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

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 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 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.

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. 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

The Changes in the Retail Industry That Are Impacting Our Downtowns

Posted on September 19, 2016 by DANTH

N. David Milder

Introduction

Since 2009, the Downtown Curmudgeon has been writing about the “new normal” that has emerged for our nation’s downtowns. One of the most important features of this new normal is the great changes occurring nationally in retailing that are having significant impacts on downtown retail growth potentials. While such growth is still possible, for many downtowns, the changing nature of our retail industry has made it much tougher to achieve.

A follow-up article will investigate how these retail changes are impacting different types of downtowns in different ways. The attention here will be on those retail industry changes.

The Reduced Demand for Retail Space

For downtowns, one of the most important changes is that retail chains, especially those in the GAFO category, are looking for far fewer new store locations than a decade ago and the new stores are significantly smaller than those constructed in the years before the Great Recession. In other words, the demand for new retail space by national and regional chains has diminished substantially. Mall construction has fallen to a trickle, while 15% to 20% of the existing malls are in danger of closing. Within the commercial real estate industry there is finally a recognition by many that, nationally, we just have too much retail space – the US has about five times more shopping space per person than any other nation. Significantly, the retail chains now are only looking at proven strong locations that offer minimal risk. In effect, this means that most downtowns – not the wealthiest and most successful — have been demoted by the chains as potential locations for their stores.

The Deliberate Consumer

One prime driver behind this reduction in retail space demand is the emergence of the “deliberate consumer.” Their more prudent spending has impacted retail sales and consequently the demand fro retail space. For over a decade prior, the earnings of middle-income households had been stagnant and the Great Recession brought about a very significant change in their consumer behaviors. These middle-income consumers bought less and became more cautious about what they purchased, giving much higher priority to needs than wants. They also paid down their credit cards and became more circumspect about using them. The strong recession even encouraged members of more affluent households to spend more prudently. In more recent years, employment prospects, incomes and the overall economy have improved and some increased consumer spending has followed. However, cautious purchasing behaviors are still seen, mostly in middle-income households, though also to a lesser extent in households in the $100,000- $250,000 income bracket.

In a large number of metro areas, the middle class is shrinking significantly in numbers, while the numbers of those with higher and lower incomes are growing. This has obvious impacts on retailers – middle market retailers are languishing and disappearing as consumer incomes polarize.

Those in the top quintile of household incomes account for a disproportionate share of our nation’s consumer expenditures. Although they account for 20% of the households, in 2015 they made 40% of the consumer expenditures for food away from home, 41% of the furniture and home furnishings expenditures, 44% of the apparel expenditures and 42% of the entertainment expenditures (see the above table). The lowest three income quintiles, composing 60% of all households, only accounted for 35% – 37% of the expenditures in those retail product categories.

Another factor threatening to suppress retail demand is the emergence of Millennials as our largest age cohort. Millennials are more interested in experiences than things and they spend much less on retail than the Baby Boomers did at a similar age.

E-Commerce

The other major influence on the reduced demand for retail space has been the growth of e-commerce. According to the Census Bureau, in the second quarter of 2016, e-commerce only accounted for a small portion of the nation’s total retail sales, 7.5%. (It was 3.9% in the 2^nd quarter of 2010.) However, as shown in the table below, when we look at sales by retail product category, e-commerce’s market share is often significantly higher. By 2013, 79.5% of the sales for music and videos, 44% of the sales of books and magazines, 32.9% of computer hardware and software sales and 28.8% of toys, hobbies and games were transacted on the Internet. The product categories least impacted by e-commerce are drug, health and beauty products, 4.7% of sales, and food and beverages, 9% of sales.

E-commerce is capturing surprising amounts of sales even in categories that have large, hard to ship products such as electronics and appliances and furniture. The research by Hortac?su and Syverson indicate that, if trends continue, these product categories will have 50% of their sales transacted online in 2017 and 2022 respectively. E-commerce also has made surprising inroads in the clothing, accessories and footwear category, where seeing, touching and trying on the products are supposedly so important, 14.9% of sales. Moreover, it is projected to capture 50% of this category’s sales by 2024, if current trends hold!

Significantly, while e-commerce has only captured about 17% of the sales for office equipment and supplies, Staples has been closing many stores and downsizing many others. Similarly, while e-commerce has only captured about 15% of the sales of clothing, accessories and footwear, many apparel firms have been hard hit. Chico’s, for example, closed 120 stores in 2015 and has been busy trying to strengthen its online presence. American Eagle is in a similar position.

That’s a lot of sales potential being taken away from downtown retailers – unless they, too, also can compete on the Internet.

Additionally, research has shown that the Internet is involved in at least 45% of all retail purchases. Many people, for example, now research the products they want and the shops that sell them before they go out shopping.

Some Green Shoots

However, the green shoots of a counter trend have surfaced – e-commerce retailers such as Amazon, Harry’s, Warby Parker, Bonobos, Blue Nile, and Birchbox have opened brick and mortar stores. Warby Parker has 32 locations and Bonobos has 20. Amazon just opened its first, whether there will be more remains to be seen. (It has taken a large space on 34^th Street in Manhattan, but it’s not yet clear what it will put in there.) Also, it is de rigueur among today’s retail experts that a multi-channel approach, including both online and brick and mortar stores, is the key to success, so more brick and mortar stores opened by online retailers can be expected. The key question is how strongly will these green shoots grow?

Affordable Rents

Two positive characteristics of the new normal for our downtowns are that a lot of their revitalization efforts are successful and there is now the expectation that most of them can be vibrant and economically healthy places. However, this success has usually led to significantly higher commercial rents. Small retailers, who already have long been plagued by difficulties in raising capital and operating funds as well as burdensome municipal regulations, now often are facing unaffordable rents. In other instances, rents have been declining or holding steady. The critical factors seem to be whether retail chains are entering or leaving the downtown and whether new retail spaces are being constructed.

How Are the Retail Chains Doing?

Among the retail chains, department stores (e.g., Macy’s, Sears-Kmart, Kohl’s, JCPenny, Nordstrom, Bob-Ton) are flailing and have closed many stores. They are not only fighting the ever growing e-retailers, but also the off-price retail such as TJ Maxx. Macy’s is even trying to create in-store off-price operations. All are trying to buttress their own e-commerce operations.

Specialty stores (e.g., American eagle, Chico’s, The Gap, Talbots, Coach, Abercrombie & Fitch, Eileen Fisher, Williams Sonoma, Crate and Barrel) have also been closing locations and/or struggling to develop strategies suited to their new retail environment. They, too, are challenged by the e-retailers. The more traditional specialty chains in the women’s apparel sector have really been struggling as they compete with:

Foreign low-price, fast fashion operations such as Zara and H&M.
Off price, value –oriented and low prices chains such as TJX, Burlington Coat, Filene’s Basement, Ross, Stein Mart, DSW and the low priced dollar stores/ These have been strong post-recession performers.

Value oriented outlet malls are likewise strong performers. Indeed, some department store chains have developed their own off price/outlet chains, e.g., Nordstrom Rack and Saks Off 5th.

Supermarket anchored shopping centers are showing significant strength.

New 25,000 SF Target in an Affluent Residential Neighborhood About a Half Mile From Chicago’s Michigan Avenue’s Magnificent Mile

Large big box chains are plodding along, trying hard to adapt to the Internet competition and doing better where their locations’ grocery offering are robust or if they are in the home improvement sector. Walmart and Target are focusing now on using smaller formats to enter dense urban markets (see above photo), but they have rejected their use in sparsely populated locations. For example, in 2016, Walmart announced closing 154 stores, 125 of which were in the smaller Walmart Express and Neighborhood Market formats; they were disproportionately located in low-income, low-density areas.

With consumers making far fewer “trading up” purchases, mass luxury retailing has weakened, though true luxury brands are still doing better than most other retailers.

How Are the Small Independents Doing?

