The New Normal For Our Downtowns Cheat Sheet

Posted on February 1, 2017 by DANTH

By N. David Milder

Since 2008, I have been writing about the New Normal for our downtowns. Recently, I have been asked on several occasions if I had a relatively brief summary article. I didn’t, so it seemed the time to write this one.

Downtowns Are Now Expected To Succeed

Success stories abound everywhere you look. Not every downtown has made it, but many have, and many more are well on their way. Today, laggard downtowns really stand out.

Downtowns Are The Place To Be

Today, lots and lots of people seem to want to be downtown, not to flee or avoid it. They are easily attracting people to visit, work and, especially, live. Importantly, this is increasingly happening organically. That’s a significant paradigm shift from a few decades ago.

In fact, downtowns have become so popular that many are now facing problems of high pedestrian congestion and how to get all these people in and out of the downtown quickly, comfortably and affordably via mass transit, vehicles, bikes and on foot. Success does not always mean the end of all problems; sometimes it brings along its own set of new ones.

The Negative Impacts of the Fear Of Crime And Actual Crime Rates Have Diminished Significantly

Downtown streets at night are less likely to be empty and fear-inducing.

In most large cities, crime and the fear of crime have fallen so significantly that they have fallen out of sight as an issue. There are several strategies that appear to be effective. However, drug use and drug trade induced crime has increased dramatically in many smaller and more rural communities.

Our Ability To Revitalize Downtowns Has Vastly Improved Since The 1980s

We may not be able to solve every problem, but we have a lot of real knowledge about how to revitalize and manage downtowns. Moreover, we now have in many places the professionally staffed organizations to use that knowledge, e.g., BIDs, SIDs, Main Street organizations.

Downtown Housing

Most downtown leaders and experts would agree that the development of significant amounts of market rate housing has been the most important force in successful downtown revitalization efforts. Housing placed in walkable urban contexts, especially near downtown workplaces, has sparked large district revivals. Housing near commuter rail and subway stations also have helped power suburban downtown and neighborhood district revivals away from the urban core.

Mixed use housing in downtown Cranford, NJ

Since the Great Recession, new condo and coop projects have been eclipsed by new rental projects in many downtowns as a result of changing consumer preferences and the impacts of “deliberate consumer” behaviors.

In many medium-sized downtowns, retail has become a less viable component for mixed-use projects because of the reduced demand for retail space and the retail chains’ greater preference for proven locations.

Market rate downtown housing seems more and more to be only for the affluent and very wealthy. As a result, projects with “micro-units” are being built to provide an affordable solution.

Will downtowns stop being everyone’s neighborhood? In the 1970s and 1980s, many feared downtowns were destined to house only our poorest, most disadvantaged residents. Now, will they be ghettos of the wealthy? Should policies be put in place to assure economic diversity in our downtowns?

Nevertheless, the value and viability of downtown housing as a growth engine continues.

Deliberate Consumers

These consumers display much more deliberation about their expenditures than their pre-2008 counterparts, are much more liable to be concerned about needs than wants and tend to focus on a product’s price, quality and/or value. Many have come to expect steep discounts.

They include the vast majority of middle income households, especially those whose incomes have not increased meaningfully for many, many years. Also, this behavior pattern is seen even in customers of luxury markets, where about 30% of the sales are “off-price.” Economic recovery seems to have increased consumer expenditures somewhat, but the cautious consumer decision-making seems to have continued on in full force.

These consumers are everywhere, careful, want their money’s worth, and are here to stay.

E-commerce

Though more than 90% of all retail sales are still in traditional brick and mortar stores, e-retail sales for specific lines of GAFO merchandise have passed 25% to 50%. If current trends hold, they will pass those levels in several other merchandise lines within a few years. But, e-retailing’s biggest impact comes through how it has changed consumer behavior. Most Americans now make an online product and store search before shopping in traditional shops. They browse less inside shops and more often go directly to the merchandise they want and then leave after a purchase. They use smartphones inside stores to find competitive prices online. Some pay with their phones.

It is highly unlikely that brick and mortar shops will disappear. The vast majority of Americans still prefer shopping in them to shopping online. Even online born retailers – e.g., Amazon, Warby Parker — are also opening brick and mortar stores because they see potential benefits resulting from customers being able to use both channels together.

Nonetheless, traditional retailers have to change their business formulae to better integrate the internet into their brick and mortar operations. This probably means that their legacy stores will become less important in the initial stages of the retail sales transaction process, though often more important in the later stages. They will have to take on new functions like pick up points for online orders, storage for quick local deliveries of online purchases or the venues for special attention and pampering for customers filtered out by retailers for making significant online purchases and how they navigated the store’s website.

Retailing In Various Types Of Downtowns

The emergence of deliberate consumers, the growing power and influence of e-commerce and the prior building of too much of retail space have combined to create large upheavals in the retail industry. Retailers are looking for fewer and smaller new spaces in very low risk locations where other retailers are doing really well.

Different kinds of downtowns have been impacted in different ways and to varying extents by the Great Recession. Here are some examples:

Districts with large luxury markets came through the Great Recession the least scathed and recovered the fastest. Their wealthy shoppers had the best recovery to pre-recession spending levels. Their luxury retail chains benefited from a growing global luxury market and were consequently financially better able to absorb any sales downturn in the US market
Very small towns with populations less than about 2,500, were among the least hurt downtowns because they had few if any national chain stores. Their retail prospects improved as the incomes of their deliberate consumers recovered
Many towns in the 15,000 to 35,000 population range have seen their malls badly falter or completely fail as their anchor department stores (e.g., Sears, Kmart, JCPenny) and specialty retail chain tenants closed.
These retail failures have created an opportunity for many small GAFO merchants to open and do well. The e-retailers and the local mass market merchants like Walmart, Target and Best Buy did not capture all of the market share that the closing department stores and specialty retailers had disgorged. The mass market retailers are typically also ignoring that disgorged share for the small retailers to capture by not increasing their presence in these towns, .
GAFO retailers in towns in the 2,500 to 15,000 population range also seemed to benefit from these closings. Their local trade area residents previously typically outshopped for GAFO merchandise in the struggling/closed malls
As many commercial districts in The Bronx, NY, have shown, moderate income ethnic downtowns and neighborhoods are attracting retailers under the new normal to the degree that they can accommodate the often very large space needs of the value oriented and off-price retailers, e.g., Target, Best Buy, Marshall’s and TJ Maxx. Sometimes this means the “factory store” or “outlet” formats of some very highly regarded chains such as GAP, Banana Republic, Ann Taylor and Nine West. Fitting the large format value retailers into these downtowns so as to retain their walkability and scale is a critical urban design issue. Unfortunately, too often the project solutions have been damaging or half-thought through.
Many downtowns in affluent suburban communities with large numbers of well-regarded specialty retailers, have seen many of them close. Among them were chains such as Chico’s, Coach, Eileen Fisher, Gap, Talbot’s and Ann Taylor. In many instances, the closed stores had under average sales for their chains. This made them vulnerable when their brand encountered strong sales headwinds nationally. In some instances, the stores’ subpar sales were due to more cautious spending by local shoppers. In others, the chain’s merchandise did not mesh with local lifestyles. For example, one expert has noted that Chico’s shoppers nationally had basically “aged out.” In any case, these downtowns are now faced with an unusually large number of vacancies of relatively large spaces that are located in highly desirable locations. They need a strategy to fill those space that will also maintain the strength and attractiveness of the downtown. A viable strategy for maintaining the downtown’s strength may have to look at non-retail uses, as well as subdividing large spaces.

Office Functions and Development

How firms now use office space has drastically changed, influenced by practices at successful high tech firms. With that change, many firms, large and small, are now looking for open spaces for “hot desks.” They have few if any private offices and are configured to stimulate worker interaction and cooperation. They are also using less office space per worker, because the workers are spending more time telecommuting from home or being out with clients.

Consequently, overall demand for office space is being constrained, while on the supply side many of the older downtown buildings are badly out of date and unmarketable. New or adaptively rebuilt downtown office buildings are needed that are configured for the no-office, hot-desk, interactive work environment. Many of the dated office building are either being torn down or converted into residential buildings.

Here and there, usually organically, but sometimes according to a plan, downtown office spaces are being used to stimulate new businesses. This trend is manifested in business incubators, co-worker spaces and buildings geared for start ups. Given the steady growth of the nation’s contingent workforce, many downtowns – be they urban or rural — may find significant economic growth if they can attract and nurture local contingent workers. However, to do that will likely require the presence of several kinds of county or regional level support programs.

Central Social Districts

Since antiquity, successful communities have had vibrant central meeting places that bring residents together and facilitate their interactions, such as the Greek agoras and the Roman forums. Our downtowns long have had venues that performed these central meeting place functions, e.g., churches, parks and public spaces, museums, theaters, arenas, stadiums, multi-unit housing, etc. They are all essential elements of the downtown’s Central Social District (CSD).

Greatly strengthened CSDs have been another important factor associated with the emergence of strong and popular downtowns. In an increasing number of downtowns, their CSD functions have become more important than their traditional CBD functions, e.g., retail and office based activities. Today, for most downtowns, be they large or small, their revitalization strategies must focus on strengthening and growing their CSD’s elements.

The housing element has been discussed above; here are some comments about other important CSD elements:

Formal Entertainment Venues. These include such venues as museums, PACs, concert halls, stadiums, and arenas. They often are held in great esteem within their communities and especially among the local social, business and political elites. However, they also tend to be relatively expensive to build, maintain and operate. Many are venues for types of arts events that have suffered significantly decreased attendance in recent years. There have been a substantial number of failures among these venues and a much larger number that struggle financially each year because their true costs for each admission cannot be sustained by their ticket prices. They consequently need to constantly ask for lots of donations and grants to remain solvent. Too often, it is not a sustainable business model.

Many of them are seriously underutilized: closed during the days and only “lit” some of the evenings. Most performance venues in medium-sized downtowns probably will have under 80 events a year. They can have positive impacts on local eateries and watering holes to the degree that they are active. Their impacts on retail, if any, have an overwhelmingly indirect and contingent route – through the new residents they might attract. Conversely, dark cultural centers can actually be detrimental to a downtown’s sense of vitality.

Ticket prices for these venues are usually relatively expensive – far above the price of local movie tickets, for example – so a substantial portion of middle income households are discouraged from attending their events.

There is little doubt that formal entertainment venues can be wonderful assets for a community. However, they demand a lot of resources and management expertise. Before a downtown decides to build one of these venues, local leaders must realistically assess whether they have the resources and management skills to not only build it, but also to maintain it and to run its programs without continued financial stress well into the future.

Restaurants. Restaurants are particularly important for downtowns not only because they are places where people can obtain needed nourishment, but also because they are places where folks go to have fun, be entertained and, most importantly, enjoy the company of other people. They are the essential driver of downtown vitality.

The growth of strong downtown restaurant niches and clusters has been another strong characteristic of successful downtowns of all sizes. They help bring downtowns alive after dark. Even though independent merchants are unlikely to be open during dinner hours and thus benefit from the restaurants’ customer traffic, they do benefit from the restaurant patrons’ lunchtime visits and their improved image of the district. Retail chains, with longer operating hours, are more likely to benefit directly from the restaurants’ customer traffic.

In small and medium sized communities, restaurants are relatively easy to start-up because of the relatively small market share they have to win to be viable as well as their districts’ comparatively low rents and labor costs.

The consumer market for restaurant fare is enormous: households in America spend relatively similar amounts for eating out as they do for meals prepared at home.

Any community that wants to build a strong CSD should first focus on strengthening its restaurant niche through recruitment and start-up assistance.

Movie Theaters. Though they have passed the digital projection/distribution divide that threatened to put many of them out of business, downtown movie theaters remain vulnerable. They are still threatened by home and electronic device movie watching – that is how most movies now are viewed. More importantly, they are vulnerable to some influential Hollywood execs who, because theaters provide such a small slice of their overall revenues, want same day release of new films through the theater and purely electronic distribution channels. Goodbye first run theaters.

Cinemart Theater in Forest Hills, NY,, its restaurant’s outdoor dining, with Eddie’s Ice Cream shop in background

For most downtowns and neighborhood commercial districts, cinemas are important parts of their CSDs. They have fewer user frictions than many other kinds of entertainment venues. They have comparatively reasonable prices; are open afternoons and evenings almost every day, and present frequent showings through the day. They also occupy large spaces, usually in highly visible locations. Failed cinemas are hard to redevelop and can be terrible eyesores.

When they get in trouble, there is usually not a lot of time available to save them. Savvy downtown EDOs should have an action plan ready to go, should their cinema face closure. In dealing with the digital divide many communities used new tools such as community based businesses and crowdfunding to save their theaters. These tools can be used readily by other downtowns should the need arise.

Parks and Public Spaces. These are not just green or open urban spaces where people can retreat for quiet relaxation. They are also places that are great for that most fundamental of entertainments, people-watching.

Bryant Park, once a festering venue for drug use and drug sale is now an exemplar engine of economic growth

Great parks and public spaces also usually have infrastructures and equipment that allow guests, at little or no cost, to engage in a range of leisure behaviors. Among them are a pond for sailing model boats; a boules court; a ping pong table; chess and checkers tables; a carrousel and an ice rink. The resulting activities constitute performances that other people-watching visitors can observe and enjoy.

Ice skating rink in Central Park Plaza in Valparaiso, IN.

Great parks and public spaces also often have performance spaces for events such as movies, plays, dance recitals, concerts, lectures, etc. The smart ones use temporary stages, so the same spaces can be used for multiple purposes over the year. For many small and medium-sized communities, this is the most cost effective venue they can have for entertainment and arts performances. But public space programming is not (at least initially) self-generating and government or some other entity must have the capacity to book and produce public events.

