Category Archives: Downtown Niches

So…Surprise! You have a lot of suburban creatives…

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Posted by N. David Milder

Introduction. Within the economic development community considerable attention has been focused on young, hip knowledge workers and artists. These young hipsters are part of what Richard Florida has termed the Creative Class. Nationally, they have been drawn in recent years to very dense urban areas that they have helped revitalize, from both residential and business perspectives. It is for these reasons that many economic development organization (EDO) leaders have based their revitalization strategies and business marketing programs on the attraction and growth of these “young creatives.”

However, Florida’s definition of the creative class is in terms of occupations, not age. The occupations Florida uses to define the creative class are from the Standard Occupational Classification (SOC):

  •  Super Creative Core: Computer & mathematical; life, physical & social science; architecture and engineering; education, training and library; arts, design, entertainment, sports, media
  •  Creative Professionals: Management occupations; business & financial operations; legal; healthcare practitioners & techs; high-end sales & sales management

chart

Going unnoticed –as is probably the case in many of our nation’s large metro areas – is the fact that the heavily suburban counties in Northern NJ also have a lot of workers in these creative class occupations. For example, in 2010, Bergen County had 148,150; Middlesex 141,550; Mercer 112,050; Monmouth 86,350; Somerset 74,600 and Morris 103,500 (see table above). Importantly, many creatives also live in these counties: e.g., in 20011 the numbers of resident creatives were: Bergen 196,892, Middlesex 163,910, Mercer 74,541, Monmouth 125,545, Somerset 80,624 and Morris 120,035. As a result of career stages and geographic location, these “suburban creatives” are older, more likely to have families, have higher earnings and higher net worths, and live in single-family homes than the urban hipsters. Moreover, the suburban creatives are equally, if not more, creative and entrepreneurial. Significantly, they do not have to be attracted to these counties — they are already there. They account for a significant part of the healthy and very desirable residential areas in these counties. Also, the downtowns in these counties that have been able to respond to the suburban creatives’ lifestyles and spending patterns have had successful revitalizations: e.g., Englewood, Red Bank, Ridgewood, Westfield, Morristown, etc.

The presence of the creatives means greater job growth. DANTH’s analysis shows that in the 14 Northern NJ counties that Regional Plan Association includes in the NJ-NY-CT Metropolitan Region, there is a correlation of .81 between the number of creatives in a county’s workforce and the number of new jobs projected between 2010 to 2020 by the state’s Dept. of Labor; the correlation between creatives who live in the counties and their job growth was .92. Looking just at the eight heavily suburban counties of Bergen, Passaic, Middlesex, Mercer, Monmouth, Somerset, Morris and Ocean the respective correlations are .84 and .93. In the 14 counties, there is a strong association, .91,  between the number of creatives who live in a county and the number of creatives who are in a county’s workforce.

Economic Strategy and Program Implications. Many EDOs in Northern NJ, be they EDCs, SIDs or municipal or county departments, may want to alter their strategic thinking, marketing and recruitment programs to better leverage their considerable creative manpower assets.

Because economic development in these counties is heavily viewed through retail and office development lenses, one area in which these assets have been minimally leveraged by EDOs is the creation and growth of small businesses operated by creatives. DANTH’s trends analysis suggests that the creatives can be expected to be increasingly entrepreneurial in coming years:

  • Nationally, the workforce is becoming increasingly composed of “contingent” workers, often creative freelancers. One estimate, by Intuit, sees as much as 40% of 2020’s workforce being contingent. Many young creatives have long followed the freelancer path at the beginning of their careers. Older creatives, who are either laid off or seeking career changes, have also followed this path later in their careers. We can expect more of them to do so in the future.
  • Many boomers are changing their careers as they enter the pre-retirement 55-64 age group, which has a high rate of entrepreneurialism compared to other age groups
  • Retired boomers are increasingly starting new careers because they still want to be active and/or they need the income.

