LET’S GET REAL ABOUT DOWNTOWN RETAIL COMING BACK

Posted on October 2, 2019 by DANTH

By N. David Milder

INTRODUCTION

A few weeks ago, an article appeared in the Congress for the New Urbanism’s ( CNU) online journal Public Square titled “Why downtown retail is coming back ” (1). While the article had some valid and encouraging points, overall it blurred over a very complex situation in which retail in different types of downtowns have different prospects for retail rejuvenation and growth. Most importantly, there was no discussion of the enormous process of creative destruction that the retail industry is experiencing, one that promises to continue for many years to come, and that will strongly structure any rebound. Until we get a better handle on what the new retail industry will look like we cannot get a good notion about what the demand for retail locations and spaces will be. Along that line of thought, the article also ignored the facts that any comeback must be limited when the demand for retail space by national chains has had a precipitous decline and 45% of the nation’s household GAFO (general merchandise, apparel, furniture and home furnishings, other miscellaneous retail) expenditures are now being captured by online retailers.

The Public Square article makes much about increased retailer interest in “inner cities,” but this trend is anything but new. Major retailers have long been interested in and placed their stores in some types of dense urban locations. For example, by 1985, a ULI study was reporting a resurgence in downtown retailing propelled by growing CBD employment, an increasing appreciation of urban lifestyles, and a dramatic decline in the number of easy suburban retail project opportunities (2). They even have been going into highly ethnic downtowns since the late 1990s and early 2000s as evidenced by their presence in the outer borough downtowns of Jamaica Center, Fordham Road and Downtown Brooklyn in NYC. The article also failed to note that a whole lot of the major retail that is going into our inner cities is not going into their downtowns, but into large self-contained, car-oriented shopping centers that compete with the downtowns.

This raises two critical questions regarding the inner cities that are very hard to now answer:

When the overall future demand for retail space is very likely to be far lower than in the past, will inner city locations really be getting substantially more retail stores located in them?
How many of those new inner city retail stores will be locating in the inner city downtowns?

As for the retail chains, we know from past experience, their expressed interest in locations often is not a good indicator of where their stores will open.

The article also failed to note that most of our downtowns are in small communities that always had few if any national chains– and that is unlikely to change in the future. Nor did it discuss the prospects of the small independent retailers these small downtowns must rely on.

Yes, it can be argued that new stores are opening, and downtown retailing will not disappear. However, since it is undergoing very significant changes in magnitude and operational characteristics, it is still far too early to make any real sense of claims that it is coming back.

UNDERSTANDING THE CREATIVE DESTRUCTION OF THE RETAIL INDUSTRY UNLEASED BY THE GREAT RECESSION

What we have been witnessing in the retail industry is not the oft mentioned retail apocalypse, but a classic example, at the level of a whole industry, of what Joseph Schumpeter called the process of creative destruction — the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” While the media, in its reporting on the retail apocalypse, has focused its attention on the destruction, far less attention has been paid to the creation of a new, vibrant and stronger retail industry, but one that may well require far fewer and smaller brick and mortar retail spaces. That would mean far fewer and smaller retail tenants for our downtowns.

The Industry’s Latent Problems. Prior to the Great Recession, the retail industry was largely ignorant of the truly bad shape it was in:

As Elizabeth Warren’s book, The Two Income Trap, showed several years before the Great Recession, many middle income households were being financially squeezed by stagnant income growth and quickly rising costs for housing, healthcare, childcare, transportation, and education. Their retail spending was often sustained by home-based loans and/or racking up large credit card debt. The Great Recession turned these households into today’s deliberate consumers who are more cautious about their spending, much more value oriented, and demanding of bargain prices. Gone are the middle income shoppers who “traded up” prior to the Great Recession.
In 2009, a team at McKinsey predicted that by 2011, the internet would be involved – i.e., play some role – in 45% of all retail purchases made in the USA (3). The vast majority of the retail chains seemed ignorant of that already well established trend and did not have very robust online presences, much less viable omnichannel marketing strategies. The shock and hurt the Great Recession threw at so many retail chains, the resulting consumer search for value, low prices and convenience, and the emergence of the “to the internet born” millennials, all led to a growing participation in internet shopping.
Far too many of the retail chains were very badly managed and, of course, their leaders never owned up to that fact. Forever 21’s recent going into Chapter 11 is a classic example of this, see https://www.nytimes.com/2019/09/29/business/forever-21-bankruptcy.html . Unfortunately, too many observers of the industry did not either. The problems proved to be myriad. Worst of all were ill conceived growth strategies based simply on opening more stores. Abetting that problem was a surprising ineptitude in decision-making about where to open new stores, how large they should be, and how close they should be to a chain’s other stores. Too often locational decisions were made not by rigorous analysis, but by following where other retailers were locating, especially their favored co-tenants. The old axiom that retail chains are like sheep — they like to herd — was all too true. The net result was that the chains had too many stores that were also probably too large, and too often in less than desirable locations. Many chains were also burdened by carrying too much debt, especially when they were bought out by financial firms seeking to maximize how much money that could extract from the retail operations. These new managers were not merchants, but MBAs trained in financial manipulations. The large debt burdens caused many bankruptcies. In search of profits, corporate managers cut the size and quality of their in-store sales forces, thus substantially diminishing customer service. Then, too, many chains lost contact with their customers by failing to provide the entertaining ambience, convenience, customer service, sizing and merchandise they wanted. Some chains even failed to notice that their customer base was aging out or moving on.
Chain managers began to look more at the value of the real estate they owned or leased than increasing the profits from retail sales. Hudson Bay, for example, closed the Lord & Taylor mother store on Fifth Avenue in Manhattan not because it was losing money, but because of how much money selling it could generate. This trend continues.
Across the nation, in the years before 2009, especially in many of our most successful downtowns, be they in big cities or affluent suburban or tourist communities, many properties with retail spaces in them were bought for very high bubble-like prices. That meant that retail rents would have to increase substantially. Moreover, the financing of these deals often meant that the retail spaces contractually had to be rented to credit worthy retail chains. When the Great Recession severely struck the retail industry, these properties and their ability to attract retail tenants were placed in a very precarious position. The purchase of the “Devil’s Building” at 666 Fifth Avenue in Manhattan was a prime example, but there were so many others.

While one can be hopeful that today’s retail chains and those of tomorrow will be far better managed than those of the past few decades, their past performance warrants some skepticism about their future behavior. Prudence also suggests that we can expect them to continue to make many serious errors, especially when subjected to the very strong pressures created in a process of creative destruction.

The Substantially Weakened Demand for Brick and Mortar Retail Locations and Spaces. The Great Recession brought these problems to a boil and resulted in many well-known retail chains going out of business, while many others are still fighting to stay open.

Countless thousands of chain stores have closed since 2009 – for example, 7,000+ in 2017 and 7,000+ again in the first half of 2019.
GAFO retailers were hardest hit, especially department stores and specialty apparel chains.
The surviving chains are looking for fewer new locations, are being far more selective about locations when they do so, and their new stores are about 25% smaller than those the chains opened in the past.
There are about 1,350 enclosed malls in the U.S., but experts believe that only 200 to 400 are needed (4). Most class “B” and “C” malls are doomed to closure and reuse.
Also, many malls and open air shopping centers, to stay popular and solvent, are converting retail spaces to other uses such as entertainment, personal services, food and drink. Some malls are even adding housing and hotels. According to Costar, between Q1 of 2010 and Q1 of 2019, malls added about 13.9 million SF of entertainment space while open air centers added about 52.8 million SF of entertainment space (5). Most likely these additions were done by repurposing prior retail spaces.
There is little reason to believe that similar trends are not also occurring in a large proportion of our downtowns. For example, over the past decade, I’ve seen large amounts of former retail space being leased to pamper niche – hair and nail salons, spas, gyms, martial arts studios, yoga and Pilates studios, etc. – and health care operations in downtowns across NY and NJ.
There has also been “vacancy rate creep.” Back in the 1980s, a rate above 5% signaled cause for some concern and 10% a problem. Today, a 10% vacancy rate seems to have become accepted as the new OK normal.
A recent 2019 report by Morgan Stanley found that while “…e-commerce penetration reached 11% of total retail sales at the end of 2018” that “e-commerce penetration in the GAFO segment” was now over 45% (6). GAFO retailers are often the ones downtown leaders most want to recruit.
This huge capture rate achieved by online merchants plainly indicates that there will be substantially less need for GAFO brick and mortar spaces. Will rebounding downtowns, especially those in our inner cities, really be winning the lion’s share of this reduced demand?