Systematic research on how these retailers are doing under the new normal for our downtowns is hard to find, so I must rely on my field observations and interviews:

Here in Kew Gardens, NY (a village in the big city) lots of the small retailers closed during and soon after the Great Recession. However, the vacancies have slowly been leased and more often than not by far stronger operators. Lots more food and beverage establishments and dollar store type operations.
In many parts of Manhattan, rising rents and the great recession have forced small GAFO merchants to completely disappear. Similar patterns were observed in many other large cities we visited.
On the other hand, in many smaller downtowns, often those with few or no GAFO retail chains, a surprising number of independent apparel shops are to be found (e.g., Morristown, NJ, Woodstock, VT, Great Barrington, MA). Some of them survived the Great Recession (a few quite surprisingly), while others opened more recently. Before and during the Great Recession, downtown independent apparel merchants appeared to be a dying breed. Why the apparent turn around? One hypothesis: not only the absence of apparel chains in their downtowns, but also their absence and/or weakness in their larger trade areas? To some degree, the growing weakness of national chains’ brick and mortar stores appears to be giving small independent retailers the opportunity to capture more customer expenditures.
I am seeing more and more millennial small merchants who from the get-go are adept at using websites and the social media. The problem of Internet inept independent merchants seems to be naturally “aging out.”

CENTRAL SOCIAL DISTRICTS

Posted on February 17, 2016 by DANTH

A fuller and updated version of my analysis of Central Social Districts can be found at https://theadrr.com/wp-content/uploads/2021/07/Strong-Central-Socia-LDistricts-__-the-Keys-to-Vibrant-Downtowns__-Part-1-FINAL.pdf

An Invitation

On March 4, 2016 Andrew Dane, of SEH, and I will be doing an APA sponsored webinar on “The Central Social District – the Key to Tomorrow’s Successful Downtowns.” We hope you will join us. APA members can register at: http://tinyurl.com/j6m8sek . Non-APA members perhaps have a friend or colleague who is a member and can be convinced to attend.

Andrew and I teamed up on downtown revitalization projects in Sherwood, WI and Gering, NE. Even in those relatively small communities, we found the Central Social District (CSD) to be a compellingly useful concept when assessing a downtown’s assets and liabilities as well as for developing solution paths.

My own interest in CSD functions dates back to the late 1970s, when I tried (alas unsuccessfully) to get a Celebrate Charlotte program going in that city’s CBD. Since then, fostering a strong entertainment niche has been key element in many of the downtown revitalization strategies I helped develop for such communities as Rutland, VT, White Plains, NY, Morristown, NJ and Peoria, AZ.

In recent years, the portion of my research that I have written about here on the Downtown Curmudgeon bog has been almost exclusively related to the entertainment and restaurant components of CSDs, e.g., arts venues’ attendance and funding, the advantages of informal entertainment venues, assessing the impacts of formal and informal entertainment venues, the need to protect our downtown cinemas, restaurants as the cornerstones of vibrant CSDs.

Can’t make the webinar? Email me at [email protected] and I’ll send you a copy of our presentation.

What Are Central Social Districts (CSDs)?

A CSD is that part of a downtown that has venues performing CSD functions. Since antiquity, successful communities have had vibrant central meeting places that bring residents together and facilitate their interactions, such as the Greek’s agoras and the Roman’s 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, housing, etc. However, local leaders often seemed to give higher priority to their CBD related venues – e.g., retail shops, financial institutions, public and private sector offices, hospitals, etc. Indeed, for decades the terms downtown and CBD often have been used interchangeably in common parlance.

Why Are CSD Functions Becoming Much More Important

There are three main reasons:

Since the Great Recession, for many downtowns, especially those with mainly middle income users, retail and office growth have become far more problematical, if not plainly impossible. For them, CBD functions are far less able to sustain a healthy and popular downtown. There is little evidence that this situation will turn around anytime soon.
There has been a major cultural shift and today a significantly larger segment of our population wants to live and play in downtown-type environments than was the case in past decades. In other words, the popularity of downtown CSD venues has grown very substantially, while those associated with the CBD are often floundering
With long working hours and the growth of e-communications, people are increasingly looking for entertaining places to spend scarce quality time with those they care for. More and more they are finding that their downtown’s CBD venues can provide such places.

More Downtowns Should Focus On Strengthening Their CSD

Today, for most small and medium-sized downtowns, CSD development offers the best prospects for economic growth by:

Growing their base of downtown visitors and sense of vibrancy
Maintaining or raising real estate values
Providing the amenities, ambience and customer traffic that makes the district a more attractive location for retail and office tenants.

CSD Development Is No Slam Dunk

One does not have to travel far to find examples of successful CSD development. However, a similar trip might also reveal a theater, PAC, museum, park, public space or other CSD venue that is either struggling financially or finding it hard to attract the numbers and types of users its plan called for.

It is crucially important to choose the CSD components that best fit your downtown from the perspectives of:

— Market demand.

— The ability of the private and/or public sectors to fund the construction of a needed building or facility

— Once built, the ability of the managing organization to earn and/or raise adequate operational funds

— Its potential impacts on the downtown on these dimensions:

Number of users
The revenues and customer traffic of nearby merchants and CSD organizations
Real estate values and taxes
The walkability of nearby streets and pedestrian flows
The physical attractiveness of the area
The ease of finding parking
Traffic congestion
Comparative cost benefits
Quality of life issues: crime, vagrancy and panhandling, noise, litter, smells.

Because another town has successfully developed a particular type of CSD venue does not necessarily mean a similar project will succeed in yours.

Some types of CSD venues have a higher probability of success than others:

They have a larger potential local customer base
They cost less to build
They cost less per user to operate.

N. David Milder

Downtown Restaurants: the Cornerstones for Strong Entertainment and Hospitality Niches and a Vibrant Central Social District

Posted on February 4, 2015 by DANTH

Posted by N. David Milder

Why Restaurants Can Be So Important for Downtowns

1. They Can Strongly Respond to Very Basic Human Needs. At the most fundamental level, downtown restaurants can be powerful because they can help fill many of the most basic needs of downtown users. Most obvious is the need for food when people are away from home. Those likely to have such a need include downtown visitors from near and far, those who work in the downtown as well as residents in or near the downtown who want food other than what their pantries and refrigerators can provide. Additionally, to basic sustenance, the food’s quality can provide pleasure or pain, delivering strong incentives for return visits or avoidance.

The context in which the food is provided also can satisfy our basic needs for social interaction and our desires to be with people who we like and enjoy. Responding to these needs, many cultures highly value providing bounteous good food and drink at a meal shared with others as an essential way of displaying hospitality, affection and respect to others. We often go to restaurants to have a good time and that usually means not only enjoying food and drink, but also sharing those pleasures with those we like or love.

Really great restaurant operators understand the drawing power that can be created by an eatery that responds across the board to our needs for sustenance, pleasure and social interaction — and they include themselves in the equation. For example, Jean-Claude Vrinat — under whose leadership Taillevent dominated the Parisian restaurant scene for decades — once explained that great food, great wines and great service were necessary, but insufficient reasons for his restaurant’s success. The key factor was to treat all of his guests as if they were members of his family. His quests, he believed, were looking, most of all, for an enjoyable, entertaining experience and this had a very important social component that his restaurant had to respond to. Of course, his food and wines had to be exceptional (his wine cellar was legendary), but it was the ability to make his guests feel at home while having an exceptional experience that made Taillevent truly extraordinary.

Restaurants also provide pleasure through their ability to function as informal entertainment venues. People watching is perhaps the simplest form of entertainment and restaurants can provide copious opportunities for watching the ways that fellow diners and restaurant staff behave. Many of the staff’s activities are like well-practiced performances: flambéing food, the opening of wine bottles, filleting fish, mixing drinks, the making of pizzas and tandoori foods, etc. Indeed, some restaurants even have chefs tables where guests pay extra to be able to watch their food being made.

Few, if any, of the other types of downtown operations can respond to a similar package of basic human needs. Restaurant operators who understand that they are selling a lot more than just the calories needed to keep their customers’ bodies functional are much more likely to be successful.

2. They Can Perform Critical Social and Economic Roles. Restaurants are sometimes special neighborhood meeting places where people who live or work in an area go to be with their neighbors, coworkers and friends. British pubs, the “locals,” are great examples of this, but their functional equivalents can be found around the world and in places large and small in the USA. They can provide the “third places” that help generate a sense of community in a district and structure its cohesion.