The young creatives and their more mature colleagues bring different asset and need sets to starting a business in terms of training, experience, the size and reach of their professional social networks, and their financial resources. Nevertheless, both groups will:

  • Most probably be inexperienced as entrepreneurs and may need to acquire skills in marketing, bookkeeping, business planning, etc.
  • Need to raise capital (mostly new firms with employees)
  • Possibly need to hire employees (the non-freelancers)
  • Need attractive and convenient places to meet and exchange ideas with other new entrepreneurs and potential clients/customers
  • Need commercial spaces for their new businesses (the non-home office operations)
  • Prefer business locations where these needs can be maximized, especially those that are really easy to get to on foot or by car, bus or rail.

The range and depth of these needs will differ mostly not by age, but, as indicated above, between those who are freelancers with no employees and those who are creating firms, usually incorporated, with employees.

Given the relative dispersion in the suburban counties, their stronger downtowns, often their county seats, (e.g., Freehold, Morristown, Somerville, New Brunswick) may be the best geographic locations for meeting these needs. Their existing economic agglomeration offers a density of businesses, government offices, commercial spaces, professional and financial services, restaurants, coffee houses and watering holes in a reasonably walkable area. But, to meet the most pressing needs of the new and budding entrepreneurs, these downtowns may have to develop a more specialized “entrepreneurial infrastructure.” By doing so, the downtown itself becomes a kind of informal incubator/accelerator. Some possible components of such an infrastructure are:

  • A cadre of technical assistance/entrepreneurship advisors available at nearby colleges and universities or at a SBA Small Business Development Center or at local business consulting firms or through organizations such as SCORE. Helpful would be a mechanism to easily link the entrepreneurs to the types of advisors they need
  • Besides commercial banks, SBA, and personal investors, these new and developing companies would benefit from having access to other sources of capital such as angel investors, venture capitalists and crowdfunding. Here again, a mechanism to help link the entrepreneurs to these various types of investors would be helpful
  • Coworker spaces are finding increasing acceptance across the nation. They can be used by freelancers, new companies or small existing companies. They can function as a kind of “business incubator lite” or provide some business acceleration functions for older firms
  • A full blown business incubator and/or a business accelerator
  • A variety of relatively small and affordable spaces for a) freelancers who do not want to work at home or in a coworker space and b) firms that either are too large for or also do not want to be in a coworker space. These spaces can be in the downtown or elsewhere within a reasonable drive of the downtown
  • A mechanism to help link freelancers to project opportunities and where they can get things like health insurance
  • A permissions and approvals process that is truly timely and affordable for new firms be they startups or new move-ins. Most jurisdictions that think they have a good process upon close inspection are shown to need significant improvements.

(Note: this list is not meant to be exhaustive, but suggestive.)

Some of these components or parts of them may already exist in and near the downtown. Others will have to be created whole or in part.

Some pilot organization is needed to:

  • Design the downtown’s entrepreneurial infrastructure in terms of its components. This effort should bring into play the major local government agencies having economic development responsibilities, relevant EDCs and any downtown SIDS/BIDs. Most importantly it also should bring to the table major landlords and experienced businesspeople who live and/or work in the county, especially those who are experienced business investors or well networked with those who are
  • Create an implementation plan that would cover how it would be financed and who would do what
  • Create an organization to manage this infrastructure or designate an existing organization to do so.

Downtown and County Benefits. Some potential benefits of such a program are:
For a downtown:

  • Better business retention through the strengthening of some of its small businesses: helping some survive and others to grow in the downtown.
  • A stronger cadre of freelancers with an increased ability to afford needed downtown goods, services and amenities
  • Significantly more small businesses wanting to locate in the downtown
  • Significantly more small businesses wanting to use the downtown’s goods, services and amenities
  • The development of an image of the downtown as a very business friendly place that is exciting because it is savvy about what small firms need to grow and succeed — and it provides those things
  • The consequent greater attractiveness of the downtown as a business location to other and even larger firms, with associated impacts on commercial rents, the assessed values of commercial buildings, property taxes, jobs, etc.

For its county:

  • A program to help increase the success rate of the county’s growing number of county residents who become new entrepreneurs, be they freelancers or incorporated
  • A program to help more of the county’s existing small businesses to grow, with commensurate job growth and need for additional commercial spaces
  • A program that will spawn new firms with new jobs and a need for additional spaces
  • The ability to develop a business marketing program that puts the “creatives” spin on the county’s skilled workforce and leverages its small business development advantages to attract older and more substantial firms.