DANTH, Inc.’s research has shown that well-activated parks and public spaces are usually much cheaper to build, maintain and operate than any of the formal entertainment venues. Most communities already have them in key locations. Even where they are absent, the cost of a new build is generally far less that of a new enclosed venue. They have, by far, a lower ratio of operating costs per visitor/user. They also have the fewest user frictions. Access is free. Use of their infrastructure and equipment is either free or very affordably priced. They are open all day and often well into the evenings almost all year. No one has to make an appointment to use them or buy a ticket in advance of their visit. Visitors can stay 10 minutes or several hours.

Furthermore, successful parks and public spaces have a proven ability to increase values for properties from which they can be seen – even those 480 to 800 feet high and about 0.25 miles away. They also have a proven ability to improve adjacent property values to levels equaling the costs of initial construction or later renovation.

Downtowns of all sizes can have such successful parks and public spaces.

Downtowns that want to strengthen their CSD functions should make sure, early on, that they have an attractive, well activated park or public space. They can be very popular and produce the best bang for the buck of any type of downtown entertainment venue.

One note of caution. The success of a park or public space has far less to do with how beautiful it is – though it definitely should be attractive – than with how it is programmed by its infrastructure, equipment and events and the people it attracts. Unfortunately, this is not widely recognized.

The Bronx, NY: Low-Income, High Immigrant, Minority-Majority Urban Areas May Fare Relatively Well Under Retail’s New Normal

Posted on December 13, 2016 by DANTH

By N. David Milder

With Dart Westphal

Introduction.

Why the Emphasis on Retail Chains. In previous articles in this series, I have demonstrated how small independent merchants are essential to the success of many small and medium-sized downtowns. They are even the retailers that have meaningful growth opportunities in these communities. However, in my assignments in urban lower-income, ethnic commercial districts, local stakeholders and trade area residents equated retail revitalization with the attraction of stronger, higher quality retail chains. The existing independent merchants and small chains were viewed as mostly not adequately serving their local communities. The small merchants were seen as unable to offer the merchandise selection and price/value benefits shoppers wanted. Consequently, in this article, my focus is on retail chains. In a later article, I will take a deep dive into why it has become so much more difficult for small merchants to succeed in our larger cities.

Why The Bronx? This county, that is also a borough of New York City, has certainly received a lot of notoriety since Howard Cosell, several decades ago, harmfully declared on national TV that it was burning. It still is poor, ranking 62^nd of NYS’s 62 counties on per capita income and median household income. It has a minority population majority: most of its residents are Blacks, Hispanics and Asians. It also has a strong immigrant population. Thankfully, today, it is no longer the borough of Cosell’s rant. Though major problems and challenges remain, there have been notable improvements.

One that caught my attention is in retail. Since the early 1980s, I have been researching retail districts all over the Bronx, e.g., the Hub, Fordham Road, Hunt’s Point, Jerome Avenue/Gun Hill Road, Belmont and Baychester. In my opinion, today’s Bronx residents have a greatly improved array of national and local chains to chose from. Perhaps even more importantly, the borough is attracting, in strength, the types of retailers that are flourishing today under retail’s new normal and who promise to continue to thrive well into the future. Moreover, because the borough long has been so badly understored, some types of retailing that are struggling in other geographic areas are finding surprising traction in The Bronx.

While this article is part of a series looking at how retail’s new normal is playing out in various types of downtowns, I decided not to just focus on the Fordham Road corridor — which is the closest The Bronx comes to having a genuine downtown – because that would avoid putting the spotlight on some really significant things happening in the borough that are relevant to understanding where retailing can go in other large urban areas.

Density Is Important, But Other Factors Need to Be Looked Into, Too. For example, the pattern of recent retail development in The Bronx suggests that the competitive advantage high population density can give inner cities may also play out in ways other than simply the aggregation of a large number of low income households, as Michael Porter famously proposed:

“The first notable quality of the inner city market is its size. Even though average inner city incomes are relatively low, high population density translates into an immense market with substantial purchasing power.” (Michael E. Porter, “The Competitive Advantage of the Inner City,” Harvard Business Review, May–June 1995, https://hbr.org/1995/05/the-competitive-advantage-of-the-inner-city)

Instead, many of the borough’s recent major retail projects are aimed at attracting The Bronx’s badly underserved middle income households and those shoppers, with cars, who live outside of The Bronx. Density also means The Bronx has a significant number of middle income households.

A report done in 1990 for Regional Plan Association’s New Directions for The Bronx project noted that retail growth was severely impaired by the lack of available appropriate land needed for such projects. Retail development in The Bronx over the past 15 years, however, suggests that developers have been able to find, often quite cleverly, the needed parcels. It also suggests that access to major highways, the presence of adequate parking and having the appropriately sized retail spaces also are very important locational factors — even in very dense urban areas. This importance of auto travel was not surprising to me. As a resident of one of NYC’s “outer boroughs,” I know that while I and my fellow citizens will take mass transit to get to and from Manhattan, we vastly prefer using our cars when shopping for department-store like merchandise outside of Manhattan. In fact, many of our retail shopping destinations have been designed to be reached primarily by car. When outer borough shoppers do not own a car, they often will use instead a livery service vehicle.

Political and social factors have also played important roles in determining the locations and characteristics of some new retail projects in The Bronx. Politics and development/redevelopment are never far from each other.

Of course, not all retail projects in the Bronx have succeeded. Concourse Plaza is a disappointing failure close to both Borough Hall and Yankee Stadium. It also took a lot of trial and effort to get something successful going on the Bronx Terminal Market site.

A Data Snapshot of Today’s Bronx Residents.

The Bronx’s total population is large, just under 1.5 million, making it equal to the sixth or seventh largest city in the USA. If population density is a competitive advantage, then The Bronx has it in spades, with a density of 32,903 residents per square mile. It ranks third in population density among all of the nation’s counties, right behind Manhattan and Brooklyn. In comparison, the whole city of Laramie, WY has a population of about 32,158 living in a 17.7 square mile area.

So-called minorities dominate The Bronx’s population. While about 62% of the U.S. population are Non-Hispanic whites, they only account for about 11% of The Bronx’s residents.

Immigration is an important source of its population inflow, with about 34% of its residents being foreign born.

A close look at per capita and household incomes yields some very interesting retail-related results. As noted above, per capita and median household incomes in The Bronx are comparatively very low. If we look a little deeper at the percentages of its households that have annual incomes of $75,000+, 21%, and $100,000+, 12.1%, they are not stand outs. However, if we look instead at the absolute numbers, we see that about 100,000 households have annual incomes over $75,000 and roughly 58,000 households have incomes above $100,000. The $75,000 households are roughly equivalent to all the households in Orlando, FL or Lincoln, NE; the $100,000 households are roughly equivalent to all the households in Syracuse, NY or Savannah, GA. (See the above table). For major retailers, these are not small market segments.

Over four decades, I’ve conducted retail –related market research in places like the Bronx, downtown Brooklyn, and Jamaica Center in NYC; Midtown Elizabeth, the Bayonne Town Center, and West New York’s Bergenline Avenue in NJ. What I have usually found is that the distribution of household incomes contained a substantial number of households that were solidly in the middle income category and many that even were in the upper middle income group. While a minority in number, based on the spending patterns revealed in BLS expenditure surveys, I would estimate that the middle income households accounted for a hefty portion if not most of retail spending in these study areas. However, when you looked at the local stores and their merchandise, it was obvious that the vast majority targeted the low-income shopper. The fact that a number of these low market merchants usually were making out like bandits, with sales/PSF higher than on some prestigious commercial corridors in Manhattan, prevented merchants from refocusing on the area’s solid middle income residents. Consequently, these middle income households were strong “outshoppers,” patronizing more distant shopping centers and districts.

Greater population density not only increases the aggregate spending power of low income households, it also does the same for the middle income households, who, though probably much smaller in number, also probably have much greater spending power.

Many of these middle income residents have strong emotional ties to their friends, neighbors and neighborhoods. Many may be immigrants for whom the cultural ties with their local countrymen may be essential components of their preferred way of life. Consequently, they don’t move.

Also, many may live in solidly middle income neighborhoods that are not on a cliff’s edge of decay and destruction. They may be hardworking members of two or even three or four income households that buy $350,000 homes.

The Major Retailers Now Located in The Bronx

The above table identifies 85 national and regional retail chains, shows those that are now located somewhere in The Bronx, and how many stores, if any, they have there. This list is not exhaustive. Together, the 75 identified chains that have Bronx locations have a total of 290 stores.

Those with no stores are shown to demonstrate the types of retailers The Bronx still has not attracted. Certainly The Bronx is not attracting the likes of Gucci, Prada, Valentino, Tiffany, Duxiana, Ralph Lauren, etc. They are far, far too ritzy and more appropriate for Rodeo Drive in Beverly Hills, Midtown Manhattan or the Americana Shopping Center in Manhasset, NY. Nor is The Bronx attracting, perhaps thankfully, those like Talbots, Chico’s, Ann Taylor or Banana Republic – many of these apparel chains are fighting for survival. Trader Joe’s and Whole Foods still have stayed away. So has Walmart and its sibling Sam’s Club – due more to strong political opposition in NYC to Walmart than the chain’s lack of interest in NYC locations.

The retail chains that now seem to like the Bronx the most are those that feature strong value pricing in either big box, off-price or factory outlet formats such as Home Depot, BJs, Best Buy, Target, Burlington Coat, Marshall’s, TJ Maxx, DSW, Gap Outlet, American Eagle Outlet, Macy’s Backstage, Nine West Outlet, Aldi, and the recently announced Saks Off 5th. These retailers have honed in nationally on the middle class’s huge number of deliberate consumers who are:

Much more value conscious
Cautious spenders and
Expect big price discounts from retailers.

They are the retailers whose business plans are designed to take advantage of this key feature of retail’s new normal, a feature that is killing or maiming many other retail chains.

Additionally, since 1987, the Bay Plaza Shopping Center and Mall has grown into an almost 2 million SF retail complex. It had a major post Great Recession expansion that has successfully attracted a new 160,000 SF Macy’s as well as numerous specialty retail chains that feel very much at home in middle market retail centers such as American Eagle, Forever 21, H&M, Old Navy, Aldo, Gap, Charlotte Russe, Raymour & Flannigan, Claire’s and Victoria’s Secret. These retailers are all probably targeting shoppers who come from households with annual incomes above the $34,284 that is the median household income for The Bronx. Moreover, the location of this rather isolated shopping center assures that the roughly 50% of Bronx shoppers, who are in households with cars or who can afford using livery cabs, will be its primary patrons.

Also worthy of note is that this shopping center/mall has attracted some of the youth oriented retailers that are now among the most successful in the industry, such as H&M and Forever 21.

Speaking of Macy’s, traditional department stores nationally have been hit very hard by the new normal. Macy’s, for example, has been struggling nationally to develop a viable new strategy by closing under-performing stores, strengthening its e-commerce operations and by developing an off-price chain like Nordstrom’s Rack. Kmart (a part of Sears) has also been struggling and closing stores. JCPenny hit both the brick wall of the Great Recession and a disastrous marketing strategy that halted sales coupons and discounts. Given their stressed situations, one might reasonably have expected these department store chains to have withdrawn from the income-poor Bronx. To the contrary, Kmart continues and it is located in the Bay Plaza Shopping Center, along with JCPenny and the new Macy’s. Even more recently, it was announced that Saks Off 5^th, the off-price format of Saks Fifth Avenue, was coming to this mall. Under the new normal, shopping centers and malls anchored by traditional department stores are supposed to be in heaps of trouble, unless they have high end shops supported by lots of affluent shoppers. Nevertheless, Macy’s has also kept its Parkchester store open and located one of its new Macy’s Backstage off-price stores in the Fordham Place development on Fordham Road. According to the owners of the Bay Plaza Shopping Center and Mall , their J. C. Penney and Kmart tenants “are in the No. 1 range for their respective chains” in terms of sales (See: http://www.nytimes.com/2012/06/13/realestate/commercial/new-york-developers-to-build-suburban-style-mall-in-the-bronx.html ) In summary, while traditional department stores are taking a real licking nationally, those in The Bronx surprisingly seem to be doing well.

The Bronx has long attracted retailers that court lower middle-income and ethnic shoppers. Retail chains, both local to NYC and those with penetration into larger multi-state areas, have developed to service such customers. The Bronx also has attracted other regional chains that serve a broad spectrum of customers. It has, at least, 11 of these regional chains and they have about 53 stores in various commercial districts in the borough. Among these chains are: Jimmy Jazz, Dr. J’s and V.I.M. that specialize in urban wear; the sporting goods chain Modell’s. and the appliance chain PC Richards. Some of these chains have been around for 50+ years – Danice, for example, dates back to the 1930s.

Added to them are a number of national chains that also focus on lower income and lower middle income shoppers and who feel quite at home with locations in ethnic, low income neighborhood shopping districts as well as in more solidly middle income districts:

Family Dollar, 19 stores
Dollar Tree, 3 stores
Payless, 18 stores
Rainbow Shops, 18 stores
Gamestop, 14 stores
GNC, 13 stores
CVS, 17 stores
Walgreens, 16 stores.

Retailers having at least a partial focus on the lower income market are less likely to face another major challenge generated by retail’s new normal, e-commerce. Their low income customers are less likely to have Internet connections in their homes and, more importantly, less likely to have the credit cards needed to make e-commerce transactions.