Popular eateries and watering holes within easy reach also can be a critical amenity for firms in many downtown niches. Hotels, antiques shops, museums, and theaters, for example, typically draw their patrons from a much larger trade area than their downtown’s retailers and these patrons have a high probability of needing food and comfort during their visits.

Downtown retailers also may find that nearby eating and drinking places are pleasing and needed amenities for their customers. Often, a strong downtown restaurant, e.g., the Golden Lamb in Lebanon, OH, or a restaurant niche, e.g., in downtown Rutland, VT or Morristown, NJ, , can bring in customer traffic that can be shared with downtown retailers. In 2010, in downtown Morristown (town population 18,529), there were 77 restaurants and nine cafes/coffee bars and this niche drew more customers downtown than any other economic segment in the district. A ballpark estimate of this niche’s sales was $79.4 million+. The fact that 21 downtown eateries were listed in Zagat is very unusual for a downtown of this size. The 11 rated in Zagat averaged 20+ scores on food, service and décor, indicating that they were well-regarded by their customers (1).

However, in many small and medium-sized districts, a lot depends on how the operating hours of retailers and restaurants overlap. For example, retailers who close at 5:00 pm or 6:00 pm are not likely to benefit much from a popular nearby restaurant that is only open for dinner. Similarly, a shop that opens at 10:00 am is unlikely to benefit much from the customer traffic generated by a nearby eatery for breakfast.

Eating and drinking places also can have some impact on the locational decisions of both residents and businesses, though it is probably not decisive. Their influence on corporate locational decisions has likely waned over the past 30 years. Back in early 1984, Regional Plan Association surveyed 47 major corporations headquartered in Manhattan about the criteria they used to assess potential back office locations. Fifty-one percent reported that the proximity of restaurants and shops were important (2). It was the sixth strongest of the 19 locational criteria the corporations were asked about. Today, it is doubtful that a similar survey would have comparable results. Large corporations now want to keep their staffs inside their buildings as much as possible. To that end, many have on-site subsidized cafeterias, with some (e.g., Google) famously even providing free food. However, it can be reasonably argued that popular eating and drinking places may be a more important locational factor for downtowns that have a lot of smaller businesses with workers that need to do a lot of social networking, e.g., where there is an innovation district or in county seat downtowns.

According to a 2013 survey done for the National Association of Realtors, about 45% of Americans want to live in a city or suburban area that is near shops, including restaurants (3). The survey also found that 42% of the respondents felt there were too few shops or restaurants within an easy walk of their homes, while 48% felt there was the right amount (4).

Very importantly, restaurants are also often pioneers in revitalizing neighborhoods and commercial centers. Three powerful reasons for this, as will be discussed below, are that:

The much venerated real estate adage “location, location, location” seems to hold less power for restaurants than for other commercial operations
Restaurant often need to capture a much lower market share to survive than other commercial operations
Affordable rents, e.g., less than 10% of annual sales, are critical to a restaurant’s success and often are more easily found in areas that may be distressed, but have “good bones” and an attractive location.

Some Important Factors That Impact on the Success of a Downtown Restaurant Niche

1. Density of Potential Customer Spending Power. When it comes to restaurants and dining out, trade area population size and household incomes are two very important factors. Together, they determine the size of the pool of dollars for which restaurants can compete.

Residential Populations. Obviously, larger towns have more people, who are likely to have, in aggregate, more money to spend in restaurants than the residents in smaller towns. Consequently, the larger towns are likely to have more and stronger restaurants in operation.

For the analytical needs of most communities in the US, the densities in our very largest cities are so great that they stand apart and their restaurant scenes are not salient. For example, in 2007, New York City had 16,921 eating and drinking establishments that captured about $14.4 billion in annual sales (5). Looking within the city, in a 3-mile radius of the Queens Plaza commercial district in the Borough of Queens, there are about 1.18 million residents who spend about $2,9 billion annually on food away from home (6).

The table above, based on some excellent research by a Bill Ryan led research team, is more reflective of what will be found in most states. It shows some interesting business sales data for downtowns in 303 communities in Wisconsin with populations ranging from 1,000 to 100,000. It presents the average total annual sales of eating and drinking places in these downtowns and enables them to be compared to the total annual sales of the 15 most common types of business found in these downtowns, with the results sorted into six categories according to the towns’ population sizes. Some findings to consider:

The average total sales in these 300+ downtowns does not rise strictly with the size of their community’s population. Sales peak in the communities with populations between 25,000 and 50,000. This indicates that other explanatory factors are involved. Household incomes is certainly one of them. The size and nature of the downtown’s close-in residential population is probably another
Food-related and convenience sales, which includes both restaurant and food store sales, represents at least half of the total downtown sales in all the communities with less than 50,000 populations. Interestingly, they represents just 42% of the downtown sales among those in the 50,000 to 100,000 range. There are no food store sales reported in the 10 downtowns in that category, just sales from eating and drinking places! The lack of food store sales supports the hypothesis that the downtown’s close-in population is an important explanatory variable
The total sales of the eating and drinking establishments increases steadily with population size from about $2 million in the communities with 1,000 to 2,500 populations to $22,9 million in cities with population between 50,000 to 100,000
The sales of the eating and drinking places in smaller communities, with populations under 25,000, range from about $2 million to about $9.5 million. While $2 million is the lowest amount of sales, it is not a negligible finding. First of all, it shows the capability of these eating and drinking places to capture real dollars. Two million dollars are not chump change. Also, in these smaller towns, most of these establishments do not have to be $1 million or even $500,000 operations to survive or perhaps prosper
Looking across the six population categories, there is an unsteady trend for the percentage of total downtown sales captured by eating and drinking places also to increase, with a very slight decline in category “Two” and more substantial decline in category “Five. The latter is not unexpected, since the total sales variable is in the equation .

To get some tangible idea of what such sales might mean in smaller communities, let us consider two small communities in WI, Sherwood and Town-X. The table immediately below presents some data on their restaurant scenes.

The data demonstrate that despite their size, small towns still can attract quite a few eating and drinking establishments. Sherwood, WI, with a population of 2,713, has one drinking place and seven eating places. (Several of the eating places also have strong bars.) Town-X, WI, with a smaller population of 1,110, has five drinking places and six eating places. Having a lot of drinking establishments appears to be common in the part of WI where Town-X is located: about 45.5% of the eating and drinking places in Town-X are watering holes, while that percentage for a surrounding 45-minute drive shed is 43.5%. An important difference is that the average sales of Town-X’s eating and drinking places are significantly smaller than comparable establishments in the drive shed. Two possible explanatory factors are that parts of the drive shed are more densely populated than Town-X and the town’s median household income is about 14% lower than the shed’s. Nationally, many other small towns will have eating and drinking places with characteristics similar to those found in Town-X: they are relatively numerous, with relatively low sales and a comparatively high percentage of drinking establishments.

From a downtown revitalization perspective, the problem with the restaurants in such smaller communities is often more their quality than their potential to be profitable (which certainly is challenging for all restaurants). In turn, this is influenced by the difficulty in attracting more capable operators, who are likely to find the larger profit potentials of bigger communities more attractive. While many smaller town restaurant operators have the ability to become more accomplished through training, the bottom line question is: do they have the motivation, time and money to get such training?

Featuring quality local food products and dishes is certainly a sound business strategy, but if having a local focus means operators are responding to undemanding standards for food, service and ambience, be they their own or those of their local customers, they are unlikely to grow their trade areas or attract many tourists.

Sherwood demonstrates another pattern, that is rarer, but happens often enough to deserve notice. Sherwood is located on the fringe of the Appleton Metropolitan Area, near a popular state park that sits on Lake Winnebago. Its residents have a median household income of almost $98,000/yr. Its restaurants have total annual sales, about $5.1 million, far above the $2.5 million average for towns in the 2,500 to 5,000 population range found by the Ryan team. DANTH’s research found Sherwood restaurant owners reporting that most of their customers were from other communities, yet there was still sufficient leakage of local residential restaurant expenditures to warrant recruiting some new operators (7). Apparently, the Sherwood restaurants’ concepts were more suited to out-of-towners than local residents, so the residents went elsewhere. This is not an uncommon situation in communities benefiting from a strong tourist trade or that are comparatively affluent and their eating and drinking places attract less affluent diners from nearby communities.