These Downtown Emperors Too Often Are Not Wearing Any Clothes

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As a child I was very taken by Hans Christian Anderson’s tale about The Emperor’s New Clothes, especially the part where every adult seems to go along with the new clothes until a child simply states that the Emperor is nude. Often in working on downtown revitalization I am reminded of that tale: lots of what appear to be basic axioms or essential parts of conventional wisdom about downtown revitalization are too often partially or entirely wrong. They are to me emperors with no clothes. Below I call some of them out and briefly explain why they are “nude.”

Emperor 1 – Urban Sprawl Is Killing Our Downtowns

Reality Check 1– This is a nice one. Thanks to the Great Recession, many recognized experts are now arguing that sprawl is ending. See, for example, John McIlwain at Brookings on the end of urban sprawl http://bit.ly/HA84Bq..

Let us rejoice that sprawl now has a stake in its heart! However, what are the policy implications? Are they really simple and apparent? I believe we definitely need to put our thinking caps on and properly think this through.

Emperor 2 – Retail Gap/Leakage Analyses

Reality Check 2 – Doing a retail leakage or gap analysis is appealing because comparing supply with demand sounds like such fundamentally good economic analysis. But, there are a number of data reliability and interpretive issues that cloud their validity (are they measuring what they say they are measuring?)  and their value in program and policy development. First of all, collecting data on business firms and their revenues is a lot more difficult than one might think. The census is out of date by the time it is published. Business data from market research firms such as ESRI and Nielsen Claritas are based on data from InfoUSA, which does large national telephone canvasses of businesses and claims to be 95% accurate on the national level. However, on the local level we have found their data to often have far lower accuracy, and we now try to confirm the accuracy of their data before using them.

Another issue: the basic data on firms’ revenues and consumers’ expenditures are collected by two different federal agencies and, of course, they use two different sets of categories to organize the data. To be able to match the supply and demand data requires statistical manipulation and to my knowledge there has never been any published empirical test that demonstrates the accuracy of the data those manipulations produce.

Interpreting the leakages data also raises issues. For example, a surplus, where store sales are more than consumer expenditures, is usually seen as a situation where there is little prospect for future growth. But, according to niche theory, such a surplus may indicate a powerful retail niche that can expand its trade area. Another issue is that leakage is often seen as an indicator of growth potential, as the presence of “unmet local demand” that might somehow be more easily recaptured by a merchant who does not have to be all that capable. If the merchant is very capable, then he or she could fight for market share and then the whole leakage issue would be irrelevant. From policy, program and business recruitment perspectives, a business operator who will fight for and win market share is far more preferable than an operator who is looking for a situation where there is putative weak competition. Of course, the leakage analysis, does not get into the causes of the leakage, which often is that the competition is so strong that recapturing leaked sales is extremely difficult.

Despite these issues, we continue to do leakage analyses, but with very great care and considerable caution. We’ve found that doing a leakage analysis for a supermarket, restaurant or a women’s apparel shop, where we can gain a firm grasp on the business data gives us greater confidence than doing an analysis for all the downtown’s retail businesses. We also will use them when our prior research experience has given us an in depth knowledge about the local businesses or when the study area is small enough that we can readily confirm the accuracy of the firm-level data.

Emperor 3 – Street and Façade Improvements Will Attract New Customers and New Businesses

Reality Check 3 – Too many downtowns have followed this strategy and only succeeded in creating “decorated coffins.” Yes, these downtowns are more attractive, but after much effort and expense they are still deader than a doornail, with low customer traffic, little vibrancy and few, if any, strong new shops. Such physical improvements can be effective, but this is much more likely to happen when they are part of a comprehensive revitalization program that includes successful business recruitment, marketing, redevelopment and place-making elements.

The attractions of these programs are that they mostly require money, not innovative “rocket scientists”, can be done in a fairly predictable time frame, and provide visible proof of an organization’s ability to get things done. These should not be confused with economic impacts.