Where Is The New Retail Going?

Are retailers flocking to The Bronx’s old, well-known urban corridors? Not so much. To pedestrian and mass transit oriented locations? Some, but far from most. Or to car oriented shopping centers with large parking lots or large parking garages that are cheek to jowl with major highways? Now, we’re surprisingly on the yellow brick road. Let’s take a closer look and see what I mean.

The Fordham Road Shopping Corridor. With over 300 specialty shops and chains, it has long been The Bronx’s largest shopping district and claims now to be the third largest in NYC. The heart of the district runs about 0.7 miles along Fordham Rd from Jerome Avenue on the west to Washington Avenue on east, across from the Fordham University campus. It’s subway stations are on its western edge, on Jerome avenue and the Grand Concourse, though MetroNorth has a very busy station on the eastern edge at Webster Avenue. Next to it on Fordham Plaza is a very busy bus transfer point.

At Fordham Rd and Webster Ave. Fordham Place on right; Fordham Plaza, a major transportation and commercial hub is back to its left. The MetroNorth station is on the left side of the photo submerged and behind the trees. Photo from Google.

Major auto access is provided on the west by I-87 which is about 0.5 miles from the Jerome Avenue- Fordham Road intersection. On the east its about one mile from Washington Avenue to the Bronx River Parkway and about 3.0 miles to the Hutchinson River Parkway. For delivery trucks, it’s about 0.35 miles farther to I-95. Traffic along Fordham Road can be dense and slow. Finding parking on or near this shopping corridor can be time consuming. AlI things considered, Fordham Road’s highway access might be considered as marginally acceptable.

According to data published by a commercial broker, there are 500,000 people living within 2 miles of the rehabilitated Fordham Place building on Fordham Road at Webster Avenue. The corridor is mainly embedded in zip code area 10458 that has a population density of 78,784, more than double that of the borough. But, its residents are poorer than most Bronx residents; their median household income is about 28% lower than that of the borough. Only about 13% of its households have incomes of $75,000+/yr.

The district has attracted a number of national chains: American Eagle Outlet, Best Buy, Claire’s, Footlocker, Gamestop, Gap Outlet, Macy’s Backstage, Marshall’s, Nine West Outlet, Payless, Rainbow, Sleepy’s, Staples, Starbucks, The Children’s Place, TJ Maxx, Walgreens and Zale’s.

Marshall’s, Children’s Place and PC Richards in the old Alexander’s Department Store building at the key intersection of East Fordham Rd and the Grand Concourse. Photo from Google.

For any solidly middle income residential area, that’s certainly not a tacky mix of shops to have close by. For a dense population with modest incomes, that mix may strike some observers as surprisingly robust. There are a lot of strong, very reputable chains among them, and many that have a value pricing strategy that is very successful under the new normal. The attraction of a Best Buy, TJ Maxx and a Macy’s Backstage is particularly impressive. Best Buy and Macy’s Backstage now occupy a space that once was a very large Sears store. Marshall’s, now in the former Alexander’s building, has long entered low income, ethnic commercial districts, but its sister chain, TJ Maxx has, to my ken, been somewhat pickier.

A number of these chains have clustered in two relatively large buildings, the former Alexander’s and Sears department stores, that are near mass transit assets and as close as a location in the district allows to a major highway, e.g., either I-87 or the Bronx River Parkway. However, for delivery trucks, traveling east from and back to I-95 have an extra 2.3 mile trip. Both buildings also have public garages nearby.

Could other value-pricing chains find locations in this district interesting? Those with small space requirements, perhaps, and then they would want to be very close to other national chains. More of the flailing national specialty retail chains soon may be opening their own factory outlet stores and bringing them to all sorts of shopping centers. Gap, Nine West and American Eagle have such stores in The Bronx. There’s a Gap Outlet in Jamaica Center, Queens, NY. Banana Republic just turned its decade old store in the well regarded Austin Street shopping corridor in Forest Hills, NY into an outlet format. This trend, if it gains momentum, augurs well for retail recruitment efforts, not only on Fordham Road, but for many other lower income ethnic shopping districts.

The situation is far more problematical for those value pricing chains with large space requirements, say 25,000+ SF. I doubt that there are any more old department store type spaces left in the Fordham Road district, so there would have to be parcel assemblage as well as new construction. In NYC and many other major cities, that often can be very difficult and expensive to do. Also, retailers that need large spaces probably are hoping to penetrate a larger market area from which shoppers arrive in cars. For them, having a major highway close by is a major requirement, as is a copious amount of parking. That, for example, has been the scenario for new retail projects along Broadway in the Kingsbridge section of The Bronx.

The Hub. This intersection of 149^th Street, Third Avenue and Melrose Avenue has been an important retail district for South Bronx residents since, at least, the 1930s. Today, it is more of a strong ethnic neighborhood commercial district than a downtown.

The first Alexander’s department store was opened there, but it was the chain’s second store on Fordham Rd and the Grand Concourse that really put it on the map. Today, The Hub has many of the national chain stores that are found in many lower income ethnic shopping districts: Ashley Stewart, Carters Baby & Kids, The Children’s Place, Game Stop, GNC, Kids Footlocker, Lids, Payless, Rainbow, Sleepy’s, and Walgreens. It also has the regional and local chains that feel very at home in such districts: Cee-Cee, Danice, Dr. Jay’s, Dr. Jay’s Ladies, Jimmy Jazz, Modell’s, Porta Bella, S&A Stores, and Youngland.

The Hub is in zip code area 10455, which has a population density of 55,696. That’s 69% higher than The Bronx’s population density and 106% higher than the population density of New York City. The area’s population is also relatively poor, with a median household income of $22,996/yr. That is 32.9% lower than the median household income of The Bronx and 56.3% lower than that of NYC.

The district’s mass transit assets are the #2 and #5 trains that serve its 3rd Avenue-149th Street station and three bus lines the BX15, BX19, and BX2.

I-87 is about 0.69 miles away to the west and 0.72 miles away to the south. I-278 is about 0.94 miles away to the east.

The development of the Bronx Terminal Market (see the discussion of that shopping center below), just 0.75 miles away as the crow flies, has inserted a very powerful competitor into The Hub’s trade area. While that shopping center may not be all that easy to get to, it’s strong mix of retailers should still be a heavy-duty magnet for many residents in The Hub’s trade area. Concourse Plaza, a very troubled shopping center on 161^st Street, is about 0.67 miles away as the crow flies. It’s talked about rehabilitation could inject another serious competitor into the Hub’s trade area.

The former Alexander’s building in The Hub, which had been occupied by a Conway’s and a mini-mall, was sold fairly recently. Local newspapers report that a search is on for a major, higher quality retail tenant to occupy that space. One may wonder if that is really possible in a retail world where major chains have become even choosier about potential new store locations than they were a decade ago. Yes, aggregating the spending power of low income households in dense urban areas like the South Bronx can attract some retailers, but there are also obvious limits to how many national retailers will be attracted and their quality. This is especially true when strong competing shopping centers have opened nearby. An effort to create a strong base of ethnic oriented small retailers and small chains might be a more viable growth strategy for the area.

Bay Plaza Shopping Center & Mall.

I’ve already written above a lot about this retail complex. I’ve combined the mall and the shopping center into one entity, because that’s how I think most of its patrons see them. Below are some additional points that I believe have more general application to retailing in other urban areas similar to The Bronx.

In the heart of a very densely populated and poor county, this shopping complex is very traditional, very successful and has a very suburban-type location and feel. It is situated in the geographic arm fold of two major highways, I-95 and the Hutchinson River Parkway. (See the above map). It is very oriented to shoppers who travel by car. Even though it is close to the densely populated Coop City, the “Hutch” is an effective pedestrian moat. Bay Plaza functions very much like an suburban mall of the 1980s, which was when it was started, and it probably draws from southern Westchester County. It is embedded in zip code 10475 that has a population density 27.8% lower than that of The Bronx, while its median household income is 27% higher. About 29% of its residents come from households with incomes over $75,000/yr; that percentage for The Bronx is only 21%. Most of the new and successful retail shopping centers that have developed in The Bronx over the last 15 years are located in neighborhoods with above average incomes that have very good highway access. Such access is important for two reasons: to attract shoppers and for making store deliveries fast and easy. In The Bronx and other parts of NYC, the latter is more important than most folks might expect. The visibility of their buildings and signage is another important factor.

This retail complex has had the same ownership entity since it was created in the late 1980s. It has grown significantly in size over the years and has about 150,000 SF of office space associated with it. The owners plan to add several thousand residential units in the future, thus making this complex much more like a town center type mall. In the past, the owners have displayed prudence in their expansion efforts.

Their approach to attracting retail tenants is heterogeneous compared to other mall operators. Their tenants can range from traditional department stores (e.g., Macy’s) and specialty retail chains (e.g., Victoria’s Secret) to the value pricing department stores (Marshall’s and Saks Off 5^th) and retail chains (DSW). Also included are several regional chains such as Easy Pickins and Jimmy Jazz. Importantly, they have also attracted retailers who are big hits with teens and young adults, such as H&M, Forever 21, and Hot Topic. This retail complex has every type of retailer that is doing well under the new normal.

My guesstimate is that this retail complex probably has annual sales in the $1 billion to $1.5 billion range. Given that guestimate and its strong highway access, it seems probable that it is also drawing significant numbers of shoppers from outside of The Bronx. Not bad for a major retail complex located in the poorest county in NYS!

This retail complex, together with the Hutchinson Metro Center and the Throggs Neck Shopping Center, are adding new luster to business locations along the Hutch in The Bronx. They are quickly noticed by any observant passing auto passenger.

The Broadway Corridor in Kingsbridge between about 225^th Street (Target) and 238^thStreet (BJ’s). Photo from a Ripco brochure for Broadway Plaza

The Broadway Corridor in Kingsbridge. As can be seen in the photo above, this 13 block long corridor backs on to the Major Deegan Expressway (I-87) and Exit 10 is in its midst. This area is serviced by three stations for the #1 subway line. It is embedded in zip code 10463 that contains parts of the Kingsbridge and Riverdale neighborhoods. This zip code, too, is densely populated, 47,002 persons per SqMi. That’s about 43% higher than the borough’s population density. It also has a median household income, $54,258 that is 58% higher than the borough’s. Its rate of households with incomes of $75,000+/yr, 36.8% and $100,000+/yr are very substantially above those for The Bronx and about equal to that of NYC.

The corridor saw the construction of three major shopping centers in 2004, 2014 and 2015 that totaled about 530,000 SF. Their insertion into this dense, mature neighborhood and how they mesh visually and functionally with their surrounding urban context deserves its own major discussion. Added to such a discussion are several retail projects in Queens and Brooklyn that have been built in the past decade or so.

A view of part of River Plaza along W225th Street. Photo from Google.

The first and largest was the 235,000 SF River Plaza. Target is not only a major anchor store, it also was a co-developer of the project. Other major tenants today are Marshall’s, The Children’s Place, Lane Bryant, Payless, Applebee’s and Planet Fitness.

Target expected to draw from a trade area population of about 400,000, according to Paul Travis, who played a lead development role on the project. Target also expected that some of these customers formerly traveled to Target stores in Yonkers or New Jersey. http://www.nytimes.com/2004/09/15/business/target-gives-new-look-to-the-bronx.html .

The project was built on a 9.5 acre site that was formerly a decayed hospital warehouse, along with some car-repair shops, tire stores, and a fried-chicken restaurant. Because of the size of the Target store, it was built so the vast majority of its space is below grade to meet zoning regulations. It’s roof provides surface parking. The project’s tenants reportedly have had very strong sales numbers.

Most probably because of the Great Recession, it took about 10 years for Broadway Plaza, the second significant project in the corridor, to open. It has 133,000 SF and is tenanted by TJ Maxx, Aldi, Party City, Bob’s Furniture, Forever 21 and Blink. Bob’s Furniture replaced the bankrupt Sports Authority.

It was built on land that was mostly a former municipal parking lot that sits right by Exit 10 of the Deegan Expressway and close to an elevated subway station.

It was followed in 2015 by the 162,000 SF Riverdale Crossing. Its major tenants are BJ’s, Petco, Smashburger, Buffalo Wild Wings, CityMD and Chipotle. It, too, has substantial portions of its structures underground and a lot of rooftop parking. It was built on a property that formerly was a factory for the Stella D’Oro Biscuit Company. Interesting to note that its developer made the following point to the press: “… its location next to the Major Deegan Expressway, allows for major deliveries and loading, as well as prime signage opportunities.”

The developer of this project ,Metropolitan Realty Associates LLC (“MRA”), has an interesting investment strategy: “specializing in opportunistic and adaptive reuse investments.”

Dart Westphal, a longtime Kingsbridge resident with 25+ years of experience in the urban economic development field, had some interesting observations about what is happening to his neighborhood’s retail:

“The longstanding assumption that the heavily populated Bronx was ‘under-stored’ has resulted in three ‘malls’ being developed. One at 225th Street is anchored by Target. A second at 230th street now includes Bobs furniture as well as Aldi and Party City. And a third at 238th Street includes BJ’s warehouse, Buffalo Hot Wings and other eateries like Chipotle, Smashburger and Subway.

The area near the 231st Street #1 line train stop has long had a substantial local retail presence. Staples and Stop and Shop are nearby at 234th Street. But recently there has been an interesting increase in more upscale offerings. The Bronx Ale House is perhaps the first development to raise eyebrows. Denizens say things like ‘who would have thought beer snobbery would come to the Bronx’. Reportedly beer distributors had a much easier time selling craft brews to the local grocers after the Ale House opened. Other independent eateries have moved in and Buffalo Hot Wings hasn’t hurt the Ale House’s business – they are expanding for the second time.