Other Downtown Users. Downtown office, blue collar and uniformed workers, tourists and students are other important components of a downtown’s daytime population that heavily structure the demand for downtown food services. A good example of this is Gering, NE, the county seat of Scotts Bluff County. It has a residential population of 8,480. Its downtown daytime population has the following components:

About 1,544 people employed within a 10- minute walk of the downtown’s center. About 1,127 were probably office workers who had an estimated annual expenditure potential of about $1.5 million for food services
There are about 3,951 people employed within a 5-minute drive of the downtown’s center, of which about 1,954 are probably office workers. They had estimated expenditure potentials of $2.6 million for food services
The grade school, junior high and high school within reasonable walking distance of the downtown have a total of 1,261 students. The 640 high school students have a direct spending potential of about $0.9 million, a significant percentage of which is for food services
Gering has three significant tourist market segments. About 122,000 people visited the nearby Scotts Bluff National Monument in 2012, most passing through the downtown. Roughly 50,000 people attended events at the Gering Civic Center annually. Gering’s hotels had about 29,000 guest nights in 2012. These three tourist market segments annually bring into the county about $4.2 million in purchases from food service operations (8).

A diverse set of downtown of users is possible in towns large and small. These user segments are likely to frequent restaurants at different times of the day: e..g., seniors at mid-morning; office workers at noon; students after school and residents in the evening.

The strength of these user segments and their impacts on downtown eateries can have considerable variation. For example, in some of our larger cities, the residential market may be significant, but not nearly as strong as the daytime workforce or downtown hotel guests. This is the case in the Queens Plaza commercial district. It is located in NYC’s Long Island City neighborhood that has seen considerable economic growth over the past decade, even through the Great Recession. In this district, new restaurants will appear in response to the new residents, office workers and hotel guests that have come into the area. As can be seen in the above table, residents represent only about 9.4% of the new restaurant demand, while the office workers and hotel guests account for much higher shares, 50.3% and 40.3% respectively. In a significant number of smaller downtowns, e.g., Gering NE, the downtown workers and tourists also can be critically important to restaurants because they constitute such a high proportion of their daytime users.

2. Household Income Strongly Influences Food Away From Home Expenditures. Restaurant demand in a trade area is impacted not only by population density, but also by the household incomes of those who live, work and visit the area. Surveys by the Bureau of Labor Statistics (BLS) have consistently found that, unsurprisingly, food away from home expenditures rise with household incomes. As can be seen in the table below households in the highest income quintile (e.g., highest 20%) spent on average $5,366 dollars in 2012 in eating and drinking places, while those in the middle quintile spent $2,164 and those in the lowest spent just $1,086.

Also, the BLS consistently has found that the households on the highest rungs of the income ladder account for a very disproportionate share of the food away from home expenditures. As can be seen in the table above, the 20% of the households with the highest income in 2012 had an average income of $167,010 and accounted for 40.2% of the nation’s food away from home expenditures. Combined with the next highest income quintile (the fourth 20 percent in the table), they they represent 40% of the households, but close to two-thirds of all food away from home expenditures.

The ability of a downtown to attract and support eateries and watering holes will be strongly impacted by how household incomes are distributed in its trade areas. Most downtown trade areas will be dominated, in varying degrees, by households in the three national middle income quintiles. Placing the median household income in your downtown’s trade area in its national income quintile can:

Provide a quick and easy indication of the strength of your local restaurant demand
Help calibrate local expectations about the type of restaurant niche the downtown can reasonably be expected to support

The Decline of Middle Income Households. While, over the past decade, our largest cities have seen strong growth in the number of relatively affluent people who live in or within easy walking distance of their downtowns, most of the other communities in the nation still have downtowns that are dependent on middle income customers. The problem they face is that the number of middle income households — broadly defined as those with incomes between $35,000 and $100,000 — has been decreasing (see the chart below).

The Decline of Middle Income Households, $35,000 – $100,000, From 1967 to 2013 (NYT 01/26/15)

Another problem is that the incomes of middle income households have been stagnant for many years, even well before the Great Recession. For example, in 2013 dollars, the median household income nationally was $56,800 in 2000, $56,436 in 2007 and $51,939 in 2013 (9).

The reduced number of middle income households and their stagnant incomes have posed demand constraints on restaurants in most of our nation’s downtowns and there are few indications that they will soon or easily go away.

3. Lifestyle Segments and Age Cohorts Impact Restaurant Preferences and Behaviors. People live different lifestyles that entail different sets of consumer preferences and behaviors. This means that even among people with similar incomes, their different lifestyle preferences will lead them to patronize different restaurants and to vary in how often they go out to eat. The table below shows how often three lifestyle segments are likely to visit 19 restaurant chains compared to the national average

that is expressed in the MPI Score. These data are from ESRI’s Tapestry dataset and cover the market areas of the Queens Plaza commercial district in NYC. There are other vendors of such data and they are available for almost every downtown trade area.

Baby boomers and millennials are the two largest age groups and they each have an enormous impact on ur economy and restaurant industry. The baby boomers are now in or soon entering the retirement portion of their lives. The millennials, aged from 18 to 30 or 35 are the ones that will have increasing impact as they age, nest and make more money. Our pre-Internet retail and restaurant industries were hugely influenced by the baby boomers; today they are increasingly impacted by the 50 million to 60 million millennials. However, more restaurant expenditure dollars now are in the pockets of the boomers than in those of the millennials. The millennials are in the start up phase of the their careers and the Great Recession heightened their unemployment numbers. They also have been much slower than the boomers to marry and buy homes and cars.

Nonetheless, evidence suggests that the millennials are disrupting the restaurant industry. As one observer noted:”millennials tend to spend their dining dollars sparingly and in a more calculated way” (10). They eat out less often than the baby boomers did at a similar age. Between 2009 and 2013, their restaurant visits dropped by 16%. While they still go to traditional fast-food hamburger chains like McDonalds and Wendy’s, they prefer the newer chains such as Shake Shake, In-N-Out Burger and Smashburger. “Fast casual” chains, such as Chipotle and Panera Bread, are also very popular among millennials (11 ).

While the impact of the millennials will only increase as they age and accrue greater wealth, for many downtowns the boomers probably represent a stronger market segment on which to build their restaurant niches. For example, in rural communities, small towns and rust belt cities, many of their millennials are fleeing to larger, more successful cities that have more and better jobs as well as hip downtowns and neighborhoods.

Hipster creatives who live in our large successful cities (think of Austin, Charlotte, Atlanta, DC, NYC, Boston) are a subset of the millennials. They probably have a lower unemployment rate and higher incomes than other millennials and may well have less depressed restaurant visitation rates and expenditure levels.

4. The Rise of the Deliberate Consumer. The Great Recession, much like the Great Depression, brought about important changes in consumer behavior and expenditure patterns. In turn, these consumer behaviors induced most retail chains to rethink how many stores they needed and how large these stores should be. The most important change in consumer behavior is the emergence of the deliberate consumer, whose key characteristics are well summarized by the findings of survey of 8,000 Americans completed in January 2010:

“51% (of respondents said) they have become more budget conscious and will consider each purchase more carefully over the next five years.”
“60% (of respondents said) they now focus on what they NEED versus what they WANT” (12).

While deliberate consumer behaviors were less prevalent in affluent households, whose numbers diminished as the values of the investment portfolios have returned to or exceeded their pre-recession levels, middle income households still strongly act like deliberate consumers. One area where these deliberate consumer behaviors have played out is food away from home expenditures.

5. Declining Food Away From Home Expenditures, Especially in Middle Income Households. Supply side data from the Census Bureau on the total sales and per capita sales of food services and drinking places between 2002 and 2012, as shown in the table below, appear to indicate that, with the exception of 2009, sales in this industry have had a steady path of growth.

The Great Recession appears to have had just a brief and mildly negative impact.