Emperor 4 – Nearby Strong Pedestrian Traffic Is Critical to a Good Downtown Retail Location

Reality Check 4 –This is a basic axiom of many downtown revitalization strategies and the cornerstone on which our understanding of “location, location, location” rests. Yet, there is pitiful research on it. Behind this axiom are three suppositions. The first is that there are a lot of pedestrians, though no metric has been presented that signifies when “a lot” has been attained. Second is that among the multitude of pedestrians many will be browsing and window shopping and incidentally discovering reasons to enter shops and make purchases. Finally, is the assumption that the more pedestrians passing by, the greater the likelihood that a store’s destination shoppers will pass through its doors.

My experience suggests that the impact of pedestrian traffic is most likely to be felt in large downtowns where pedestrian flows of thousands of people/hour are easily found, and 100,000+/day are sometimes reached. But, even here, because of e-commerce, surgical shoppers have emerged who are more focused, going to fewer shops and doing far less browsing and window shopping. The Internet also is guiding more shoppers directly to downtown destinations identified in their searches. Additionally, the Internet has changed a lot of these destinations into showrooms for shoppers who see and evaluate the merchandise first-hand, but then buy online.

Smaller downtowns – defined at some unknown cutoff point – with total daily pedestrian flows only in the 100s or perhaps even a few thousand, have never really benefited much from the browsing and window shopping customer. These downtowns frequently just do not have that many retailers that pedestrians are motivated to do much browsing. Moreover, the retailers in these towns usually do not often refresh their selections or windows, so the browsing is even less rewarding. Unless in a tourist area, the merchants in these smaller downtowns have been made or broken by their ability to be a destination for task-oriented shoppers. Strong destinations survived and weak ones disappeared – except when the weak ones endured, because there was no competition nearby.

I know of neither a simple metric nor a complicated formula that indicates how many pedestrians/shoppers are needed to support X square feet of a particular type of retail store.

Emperor 5 – Hair and Nail Salons, Spas, Gyms Are Bad for Downtown Retailing.

Reality Check 5 – Back in 2005, I wrote a column in the Downtown Idea Exchange on this subject. My argument then was that these firms are part of a “pamper niche” that are not only found in abundance in some of the world’s most famed downtowns, e.g., Beverly Hills, Midtown Manhattan, Paris, etc., but also in many smaller districts where they bring in a lot of women with demonstrated disposable income, who also like to lunch and shop. Downtown retail merchants are crazy if they do not develop cross-marketing programs with the operators of pamper niche shops.

I also argued back then, that because they did not have significant investments in stocking merchandise, pamper niche operators could afford to pay higher rents than retailers. That is why they often supplant retailers in many storefronts.

Today, my arguments all appear to be holding true, but due to the Great Recession, pamper niche operators are taking over even more storefronts as they are vacated by weakened retailers. In some districts, pamper niche shops account for most new commercial rentals.

Downtown leaders who attack pamper niche shops are really off base. Instead of criticizing them, these “leaders” should recognize the customer traffic they generate and help their retailers create cross-marketing programs with them.

Emperor 6 – The Multifunctional Character of Downtowns Gives Their Retailers A Unique Competitive Advantage

Reality Check 6 – The multifunctional character of downtowns and the traffic it generates supposedly means that downtown retailers need less power as a destination to be successful. The downtown, in a sense, generates a lot of traffic for them. But, far too often, the ability of downtown retailers to benefit from their district’s multifunctionality breaks down because of two factors: a) the downtown is too dispersed, so office workers, hotel guests and students are too far away to walk to district retailers, and b) the ability of retailers to captures sales from various “captured” daytime markets is inhibited by operational factors such as:

  • Companies trying to keep their employees in the building by providing cafeterias and subsidized meals
  • Retailers are closing their doors when hotel convention guests are ready to browse and window shop
  • Commuting students needing to quickly return to jobs, children, etc.

Although solutions are available, too many downtown organizations have given up on overcoming the dispersion and operational problems, giving up, in effect, on helping their retailers tap critical close-in market segments.

Other Often Naked Downtown Emperors

Here are some other “Naked Downtown Emperors” that I do not have enough space here to detail:

  • Attracting tenant prospects is the biggest challenge in retail recruitment – it’s more often a lack of appropriate locations with appropriate spaces
  • Increasing capacity will solve parking problems – easily finding existing spaces is usually the real problem
  • High crime rates hurt downtowns – crime rates are often comparatively low, it is the fear of crime that does the damage
  • Nobody will use the upper levels of a parking garage – they will if the garages are properly designed, e.g. see the garage at The Grove in L.A.