A second location is the ‘Garden Gourmet’. It is the sort of upscale grocer with lots of prepared food and fancy choices that appears in many parts of NYC, but has until recently been absent in the Bronx.

These developments have meant a wide range of options for shoppers. Target and Aldi at the discount end and Garden Gourmet at the premium end. And the Appleby’s at the Target Mall was as crowded as the Ale House on a recent Saturday after the nearby Columbia-Cornell football game.

It would appear that the combination of a big underserved mass market and a little recognized group of customers willing to pay a premium are driving a retail boom in Kingsbridge, the Bronx.”

The New Horizons Shopping Center and The Bronx Terminal Market. What these two projects have in common is that neither probably would have happened if local politicians or neighborhood community development activists had not pressed hard for them.

The New Horizons Shopping Center location as shown on Google Maps

Back in 1974, the Crotona Park East section of Bronx had been decimated by “overwhelming incidents of arson, disinvestment, abandonment and population loss.” This led to the formation of The Mid Bronx Desperados (MBD), one of the borough’s most effective and respected housing and community development organizations. Working with LISC, MBD was instrumental in the creation of the 133,000 SF New Horizons Shopping Center that opened in 2003 in its neighborhood. This shopping center, most importantly, brought in a major supermarket chain, Pathmark. Today, a Stop & Shop has taken Pathmark’s place and the center’s other tenants includes Auto Zone, TJ Maxx, Footlocker, Petland, Game Stop, Subway, IHOP and Taco Bell.

The site of the shopping center was previously targeted by the City to provide new and modern spaces for small manufacturers. They never appeared, so MBD and LISC cleverly steered the city to a major neighborhood retail use.

New Horizons is located in zip code 10460. It has a population density 32% above that of The Bronx and a median income that is 35% below the Borough’s. It has very few households with incomes above $75,000. Yet this is a traditional suburban type, car oriented shopping center, with shops located in a sea of parking spaces. It is also very close to the Cross Bronx Expressway. (See map below). This is not an urban shopping project with a solid wall of shops on the ground floors of buildings that abut and open to sidewalks. On the once infamous Charlotte Street, MBD had previously built ranch style single family residential units. Their occupants have well tended backyards, some boats sitting in driveways and some above-ground swimming pools. Given their MBD origins, both the housing and the shopping center certainly reflected local aspirations and needs. Many other dense, low-income, ethnic urban areas may also aspire to more suburban type retail projects. Because people are less affluent does not necessarily mean they like downtown or other urban retail environments.

The Bronx Terminal Market (BTM) is a 913,000 SF retail complex that opened in 2009, despite the Great Recession. It is owned and operated by the Related Companies, one of the largest real estate developers/owners in the USA. The new Yankee Stadium also opened in 2009. A coincidence? I think not. With the new stadium, political leaders and the Yankee organization wanted the surrounding area improved. Metro-North put in a new station, existing subway stations were improved and the BTM was built.

The BTM site, located south of the Stadium, with the vehicles on the Major Deegan Expressway roaring by right next door to the west, has had a long struggle to find its best use. It was the location for the Bronx House of Detention and a public market that morphed into a market for fruit and vegetable wholesalers. In 1990, Regional Plan Association’s report found it to be a prime location for future retail development. Unfortunately, its ownership struggled in vain for years to get a project going. Related finally gained possession in 2004. Construction started on the current market in 2006, the same year that construction for the new Yankee stadium started.

Today, the BTM is akin to a retail power center on steroids with a tenant list that includes: Babies R Us, Bed, Bath & Beyond, Best Buy, BJ’s, Burlington, Gamestop, Home Depot, Marshalls, Michael’s, Raymour & Flannigan, Target and Toys R Us. That’s one powerful retail line up! It needs to draw from a very wide and densely populated trade area, one that probably goes well beyond the South Bronx.

The BTM has strong auto and mass transit assets that enable it to penetrate a large trade area. It is served by the 149th Street-Grand Concourse subway station, with its 2, 4 and 5 trains, as well as the 161st Street-Yankee Stadium station, served by the 4, B and D lines. It is also a short walk from the Metro-North station at East 153^rd Street. A number of bus routes serve the BTM. Importantly, it also can be accessed by car from three exits on the Major Deegan Expressway. To go with them, it has a very expensive to build six level garage with 2,600 parking spaces. That much parking suggests that the project’s planners expected about 70% of its customers to come by car.

The BTM is embedded in zip code area 10451 that has a population density 37% higher than the borough’s, while its median household income is 22% below that of the borough’s. This close-in population density is not why this shopping center is where it is, though the nearby households with modest incomes probably benefit significantly from having such an array of value price retailers in their neighborhood.

Throggs Neck Shopping Center and the Shops Bruckner Blvd. Both of these shopping centers are in the southeastern part of The Bronx and rather distant from any subway lines. Throggs Neck Shopping Center is 1.8 miles from the #6 line’s Parkchester station; the Shops at Bruckner is about 0.8 miles from the #6 line’s Westchester Square – E. Tremont station. However, each is within a few hundred feet of a major highway.

The 300,000 SF Throggs Neck Shopping Center in the Ferry Point section of The Bronx was completed in 2014. The property had been used as a USPS equipment transfer station, but had been vacant since 2010. It is located in zip code 10561 that has a population density about 34% lower than that of The Bronx, while its median household income, at $52,347, is about 53% higher. About 35.5% of its households have incomes above $75,000/yr; about 22.8% are above $100,000/yr.

Its tenant mix includes a large Target that had to be built below grade as well as TJ Maxx, Sleepy’s, Famous Footwear, Skechers, Petco, Five Guys, Applebee’s, Chipotle, Subway and Starbucks.

The entrance to Target’s 165,000 SF below grade store in the Throggs Neck Shopping Center in the Ferry Point neighborhood of The Bronx. Below grade spaces are a way for developers to get around zoning rules aimed at keeping big box stores away.

It is easily accessible from the Hutchinson River Parkway, from which it is visible. It has 650 free parking spaces, many of which are located on the Target’s roof.

The Shops at Bruckner Boulevard Shopping Center is next to the Bruckner Expressway and appears to occupy four city blocks.

The Shops at Bruckner Blvd was built back in 1996 by Forest City. Here is how this developer sees itself:

“Forest City is a pioneer in bringing larger-format retailing to urban locations, primarily in the New York City metropolitan area, previously under-served by major retailers.

With high population densities and disposable income levels comparable to the suburbs, urban development is re-emerging as an opportunity for retailers….” http://www.forestcity.net/properties/shop/urban_retail/Pages/default.aspx

In NYC, Forest City also “owns and operates Atlantic Center and Atlantic Terminal in Brooklyn, Queens Place in Queens, and Harlem Center in Manhattan.” They all feature large format retailers.

As far as I have been able to discern, the tenant list at The Shops at Bruckner Boulevard includes: Auto Zone, Babies R’Us, Carters, City Jeans, Conway, Danice, Fallas Stores, Gamestop, Gap Outlet, Jimmy Jazz, Kmart, Marshalls, Modell’s, Old Navy, The Children’s Place and Toys R’Us.

This shopping center is located in zip code 10473 that has a population density of 26,846, about 18% below the density level of The Bronx. While the median household income in this zip code is only about 5% higher than that of The Bronx, its percentage of households with incomes over $100,000/yr is 25% higher than the borough’s.

Some Take Aways

The Current Status of Retailing in The Bronx:

The Bronx has undeniably made very significant progress over the past two decades. What some may find surprising is that one of the most visible improvements is the much larger number of strong and desirable national retail chains it has attracted. My best efforts identified 75 national and major regional chains that have Bronx locations and a total of 290 stores. There may be more.
There can be little doubt that its residents now have a much wider range of choice among desirable retailers.
This is not only true for the low and lower middle income shoppers, but also for consumer in the borough’s more affluent households that have incomes of $75,000+.
Very importantly, the borough is attracting, in strength, the types of retailers that are flourishing today under retail’s new normal. They promise to continue to thrive well into the future. Included in this group are those that follow a value pricing strategy such as TJ Maxx, Marshalls, Burlington Coat, Ross Stores, Nordstrom Rack; low-price, fast fashion operations such as H&M, and current teenager favorites such as Forever 21 and Hot Topic.
In order to survive, many department stores (e.g., Nordstrom, Saks, and Macy’s) have opened “off-price” types stores and specialty retail chains (e.g., Gap, Old Navy, Banana Republic, American Eagle, Nine West, and Ann Taylor) have opened “outlet” type stores that are not in outlet malls. More department stores and specialty retail chains can be expected to follow suit. The Bronx has already attracted a number of them and it can be expected to attract more in the future, if this trend holds.
The Bronx has been particularly good at attracting large format retailers such as Target, BJ’s, Best Buy and Home Depot, though many others have not yet appeared, including Walmart, Lowe’s and Costco.
The Bronx is filled with the “deliberate consumers,” whose more cautious spending is a key characteristic of the new normal that today’s retailers must face. The low-priced and value priced retailers that The Bronx has attracted are best positioned to, in turn, attract the hard to win expenditures of the deliberate consumers.
Moreover, because the borough long has been so badly understored, some types of retailing that are struggling in other geographic areas are finding surprising traction in The Bronx. For instance, some department stores in The Bronx appear to be flourishing, while this category is tanking elsewhere in the nation. It also has attracted some specialty retailers such as Michael Kors and Victoria’s Secret, while many chains in that category, including Kors, are struggling for survival in other locations.

Where Did It Happen?

One might think that retail growth in such a densely populated county would go primarily into very urban types of commercial spaces, e.g., ground floors and lower stories in rows of adjoining buildings that hug and open onto sidewalks. I looked at 10 shopping centers/districts. The two oldest, Fordham Road and The Hub, have that kind of urban retail spaces. The others, the shopping centers, were very car-oriented and suburban in design. All also were located very close to major highways and had copious amounts of on-site parking.
This was even true for the New Horizons Shopping Center that was built through the efforts of the MBD and LISC to serve customers who, on average, have very modest incomes.
It is interesting that Target did not locate one of its small format stores in the Bronx. They are intended for tight urban districts. All three Target stores in The Bronx are over 100,000 SF and close to a major highway.
Some of these shopping centers, such as River Plaza, have some interesting design characteristics as they try to squeeze large format stores into tight, mature and dense urban contexts.

Why Did It Happen?

The Bronx has been attracting some important and experienced developers: e.g., The Related Companies, Forest City, Washington Square Partners, MRA. These developers feel thoroughly at home in dense urban environments, even those dominated by ethnic, lower income households. Many also share Forest City’s view that these urban areas have been understored though they have “high population densities and disposable income levels comparable to the suburbs.” Many also share MRA’s investment strategy of “specializing in opportunistic and adaptive reuse investments.”
The Bronx certainly has the low income population density Michael Porter cited as a redevelopment asset. It is the third densest county in the nation and the poorest county in NYS. In the past, this market segment had been badly underserved locally.
Less noticed, however, have been the borough’s roughly 100,000 households that have annual incomes over $75,000 and roughly 58,000 households with incomes above $100,000. The Bronx’s $75,000/yr households are roughly equivalent to all the households in Orlando, FL or Lincoln, NE; the $100,000/yr households are roughly equivalent to all the households in Syracuse, NY or Savannah, GA. These residents did a lot of “outshopping” to retailers outside of The Bronx. Most of the new shopping centers are situated close to where significant clusters of these more affluent households are located. Some developers and major retail chains apparently have noticed these households.
The Bronx’s major highways, even Robert Moses’s abomination, the Cross Bronx Expressway, have been key assets for attracting savvy developers interested in retail projects. These roads allow the retailers to tap shoppers in the large trade areas they need, even shoppers who live outside of The Bronx.
The Bronx — as is true for many other low income, dense urban areas – has a lot of “soft” properties ready to be redeployed for higher and better uses. It also had some public land, such as parking lots, that could be redeveloped. Some developers were very crafty/innovative in the way they utilized these soft properties.
In my opinion, the borough’s political leaders and many of its neighborhood leaders have often played very positive roles in getting these retail projects done. They heard and tried to respond to residents’ grumbles about the poor retail choices available to them.

Implications For Other Dense, Low Income Districts and Neighborhoods. The above discussion of retailing in The Bronx suggests the following:

Most of the retailers who are succeeding under the new normal are very probably willing to consider locations in a district or neighborhood like those in The Bronx. These can range from the large format retailers to the specialty retailers that have smaller outlet formats.
Population density is definitely an asset, but don’t just dwell on your low income residents. Also identify and market the households with incomes over $75,000 that may be in your trade area. In a growing number of neighborhoods, ethnic populations are not poor, but solidly middle income or even upper middle income.
If there is a major highway running through your district or neighborhood, sites near it can be very strong assets.
Identify and cultivate real estate developers who have done major retail projects in neighborhoods or commercial districts similar to yours. Not every developer will fall into this category, but many will!
Learn from them about the types of sites and opportunities they are looking for.
Be open to retail centers that have a car-orientation. At least, here in NYC, and I suspect in a lot of other large urban areas, residents not living in the downtown core are likely to use mass transit to commute to and from work in the core, but then to prefer either walking or using their cars when shopping for comparison shopping type goods. This is true even for folks with modest incomes, as long as they have a car. Of course, this is especially true when subways or commuter rail are not present.
Large ethnic downtowns are already usually beehives of activity with high pedestrian counts. But, they are also congested with vehicular traffic, often on a main drag that has an old, narrow road bed. They are often comparatively far from major highways. These downtowns need to address such traffic problems. That’s heresy, I know, and I’m a strong advocate of transit oriented development. However, as long as the residents of a downtown’s trade area find it much easier to drive and park at other shopping centers than in the downtown, those residents probably will be doing a whole lot of outshopping. That is a statement of fact, not value.
Finding appropriate spaces for large format retailers will be another key to their entry into large ethnic downtowns. Their leaders would be wise to have soft properties identified that could be redeveloped for such tenants. The large format retail stores in Kingsbridge’s Broadway Corridor show that they do not need to have massive amounts of space on a main drag to be successful, if they still can have adequate visibility. That might ease their insertion into places like Fordham Road and Jamaica Avenue in Queens. Still, inserting large format stores into dense urban contexts while maintaining their walkability and capacities to stimulate social interactions is a challenge that needs much more analytical and design work. Ideological stances against large format retailers have prevented the discussions that are needed about this issue.
On the other hand, the outlet formats of specialty retailers can be good recruitment prospects for such downtowns. They’ll have much smaller space needs and a lot of them sell merchandise that is easier to carry on mass transit.
However, to rely solely on the outlets will probably substantially limit a downtown’s retail growth potential. In turn, that may be what these ethnic/minority downtowns have to do. In that case, building up their Central Social District functions will become even more essential for incerasing their vibrancy and magnetism.

