Part 1 of the A Closer Look at Some Strategic Challenges Generated by the New Normal for Our Downtowns Series of Articles
By N. David Milder
As I have been arguing for about 10 years now, our downtowns, no matter their size or geographic location, will be facing a set of challenges and opportunities for the foreseeable future that are quite different from those that downtowns faced from the 1960s through the mid-2000s (1). Even as more and more downtowns are attaining great popularity and economic vibrancy, in many crucial respects they will be facing multi-faceted uncertainty and very strong forces that are ushering in significant changes. This situation will not be surprising to those who understand that downtown revitalization is a never-ending process, that even today’s successes do not vitiate the need to prepare for tomorrow’s inevitable new challenges.
Many of those changes will be behavioral, manifested in what visitors/users do downtown and the motivations for their visits. Perhaps even more disruptive – and often in positive ways – will be the changes in the ways downtown spaces, be they retail, office, residential, parking, roadways or parks will be used, and the physical changes needed to facilitate those use changes.
My observations suggest that many downtowners, who understandably are happily focused on their district’s success, are not preparing to deal with these challenges, often even though they may have already emerged in their districts. The objective of this article is to help make downtowners and their EDOs’ leaders become more aware of some of these emerging strategic challenges, so they can begin to take effective actions to respond to them.
We are seeing important changes in the ways that we shop and how we work, how retailers use their brick and mortar spaces and companies use office spaces. In a decade or two, we also will be interfacing with automobiles in entirely new ways and in anticipation of that fact, some steps should be taken either in the near future or right now. The New Normal for our Downtowns promises many large benefits, but also a lot of change and uncertainty.
The retail industry’s operational paradigm is undergoing a disruptive shift in a process that probably will not be completed for another decade. Today, its ultimate characteristics remain uncertain (2). Many downtown stakeholders and EDO leaders are aware of this situation and feel they cannot do much about it – after all, they think, that’s the job of the retailers. For them, the most salient characteristics of the changing retail paradigm are the reduced demand for retail spaces and the difficulty of recruiting retailers to fill vacant storefronts. However, contrary to what many of them believe, downtowners can indeed take steps to enhance the retail shopper’s downtown experiences by attracting and strengthening their downtown’s Central Social District venues, as I have written about in many previous articles (3). In a future article, I will explore the need to better connect what is happening inside downtown shops with what is happening immediately outside on downtown streets and public spaces. Below I want to focus on a number of other issues that are integrally related to the state of today’s retailing that I think downtowners need to be more aware of and prepared to act upon.
The Decline of Strolling and Browsing Shoppers and Multi-Purpose Trips. Among downtown experts, if you peel away the layers of their understanding of how downtowns optimally work, you soon get to the notions of strolling/browsing shoppers and multi-purpose visits. The competitive advantage downtowns have long had over other types of commercial districts was their ability to enable visitors, on the same visit, to easily walk to a large number of different kinds of destinations, e.g., retailer, eatery, doctor, cinema, concert hall, public park, library, bank, real estate broker, government offices, rail or bus terminal, etc. While, retail destinations were just one type among many, in years past successful downtown retailers would be attracting a lot of users and accounting for a significant portion of their district’s pedestrian traffic. The importance of having a multi-functional downtown that sparks lots of multi-purpose trips is evidenced by the very successful malls (such as the Easton Town Center in Columbus, OH) that are designed to be multi-functional – they have residential, office, personal services, and strong entertainment components – and enable their visitors to have multi-purpose trips.
In the optimal downtown, visitors brought in for whatever reason would stroll down its streets, passing shop windows that might catch their eye and draw them inside. Once in the shop, they would browse through its aisles looking at its merchandise, often buying merchandise impulsively or unplanned.
The Internet, combined with many people leading time-pressured lives, has significantly disrupted shopper behavior so that the numbers of strolling/browsing shoppers and multi-purpose visits have meaningfully diminished. Research has shown that for several years now, “(q)quick trips make up more than half of all shopping trips” (4). Many shoppers, after first doing online searches, then make targeted, quick in-quick out visits to brick and mortar shops. They don’t stroll down the streets as much but travel straight to their retail destinations. Once inside the store, they go directly to the merchandise they previously researched online. They spend less time in the stores, do far less in-store browsing and make fewer impulse purchases. Others are “click and collect” shoppers who make their purchases online and visit the shop just to pick up their merchandise.
Americans’ concerns about convenience are understandable, given the time pressures so many of them face. Downtowns that do not try to make themselves appropriately convenient – there are right and wrong ways of doing it – are negligent in their development of an effective district customer service program.