The Small Merchant Problem. According to Statista: “There were 19,495 incorporated places registered in the United States in 2018. About 84%, 16,411 of them, had a population under 10,000.” In contrast, only 10 cities had a population of one million or more and only 310, or about 1.5%, had a population over 100,000 (7). For the vast majority of these incorporated places, small independent merchants will be their most likely retail tenants and tenant prospects. Many of these downtowns have never had a retail chain, while others were able to attract some non-GAFO chains and, more recently, dollar stores.

As can be seen in the table above, the very small merchants, those with 0 to 9 employees had the lowest decline in numbers, -7%, between 2007 and 2012, a strong indication that they were among the least hurt by the Great Recession, though there was considerable variation by state. Among them was a huge number of nonemployer firms. Many of them may have stayed open because the owner also had another job. Among the small merchants, those with 10 to 19 employees probably account for many of these small towns’ strongest retailers. They suffered a significantly higher decline, -15%, a sign they were hurt more by the Great Recession. They may have been more vulnerable because they were more likely to have had outstanding loans.

The vicissitudes these small merchants have faced were quite different than those faced by the national chains. For one thing, since most of them were not offering GAFO merchandise, they were less apt to be hurt by the growth of internet sales. In the years prior to the Great Recession, any small GAFO retailers were likely to have felt the brunt of competition from big box stores such as Walmart and Home Depot. Instead, most small town retail businesses were mainly focused on local, neighborhood type needs such as food and beverages, health and beauty products, and arts related products. However, in many smaller and less affluent downtowns, dollar stores appeared and won substantial market share – even from Walmart.

Small town primary trade areas are likely to be small geographically and sparsely populated. If they have under 15,000 people that is too small to support most independent small GAFO retailers – unless they adopt an omnichannel strategy that also produces revenue flows from online sales and offsite sales in distant market areas.

A major challenge for these very small merchants is the level of local consumer spending, since it directly impacts the cash flow they are so dependent on. Those in communities where household incomes are hardest hit will feel the pain most. Those in communities where income and population growth are stagnant will likewise probably work hard just to tread water. Retailers in small communities with strong household incomes are more likely to prosper.

Other major challenges for these small merchants are their skill sets and abilities to start and maintain a successful business. By definition, half can be expected to have below average skill sets. According to BLS data from 2016, about 56.1% of retail startups fail within their first five years. That means that the smaller downtowns towns dependent on small merchants can likely expect significant churn with the resulting need to either recruit or develop new retailers. A possible confounding problem is that nationally the number of startup firms seems to be diminishing, having fallen by 19% between 2007 and the first half of 2019 (8). How much this holds true for small retailers is not now apparent, but if the number of small retail startups has diminished, that could have important implications for many smaller downtowns.

The Green Shoots of the New Retail. On the other hand, there are many signs that brick and mortar retail will not be completely disappearing, though how many locations and how much physical space will be required are not now known. Here are some of the positive signs:

Most Americans still prefer to shop in brick and mortar stores — 64% according to a 2016 Pew Research Center national survey; 78% also said it’s important to be able to try a product out in person (9). Several other surveys have over the years had similar findings. The problem has been that the types of stores retailers have offered shoppers have not been what many of them wanted! That is beginning to change. There has been a big increase in retail chain concerns about better instore experiences and more convenient transactions (purchasing and deliveries).
Some chains have continued to do well through these apocalyptic times – off-pricers such as TJ Maxx; dollar stores; grocery store chains such as Wegmans, Kroger and Aldi, and beauty product stores such as Sephora and Ulta.
Many “old” retailers seem to be learning new tricks. For example: Best Buy and Target have made notable comebacks; Walmart has created an impressive internet operation; Kohl’s is experimenting with smaller stores, bringing in Amazon returns, and putting Aldi groceries inside its stores, and Chico’s has reportedly found new online marketing legs.
More retailers are realizing the importance of customer relationships and how convenience and instore experience can help build them.
While chain stores have been closing, they also have been opening, if at a lower rate. Old Navy, for example, plans to double its store count and penetrate smaller communities.
Internet birthed retailers are opening brick and mortar stores. They need them to be profitable! It remains to be seen how many stores they will open. Many of them reduce their space needs and costs by not keeping merchandise inventories onsite. Many of them like affluent downtown and neighborhood shopping district locations.
Most importantly, retailers are now avidly adopting omnichannel marketing strategies that see both brick and mortar stores and their internet assets as related ways of connecting to their customers — and often on the same transaction. For example, it is becoming increasingly popular for shoppers to make a purchase on a retailers website and then pick it up at the retailer’s nearby physical store. Retailers are finding that physical stores can stimulate visits to their websites and conversely that websites can stimulate visits and sales in their brick and mortar stores.
Retailers are increasingly finding that besides making sales, physical stores can play many other valuable roles related to interfacing with shoppers, e.g., being places to pick up purchases, experience/try out merchandise or receive pampering amounts of customer service. Their annual sales consequently may be a poor indication of their true value to the retail chain – or to the landlords of their leased retail spaces.
Experimentation with smaller stores has been going on for many years now. Walmart famously tried to do so in some rural areas, and retreated. Now, a number of other chains are trying out smaller stores that allow them to enter dense urban markets where their larger formats cannot fit and/or would create traffic and/or political problems. Target has been the most visible. The argument can be made that this is an extremely important experiment for downtown retail growth. If the chains can learn how to do the smaller formats successfully more will fit not only into dense urban downtowns, but also into suburban and some rural downtowns. The key to their success may be how they use the internet and AI or AR to augment the smaller selections of merchandise they can offer in the smaller spaces.
As I have noted in an article in the IEDC’s Economic Development Journal, there is a definite trend in some rural and suburban communities for new residents, drawn by the area’s quality of life assets, to open new retail shops (10). In several instances, these shops and eateries have become some of the best in the downtown. Quite often, those QofL retailers have been facilitated by the market shares yielded by the department stores and specialty retail chains that closed in failing nearby malls. It should be remembered however, that many of these closing retail operations had well below average market shares – that’s why they failed – and what they gave up was also prone to being captured to varying degrees by the remaining retail chains and online merchants.

LOOKING AT SOME DIFFERENT TYPES OF DOWNTOWNS

Trying to present a full typology of downtowns would require an arduous and complicated effort that would likely divert attention from the main subject of this article. Additionally, just looking at a few examples will amply serve the purpose of demonstrating different retail outcomes.

Urban Downtowns and Commercial Districts. One well-known retail expert was quoted in the Public Square article as arguing that : “Retailers have saturated the suburbs and the next underserved market is the inner cities. And they are also thinking that it will be a trend and growth market.” I found that use of the term inner city somewhat confounding since I have heard it used overwhelmingly to refer to the core poor parts of a large city that are usually heavily populated by “minority” groups, while I think the expert was really using it as a broader synonym for “dense urban areas”. Within dense urban areas several different types of retail districts can be found if categorized just by number of stores and shopper affluence – there is not just one type of inner city retail, district. Here again, to maintain some brevity, I will focus on a select few. I will look at Manhattan and other NYC retail districts simply because of the ease of finding relevant data because of my past research on them.

The Crème de la Crème. This is undeniable: in our major cities, for countless decades there have been major CBD retail corridors that have attracted hordes of trophy retailers– e.g., Fifth Avenue and Madison Avenue in NYC, Newberry and Boylston Streets in Boston; North Michigan Avenue in Chicago ; Rodeo Drive in Beverly Hills, and Walnut Street in Philadelphia. The retail chains show how much they value such locations by not only being there, but by how much they pay to be there. For example, retail rents on the prime part of Fifth Avenue in Manhattan run about $2,871 PSF and about $960 PSF on Madison Avenue – see table above. The retailers often are there as much for the marketing opportunities provided by a “flagship store” as for the actual sales they make. That said, those sales can be huge. Back in 2009, the Apple store on Fifth Avenue reportedly had sales of $350 million, or about $35,000 PSF! Nearby Tiffany reportedly did about $18,000 PSF. (I’ve tried unsuccessfully to confirm these stats. I do not doubt that the sales PSF are very high, but they being that high, I am not sure.)