The Challenges Facing Suburban Downtowns With Trophy Retailers Under the New Normal©

Posted on October 31, 2016 by DANTH

By N. David Milder

Introduction

This article is a follow up to:

“Some Key Aspects of the New Normal for Downtowns: some emerging challenges” which can be found at: https://www.ndavidmilder.com/2013/12/some-key-aspects-of-the-new-normal-for-downtowns-some-emerging-challenges
“The Changes in the Retail Industry That Are Impacting Our Downtowns” which can be found at: https://www.ndavidmilder.com/2016/09/the-changes-in-the-retail-industry-that-are-impacting-our-downtowns
“How Smaller Rural Downtowns Are Faring Under the New Normal’s New Retailing“ which can be found at: https://www.ndavidmilder.com/2016/10/how-smaller-rural-downtowns-are-faring-under-the-new-normals-new-retailing
“Downtown Retailing in Smaller Rural Regional Centers Under the New Normal” which can be found at: https://www.ndavidmilder.com/2016/10/downtown-retailing-in-smaller-rural-regional-centers-under-the-new-normal

Following the path of the last article, it also will explore how the changes in the nation’s retailing are manifesting themselves in different types of downtowns. The changes this article will look at again 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

This time the focus will be on suburban downtowns that have the kind of prestigious retail chains that many downtown leaders, in both the suburbs and cities, very often crave or covet: Gap, Talbots, Starbucks, Victoria’s Secret, Williams Sonoma, etc. I will focus attention on a few of these downtowns that I know well, because I have visited them and/or previously done research about them. Between 1994 and 2000, I did several projects for the Englewood EDC and worked closely with its director, Peter Beronio. I’ve done one small assignment for Westfield’s Main Street program but, I researched in-depth the downtown’s retailing for two assignments I did for the neighboring town of Cranford. I’ve continued to visit Westfield over the years, because I found it to be so successful and interesting. For eight straight years I visited Wellesley, MA, about four times a year as my daughters attended college in the area. I last visited in 2008 and have tried to keep pace with its retail mix since then online. I will then compare these downtowns to downtown Morristown. In contrast, that district depends on successful smaller retailers whose prospects are enhanced by the downtown’s strong Central Social District assets. All four downtowns are among my favorites because of their scale, walkability and attractive establishments that provide food and drink.

The trophy retail downtowns, to varying degrees, are now being wounded by the very retailers that have previously made them strong: the traditional specialty retail chains. The strength and character of the demand for local retail space consequently has changed very significantly – not only do the landlords in these downtowns need to find different tenants, but they also must provide different kinds of spaces to accommodate them. The changing strength and presence of the major retail chains are also altering the array of problems local independent merchants have to face.

I suggest that 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. However, 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.

Many of the old rules of the retail game are still in effect. Bad urban design and the lack of appropriate spaces can still thwart downtown retail health and growth. Also, the dynamics of constructive economic destruction can still mean that when some retailers falter in a market, others have the opportunity to enter and compete for that lost market share. When conditions change, downtowns need to develop appropriate adaptive responses – this is the biggest challenge now facing downtowns of this ilk.

Some Background on These Communities

Wellesley, MA. On my first trip to Wellesley in the early 1980s, as I walked along Central Street, I was first grabbed by a very attractive aroma that I traced to one of George Howell’s Coffee Connection locations. Inside, they were roasting coffees that smelled delicious and tasting them proved that they were. Howell is one of the best coffee bean selectors and roasters in the nation. He later sold his chain to Starbucks and his Wellesley location is today a Starbucks. Also, noted chef Ming Tsai has his Blue Ginger restaurant in this downtown.

After that terrific cup of coffee, I then quickly noticed that the downtown had an attractive scale, was very walkable and was filled with a mix of very attractive independent retailers, small regional chains and highly coveted national chains. I had never seen before so many prestigious retail chains in one suburban downtown.

Wellesley is most definitely a college town, but not a normal one, because it is also a very wealthy residential suburb of Boston and adjacent to a number of other wealthy suburbs. As can be seen in the above table, the average household income in Wellesley is about $237,462; for Wellesley and its abutting towns, the average household income is $188,239. These numbers are substantially higher than those for Westfield and Englewood, that, in turn, are also well above those for most other suburban communities. This affluence is reflected in the median value of owner-occupied homes in Wellesley, $914,000.

Wellesley College with its 2,344 students, has a definite impact on this downtown’s eateries and drinking establishments. The campus is within very easy walking distance of the downtown’s commercial core. While the research results I’ve reviewed recently suggest that college students nationally have significantly less discretionary funds available to them than they did in years past because of much higher costs for tuition, board and fees, my strong guess is that this is far less the case for Wellesley College students. For one thing, their costs for tuition, room, board and fees total $61,088 per year and only affluent households can afford those expenditures. While many of the students will get financial assistance, many of them will still come from households that have above average household incomes. Babson College, known for its entrepreneurship education, with about 3,000 students, is also in this town. It costs about $62,440/yr for a boarding student to attend. Additionally, within an easy walk of the downtown core is the Dana Hall School with its 356 female students in grades 9-12. Its annual costs are $40,116 for day students and $53,211 for boarding students.

Wellesley College provides many cultural-entertainment facilities: a movie theater, legitimate theater and art museum.

The strange thing is that so few of the retailers seem to focus on the students. Most of the apparel shops, for example, have been those that target an older demographic. The students seem more likely to shop in malls in Natick and Chestnut Hill.

Entrance to the Wellesley College Campus on Central Street, downtown Wellesley.

On Central Street in downtown Wellesley, this is one of the largest Talbot’s stores I’ve ever been to.

According to the Census Bureau’s On-the-Map dataset, Wellesley has a significant number of people working there, with 16,813 having fulltime jobs. The presence of this many college students and employees means that there is a significant local daytime population for merchants to tap.

Total annual retail sales in Wellesley are fairly robust, about $432 million. The Natick Mall is 5.5 miles away, The Shops at Chestnut Hill are 7.7 miles away. Both remain powerful, with impressive lists of high quality retail tenants. They are among the small percentage of malls that are doing really well under the new normal and in sharp contrast to the retail malls in Rutland, VT, and Scottsbluff, NE, that I discussed in my last article.

There is a downtown merchants association, but the development of this district does not appear to have been impacted by any EDO or revitalization strategy. That speaks loudly about the strength of the community’s economic development related assets and healthy market forces.

Englewood, NJ. Of these three communities, Englewood is the one I know best having done many assignments there from 1994 to 2000.

Englewood is the most diverse of the three communities. About 45% of its population is white only. In comparison, both Westfield and Wellesley are over 85% white only.

Englewood has a fairly high average household income, $115,679, and its trade area’s is $131,256. Its most affluent shoppers do not reside in the city, but in other parts of its trade area. However, its median income, at $73,249, is just 1.6% higher than that of the state. This points out that a lot of people, mostly of color, with relatively modest incomes, live near the downtown. However, Englewood also has had as residents some very successful people of color, such as Dizzy Gillespie, Eddie Murphy, George Benson, Nancy Wilson and Patrick Ewing.

This income divide was reflected for many years in how the downtown worked. An active railroad track ran through the heart of the downtown and “the other side of the tracks” along Palisade Avenue (the primary retail corridor) was a very meaningful term. The east side had many successful boutique shops and restaurants that successfully attracted upscale shoppers living up the hill in Englewood as well as from Tenafly, Alpine, Closter, Haworth, etc., (see the above map). The city has long had a sizeable daytime workforce, recently totaling about 14,708 fulltime jobs, but it’s eateries and merchants can also easily tap the 8,437 workers employed in major corporate offices located nearby on Rte 9W in Englewood Cliffs.

The west side of the downtown, however, was falling into increasing decline. Armory Street became the scene of much drug use and sale as well as prostitution.

Entrance to Palisade Court in downtown Englewood

Group USA and The Children’s Place on West Palisade Avenue. Both are now gone.

Around 1991, the city brought in Treeco, a local developer and land owner, to build an in-downtown shopping center, Palisade Court (see photo above). It was and is anchored by a large (now 60,000 SF) supermarket. While that center was successful, it failed to help revitalize the shops just steps away on West Palisade Avenue, because it was so inward looking. However, by 1996, a surge of new, highly desirable retail chains began to appear on East Palisade Avenue, e.g., Ann Taylor, Nine West and Starbucks. Within a few years the problems on Armory Street were cleared. Soon thereafter Group USA opened in its own new building on West Palisade, bringing in Mikasa with it. Group USA also brought in The Children’s Place, when Mikasa left (see photo above). Treeco, too, was actively recruiting quality new retailers and developing a substantial number of housing units. It would bring in Victoria’s Secret and New York & Company. By 2000, downtown Englewood was the success story of downtown revitalization in New Jersey, and leaders in many other communities wanted to emulate its achievements. It’s success was noted frequently in the media, including several articles in The New York Times.

The city of Englewood has very strong total retail sales, over $1 billion a year. A lot of that comes from its 11 major automobile dealerships, with most of them selling high value brands — such as Mercedes Benz, Lexus, Infiniti, Porche and Audi. They are strong regional draws. However, Englewood’s retailers potentially must contend with powerful malls: the Shops at Riverside is 4.3 miles away, the Outlets at Bergen Town Center is 6.1 miles away and the Garden State Plaza is 7.3 miles away. All of these malls were upgraded in recent years.

During its most successful years of downtown revitalization, Englewood had an extremely effective economic development team that included its mayor, the city manage, its community services director, its planner and the president of the city council. They were able to get the sustained support of most city council members and to develop consensus among these key decision makers about the strategy to pursue and the projects to build. Today, that team and the consensus about strategy and projects appear to be gone.

This downtown has the Bergen PAC, which was formally the John Harms Center. It draws a considerable audience to its many events. The downtown has no movie theater. Its restaurants have been strong, but now seem to be in flux. It also lacks a well-activated and popular public space.

The downtown’s retail revitalization has greatly benefited from having a capable developer, Treeco, and a very savvy commercial broker, the Greco Realty Group LLC, located in the city.

Westfield, NJ. I initially visited this downtown around 1995 or 1996 to do a small assignment for its Main Street program. I was then impressed, because I found another of George Howell’s Coffee Connections there. Ever since, when I think of one of these two towns, I inevitably also think of the other. A year or two later, I had to take an in-depth look at Westfield’s retailers as I researched for a retail revitalization strategy DANTH was developing for the Cranford Downtown Management Corporation. By then Starbucks had replaced the Coffee Connection, and the downtown had a growing number of important retail chains. The presence of a real department store, Lord & Taylor, had long given this downtown a key recruitment asset. Some of those retailers were regional chains that fell victim of the dot.com economic downturn, but they were soon replaced by a trend of more and more high quality specialty retail chains.

The Gap in downtown Westfield. This chain is harder and harder to find in suburban downtowns – photo from Google Maps

By around 2007, when I again had to study downtown Westfield’s retailers. Its cluster of highly regarded national retail chains reminded me of a lifestyle mall, but one without a common ownership.

Westfield long has had lovely homes and great schools. Recently, it acquired a direct commuter rail connection to Manhattan. Consequently, it is an even more highly desirable residential community than ever before. It’s population is well educated – 66.4% have a B.A. degree or higher. The average household income is $187,669/yr, and the average for Westfield and it surrounding communities together is about $152,000/yr. Westfield’s median household income is $138,165, so a substantial majority are probably in the $100,000+ bracket. That affluence is reflected in the median value of owner occupied residences in Westfield, $653,900.

Ann Taylor in downtown Westfield. In the 1990s, this chain stood out for its interest in suburban downtown locations. Today, it looks very closely at such locations.

One thing that downtown leaders elsewhere should take away from this discussion of Wellesley, Englewood and Westfield is that if they want to attract “trophy retailers,” they better have an awful lot of households with incomes above $100,000/year – over $200,000 would be better still.

Total annual retail sales in Westfield is the lowest of the three communities being looked at in this article, at $262,436,000/yr. Of course, over a quarter of a billion dollars in sales is far from shabby in anyone’s book. The nearest major mall, the very powerful Short Hills Mall, is about 8.9 miles, or about an 18-20 minute drive, away. There also is a substantial amount of retail strung out along the nearby Rte 22 corridor, but those retailers are not of the kind likely to compete with the ones in downtown Westfield – those in the Short Hills Mall are. On the positive side, the distance between downtown Westfield and Short Hills means that some retail chains could consider having stores in both locations. That is not the case, for instance, with Maplewood and Morristown; both have been basically shunned by major retail chains because of their proximity to Short Hills. I think that factor helps explain why Westfield attracted so many of the highly coveted specialty retail chains.

