e.g., sales, visits, etc.”

Gobry advises Foursquare investors not to panic because the used social media may not have had enough time in the test to work and “Right now, social media marketing and advertising is in the experimental phase. We don’t really know what works and what doesn’t, fumbling in the dark.”


I consider customer service as a critical marketing tool, so another online article that recently caught my eye was by Joe Light and posted on April 25, 2011 to the Wall Street Journal’s website. Titled “With Customer Service, Real Person Trumps Text,”  the article reports on a large national survey conducted by American Express to find out how consumers want corporations to provide customer service. The survey found:
  • 90% of the respondents wanted customer service handled by live representatives over the telephone
  • About 50% like customer service delivered by online chat
  • Just a little more than 20% would use social networking sites
  • 20% said they would use auto-response phone systems
  • 70% said they would spend more with a company that provides good customer service , an increase from the 58% that felt that way last year.
My Take-Aways

I think Gobry hit the nail on its head, but that his remarks apply not just to social media marketing, but substantially to internet marketing in general. What is obvious is that large, savvy corporations with ample resources and large technical staffs  such as Macy’s and American Express are still trying to discover what really works and what doesn’t and many of them are still “fumbling in the dark.” 

The small merchants that populate so many of our downtowns lack the resources and skilled staffs of the large corporations and the results for them of a failed online marketing campaign are probably more dangerous. Advocating their involvement in unproven and for them complicated and expensive internet ventures is irresponsible. Yet, an internet presence is fast becoming an existential imperative for all merchants, be they large or small! Downtown organizations that want to foster merchant presence on the internet in most cases need to focus on programs that have some real proof of effectiveness and that make merchant involvement less complicated and more affordable.  I have always been fond of the Keep It Simple, Stupid (KISS) approach to program development and to my mind it applies here. For most small downtown merchants small, affordable, simple to do and easy to maintain steps may be the most viable.

Of course, there are always the exceptions, those marvelous exceptions among the small business operators. At the extreme they are the true innovators that may start in garages, small offices and small shops and create firms like Apple, Microsoft, and Limited Brands. While small business innovators of this high caliber are relatively rare, my experience suggests that there are 5% to 20% of a downtown’s merchants who may be open to some innovation and willing to take some risk. Should downtown organizations focus their efforts on this group or do they need to develop two-tier programs, one level for the more innovative-prone merchants, the other for the average merchant?

N. David Milder