However, demand side data from the BLS, based on large annual, rigorously done surveys, tell quite a different story. The table immediately above shows a comparison of food away from home expenditures for 2005 and 2012 broken down by household income quintiles in two ways, with one converting the 2005 expenditures into 2012 dollars. The analysis using unconverted 2005 dollars shows:

A slight percentage growth for all household units of 1.7%
A slight increase for the lowest quintile of 1.8%
Decreases in the middle quintiles, with those in the second and fourth being slight, but the third quintile had a decrease of 5%
The top income quintiles expenditures increased by 6.4%.

The analysis using 2012 dollars for both years paints a much more worrisome picture. Between 2005 and 20012 the value of food away from home household expenditures:

Fell by about 14% for all household units
They fell by 11% or more across all the quintiles
They fell the most in the middle three quintiles: 19% in the third, 16% in the second and 15% in the fourth
Even expenditures in the wealthiest quintile fell by 11%.

The BLS data show that the middle income households that most American downtowns and their eating places depend on have significantly reduced their food away from home expenditures.

6. Churn, Upheavals and Closings Among the Restaurant Chains. As of this writing, McDonald’s has just changed its CEO in another attempt to re-ignite sales growth in the USA, where sales of been stagnant in recent years. The mighty McD is worried about its product mix, franchisee disenchantment and increased competition from the growing fast casual chains. But, McD is not alone in trying to rejuvenate their food and operations. Burger King seems to be in a perpetual redo and/or change of ownership. Big Boy and Blimpie closed.

Family eateries also have been feeling a strong pinch. This is understandable since their customer bases were often the middle income households that have reduced their restaurant expenditures. The Darden chain, for example, has redone or sold Olive Garden and RedLobster. Bennigan’s, Tony Roma, Ground Round, Country Kitchen and Ponderosa have closed.

On the other hand new chains have emerged and grown such as Panera Bread, Chipotle, Shake Shake, Five Guys, In-N-Out Burger, Smashburger, etc.

The tumult among the large restaurant chains reflects forces that are very likely also impacting smaller independent restaurant operators. A search effort found no studies or commentaries on this impact. However, it seems reasonable to suggest that today’s independent operators are facing far more uncertainty than they would have a decade ago.

Some Important Factors That Impact on the Success of Downtown Independent Restaurant Operators

In a very important 2005 article, Parsa, Self, Njite, and King (PSNK) argue that internal factors –e.g., how the restaurant is operated, the operator’s management skill set and ability to maintain family cohesion, the restaurant’s concept — have more impact on a restaurant’s viability than external factors — e.g., competition, location, customer attributes — though the latter are still important (13). This emphasis on the operator resonated with the findings from DANTH’s interviews over the years with restauranteurs and the salespeople who sell them liquors and wines. DANTH was told repeatedly that it is very hard for a restaurant to succeed and, most importantly, that the operator has to know what he/she is doing, preferably based on significant experience in the industry.

1. Restaurant Competition/Density Within the Trade Area. PSNK acknowledge that “a restaurant can benefit from close proximity to competition and restaurants are often located in clusters to attract more traffic,” but their data analysis found that restaurant failures were highest in zip code areas having the highest restaurant density. They suggest that:

Restaurants need to have clear and effective concepts that differentiate them from their nearby competitors
A careful eye needs to be kept on the market area to see if it has become saturated.

DANTH’s research has not found any easy indicator of when a restaurant niche has topped out. The number of restaurants, which is frequently cited by unhappy downtown business operators as an indicator of saturation, is not reliable. For example, the Little India cluster/niche on 6th Street in Lower Manhattan topped out with about 35 restaurants, but the 70+ eateries in downtown Morristown (a much less densely populated community) are still growing.

PSNK’s point is important: restaurant niches can top out at some point because of saturation and it is very important to know when it is about to occur.

A Positive Market Entry Factor In Smaller Communities. In smaller, less densely populated communities, it may be easier for restaurants to enter the market than is the case for other types of businesses. As can be seen in the table below, they usually do not need to capture as high a share of the trade area’s consumer expenditures in order to survive as do retail and most personal service operations. This means that restaurant operators, in these communities, need to attain a lower lever of competitive success for their businesses to be viable; they do not need to be as capable as the operators of the other types of businesses.

Location. According to PSNK, where a restaurant is located can influence whether it will succeed or fail. Things like pedestrian and auto traffic, visibility, strong nearby merchants and institutions count. However, very importantly, their research found that while a poor location can hurt, it can be overcome by a great product and operation. On the other hand, PSNK argue, a good location cannot overcome a bad product or operation. This is an extremely important finding for revitalizing downtowns!

Rents. One of the reasons that savvy restauranteurs often select locations that, according to conventional wisdom, are not choice, is that they offer very reasonable and affordable rents. Many restaurant operators have told DANTH that affordable rents are a key variable in where the locate new eateries and whether they will renew leases. Rents are often cited as the reasons why popular restaurants have either moved or closed — even those that are famous. Here in NYC, for example, Bobby Flay recently closed Mesa Grill and Danny Meyer will soon close his Union Square cafe because of substantially increased rents.

Restauranteurs usually can afford to spend about 10% of their annual sales revenues on rent. That means that for every additional dollar spent on rent the restaurant needs to get 10 in sales to afford the increase.

This influences where they are likely to locate. Generally, in big cities, they avoid downtown streets with the highest commercial rents, though they may be on nearby side streets.

Revitalizing downtowns in cities with significant populations sometimes have their commercial rents rise rapidly beyond what start up restaurants can afford or they still lack the customer traffic the restaurant chains feel the downtown should generate for those rents.

In contrast, smaller towns often have small, non-vanilla box commercial spaces with low asking rents that can be used by a start up eatery. This is another factor that eases market entry and allows low volume eateries to survive.

Restaurant Failure Rates. Regarding failure rates, PSNK found that:

Contrary to the 90% figure often cited (e.g., by American Express), only 26% of the first year restaurants failed, with the number rising to 60% after three years. After that, longevity became a strong predictor that a restaurant would stay in business. Restaurants do have a bigger failure rate than other types of start ups. For example, one broader study found that:”that new establishments with 500 or fewer employees show an average survival rate of 39.8 percent after six years” (14).
Small independents had higher failure rates than large franchised restaurants. So while in many communities, it may be easy for them to start up, it also is easy for them to fail.
Failure also varied considerably by restaurant industry segment: e.g., the three highest three-year turnover rates were Mexican restaurants 86%, subs and bakeries 76% and Coffee and snacks 70%; the lowest rates were seafood 33%, burgers 33% and Italian 25%. That makes one wonder if there is a connection between survival rates and capital investment rates.

8. Entrepreneurial Factors – what helps a small independent restaurant succeed? PSNK mention a slew of factors that impact on restaurant entrepreneurial performance. Below are the ones that came across as being the most important.

Implementing a Well-Defined Concept. PSNK found that one of the most important things that can make a restaurant successful is the owner having a concept for the operation that goes well beyond food production. An effective concept is clear, comprehensive and easy to understand and it actually drives activities in the kitchen, business operations and employee and customer relations. Complicated concepts that use too many tools to reach too many customers are apt to fail. Successful restaurants often are good at just adapting and changing as they confront new challenges and opportunities — without the assistance of any complicated strategic plan.

The Operator’s Family is Onboard. Restaurant operators have long and irregular hours. They also often need family members to take on positions within the company — e.g., hostess, bookkeeper, etc. — or to invest capital in it. A frequent result is that the operator’s family is stressed. Successful owners typically have the support of their families and are accomplished at balancing their home and restaurant lives. Operators often decide to grow, change or leave the business in order to keep their families whole and happy.

PSNK argue that these “quality of life issues” have greater impact on a restaurant’s survival than previously noted by researchers. Many restaurants are closed because their owners are no longer willing stress their families or work long irregular hours.

The Operator Needs the Appropriate Skill Set , Motivation and Experience. Last, but far from least in importance, it is critical for the owner-manager to have the specific skills that are needed to run a restaurant. These are usually acquired or perfected through prior work experiences in restaurants. As is the case for all small firms, the owner is often performs the roles of the CEO, COO, CIO, bookkeeper, advertising manager, human resources manager, purchasing agent, etc. The operator’s drive, determination and passion can also be critical for a restaurant’s success.