Of the three communities, Westfield has the fewest people working in the community, 9,281.

This downtown has a movie theater. It lacks a well- activated and popular downtown public space. It does have about 50 restaurants, and many are highly rated and been around for a long time. Its inventory of fast food restaurants includes a lot of today’s most popular with Millennials: e.g., Panera Bread, Chipotle, and Five Guys.

Papyrus is in all three of the downtowns under discussion.

Downtown Westfield probably has the smallest daytime population of the three communities. It has really depended on the repute of its large cluster of high quality retail chains to generate daytime customer traffic. The rents close to the strongest of these popular retail chains will be significantly higher than spaces farther away from them. Independent merchants are thus caught between wanting to be close to these strong retail attractions and having to pay the higher rents to do so.

Westfield also has benefited from having an effective local commercial brokerage community and a well-run, nationally recognized Main Street program that also manages a SID.

What Happened

As was explained earlier in this series of articles, specialty retail chains have been facing increasing competitive pressures since the end of the Great Recession. A good number have gone bankrupt. Many others are struggling, closing many stores and trying to establish a more effective online presence. Consequently, it is not surprising that these three downtown have seen the flight of many of their prized national retail chains, though to significantly varying degrees. This flight has posed a number of challenges, some old, others new. Most importantly, it poses the challenge of formulating an effective strategic response.

The Extent of Retail Chain Closings. The above table lists the major retail chains I could identify that are now present in each of these downtowns as well as those that have left in recent years:

Englewood, NJ: A total of 19 major retail chains were at one time located in Englewood since 2008. Eleven, 58%, have left. Seven of the 11 sold apparel. Eight of them remain.
Westfield, NJ. This downtown attracted a total of 34 major retail chains, of which 14, or 41%, closed. Nine of the 14 sold apparel of one kind or another. That still leaves the downtown with an impressive array of 20 national retailers that includes: Ann Taylor, Banana Republic, GAP, Lord & Taylor, Urban Outfitters, Victoria’s Secret, Williams Sonoma and Trader Joe’s.
Wellesley, MA. Of the 17 retail chains that I was able to identify as having a downtown Wellesley location during this time period, five, or 29%, closed. Of the five, three sold apparel of some sort. 12 of the retail chains remain downtown. However, a local newspaper article provided information that suggests that in this downtown, the small independents and small chains may have been the worst hit by the new normal’s tougher environment for retailers. For example, Kaps, a four-location menswear chain, closed down. A good number independents also reportedly closed or moved to new locations that had lower rents and good proximity to the customer traffic generated by the Natick Mall.

Why They Closed. First, in absolute numbers, the more national chains a downtown had, the more it was likely to lose them: Westfield 14 of 34; Englewood 11 of 19, and Wellesley 5 of 17.

Also, in these three downtowns, the percentage of retail chain closures seems to be associated with the affluence of their potential customers. Wellesley and its surrounding towns have the most affluence, and that downtown has the lowest percentage of retail chain closures. Englewood and its trade area have the lowest household incomes of the three communities (though averaging over $100,000), and the highest percentage of chain closures. Might other downtowns, with even less affluent trade areas face even more retail chain closures? The sample size of three is admittedly miniscule, but this finding, when added to other pieces, begins to paint a picture worthy of serious consideration, if not of certain acceptance.

Tony Schilling, of Relocation Realty, is a very savvy commercial broker based in downtown Westfield. He has helped put many major retail chains in New Jersey downtowns, including several in downtown Westfield. He has been involved in the selection of 30 Chico’s store locations. He reports that the chains in downtown Westfield told him that, since the Great Recession, they saw a serious drop in customer traffic and spending. This, of course, is consistent with the Great Recession induced emergence of deliberate consumers, whose geographic presence and intensity diminishes as incomes rise.

Tony also pointed out that the situation for retail chains in downtown Englewood was probably worsened by the strengthening of the nearby malls. They not only may have taken away customers, but they also could take away retailers. For example, Gymboree closed in Englewood and opened in a nearby mall. While many malls are failing, and more are struggling, others in the best locations are adapting to the new conditions and doing quite well. The malls that these three downtowns compete with fall into that category.

Also, a few years ago, a top level executive managing the retail related business of a major national real estate brokerage firm, told me that the sales of the national retail chains in downtown Westfield were not as high as their stores in successful retail malls and that this was also true of most other suburban downtowns where they are located. This, unfortunately, means that these downtown chain stores are liable to be on the chopping block should their corporate masters face very rough waters.

A few downtown managers I’ve communicated with recently tried to explain away the closing of a retail chain in their district by stating it was a corporate problem. In my opinion, that avoids some important truths. As can be seen in the above table, few of the store closings were the result of a corporate bankruptcy. What usually has happened is that the parent corporation finds itself in serious trouble and, in trying to right itself, decides to close its poorest performing stores. The performance of that store may have something to do with the chain’s corporate strategy – e.g., its products are targeted for a market segment that is aging out, becoming fewer in number and buying less. It also could be that the demographics of the store’s trade area or its daytime popualtion have changed and have fewer of the kind of customers that a retailer is focused on. It’s essential that downtown leaders know what’s what on this score and not flippantly ascribe retail chain closures to just corporate problems.

According to Tony, many of the retail chains in downtown Westfield report that they and local independents are being badly hurt by the growth of e-commerce. Some of these chains, e.g., Chico’s, are trying to create a stronger online presence. If that is their strategy for the future, then their return to downtown locations is not likely to any significant extent. Such a return would also probably be based on significant use of a “click to brick” strategy where shoppers order online and pickup their purchase in a downtown store. In turn, that probably would reduce the retailers space requirement. Theoretically, if their sales transactions are so online driven, it could also reduce their need for prime geographic locations.

Some Important Fallouts of These Closures. Obviously, when retail chains close, vacancies are created. If a good number of these closings cluster in time and geography, the problem can be very serious indeed. Another problematic aspect of such a situation is that, unless another chain with a large space requirement can be found, it probably will be too large and its rent will be too high for most independents to lease.

Moreover, according to Tony Schilling, the retail chains that are now looking for new downtown locations want much smaller spaces than years ago: 1,800 SF to 2,500 SF instead of 5,000 SF to 7,500 SF. This creates a serious problem for landlords of the larger spaces that will need to be divided, with the smaller spaces being leased separately. This all jives with reports on the national level that retail chains are looking for smaller spaces, and I find it enlightening to see what that means on a local level. For downtown Westfield, and its landlords it also may mean that a significant amount of today’s retail space will have to be converted to other uses.

Because the major retail chains are such important traffic generators, when their numbers are greatly reduced that makes the downtown a less viable location for the remaining chains as well as for small merchants. That appears to have happened in Englewood according to the owner of a small retail chain with a store in that downtown, and Tony Schilling says it also has happened in Westfield. I think downtown Wellesley has been better able to absorb its closures shock, with the least reduction in daytime customer visits, because it had fewer closures and the district has so many other assets going for it.

The entry of major retail chains into a downtown usually is associated with a significant rise in retail rents. Tony Schilling reports that, at least in downtown Westfield, the reverse can also occur. According to him, retail rents there are now about 20% lower than they were before the Great Recession and the ensuing flight of many retail chains.

For small merchants, the situation is a two edged sword: they may find they are paying lower rents, but the major retail chains are pulling fewer shoppers into the downtown.

How Can Such Downtowns Successfully Adapt to the New Retail Conditions?

In my opinion, this is now a key question for downtown Englewood and downtown Westfield. The following are some broad strategic options they might consider.

Keep going after traditional chains. If downtown leaders do nothing, this is their default strategy, which now is metaphorically akin to continually butting their heads against a stone wall.
Go after emerging and growing chains or those that like smaller cities. One of the most interesting things I have recently observed in my research and travels through NY, NJ, MA, VT and CT is the number of small chains that have recently opened downtown stores. Some of them that opened in Westfield and Englewood are listed in the above table at the very bottom. Additionally, there are many retail chains that feel quite comfortable in cities with populations of 15,000 to 35,000, such as Maurice’s and Francesca’s, though they often tend to prefer shopping center locations over those in downtowns.
Develop strong retail niches. Back in the early 1990s, downtown Englewood had a very strong niche of women’s apparel boutiques clustered closely together on North Dean Street and West Palisade Avenue. Its success helped convince the national chains about the viability of locations in downtown Englewood. Today, after many of its national apparel chains have closed, a rejuvenated women’s apparel niche has emerged, primarily in the same Dean Street and West Palisade area. It now has 24 boutiques, five of which belong to small chains. Savvy local commercial brokers are recruiting to this niche. A niche marketing program run by the Englewood EDC would probably have a high ROI. Other downtowns should consciously try to develop such niches. They can attract considerable customer traffic that helps keep the downtown active, retail sales flowing, property values strong and town tax revenues from declining.
Economic gardening to seed and nurture high quality small independent retailers. This is an approach that the vast majority of downtown EDOs run quickly away from, because it is very tough to execute and hard to get a meaningful ROI. However, over the recent years, as I’ve tried to wrestle with how downtowns in rural and suburban areas can leverage growing contingent worker workforces, I’ve become convinced that they need to tap some meaningful economic gardening capability, whether it is in-house or in another organization. Perhaps a very focused problem-solving approach would make them more effective and easier to operate. For example, of the 24 boutiques in Englewood’s women’s apparel niche, less than one-third had any meaningful internet presence. In general, many non-Millennial retailers still need to become more agile on the Internet and able to use the social media effectively. A program to help them could have considerable impact.
Develop a “quality of life” retail recruitment program. I hope to write an article about this soon. On my recent trip to VT, I found two retailers who had moved to the Rutland area because they liked its quality of life and then opened women’s apparel stores in its downtown. Years back, I met the former road manager of Pink Floyd, who had opened a housewares store in downtown Woodstock and then a restaurant in downtown Rutland. Around then, I also met in Rutland three people born and raised in the NYC metro area, but now lived in Vermont, while having successful telecommunications enabled careers managing an investment fund, being a computer graphics specialist and being a business consultant. I’ve read about a chef who went to meet his new in-laws to be, then living in a retirement community west of Phoenix, and he liked the area so much that he then decided to stay and open a restaurant there. I’ve also read about creatives living in Brooklyn, NY, who started to summer in the Catskill Mountains and then opened hotels, restaurants and shops up there. As Phil Burgess, president of the Annapolis Institute, has noted, lots of folks once they pass 50 years of age “reboot” their lives and careers. I am confident that rebooters are also moving to our suburbs that offer a high quality of life. Some may also want to open a shop or a restaurant.
Accept the potential economic value of “pamper niches” and leverage them. DANTH,Inc has found that pamper niches composed of hair and nail salons, spas, martial arts studios, yoga and Pilates studios, and gyms were important components of the street level business mixes in such diverse places as downtown Beverly Hills, CA and Bayonne, NJ. They attracted lot of patrons with money to spend and their shops do not create pedestrian discontinuities. Too many downtown leaders still have rather snobbish attitudes towards operations in this niche. The reality is that, in many downtowns, pamper niche operations are filling storefronts vacated by retailers. Sometimes, it’s better to try to leverage them than opposing them.
Go after the value retailers as downtown Rutland did, but be sure to take care of key urban design issues. Some retailers are doing quite well these days. They are the “off-pricers” such as TJ Maxx and its sister brands, Ross Dresses, Stein Mart and Century 21 department stores. Downtown Rutland showed that having them and big box retailers can produce significant positive benefits for small merchants. However, that positive impact could have been far greater, if the Rutland Plaza project has been designed to be better integrated into the downtown core. That would have allowed local merchants to win a lot more cross-shopping from the Plaza’s patrons, while maintaining the downtown’s walkability.
Reduce the strategic emphasis on retail. Instead develop and strengthen central social district (CSD) entities. In my 40 years of trying to help downtowns revitalize, I cannot count how often local political and community leaders wanted, more than anything else, strong retail to appear in the form of new department stores and/or a cluster of national chain stores. However, the truth of the matter was that few of these downtowns ever before had the type of retail they were aspiring to. Perhaps, in their “Golden Age,” they had had a small local department store and some well-known and well-regarded independent operators, that socio-economic forces had recently weakened, but very, very few had a branch of a major national department store chain or scads of national specialty retail chain stores. The latter did not even exist to any large degree during those hallowed golden years. This suggests that a vibrant, popular and economically healthy downtown does not equate with just an overwhelmingly strong retail base, but that a number of other factors may be as or even more important to a downtown’s success. Indeed, it even can be argued that, especially today, the health of a downtown’s retailing is more and more dependent on the strength of these other factors. Today, in downtowns across the nation and in communities of all sizes, CSD functions are increasingly important to their sense of vibrancy, economic well-being and municipal tax revenues. CSD functions facilitate people coming downtown to have enjoyable experiences with their friends and relatives or with new people that they meet there. Entities that perform CSD functions are wide ranging: e.g., vibrant and popular public spaces, libraries, churches, senior centers, community centers, restaurants, watering holes, hotels, entertainment and cultural venues, downtown residential units, etc. See: https://www.ndavidmilder.com/2016/02/central-social-districts

Downtown Morristown. This district is a great example of a strong CSD and its importance. Although the town has annual retail sales around $520 million, it has not attracted anywhere near the number of prestigious national retail chains that have located in Englewood, Wellesley and Westfield. For years a former department store stood vacant. In the early 1990s, there was a strong feeling among community leaders that the downtown was in decline. Making matters worse was the fact that this downtown was surrounded by a very large amount of competing retail. The very powerful Short Hills Mall is close enough that any chain located there cannot be located in Morristown. Back in 2010, I came up with a very long list of specialty retail chains and noted their presence and distance from downtown Morristown. Everyone one of them was within a distance that would mean a new Morristown location would cannibalize sales from their nearby existing store.