These quick in and out shoppers are not new, but the Internet has stimulated their numbers to really burgeon – and that poses a number of problems for downtowns:
- They are anathema to a lot of downtowners – they are not languorous strollers or browsers. Moreover, they likely to use cars and want to park in front of their destination stores. Retailers relying strongly on this market segment are likely to want drive throughs, curb cuts, etc. On the other hand, they have also helped induce retailers to adopt smaller store formats and “click and collect” programs.
- They probably are producing a significant reduction in pedestrian trips, most visible and felt in downtowns that have significant, but not huge pedestrian flows of thousands per hour. That means the vast majority of them.
- How can those trips be replaced? Having and maintaining a robust flow of pedestrians is more important than maintaining any specific kind of economic use. In most instances, stronger public spaces and other Central Social District venues are probably the most effective and viable responses – they are what drives most discretionary downtown visits these days.
- The quick in and out shoppers also probably reduce the number of multi-purpose trips and the ability of downtown retailers to attract customers who will also visit other types businesses in the district. How can that be remedied? Again, stronger public spaces and other Central Social District venues are probably the most effective and viable responses.
- These shoppers, while in their quick in and out shopping behavior mode, are likely immune to the magnetism of the quality experiential retail environments that are increasingly seen by retail experts as the secret sauce for brick and mortar stores to have a healthy flow of customer traffic. However, they can switch their shopping behavior mode at a later time.
- While I haven’t seen any research on this, I strongly suspect that designated places near these shops for Uber, Lyft and taxis drop-offs and pick-ups would also probably appeal to these customers. Of course, customer accommodations such as these will not be easy to provide, in no small measure because they would be contrary to the way many downtown leaders want their districts to operate.
- That said, downtown retailers probably cannot afford to write-off shoppers in a quick in and out behavioral mode. They probably represent too many sales dollars.
- Moreover, a shopper may engage in the quick in and out behavior mode on one day and then prefer being in a languorous experiential shopping environment on an another. Target’s plans for its new stores tries to offer features that appeal to people in both the convenience and experiential shopping modes (5). Ticking shoppers off on their convenience-oriented trip may dissuade them from visiting the shop when they want the experiential retail setting. When, back in 2012, I last visited Rodeo Drive in Beverly Hills, it had short-term parking spots dedicated to shoppers picking up merchandise. Other districts may want to follow suit.
- Because the Internet has in a very real sense increased the number of shopping trips that have a specific retail store destination in mind, it can be argued that some retailers may be satisfied with locations that traditionally have been considered less than top rank, e.g., on a side street. Moreover, at such locations, it may be easier to provide the short-term parking and drop-off/pick-up spots for on-demand car services than at the downtown’s 100% corner.
The Need to Repurpose Significant Amounts of Retail Space as Demand Declines. The need of downtown landlords to find new uses for their vacant former retail storefronts is a growing trend and found in all kinds of downtowns. Given that so many downtown properties, especially those that are not in our largest cities, will not be owned by professional real estate companies, there is a strong probability that many local landlords will need help to identify viable new uses for their long-vacant retail spaces and perhaps, then, to attract appropriate tenants. In a very basic way, the repurposing of vacant retail stores has become an essential element of viable business recruitment strategies. The problems are that too many downtown EDOs don’t have a recruitment program and that too many have failed to see that many of their stakeholder landlords need help if they are to repurpose their problematic properties.
The reasons why so much retail space now needs to be repurposed are simple and well-known:
- The US has far more retail space than we really need.
- Retail chains have finally wised-up and are now opening far, far fewer stores. Those that they do open are about 25% smaller than those they opened a decade ago.
- The Great Recession forced a great number of small independent retailers to close, mostly because their customers’ incomes had been reduced and/or threatened. Their closure rate was not greater than that of larger retailers, but their very large absolute numbers – 91% of all retail enterprises have fewer than 20 employees — created the public’s impression that they were hurt far more than other retailers (6).
- Post-recession, successfully revitalizing downtowns, be they large or small, encountered vacancies caused by landlords asking for unaffordable rents from their small independent retail tenants.
Today, high numbers of retail vacancies in our largest, densest and most expensive downtowns are not uncommon. For example, in Q3 of 2017, Manhattan’s economy was doing quite well, but its 12 major submarket areas had an “availability rate” of retail space” – a.k.a. the vacancy rate – that averaged 18%, with a low of 7% and a high of 32% (). This strongly suggests that the landlords are asking for unreasonable rents, or much of this vacant retail space is outdated, or these spaces lack sufficient market support. The spaces that are outdated or lack market support probably should be repurposed.
Since the Great Recession, my discussions with suburban downtown managers and my own field observations have indicated that a lot of former retail spaces are being repurposed organically by market forces and rented to personal and professional services operations as well as eateries. In recent years, their storefront vacancy rates have fallen to more acceptable levels, but many suburban downtown leaders worry about maintaining a sense of vibrancy with a reduced retail drawing power. I have long argued that many of the operations in personal services pamper niches can keep store windows interesting and customer traffic levels significant. However, many of these suburban downtowns may want to bring in more Central Social District type operations such as craftspeople, childcare locations, senior centers to fill their storefronts.