The table above is from a report by Cushman & Wakefield on 11 of Manhattan’s major retail submarkets. Unsurprisingly, Manhattan has tons of retail because it has a large, affluent population, hordes of people working there and loads of tourists, especially from abroad, who spend lots of money in retail shops. The lowest retail asking rent is in the table is $243 PSF and the average is $860. It is reasonable to assume that most of the retailers paying such rents were doing so because they expected commensurate sales revenues and profits. This shows another basic and perhaps mundane point about our retail chains – they have long entered urban commercial districts and been prepared to pay very high rents when they saw a lot of affluent people living, working, playing and spending in them. The question about retail interest in dense urban areas has really been about their willingness to enter less affluent inner city areas.

However, even these affluent submarket areas can have their problems. The Cushman & Wakefield data also show that across these 11 strong submarkets, about 21% of the commercial space is “available”, i.e. vacant or up for lease. In turn, that level of availability suggests that in these strong urban submarkets, something is not quite right. It very probably has little to do with their addressable consumer markets. Most of those consumers have benefited from income inequality, not been hurt by it. More likely are problems associated with the involved real estate properties and their tenants. Some proof of this is that when asked rents have been lowered, the availability rates also went down. There also is a real possibility that there is just too much retail space on the market, even in these posh market areas. It will be very interesting, for example, to see what happens in the 34^th Street district after all the new retail space built by Related and Brookfield in and near Hudson Yards is fully activated. Also, greater retail chain entry into urban districts will depend on a lot more than just their desire to do so. It will also depend on local landlords and, as Walmart and Target have learned, the approval of city politicians. Surely, NYC is not the only big city facing such issues. Many of these major city downtowns, for example, have seen the closing or down-sizing of their department stores.

**Some of the retailers on Austin Street in Forest Hills, NY**

Long Successful Densely Populated Urban Districts. Here in the Borough of Queens, there are two shopping areas that demonstrate that retail chains also have long known about, located in, and succeeded in dense non CBD urban market areas with high expenditure potentials. They are also interesting because they have quite different operational characteristics and customer bases that exemplify what is happening in many of our non-crème de la crème urban commercial districts. Austin Street is a narrow two-lane street that runs parallel to the six- lane Queens Boulevard one block to its north. For about 100 years it has been the shopping area for Forest Hills Gardens and Forest Hills. Since about 1980, it has attracted upper middle income shoppers from an even wider area as such retailers as Gap, Gap for Kids, Banana Republic, Ann Taylor, Benneton, Loft, Nine West, Barnes & Noble, Victoria’s Secret, Aldo and Eddie Bauer decided to locate there– see photos above. Over the years, it has had its ups and downs usually in sync with the general economy. Recently, the B&N closed and one of Target’s “small stores” took its place, and Banana Republic and Ann Taylor have converted to “outlet/ factory” formats. In recent years, more national chains have closed than opened, with retail spaces being replaced mainly by eateries such as Shake Shack, Bare Burger, and high quality Asian restaurants, and personal services such as non-appointment doctors offices and barber shops.

There are few large commercial spaces on this traditional street, the largest being the one Target occupies that has about 25,000 SF. Attempts to redevelop this area to create much larger retail spaces would almost certainly create a political storm and likely be defeated. If retail chains are to increase their numbers on Austin Street it will likely be by those able to use value oriented formats that do not require large spaces, such as the current Ann Taylor and Banana Republic factory stores. There is no existing space for another retailer of Target’s size, or a small Whole Foods or a small Kohls.

Today, the storefronts constitute a traditional solid line of commercial activity on both sides of the street for about 0.6 miles. It has a nice scale. It is walkable, though its relatively narrow sidewalks can quickly seem crowded on weekends. It can be accessed via four subway lines, the LIRR and several bus lines, with most shoppers walking or busing there. Parking there is tight both on-street and off, and not cheap. Some of its independent retailers have been there for decades. It has some attractive eateries and bars. The whole package is very much like a successful, walkable suburban downtown and it attracts some of the borough’s more affluent shoppers who appreciate a non-mall experience. The core neighborhoods Austin Street serves – Forest Hills Gardens, Forest Hills and Kew Gardens – were early planned suburbs of Manhattan and today they maintain many suburban characteristics.

The Austin Street district’s zip code area has 68,733 residents, 61% of whom are white only. The average household income is $101,342, and the median is $76,467. About 38% of the households have annual incomes over $100,000 and they will likely account for a very disproportionate amount of local retail spending. Over 59% of its adult population have a BA degree or higher and 59% are engaged business, management, science and arts occupations. In other words, within walking distance of the retailers on Austin Street are a large bolus of creative people and lots of households with significant spending power.