Today, this downtown is vibrant, attractive and often cited as a model for suburban downtown revitalization. Morristown does not have a large population, about 18,500, and its median household income, around $76,000,is only slightly above that of the state. However, its primary trade area had a population in 2010 of roughly 99,000 and a median household income near $122,000. Its total trade area’s population was over 220,000, with income levels similar to that of the primary trade area. About 61% of the primary trade area’s households have incomes of $100,000+. Almost 60% of the trade area’s residents have a B.A, degree or higher. An even stronger retail development asset is downtown Morristown’s daytime population. There are about 23,000 fulltime jobs in Morristown. Most impressively, the downtown has attracted 1,500+ new market rate residential units It also has 77 eateries and watering holes with combined sales of $79 million+/yr. Its Community Theater has about 230 performances annually with a reported attendance of 200,000. Its 10 screen cinema has an attendance estimated at 360,000/yr. The district’s three major hotels have an estimated 196,000 hotel guest days/yr. The Morristown Green is the venue for many major events that attract crowds of people downtown. DANTH’s estimates that the downtown spending potential of nearby office workers, new residents and high school students totals over $132.9 million/yr and that the hotel guests probably add another $9 million just for their restaurant expenditures.

Since so many of the specialty retail chains in Englewood, Wellesley and Westfield sold apparel, it’s interesting to look at the size and composition of downtown Morristown’s apparel niche. It has 23 stores in a broadly defined apparel niche that includes women’s clothing, but also menswear, 2 bridal shops, uniform and tuxedo shops, three national chains and three small regional chains. This diversity makes it less vulnerable to industry and national economic vicissitudes. Two of the national retailers, Athleta and Jos. A. Bank, are also found in one or more of the three other downtowns under discussion. However, the Century 21 department store in downtown Morristown is of special interest because it is a high end “off-price” operation. This is one of the kinds of retailing that is now doing well nationally. Century 21 also shows that such a large store can be inserted into a downtown without disrupting its walkability or attractiveness, if the appropriately sized space already exists – or can be developed.

Downtown Retailing in Smaller Rural Regional Centers Under the New Normal

Posted on October 18, 2016 by DANTH

By N. David Milder

Introduction

This article is a follow up to: “The Changes in the Retail Industry That Are Impacting Our Downtowns” which can be found at: https://www.ndavidmilder.com/2016/09/the-changes-in-the-retail-industry-that-are-impacting-our-downtowns and “How Smaller Rural Downtowns Are Faring Under the New Normal’s New Retailing“ which can be found at: https://www.ndavidmilder.com/2016/10/how-smaller-rural-downtowns-are-faring-under-the-new-normals-new-retailing

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

This time the focus will be on downtowns in Smaller Rural Regional Commercial Centers. Again, I will focus attention on a few that I know well, because I have visited them and previously done research about them. These downtowns or the communities they are embedded in have seen the substantial decline of traditional department stores and/or traditional specialty retailers and/or the retail malls that depend on such tenants.

Many of the old rules of the retail game are still in effect. Bad urban design and the lack of appropriate spaces can still thwart downtown retail health and growth. Also, the dynamics of constructive economic destruction can still mean that when some retailers falter in a market, others have the opportunity to enter and compete for that lost market share. If retailers are not open when people want to shop, then sales will be lost.

Downtowns in Smaller Rural Regional Commercial Centers

These small cities are among the most interesting for seeing how the effects of the new retailing are playing out. Rural cities, they usually have populations in the 12,000 to 30,000 range, but have addressable trade area populations of roughly 70,000 to 120,000. Their trade areas can extend to between 30 and 120 minute drive sheds. Their combined financial, government, health care, cultural, entertainment and retail assets give them sufficient magnetism to penetrate such large geographic areas. Sometimes they also benefit from strong tourist traffic. To penetrate these geographically large trade areas, they attract the kinds of retail entities that cannot be easily incorporated into a downtown – malls, big box stores and power centers. The size, magnetism and proximity of such strong retail entities in the community usually places their downtown’s GAFO merchants under substantial competitive pressure. However, substantial opportunities for successful downtown retail niche development can remain. To realize those opportunities, the downtowns in these small rural regional commercial centers will need to strongly develop their central social district functions, especially by developing a significant amount of nearby housing and creating strong entertainment niches, especially ones containing vibrant, well-activated public spaces.

I have researched two of these rural regional commercial centers, Rutland, VT, and Scottsbluff, NE. Their retail development has followed fairly similar courses over recent decades. More attention will be paid to Rutland, because I know it better, having done two major projects in the 1990s for the Downtown Rutland Partnership. I have followed events since then and recently visited Rutland.

Over the years, I have concluded that these small rural regional centers do not get the attention and respect they deserve as economic entities. As can be seen in the above table, although the populations and household incomes of Rutland and Scottsbluff are dwarfed by those of three eastern suburbs known for their large numbers of trophy retail chains, the annual retail sales of the small rural cities compares quite favorably with those of the more prestigious eastern suburbs. They certainly are not retail weaklings.

These two rural cities have similar income and education levels (see the table below). Their populations are similar, too, though Scottsbluff has an adjacent twin city, Gering, and they have a combined population that is 46% larger than Rutland’s. Their trade area populations and household incomes are also basically similar. However, they differ quite a bit on tourism. Except for “mud season” in early spring, Rutland has a variety of tourist streams year round, e.g., three major ski resorts are within a 30-minute drive, and loads of “leaf peepers” pass through in the Fall. About 2 million tourists come through the city annually. Scottsbluff has a far more modest tourist flow.

Both have relatively old and small (under 400,000 SF) enclosed retail malls that today have significant vacancies and lost most of their anchor department stores. Both malls also have had ownership problems and changes. In smaller cities during the 1970s to early 1990s, Sears, JCPenney and Kmart often were the retail mall anchors, as they were for the Monument Mall in Scottsbluff and Diamond Run Mall in Rutland. Sears, at one time, was the largest retailer in the USA. Monument lost Walmart back in 2000 and more recently lost Sears and Kmart; Diamond Run has lost Sears and JCPenney. These older department store chains were in decline before the Great Recession and were further weakened by it. Many retail experts are expecting Sears – it also owns Kmart – to disappear any day now.

While Monument Mall has the stronger remaining anchor, a Hersberger’s department store (a subsidiary of Bon Ton, itself a financially troubled department store chain), Diamond Run has the better known specialty retail chains, e.g., Old Navy, Victoria’s Secret and Eastern Mountain Sports.

Overall, Rutland has more retail chains that are also to be found in larger cities and metropolitan areas, while Scottsbluff has more chains that feel comfortable in smaller cities, e.g., Maurice’s, Murdoch’s, Rue21, Buckle, Hibbett Sports, Dunham’s Sports etc.

Both cities have loads of value-oriented big box retailers. They both have a Walmart — though Rutland’s is not a super store –- and a Home Depot. Scottsbluff also has a Target and a Menard’s, while Rutland has a Dick’s Sporting Goods, Michael’s and Bed, Bath & Beyond. Rutland has two 60,000 SF+ supermarkets – Price Chopper and Hannaford – as well as an Aldi. Rutland also has an off-price TJ Maxx that has been going strong for over 20 years.

In Rutland, the years between 1998 and 2007 saw the opening of many of its strongest retailers, e.g., Home Depot, Dick’s Sporting Goods, Michael’s, etc. They greatly strengthened the retail power of the Routes 4/7 corridor that is well outside the downtown’s retail core. When the recession hit in 2008, many downtown independent merchants were hurt and closed. As the recession ebbed, the downtown’s Rutland Plaza Shopping Center saw its movie theater change operating companies, and it attracted Dollar General, Sleepy’s and Payless as replacements for struggling tenants. (This is what good ownership does.) The attraction of national chains to other parts of the city basically stopped until 2013 when the Aldi opened. Since then a few chains have come in, such as Ashley Furniture. A BJ’s entered in negotiations for a site in 2016, but the deal fell through – because of permitting issues, not because BJ’s doubted the strength of the Rutland retail market. The interest of national retail chains has definitely ebbed. Those interested tend to offer low prices and/or value pricing.

Scottsbluff, its county and its state were among those least impacted nationally by the Great Recession. Nonetheless, Monument Mall continued to weaken and the recruitment of major retail chains ebbed. One sign of its current plight: it recently recruited a business from Scottsbluff’s downtown.

Scottsbluff’s downtown is basically about a half-mile portion of the Broadway corridor. With state money, the city has made a number of physical improvements to the area. Its strengths are its historical features, including the Midwest Theater, nearby office buildings, and a number of independent retail operators who have been around for some time and are effective destination stores. Eateries are another of its strengths as is its seasonal Farmers Market. It does not have any major retail chains. Its sidewalks usually appear to have little to no pedestrian traffic. It has not recently attracted any significant amount of residential development. It also lacks a well-activated and frequently used public space.

“The Pit” parking lot in downtown Rutland, sometimes used as an event venue. It is said to have very good acoustics.

Downtown Rutland is larger and not linear. It, too, has a major restored theater, the Paramount Theater, that is financially successful and draws 50,000+ patrons annually. Many other elements of a downtown entertainment niche are also present: numerous eateries and bars with live music; a children’s museum; art galleries and a movie theater. The Farmer Market is the biggest in VT and runs year round. It attracts many hundreds of shoppers on Saturdays. Additionally, downtown Rutland has a major transportation center and an Amtrak station. It also has seven banks and four financial services companies, City Hall and state offices and courts. A community college is also located in this downtown and Castleton University has established a major presence in the district. As in downtown Scottsbluff, its sidewalks usually appear to have little to no pedestrian traffic and it, too, has not attracted any significant amount of residential development, though Castleton University has turned two floors of a major building into student housing. It also lacks a well-activated and frequently used public space where people can simply sit and enjoy being outdoors as well as gather for events. For example, the Downtown Rutland Partnership currently uses, according to its website, the Rutland Theater, Depot Park, “The Pit” parking lot and the top level of a downtown garage to hold its events.

Rutland differs from Scottsbluff in a very important way – back in the mid 1990s, the downtown’s Rutland Plaza shopping center was intentionally revitalized by bringing in Walmart, Price Chopper, TJ Maxx and a multi-screen cinema. The Downtown Rutland Partnership, under the leadership of Dick Courcelle, strongly backed this approach. Its strategic reasoning was that it was better for these two superstores (Price Chopper and Walmart) to be located downtown, where local merchants could have a chance of attracting their shoppers, than to have the superstores situated farther away where local merchants would have no such opportunity. It was also thought that the Plaza, thus strengthened, would help other downtown merchants compete with the then new Diamond Run Mall.

In 1997 – 1998, DANTH, Inc. conducted an intensive study of how the Plaza’s superstores impacted the downtown merchants located outside of that shopping center. I published an article about our findings in Urban Land (see https://www.ndavidmilder.com/wp-content/uploads/2012/05/superstore.pdf ) . Our research accessed a downtown shoppers intercept survey that had over 1,300 respondents, a trade area telephone survey that had 465 completed interviews, and a survey of downtown merchants supplemented by numerous in-depth, face-to-face interviews with local merchants.

Our major findings were:

Most downtown merchants located outside of the Plaza felt that their sales had increased since the Plaza had been revamped and that many more shoppers were to be seen walking along downtown streets. Also, about 90% felt they offered unique products and services that did not compete with those offered by the Plaza’s new stores. However, among those feeling most threatened by the new Plaza shops were the operators of the apparel shops. Worrisome was the finding that over half of the downtown merchants felt that they were not getting as many of the Plaza’s new shoppers into their stores as they wanted
The intercept survey showed that there was considerable cross- shopping among the Plaza’s stores – e.g., over 62% of Walmart and Price Chopper shoppers shopped in other Plaza stores on the same shopping trips.
However, only about 21% of the Plaza’s shoppers also shopped in downtown stores located outside of the Plaza.

The Walmart is at least 430 feet away from other shops in Rutland’s downtown retail core

Our analysis indicated that the primary reason for the lower cross shopping rate with shops located in the downtown’s old retail core was that the Plaza’s in front parking lot constituted a huge pedestrian moat. “The distances between the shops in Rutland Plaza and those just across the street vary between 430 and 848 feet; Plaza shoppers therefore must be strongly motivated to walk such distances. (See photo above). Walking is difficult because it is not easy to quickly traverse the intervening Plaza parking lot—and it is made even more difficult by Rutland’s long winters.”
The single most important factor that influenced Plaza shoppers’ decisions about visiting other downtown shops outside the Plaza was whether they planned on eating downtown while on their shopping trip. This factor was at least twice as strong as their knowledge of downtown stores or if they liked the merchandise, customer service or uniqueness of those stores (see table below). Ever since, this finding has strongly shaped my approach to downtown retail revitalization, because it indicated how important restaurants and opportunities for social interaction are to retail success. This is a view increasingly held by major developers and retail chains. For instance, Apple’s Angela Ahrendts has recently said that Apple’s stores should become more like town squares (https://in/d88XcR9 ) .