Are there others you would add to this list? Please let me know.

Now I feel like a proper curmudgeon!

WILL DOWNTOWN RETAIL SOON REBOUND?

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Recent press reports have indicated increased retail sales and I am seeing in most media reports on the subject a kind of optimistic mood emerging about this sector’s recovery. I would suggest, however, that in looking at retail one should keep in mind the “show me the money” rule, i.e., to identify where consumers will be getting the money for their increased retail expenditures. The family house as a “piggy bank” from which consumers took about two trillion dollars in the years prior to the recession is basically gone. Median incomes have not really improved and most of the income increases have gone to the wealthiest households. Unemployment is slowly declining. Gas prices, child care, tuitions and medical expenses have all continued to increase faster than inflation. There does not appear to be much room for increased household retail expenditures.

The one area where there may be some wiggle room that will allow the 60% of our households that fall into the middle income category to increase spending is credit. As Floyd Norris recently noted in his NYT column, American households have been reducing their debt burdens: see http://nyti.ms/Idt8Kf

Some hedge fund mangers have suggested that in our current situation households are bringing down their debts and then using their new available credit to buy things until they again reach a level where they feel uncomfortable, when they will again buy less until they bring their debt levels down. I think they are correct and that we can expect retail sales to follow a bumpy up and down path for many years to come.

However, this pattern is far more likely to hold for downtowns where the median incomes of their trade areas’ households fall in the middle income range. In contrast, those, such as Morristown, NJ or Wellesey, MA, where the median household incomes are well above $90,000/yr are already finding that retailing is improving in a less choppy and more consistent pattern.

Office Development — We now have all the office space we need

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For several years now, I have been arguing that a New Normal has emerged for our downtowns and that the business operators, landlords, developers and district leaders who do not recognize that they must adapt to that fact are likely to face severe economic losses. My recently reported research on multichannel retailing (see my last blog posting below) combined with some some recent news items about movie attendance, housing and office development have strongly confirmed my argument.  This posting will focus on office development.

For much of the 1970s and 1980s office development was seen as the economic engine that would drive downtown revitalization in such major cities as Richmond VA, Charlotte NC, Cleveland OH, Philadelphia PA, Seattle WA. Los Angeles CA, etc. Office development primed revitalization efforts were also mounted in smaller cities such as  New Brunswick NJ,  (population 55,181) and White Plains NY  (population 56,853) and in suburban communities such as Morristown NJ (population 18,457), and Garden City NY (population 22,371). 

Many of these office driven revitalization efforts failed to achieve their goals and the downtowns had to add residential, retail and entertainment components to their revitalization strategies. Nevertheless, office development has remained a critical revitalization asset for many downtowns.

A recent article in  CoStar’s e-newsletter reported on the major findings of a symposium of office development experts convened by BOMA. A summary of their findings should put downtown leaders on notice:

“We already have all the office space we likely will need…. But to remain competitive, the existing stock of commercial real estate must be reconfigured to keep pace with an increasingly mobile, Internet-connected workforce; ongoing changes in technology, and to support the way companies are structuring their staffs to foster more collaboration and efficiency, while also addressing the values and attitudes of new generations of workers.”


 Increased telecommuting, flexible work schedules, the untethering of workers from desks to enhance collaboration and increase face-a-face client contacts have combined to increase employee density in major office buildings and reduce the demand for office space. For today’s office worker, according to one of these experts, the ideal situation may be:

(W)here you go into the office two or three days per week and work remotely the other days, which reduces our carbon footprint by 20% – 40% and has a huge impact on improved quality of life.”


 The potential negative impacts of the New Normal’s static demand for office space are:

    • Fewer new downtown office buildings will be built

 

  • Existing downtown office buildings that are not configured to meet the new work habits of office workers will have languishing leasing efforts. A lot of existing downtown office buildings may have to be renovated if they are to be competitive
  • Downtown retailers and eateries will have a significantly reduced office worker market because the telecommuters and flex-timers will spend much less time in the district.