Tellingly, at the Illinois Institute of Rural Affair’s (IIRA) 2018 annual conference, one of the featured presentations focused on: “opportunities for communities to create vibrant downtowns by repurposing former retail stores as entertainment, service or civic destinations which better meet the needs of today’s residents” (8). My impression is that many downtown leaders in larger towns also need assistance in properly repurposing their vacant retail spaces. This IIRA presentation also hits on essential points that leaders in downtowns of all sizes need to strongly consider: the repurposing of retail vacancies should not be just to fill an empty space but seen as an important opportunity to increase the district’s vibrancy and economic well-being as well as to improve the quality-of-life available to the people in the community.
The Reconfiguration of Retail Spaces as Their Mix of Functions Change. There are a number of functions that can be part of a retail transaction process and that can be done in a brick and mortar downtown store: e.g., sales, distribution, online order fulfillment, showrooming, customer service and relationship building, inventory storage, connections to the store’s other marketing/sales channels. A lot of the effort going into finding a new retail paradigm is really about determining which of these functions should be present and how they should be carried out. The decisions retailers make about these two issues are important because they probably will have large impacts on the type and amounts of brick and mortar spaces they will need. They also could have impacts on adjacent streets and sidewalks, e.g., if a retailer’s location generates a huge increase in truck traffic because it serves as an online order fulfillment center.
The photo below shows one of the interesting combinations of functions and partnerships that can occur.
Amazon package delivery lockers outside a 7-Eleven in Forest Hills, NY
To accommodate “click and collect” shoppers, online retail giant Amazon has placed a set of package delivery lockers outside a 7-Eleven in a NYC neighborhood. This serves Amazon’s distribution needs while providing the convenience store chain with revenues from what was a dead space. Any reputable convenience store chain’s location is a potential site for such lockers.
Another example of a retailer’s interesting selection of functions is Bonobos, the online-birthed men’s clothing merchant. As of January 2018, it had opened 48 brick and mortar stores in major shopping locations around the country. While it carries lots of samples of its clothing, so customers can try them on, it has none in stock that customers can take with them after making a purchase. Their purchases are delivered to them from another central location. This retailer does not need a lot of on-site space for either storing merchandise or fulfilling orders. Many online-birthed retailers are adopting this “buy and send” approach in their brick and mortar shops.
Nordstrom has a pilot store, dubbed Nordstrom Local, that is very adventurous. It is small, only 3,000 SF, and targets upscale shoppers who can afford to participate in Nordstrom’s Trunk Club that specializes in designer clothing and providing highly personalized services. The customer interacts with stylists rather than salespeople. The only clothing in the store are those pieces that have been selected by the stylists and their customers for tying on. Customers are further pampered with coffee, juice and nail bars. Outside, space has been provided to accommodate curbside pickups. The stylists use an app to help customers select the clothing they will try on when they next visit. (9). It would not be surprising if Nordstrom soon uses artificial intelligence to let customers see what clothing items in various colors and sizes would look like on them, before selecting them for an actual try on.
The Nordstrom Local store on Melrose Place in West Hollywood. (Photo by Christina House / Los Angeles Times)
The online luxury retailer Moda Operandi offers another interesting example of how retailers may use brick and mortar locations, one that is similar in many respects to Nordstrom Local. Moda started online, but later opened a brick and mortar location on 64th Street, steps away from, though not on Madison Avenue. It is not among, yet very close to Mad Ave’s cluster of designer stores and amidst a large dense cluster of very wealthy residents. It is not a traditional store — it does not want to attract shoppers who are walking nearby. It is indifferent to pedestrian flows. It is an “appointment showroom,” where the retailer identifies the customers who will be asked if they want appointments. Those asked are filtered from Moda’s online customers who have made frequent and significant purchases. Moda knows from those purchases and their website navigation a lot about the customer’s preferences. On their appointments, Moda is able to show them a wide range of merchandise specifically selected to match their tastes. This all occurs in a very attractive, private, face-a-face setting. Moda probably sells a lot more merchandise, while the customer gets loads of privacy, recognition, and pampering as well as selections matching their preferences. Using e-commerce transactions to identify/qualify shoppers for personalized, pampering attention in brick and mortar stores may be one of tomorrow’s successful retail strategies (10).
Moda Operandi and Nordstrom Local have very strong personal service-based experiential strategies. Both are looking to have relatively small size physical presences in very well-to-do commercial districts, but that will have very high sales volumes per square foot of space. The retailing activity in their locations also is more invisible than customarily thought necessary for retail establishments. Their operational models rely on their ability to leverage pre-existing relationships – Moda through its online sales and Nordstrom through its Trunk Club – to identify customers to target for intense pampering and relationship building.