The trade area telephone survey found that the strongest factor for explaining how often respondents visited downtown shops located outside of the Rutland Plaza was how often they visited the Plaza. This means that without the Plaza or with a diminished Rutland Plaza, the shops in the traditional downtown core would have many fewer shoppers, especially those with longer driving times.
The telephone survey also showed, quite surprisingly, that even after the Rutland Plaza brought in TJ Maxx, Fashion Bug and Poore Simon’s and Diamond Run Mall brought in department stores and specialty shops, trade area residents were more dissatisfied with the trade area’s apparel shops than any other types of retailers. Our analysis also showed that those with more comfortable incomes were prone to be most dissatisfied.Looking at more recent times, those findings suggest that the stressors causing small downtown merchants to close during and after the Great Recession probably were not either the retail chains located in the Rutland Plaza or the new big boxes that opened on the Routes 4/7 corridor. Most of the latter also sell merchandise that does not strongly compete with the offerings of downtown merchants. The more likely causes of those closings were the significantly decreased demand generated by the emerging mass of deliberate consumers and the already weak competitive capabilities of these failing merchants that resulted from a weak financial condition, an inability to adapt to new conditions and/or a poor set of merchant skills.
I would argue that today, even with the growth of e-commerce, in both Rutland and Scottsbluff, there are substantial opportunities for savvy independent downtown retailers to find the parts of the retail bed the 800 pound value-oriented/low price retail gorillas are not occupying and to consequently have considerable success. Additional market opportunities are being provided by the weakness of their malls, department stores and traditional specialty retail chains. Also, independent small merchants typically can survive on a lot fewer annual sales dollars than is needed by a major retail chain store. But, and this is an important but, the independent merchants must be competent to benefit from such opportunities.

The apparel shops I saw in downtown Rutland on my recent visit indicate that to some extent these opportunities now are being realized. One operator has opened two women’s apparel shops on Merchants Row since about 2011. A small chain selling outdoor clothing and equipment opened – even in face of competition from the local Dick’s Sporting Goods and Eastern Mountain Sports. It has two other locations in VT and NH. They show that smaller retailers are seeing significant opportunities. The closing of Sears and JCPenny lso has opened opportunities in the men’s clothing market. However, given the current track record of small men’s apparel shops, an existing men’s store that has survived the Great Recession is probably better positioned to capture some of the surrendered market share than a new entrant.

These apparel merchants are also using the Internet, though some have much more sophisticated uses than others. Of the eight apparel shops located outside of Rutland Plaza, seven have websites and seven have Facebook pages. All are somehow present on the Internet. Notably, only one has an e-store where purchases can be made online. Two use their websites to really push their customer services by offering personal shopper assistance and home visits.

Also worthy of note is that two of downtown Rutland’s eight apparel merchants are parts of small regional chains that have three to nine locations. These shops are not under “newbie” operators and have a greater likelihood of success. Downtown Rutland’s core lacks the available 3,500+ SF retail spaces that might enable it to recruit the types of retail chains that feel at home in smaller cities. Scottsbluff’ has attracted many of them them, but not to its downtown.

One major reason that small merchants in both of these downtowns have not had still greater success is that by themselves they lack sufficient magnetism for drawing a lot more people. If these two downtowns could attract more people, they would have more potential shoppers, have more successful retailers and attract better retailers.

Over the past two decades, downtowns of all sizes across the nation have come up with two successful tactics to attract more people downtown. More downtown housing has proved to be very helpful because it creates a captive market of people who want a wide range of activities to engage in – shopping, dining, being entertained, recreating, etc. — within easy walking distance of their residences and their impacts are amplified by their friends and relatives who visit them. In my opinion, both downtown Scottsbluff and downtown Rutland would benefit greatly from a significant amount of housing being located in or near (e.g., within a 10-minute walk) their districts. In my discussions in various rural cities over the past decade, I have heard the following reasons cited to explain why downtown housing was impractical in their communities:
- The unavailability of appropriate sites
- The general low level of housing demand
- The lack of specific demand for condo apartments and townhouses because they are somewhat alien to residents of rural areas.
It can be argued that if local leaders are aware of the potential benefits of such housing and prepared to act, the above concerns most probably can be successfully addressed with arguments along these lines:
- Sites on the fringes of the district, within a 5-minute walk, are probably easier to find and cheaper to build than those within the district, but they still make it easy for residents to walk downtown
- The growing senior popualtion is increasingly active and many are looking to downsize to easier to maintain smaller residences. Scottsbluff already has been attracting many retiring ranchers and farmers. Many of the seniors would enjoy the close proximity of restaurants, shops, cultural and entertainment venues and professional offices.
- The young people who are leaving these communities are often going to other cities that have a lively downtown with lots of nearby apartments and townhouses.
Many downtowns have also found that strong, broadly defined entertainment niches can bring many new visitors downtown on a sustained, long-term basis. Both downtown Scottsbluff and especially downtown Rutland have elements of such a niche. However, my sense is that the impact of their entertainment niches on downtown retailers has not been as strong as it could be. In Rutland, that certainly has not been for the lack of trying or even for a lack of important successes. The Downtown Rutland Partnership along with the Rutland Development Authority and other civic groups worked long and hard to successfully redevelop the Paramount Theater and to encourage the attraction and development of the art galleries and children’s museum. The owners of the Rutland Plaza succeeded in getting a new operator for its movie theater at a time when quality operators had become much harder to find. The Famers Market has developed into a strong regional draw, though it only operates on one weekend day.

There are definitely things to do in downtown Rutland after dark – and that may be part of the problem. Most of the customer traffic to two of its strongest entertainment niche elements, the Paramount Theater and Flagship Cinemas probably comes when most small independent retailers are closed, i.e., in the evenings and on Sunday afternoons. The children’s museum, art galleries and Farmers Market are certainly assets, but they target rather specialized interests or have limited operating hours. What seems to be missing is a well activated public space, something akin to Mitchell Park in Greenport, NY, or The Division Street Plaza in Somerville, NJ, or Grand Central Plaza Park in Valparaiso, IN, that can attract people during the daytime, providing both a pleasant respite and entertainment.

Such public spaces not only can provide venues for a wide variety of events and activities, but they can also provide visitors with opportunities to find a safe and comfortable retreat or to simply be entertained by watching what other users of the space are doing. Importantly, such spaces also can provide opportunities for visitors to engage in a broad range of activities such as playing chess, riding a carrousel, ice skating, running through a splash pad, reading a book or magazine, playing miniature golf, etc.

Over the past two decades, I have engaged in a number if informal discussions with downtown leaders in cities with populations under 35,000 about creating strong downtown public spaces. In too many instances I have heard that such projects were not feasible in their downtowns because:
- They would be too expensive to build and operate
- Their winters are too long and too cold
- A lack of appropriate sites
- Such spaces would be dominated by drug users and dealers, the homeless and/or unruly and intimidating teenagers.
Public spaces definitely require funding, but DANTH’s research has shown that attractive and successful downtown public spaces can be created and maintained at significantly lower costs than PACs, theaters, arenas, ballparks and museums. Moreover, their operating cost per visitor are also far lower. For any downtown that wants to strengthen their entertainment niche, creating an attractive public space will most likely produce the biggest bang for their bucks. See: https://www.ndavidmilder.com/2014/11/bryant-park-part-3-a-comparison-to-other-entertainment-venues-on-annual-expenditures-and-annual-expenditures-per-visitor. The downtown leaders who create these spaces often use numerous funding sources, e.g., city, state, federal and foundation grants and private donations, as well as several financial tools, e.g., tax increment financing, to pay for their construction. All are well known, not protected secrets.

Many downtowns are located in cold climes and a lot of them have found ways to make their public spaces active during the winter months. A favorite tactic is to turn them into ice skating rinks. For example, Grand Central Plaza Park in downtown Valparaiso, IN, just added a new pavilion that covers an open air ice rink in the winter and provides a shaded venue for events during hot summers. The park also has a splash pad for children on hot days and an amphitheater for outdoor concerts and other events.

Central Park Plaza’s Splash Pad in Valparaiso, IN. Photo by SEH

Central Park Plaza’s new pavilion during the summer

Central Park Plaza’s new pavilion during the colder months – an ice skating rink

I have been amazed by how appropriate sites for such public spaces have been found. Division Street Plaza was a decaying side street. Mitchell Park was a burned out hotel and marina on badly contaminated land. The 4,000 SF pocket park in Washington Borough, NJ, was a decayed old building. It’s surprising what a little ingenuity can come up with and how that ingenuity appears when downtown leaders really want a vibrant public space.

Effective and humane programs for dealing with the homeless in public areas are to found in many places across the nation. That wheel does not need reinvention, though some tailoring to local conditions may be required. Other bad behaviors can be kept out by bringing in a lot of well-behaved users and nipping some behavioral problems when they are still in the bud.

As I researched for this article, I was most happily surprised to find that serious steps are now being taken in both downtown Scottsbluff and downtown Rutland to meet their needs for new vibrant public spaces. In Scottsbluff, buildings are now being cleared to provide the land needed for the Downtown Plaza. Eventually it will have a stage, space for vendors, a venue for their Farmers Market, an artificial ice rink in the winter (like Bryant Park in NYC) and space for other events, such as outdoor movies. Very importantly, it also will provide public restrooms. (See the graphic below.) It will be completed in three phases.

Basic design of downtown Scottsbluff’s new Downtown Plaza

Given its size, visibility, uses and proximity to downtown retailers, one might anticipate that the Downtown Plaza will have positive benefits for nearby merchants and restaurateurs. One concern is that while care is being taken to have adequate shading, I have not found in my brief search any mention of how seating will be provided. Seating can be a critical issue. Another concern is how long it will take for the Plaza project to be completed or to reach a critical mass.

In Rutland, for about a decade now, local leaders have been trying to redo an existing public space, the Center Street Alley, that had been used in the early 1980s as a venue for downtown events. It later fell into disrepair and encountered user avoidance. Public use was halted. With federal funding, plans for this space reportedly again on the table and call for it to be reopened to the public after the installation of “new brickwork, lighting, benches and trees.”

The Center Street Alley space, to my ken, is rather strange. Its main part has little visibility from any of the surrounding streets, as can be seen from the map below. It occupies the center of a city block and seems to have been created from the backyards of the surrounding buildings that face Strongs Avenue, Washington Street, Center Street and Wales Street.

Look for the Center Street Alley in the center of this map — Map from Downtown Rutland Partnership, cropped by NDM

One can easily visualize how such a space might provide both a nice refuge for visitors to sit quietly and a venue for public events. But, its ability to make the downtown appear more active and exciting seems hampered by its lack of visibility to passing pedestrians and autos. I plan on following what happens to this space. My concern is that its “hiddenness” may impede daily use levels and limit its favorable impacts on nearby merchants. On the other hand, its hiddenness may give the space a kind of quirky, being in the know appeal.

Some Takeaways

The weakening of retail malls and traditional specialty retail chains in our smaller rural regional commercial centers is giving savvy downtown merchants serious market opportunities. The apparel shops in downtown Rutland show that savvy, small downtown merchants can indeed take advantage of these market opportunities. Their presence on the Internet is helping them do that, at least with shoppers within their trade area. They are not using the Internet to generate online sales from national markets.
The growth of big box and value oriented retailers probably is not what mainly forced many small downtown retailers out of business during and after the Great Recession. More important was the reduced demand created by the emergence of deliberate consumers and the merchants’ inability to respond appropriately to the new and highly stressful situation.
Downtown Rutland shows that attracting some of the big retail chains, e.g., Walmart and TJ Maxx, can be good for downtown merchants because of the strong customer traffic they bring in.
However, good urban design has to be used to assure that these big retailers will be physically integrated into the downtown. That enables small downtown merchants to share in the big retailers’ customer traffic.
Downtown restaurants, public spaces and other central social district entities can help bring people downtown who then become potential shoppers for local merchants.
There is a tendency in these rural commercial centers for multi-unit housing not to be developed in or near their downtowns, probably due to cultural preferences and poor market research. The downtowns would greatly benefit from such development, especially their restaurateurs and retailers.
A challenge for the merchants in these downtowns is to get the shoppers who are going to other shopping centers and malls in the city to visit their district. Developing the downtown’s central social district functions, which includes housing, restaurants, bars, entertainment and cultural venues is a sound strategy for attracting those shoppers. For small downtown retailers, restaurants and public spaces are especially helpful because they are active when the merchants’ shops are open. Of course, if downtown merchants would change their hours to coincide more with those of downtown entertainment assets, they probably would get significantly more sales. We can dream, can’t we!
Having a public space does not mean it necessarily will have the desired level of positive benefits for local merchants. The space must work, it must be vibrant and attract people and events. Simple things like adequate seating and shade can be critical to their success. The space also probably needs to be fairly visible to pedestrians and cars passing by.

Up Next : Affluent suburbs with lots of trophy retailers

How Smaller Rural Downtowns Are Faring Under the New Normal’s New Retailing

Posted on October 2, 2016 by DANTH

Introduction

This article is a follow up to “The Changes in the Retail Industry That Are Impacting Our Downtowns” which can be found at:

https://www.ndavidmilder.com/2016/09/the-changes-in-the-retail-industry-that-are-impacting-our-downtowns

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.

ryan-gafo-table-revised-2016

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.

nn-impacts-t2-laramie-outshopping

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.

woodstock-covered-bridge

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.

woodstock-table-for-article-100216-docx

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.

Some Takeaways

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.

Up Next

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.

N. David Milder at DANTH, Inc.

Downtown Revitalization Specialist

Category Archives: Deliberate Consumer

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How Smaller Rural Downtowns Are Faring Under the New Normal’s New Retailing