Incompetent and inexperienced operators have been frequently cited by scholars to be a primary factor for explaining small-business failures generally. This is certainly the case in the restaurant industry.

Some Take Aways

Restaurants can have great impacts and make strong contributions to a downtown’s success
As the performance of central social district functions and the growth of entertainment niches become more important in downtowns of all sizes, so does the importance of its restaurants
Restaurants can be critical assets and amenities for other downtown niches
Restaurants can have these important impacts even in smaller communities
The decline in the number of middle income households and the stagnation in their income growth have placed serious constraints on the growth potential for restaurants in most downtowns
Even in small downtowns,diverse sets of visitors impact on restaurant demand, both in terms of the expenditure potentials and the types of eating places customers like
While restaurants can definitely benefit from geographic clustering, too much density within a trade area can stimulate failures. Within a cluster it’s essential for a restaurant to differentiate itself from its close by competitors. It’s also important to recognize when a restaurant niche has topped out, i.e., when the market area has become saturated
In smaller communities, restaurants often need to capture a smaller market share than other types of retail and personal service operation, which makes their market entry comparatively easier
While a poor location can hurt a restaurant, it can be overcome by a great product and operation. On the other hand, a good location cannot overcome a bad product or operation
Restauranteurs usually can afford to spend about 10% of their annual sales revenues on rent. That means that for every additional dollar spent on rent the restaurant needs to get 10 in sales to afford the increase.
Only 26% of the first year restaurants fail, with the number rising to 60% after three years.Small independents had higher failure rates than large franchised restaurants.Significantly, failure also varied considerably by restaurant industry segment: e.g., the three highest three-year turnover rates were Mexican restaurants 86%, subs and bakeries 76% and Coffee and snacks 70%; the lowest rates were seafood 33%, burgers 33% and Italian 25%.
Entrepreneurial Factors – what helps a small independent restaurant succeed:
- Implementing a well-defined concept
- The operator’s family is onboard
- The operator needs the appropriate skill set, motivation and experience.

Endnotes

1. N. David Milder, “Downtown Morristown: A Retail Revitalization Strategy And Action Plan,” DANTH, Inc., September 2010, p.23

2. Armstrong, Regina B., and N. David Milder. “Employment in the Manhattan CBD and Back-Office Locational Decisions.” City Almanac 18.1/2 (1984): 4-18.

3. Myers Research and Strategic Services, “NATIONAL COMMUNITY PREFERENCE FREQUENCIES, September 18-24, 212,” p.3. This reports the responses to a national survey with 1,500 respondents that was done for the National Association of Realtors

4 Ibid., p.2.

5. Census Bureau, 2007 Economic Census.

6. N. David Milder, “REPORT on: THE GROWTH POTENTIAL for QUEEN’S PLAZA’S RESTAURANT NICHE,” June 8, 2011, DANTH, Inc. p.3

7. DANTH, Inc. and Short Elliott Hendrickson Inc. “Village of Sherwood: Downtown Market Analysis and Strategy,” August 2012.

8. DANTH, Inc. and Short Elliott Hendrickson Inc. “City of Gering Downtown Revitalization Plan,” February 2014, p.15.

9. Data from the website of the Economic Policy Institute: http://www.stateofworkingamerica.org/charts/real-median-household-income/

10. Stephanie Strom, “Restaurant Chains Try to Woo a Younger Generation,” New York Times, June 7, 2013 www.nytimes.com/2013/06/08/business/as-eating-patterns-shift-restaurant-chains-aim-at-younger-generation.html?pagewanted=print 1/5

11. Ibid.,

12. Cited in: White Hutchinson Leisure & Learning Group White Paper, “The Great Recession: Its Long-Term Impact on Consumers and Location-based Businesses,” February 2010:https://www.whitehutchinson.com/leisure/articles/groundedconsumer.shtml

13. H. G. Parsa, John T. Self, David Njite, and Tiffany King, “Why Restaurants Fail,” Cornell Hotel and Restaurant Administration Quarterly, August 2005, pp. 304-322, p.

14. Phillips, Bruce D and Kirchhoff, Bruce A., Formation, Growth and Survival; Small Firm Dynamics in the U.S. Economy (1989). Small Business Economics, Vol. 1, Issue 1, p. 65-74 1989. Available at SSRN:http://ssrn.com/abstract=1504489

Downtown Formal Entertainment Venues: Part 3

Posted on April 24, 2014 by DANTH

By N. David Milder

Revised April 26, 2014

Introduction

On our downtown revitalization assignments over the years, DANTH has heard many local leaders suggest as a major strategic element either creating a formal entertainment venue or improving an existing one. In many instances, this concern was focused on the issue of maintaining or attracting a movie theater, but in many others, the issue was either the saving and renovation of an old theater or the creation of a performing arts center. Additionally, I have either lived in or frequently visited a number of cities where such issues have arisen. Consequently, I used these communities as an informal sample to investigate how their formal entertainment venues operate. Some of the communities included in this sample were: New York City and White Plains in NY; Newark, Rahway, Englewood and South Orange in NJ; Cleveland and Columbus in OH; Carlisle, PA, and Rutland, VT. Admittedly, this sample is both small and not systematic, but I think the observations presented below still are pretty much on target.

Advocates of these formal entertainment venues often advance a two-pronged argument for them that is well articulated by Cleveland’s PlayhouseSquare on its website:

“As the country’s largest performing arts center outside of New York (it has eight venues), the not-for-profit performing arts center utilizes the arts to engage individuals and attract over one million guests per year to its 1,000+ annual events. These audiences act as the catalyst for economic growth and vitality within the region….
Stage activity on our multiple performance spaces draws over one million people annually to downtown…people who also dine, shop, work, vacation and help neighborhood businesses thrive.” (Italics added.)

In other words, the audiences of these formal entertainment venues are supposed to have positive impacts on the city or regional economy while generating a lot of new pedestrian and customer traffic for nearby businesses, especially for nearby restaurants and retailers.

In too many instances recently, such advocates also see these formal entertainment venues as providing the missing revitalization engine, the silver bullet solution for their downtown’s renewal. Such advocacy, for example, is frequently to be found voiced in many downtown revitalization related LinkedIn group discussions.

When are these entertainment venues open and why is that an important question?

We visited the websites of the venues in our sample to count how often and when they were open. The vast majority:

Had an event (sometimes two) on between 80 and 150 days per year; though some venues were as low as four events a month. Most days and evenings of the year they are “dark”
Most entertainment events occur on weekends; most dark days are midweek
Daytime midweek events tend to be “educational,” with a lot of school kids being bused in and out
Most entertainment events are scheduled for the evenings
A vast majority of these venues are “dead” for three months during the summer, with very few if any events during this time period.

First, it should be noted that most of the venues we looked at do not attract anywhere near the one million visitors a year claimed by Playhouse Square. More typical for smaller communities with populations of less than 25,000 is Theater X, that has 838 seats and in a recent year had 140 events. That translates into a maximum attendance of 117,320, assuming every seat at every event being filled.

More importantly, the audience traffic these venues attract will be arriving at a time of day when most businesses – especially in small and medium sized downtowns — are either closed or getting ready to close. Restaurants and watering holes are the businesses most likely to benefit from this audience traffic. The size of this impact will obviously be related to the size and spending power of the audience flow and the number of events held at the formal entertainment venue.

But, the need for pre-theater meals tends to abbreviate the time available for pre-theater shopping, especially on workweek evenings, even in those shops – most likely chain stores – that are open that late. The truth of the matter is that during most weekdays these venues are generating little or no pedestrian traffic that nearby retail businesses are likely to tap. The same is the case for most evenings and both daytimes and evenings during three summer months.

This, in turn, strongly suggests that the direct positive economic impacts of the formal entertainment venue audiences often are appreciably over-estimated, even the more probable impacts on restaurant revenues. For example, Theatre X claims that it generates about $4 million a year in revenues for nearby downtown eateries and watering holes. That would mean that every one of its maximum 117,320 person audience would: 1) eat a pre-theater dinner downtown and 2) spend $34.09 per dinner. It also means that its downtown eateries can handle a pre-theater dinner rush of 800+patrons. It is very doubtful that every theater patron would have either a pre or post theater dinner downtown or spend on average about $68 for a dinner for two. Also, I seriously doubt that this downtown’s eateries can handle a pre-theater dinner rush of that size in that price range.