Nordstrom Local and Moda are changing the definition of what is a good downtown location for luxury retailers. Though they may be located in a downtown or neighborhood commercial district, strong pedestrian flows and strolling shoppers are irrelevant to their operational model. These locations are valued instead because they are convenient for wealthy customers to access and then receive their pampering. Also, there is a low probability their shoppers will arrive by bus or rail, travel modes that many of these shoppers consider completely déclassé.
What happens to districts like Rodeo Drive, Madison Avenue, Michigan Avenue, Newbury Street, etc. if a significant proportion of their major luxury retailers adopt a lot of the approach used by Moda Operandi and Nordstrom Local? For example, what will be the effects on who is walking on their sidewalks and the local demand for retail space. Will their retailing also become more invisible? Will they, too, have a greater need for stronger Central Social District venues to keep their sidewalks energized?
AmazonGo in Seattle. Photo by Kyle Johnson for the New York Times
The current temple for quick in – quick out shoppers is AmazonGo. Its opening in 2018 in Seattle grabbed a lot of media attention. Though relatively small, 1,800 SF, this convenience store broke new ground because its whole shopping experience uniquely involves several technologies. Check-out is automatic, not requiring a stop at a cashier or register. Shoppers need an Amazon account and the store’s app on their smartphones to enter. That allows their movements to be tracked as they move through the store and take items. When they leave the store, their account is automatically charged for the items they selected and left with.
Other large retailers, such as Home Depot and Walmart, have had self-check-outs for years, but they required the shopper to scan purchased items and then to make a credit card transaction. It took the cashier out of the equation but made the shopper do more to complete the transaction.Most shoppers did not use it. At AmazonGo the scanning and payments are automatic, the shopper needs to do nothing. Also, all customers must use the system. For years, big box stores and supermarkets have faced a lot of consumer blowback about their inconveniences – they are so large it takes a lot of time to get about and find items, checkout lines are too long, etc. Self-checkout was intended to make the shopping trip more convenient (11).
AmazonGo is small enough to easily fit into the vast majority of our downtowns, any of them that can attract a reputable convenience store chain. Lockers for Amazon’s click and collect shoppers could easily be added on to them. The success of these stores will only reinforce convenience shopping. Of course, if you think about it, Amazon’s whole business model is based on appealing to the convenienceand value-oriented shopper.
A certainty: changes are coming to retailers near you!!!
An uncertainty: what those changes will be.
1. See for example: “The New Normal for Downtown Retailing.” Downtown Curmudgeon. Oct 29, 2009 https://www.ndavidmilder.com/2009/10/the-new-normal-for-downtown-retailing-i-introduction
2. See: N. David Milder. “Retail at the End of 2017: Apocalypse or Evolving Paradigm Shift”. .” Downtown Curmudgeon. Dec. 3, 2017. https://www.ndavidmilder.com/2017/12/retail-at-the-end-of-2017-apocalypse-or-evolving-paradigm-shift
3. See: N. David Milder. “The New Normal For Our Downtowns Cheat Sheet.” February 1, 2017. https://www.ndavidmilder.com/2017/02/the-new-normal-for-our-downtowns-cheat-sheet
4. IRI: Quick Trips Make Up More Than Half of All Shopping Trips” Convenience Store News.07/31/2017 https://csnews.com/iri-quick-trips-make-more-half-all-shopping-trips
5. Corrine Ruff. “Target’s ‘next gen’ store caters to 2 types of customers”. Retail Dive. Nov. 13,2017. https://www.retaildive.com/news/targets-next-gen-store-caters-to-2-types-of-customers/510740/
6. N.David Milder. “Nationally, How Small Retailers Were Impacted by the Great Recession.” Downtown Curmudgeon Blog. https://www.ndavidmilder.com/2017/01/nationally-how-small-retailers-were-impacted-by-the-great-recession
7. Cushman & Wakefield, MarketBeat Manhattan Retail Q3 2017
8. See conference program.
9. Ronald D. White. “Nordstrom’s newest store aims for a personal touch — and no clothing racks”. Los Angeles times. Oct. 6, 2017. http://www.latimes.com/business/la-fi-nordstrom-local-20171006-story.html
10. A lot of this information is taken from my article on Madison Ave luxury shopping district https://www.ndavidmilder.com/2017/01/a-large-luxury-urban-retail-district-under-the-new-normal
11. Jake Bullinger.” Amazon’s Checkout-Free Store Makes Shopping Feel Like Shoplifting.” The Atlantic , Jan. 24, 2018. https://www.theatlantic.com/business/archive/2018/01/amazon-go-store-checkouts-seattle/551357/