 

 

Of course, downtowns also too often suffer from the fact that major office tenants provide incentives (cafeterias, subsidized meals and concierge services) and work pressures to keep their employees from leaving the building at lunchtime. Furthermore, the retailing many downtowns is often too weak to motivate substantial office worker patronage.

 But, there is a potential upside for downtowns that can provide a dynamic, experience-rich environment. As the CoStar article notes:
 

“The lesson for companies (and the investors and building owners who want to have them as tenants) is that younger workers prefer to work in a more dynamic, experience-rich environment, such as an urban- type setting offering different entertainment, cultural and transportation options.”


 Dynamic downtowns will consequently continue to have a distinct advantage in a highly competitive office market, while listless downtowns will probably be weaker competitors than ever.

The CoStar article can be found at:http://www.costar.com/News/Article/Will-We-Need-Any-More-Office-Space-/134483?ref=100&iid=261&cid=DC6077B43E67ACADB224FF6D0AF89AB6

N. David Milder 011312

TOUGH TIMES FOR THE MOVIE INDUSTRY — HOW IS YOUR DOWNTOWN CINEMA DOING?

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Some Background
As a result of DANTH’s 2008-2013 downtown trend assessment work, we became very concerned about the future of movie theaters in a lot of medium-sized downtowns,so we keep our eyes out for news about the movie industry. In my February 24, 2008 posting, “DOWNTOWN MOVIE THEATERS WILL BE INCREASINGLY IN PERIL”  I noted that according to a PEW survey:“By a five-to-one ratio Americans view films more at home than they do in movie theaters. Move theaters account for only about 12% of the movie industry’s revenues”

And, according to that same PEW survey, this trend toward watching movies at home was growing. The implicit danger posed by this trend for downtown cinemas, that often are just scrapping by, is a relentless deterioration in attendance and revenues.

Some Recent Observations in the NY Times

A recent article in the May 29, 2011 edition of New York Times had a title that grabbed my attention: “3-D Starts to Fizzle, and Hollywood Frets,” The reporters, Brooks Barnes and Michael Cieply, state  that: “The box-office performance in the first six months of 2011 was soft — revenue fell about 9 percent compared with last year, while attendance was down 10 percent.” That’s off of a 5.25% attendance decine reported by boxoffice.com for 2010. To give those delines some perspective, remember that a mere six percent drop in attendance back in 2000-2001 pushed most of the theater chains into bankruptcy.  The current drop in attendance and revenues might be explained by our stalled economy and/or rocketing gasoline prices, neither of which promise to soon disappear.

Many Hollywood big wigs, such as James Cameron and Jeffrey Katzenberg, have argued that 3-D movies would save the industry by bolstering audiences and revenues. But Barnes and Cieply also report that now “there is strong consumer resistance to high 3-D ticket prices” and “the novelty of putting on the funny glasses is wearing off.” While the best 3-D feature films still are doing well at the box office, 3-D films of more ho-hum quality are taking a box office beating in the USA.

Barnes and Cieply also reported that rentals in video stores during the first part of the year fell 36 percent. This fact would be consistent with the crumbling of the Blockbuster chain and a substantial growth in the streaming and downloading of films to home TV and computer screens through Internet services such as Netflix, Amazon and iTunes. The latter was a possibility DANTH’s trends assessment feared would be all too likely.

My Take-Aways

With retail gasping for breath in most downtown and Main Streets commercial areas, their entertainment niches have taken on an even greater importance than they have had in the past. Downtown movie theaters are often the cornerstones of these niches and the recent decline in attendance suggests they may be facing substantially increased financial stress.

Strengthening downtown entertainment niches in small and medium-sized communities will probably follow two strategic paths:

  • Buttressing the magnetism of the movie theaters through a package of improvements that includes: 3-D and IMAX screening capabilities; tie-ins with adjacent or in-house restaurants, bars, brew-pubs, ice cream parlors, etc.;  clean theaters, with comfortable seating and audiences displaying civil behavior
  • Developing non-formal entertainments, most importantly in well-activated public spaces and restaurants.

What’s Happening in Your Downtown?

Please let me know what is happening in your downtown or Main Street district. If thereare sufficient responses, I will report on them in special posting to this blog.

N. David Milder