Programming: culture, popular entertainment, education

The term “performing arts center” may conjure up expectations of programs filled with high brow cultural events such as classical music, ballets, operas, classic and Broadway plays, jazz, etc. Such performances (including Metropolitan Opera HD broadcasts) are indeed to be found on the calendars of the arts venues we looked at. However, it is interesting to note that PlayhouseSquare says on its website that entertainment is its core and that most of the performing arts venues in our sample have programming that is focused on a broad range of popular entertainments such as:

Concerts by acts featuring various types of music: popular, rock and roll, folk, ethnic, etc.
Family shows
Speakers
Comedians
Screenings of the broadcasts of NFL playoff games
Educational programs and plays for children
Motion pictures: some show classics on a limited basis; others show new films in cinemas built into their building or on their campus.

Obviously, these organizations are doing what they feel they need to do to drive patrons through their doors and win the earned revenues that will help them stay in business. For example, Eric Mallette, the programming director of Rutland’s Paramount Theater, says “that he pays a lot of attention to what the local market responds to and tries to book shows and adjust ticket costs to fit those trends” (1). For many years that meant popular music and family entertainment, including the booking of a lot of comedians. According to Bruce Bouchard, who runs the Paramount Theater: “We started booking comedians and it just took off” (2).

The importance of making ends meet is demonstrated by the fact that many of these venues rent out their spaces for business meetings, weddings, bar mitzvahs, etc.

It seems to me that, save for one or two exceptions, entertainment center is a far better descriptor of these venues than performing arts center. This is not pilpul, since the distinction can lead to differing expectations for a formal entertainment venue, how it is designed and the operational decisions its management makes.

Some of these venues provide homes for resident performing arts companies — orchestras, dance companies, theatre companies, performing arts schools, etc. This will influence a venue’s programing and the paths and strengths of its economic impacts. It is one of the things, in my opinion, that differentiates a performing arts center from a theatre or a group of theatres.

Have successful formal entertainment venues directly generated more pedestrian traffic, produced stronger retail or been the prime engines of successful revitalization?

A caveat: the following are my personal observations and conclusions, based on my field visits (often over many years or decades) and limited research efforts that involved internet searches and some personal interviews. Obviously, they are not based on a systematic research effort — that would require resources well beyond those available. Nevertheless. I am hopeful that the reader will find the evidence and arguments presented below convincing.

Lincoln Center for the Performing Arts, New York City. This center is the home of 11 world class resident organizations such as The Chamber Music Society of Lincoln Center, Jazz at Lincoln Center, Julliard School, Lincoln Center Theater, Metropolitan Opera, New York City Ballet, New York Philharmonic and the School of American Ballet. Conceived as an urban renewal project in the 1950s and parented by the Rockefellers and Robert Moses, it opened the doors of its main buildings during the 1960s.

Though it has had its fair share of problems, I think it is accurate to say that Lincoln Center is generally viewed in all quarters as a successful home and vital asset for its resident organizations as well as a very strong cultural and economic asset for the city as a whole.

In the 50+ years since its inception, the Upper West Side of Manhattan, where Lincoln Center is located, has experienced such a strong rebirth as a residential area that many now argue it is the priciest and most coveted in the city. As the old adage goes, retail follows roofs. Retail on the Upper West Side has changed significantly, but mostly over the last 10 to 15 years, when many prestigious retail chains discovered the area (and rising retail rents forced many independents to close). This retail growth lagged, for decades, far behind the success – and audience attendance – of Lincoln Center, but followed more closely the construction of many new high-end condo buildings.

Lincoln Center did stimulate the development of a cluster of nearby restaurants and bars, but the quality of this cluster and the larger Upper West Side restaurant scene also improved substantially with the neighborhood’s residential resurgence. This suggests that Lincoln Center has indeed been an important revitalization engine, but that its most direct impacts have been to make the neighborhood a more attractive place to live in, not by providing more customer traffic for local retailers, restaurants and bars. It also should be noted that the residential rebirth of the Upper West Side cannot be attributed alone to Lincoln Center. The neighborhood’s proximity to Central Park, Riverside Park and the Midtown Manhattan CBD as well as its subway and bus lines also were important factors. Nevertheless, since it has helped attract a larger and more affluent local residential population, Lincoln Center most probably has impacted positively, if indirectly, on the economic well-being of local merchants. Note that this indirect impact flows independent of the center’s performance schedule.

Lincoln Center’s urban renewal heritage also gave it a design that, combined with the operating hours of its venues, made it difficult for local merchants to benefit from the large audience traffic they generated. As Roberta Brandes Gratz wrote so perceptively back in 2003:

“…Lincoln Center has never really worked. This island of culture stands apart from the city like a fortress, with an elevated plaza on the east offering a lukewarm welcome to one segment of society while concrete walls shut off the less fortunate segment represented by the public housing to the west. Centers like this deaden urban street life, bringing a rush of traffic and human activity all at one time and then lying almost dormant the rest of the day, like a stadium without a game” (1).

To rectify this situation, in 2010, Lincoln Center completed a widely acclaimed project aimed at making the center more permeable and to increase the public’s use of its plaza spaces during the daytime hours when there are no performances. On my daytime visits since 2010, I have observed far more people using these public spaces than I had in the past. This has made the Lincoln Center area “stickier” for visitors, which is bound to benefit local businesses.

Some other large PACs around the nation also suffer from being “islands of culture” with impermeable designs and considerable amounts of time when they are “dark” and inactive. This especially seems to occur when they are inserted into a decayed, low income area. Sports stadiums and arenas inserted into a downtown or city residential area also tend to suffer from being functionally dead for substantial amounts of time. Of interest: the planned renovation of Chicago’s Wrigley Field and the area adjacent to it has components specifically aimed at keeping the area activated on non –game days.

The Paramount Theater, Rutland , VT. Rutland is a small city of about 17,000 people, often referred to as a blue collar, beer drinking type of town, that is also the financial and commercial center of central Vermont. During the 1990s DANTH completed two major reports for the Downtown Rutland Partnership and in both we advocated for the renovation of the Paramount Theater as a way of growing the downtown’s entertainment niche. I last visited the theater sometime around 2000, when it was in its final stage of renovation.

For decades, the region’s economy has been slow growing and it did not fare well during the Great Recession. Through these years, Rutland’s downtown has had its ups and downs. In recent years the challenges have grown with the closings of many of its longtime retail shops as well as its movie theater. (Happily the movie theater re-opened under a new owner who upgraded the projection to digital and 3D and it now appears to be doing well).

After reopening in 2000, the Paramount first struggled to establish itself and then, through the Great Recession, grew in strength. Its annual budget increased from about $700,000 to $1.3 million and the number of performances it presented per year swelled by 75%. The renovated theater gave the community a very attractive and badly needed venue for a wide array of entertainment events — and one local residents could take pride in.

In a recent conversation, I asked Dick Courcelle, the former executive director of the Downtown Rutland Partnership, if what the Paramount does for the downtown today was worth all the blood, sweat and tears that went into its renovation or would they have been better off investing in some other type of project? “It’s absolutely done what we wanted it to do; it was well worth all the effort and resources,” he replied.

In terms of economic impacts, the Paramount’s growing success by itself could not turn the tide for Rutland’s downtown retailers, though it obviously has had some benefits for downtown eateries. Neither could the combination of the Paramount and a rejuvenated movie theater serve as a silver bullet cure for the ills of downtown retailers.

Thinking about the situation in downtown Rutland brought to mind the fact that during the deterioration of the Times Square area here in NYC during the 1960s and 1970s, the many legitimate theaters in the area continued to do a brisk business. Their strength, too, could not prevent severe challenges of social disorder and physical decay from emerging in the neighborhood.

PlayhouseSquare, Cleveland, OH. My association with Ohio goes back to the late 1950s when I went to Kenyon College and then I worked in Columbus for 10 years in the 1960s and 1970s. I have returned on personal and professional visits since then, the most recent being two trips to Cleveland in 2009 and 2010.

Cleveland has long been one of my favorite cities because of its treasures in the arts and sports. The Cleveland Museum of Art and the Cleveland Orchestra playing right across the street in Severance Hall are both world class and worthy of repeated visits. They are part of the University Circle cluster of cultural facilities located about five miles east of the downtown’s Public Square, that also includes the Cleveland Institute of Music, Cleveland Institute of Art, Cleveland MOCA, Cleveland Botanical Gardens and Case Western University.

The city also has many active theatres that date back many decades. For example, the Cleveland Play House, America’s first professional regional theatre, was founded back in 1915. Over the years it has staged more than 1,300 productions that included over 100 world and/or American premieres. For many years, CPH was located on a campus well beyond the downtown on Euclid Avenue near the Cleveland Clinic and about a mile west of the University Circle culture cluster. Recently, it moved downtown to PlayhouseSquare where it will have three venues, including the new Allen Theatre.

PlayhouseSquare is a performing arts center that not only operates eight theaters in downtown Cleveland’s theatre district, but takes on neighborhood real estate development functions and helps local artists obtain needed resources. The theatre district is a 13 to 15 minute walk from Public Square and Tower City Center. It neighbors Cleveland State University. Its spine is Euclid Avenue which runs from Public Square through the theatre district and then goes on through CSU, the Cleveland Clinic and University Circle.

Figure 1. The Ohio, State and Palace Theatres in downtown Cleveland's Theare District

Figure 1. The Ohio, State and Palace Theatres in downtown Cleveland’s Theatre District

Figure 2. Looking down the sidewalk as the theater district meets the CSU campus

Figure 2. Looking down the sidewalk as the theatre district meets the CSU campus

I first visited Cleveland’s theatre district with friends in the mid 1970s and took a closer look at it, at the suggestion of the Greater Cleveland Growth Association., in the early 1980s when I was working on Regional Plan Association’s downtown security and economic development program. On my more recent visits to Cleveland, in 2009 and 2010, I walked about the district and drove through it on several more occasions at various times of the day and evening. My impression was that the district was in good physical condition and appeared to be on an upward revitalization path. Together with the CSU campus, it provided an attractive geographic core upon which additional redevelopment might be attracted. While new eateries were evident, I noted little significant retail. I also observed few pedestrians on the streets, save in the early evenings before showtimes. This, I observed in my field notes, was typical of the theater districts I have visited over the years.

The statistics PlayhouseSquare cites also indicate that it is a popular and successful operation:

One million + guests per year
1,000 events per year
$4 million per year in contributions.

The revitalization of downtown Cleveland is very much still a work in progress. The strength of PlayhouseSquare is obviously a significant asset in that process, but not the sufficient condition for the downtown’s success. The paths of its positive impacts do not involve generating significantly heightened flows of daytime pedestrian traffic in the district or making the area stickier so visitors will stay around longer. Instead, the direct positive impacts are likely to involve such factors as:

Making the neighborhoods near the theater district, as well as the larger Cleveland metro area from which PlayhouseSquare draws it patrons, more desirable places to live
The jobs and salaries it generates for people who live in the region, especially for those in arts-related occupations
The dollars spent in the metro area by PlayhouseSquare productions
Making the Cleveland area a more popular tourist destination.

These impacts are primarily regional in nature. The rest of the downtown probably benefits from them in terms of how it fits into the region. On a more local level, PlayhouseSquare’s impacts probably have been:

Providing an effective redevelopment organization for an important downtown area that also helps find resources to support the creativity of local artists
Creating a healthier and more appealing commercial area, one that also may be attractive to non-entertainment and non-retail types of businesses
Stimulating a district restaurant niche

In the past, I have argued that the geographic dispersion of Cleveland’s cultural assets had weakened the downtown. However, the regional character of so many of PlayhouseSquare’s probable positive impacts suggests that the downtown might get its share of such benefits regardless of where a performing arts venue is located — as long as it is within a reasonably easy travel time of the city’s center. The University Circle culture cluster is only about a 12 to 18 minute drive from the downtown’s Public Square or about a 35 minute trip along Euclid Avenue on a Healthline bus.

In contrast, visual arts entertainment venues, such as museums and galleries, can attract substantial amounts of pedestrian traffic downtown during daylight hours, as the lines outside MoMA in Manhattan often demonstrate. Viewed from that perspective, not having either the Cleveland Museum of Arts or Cleveland MOCA located downtown is probably a loss. However, a great number of important art museums are not located in or near their downtown’s core. Many are located in park-like settings that would be difficult to recreate given the existing building densities s and high land costs found in many of today’s downtowns. Moreover, today many museums feel they need very large exhibition spaces such as those in London’s Tate Modern and Paris’s Gare d’Orsay. The former is a converted power station, while the latter used to be a rail station. As these conversions suggest, finding sites to build such large museums on in choice downtown locations is likely to be difficult and very expensive. DIA’s decision to build in Beacon NY instead of Manhattan is a good example of this.

Similarly, gallery owners are often forced by high rents to locate in secondary neighborhoods near the CBD — that they often help revitalize and the resulting higher rents then forces them to move to yet another neighborhood, that they help revitalize….

Some observations and take-aways

If downtown leaders want to attract more daytime pedestrian traffic and keep visitors longer in their districts, formal performing arts venues probably are not the strategic vehicles to use. The number of events they present and when during the day they are presented prevents them from being effective in this manner. Other potential elements of a downtown entertainment niche, such as well activated public spaces, are probably better able to generate more pedestrian traffic and make the downtown stickier.

PACs with island fortress designs make it difficult to establish a pedestrian friendly environment.

Nor are these venues likely to have direct positive impacts on downtown retailers. To some degree the downtown retailers themselves are at fault here — especially those in small and medium sized communities — since they are loathe to stay open into the early evenings. However, theater goers all too often have very little time to stroll and shop before their events start.

Furthermore, performing arts centers are certainly not silver bullet solutions to downtown revitalization problems. They cannot and do not by themselves produce such a result and their successes can have a substantial lead time on the rebirths of the rest of their downtowns.

Many of the benefits produced by these formal entertainment venues are regional in nature and the other parts of the downtown would probably share in them even if they were located elsewhere. Primary, in my opinion, are their abilities to make the area a more desirable place to live and to provide employment and financial support for those in arts-related occupations.

From a more local perspective the creation or rehabilitation of such venues can lead to the physical improvement of one or more buildings as well as streetscapes in a part of a downtown. They also can stimulate the development or growth of a nearby restaurant niche.

Sometimes, as in the case of PlayhouseSquare, these entertainment centers are managed by organizations that have evolved to perform important real estate development and arts support functions. CAPA, in Columbus OH, is another such organization that comes to mind. They are real assets for their downtowns and their communities. They also have greater economic impacts than those venues that just focus on events/performances. Unfortunately, most of the entertainment venues we looked at did not have an organization of this kind.

Communities are undoubtedly strengthened when they have attractive venues where residents can come together to enjoy entertainments, including the performing arts. Establishing such venues can be complex and expensive endeavors. Their financial futures are likely to be uncertain given their perpetual needs to have sufficient revenues from earned incomes and contributions at a time when arts consumption is falling, entertainment consumption is becoming increasingly electronic and contributions are harder to obtain. Whether the benefits for the downtown of establishing them in the downtown will outweigh their financial operating risks and high capital investments are issues that require close scrutiny. Also needing consideration are the alternate projects that this capital might be invested in that might produce greater direct benefits for the downtown. The “multipliers” usually trotted out to determine project impacts are ill suited for answering these questions, since their geographic unit of analysis is the region or county, not the downtown.

One way that these formal entertainment venues might increase their direct economic impacts on their downtowns is by incorporating an activated public space into their designs and operations that would attract more pedestrian traffic during the daytime and make their neighborhood stickier. In effect, this what was done by the renovations to Lincoln Center and to the Tines Square theatre district when the city closed much of the Square and Broadway to auto traffic and provided places for people to sit.

N. David Milder at DANTH, Inc.

Downtown Revitalization Specialist

Category Archives: Downtown Merchants