**Rego Park-Elmhurst Shopping District Map**

Just about one mile to the west of the Austin Street district, at 63^rd Drive, starts another commercial district that runs about 0.7 miles west along Queens Boulevard. See the above map. It straddles two neighborhoods, Rego Park and Elmhurst and its major retailing is a fragmented and dispersed set of shopping centers. Elmhurst is the most linguistically diverse neighborhood in the US. The character of this shopping district and its tenants are quite different from Austin street. It has the Queens Center, an enclosed mall that opened around 1980 and for several decades was one of the top grossing retail centers in the USA on a $/SF basis. It also has some power centers with tenants such as a full-size Target, Best Buy, Costco, Burlington, Marshall’s, Century 21, TJ Maxx, Aldi, and Trader Joe’s. This district is not pedestrian friendly, and its mass transit assets are a couple of second rate local subway stops. But, it’s very car oriented, abutting the very heavily trafficked Long island Expressway (LIE) and Queens Boulevard and it has loads of parking garage space. Regardless of what NYC’s planners and idealists may believe or want, most Queens residents who have cars use them frequently to go shopping at places that are beyond walking distance. This shopping district’s location allows it to tap the many shoppers with cars who live in Queens.

The Queens Center Mall offerings are those of a middle market mall. For example, it has Macy’s, JCPenny, Michael Kors, Gap, Victoria’s Secret and an Apple store. It is in a zip code that has a population of 96,353 – making it equal to a fairly large city — with median and mean household incomes of $49,098 and $65,321 respectively. About 20% of the households have annual incomes over $100,000. This shopping district is located in a solidly middle income residential area and its big box value retailers are aptly positioned both in their locations and their offerings to tap that market. However, its car orientation and location next to two highly trafficked roadways means it also can draw many shoppers from well beyond its zip code.

This district does not operate in any way that resembles what a well-designed and well run downtown should be. If this is the model for today’s retail chains to penetrate our urban areas, then there may well be strong reasons to question the value of their entry. Over the past decade, for example, some big box operations have entered Jamaica Center – Marshalls and Home Depot – but observers report that their shoppers, who mostly arrive by auto, do not spend much time walking around and shopping in other downtown stores. it is hard to see how the insertion of power centers or even a mall as magnetic as the inward-looking Queens Center, would do much to help other nearby downtown retailers or make the district to appear more vibrant. For example, part of the reason The Gallery in Center City Philadelphia failed is that it was not very permeable to pedestrians on Market Street. Fashion District Philadelphia, the heavily renovated mall that replaced it, reportedly is far more permeable for pedestrians.

Underserved Inner City Districts. Now let’s look at the inner city downtown and neighborhood districts where large numbers of lower income, non-white populations shop. Over the years, I have done a lot of work in places such as Jamaica Center in Queens; Fordham Road, Norwood and Hunts Point in The Bronx; Downtown Brooklyn; and West New York and Elizabeth in NJ. Since the early 1980s, I’ve heard about these districts being underserved by retailers and on many occasions I, too, made that argument. There is absolutely nothing new in that argument. What I usually found was that:

Local leaders, landlords and a tranche of middle income trade area residents were dissatisfied with the retail offerings as well as the district’s appearance and fear of crime.
Yet, there were numerous shops, fairly normal vacancy rates, and the sidewalks filled with pedestrians during the daytime . After visiting a few of them, one former president of Bloomingdale’s called them “beehives of activity.”
Over time, the dissatisfaction increased as the retail shops stopped serving middle income shoppers and focused more on lower income, “ethnic,” and teenage shoppers.
In seeming validation of Michael E. Porter’s famous argument in “The Competitive Advantage of the Inner City,” that dense low income populations in aggregate offered strong market potentials, the inner city retailers who focused on lower income shoppers very often reported strong sales PSF that rivaled those reported for some of Manhattan’s posh shopping corridors (11). Indeed, some were doing so well that they created their own chains that opened stores in inner city downtowns and large commercial centers across the NY-NJ-CT metropolitan region and even in PA.

Trade area analyses of these downtown and large neighborhood shopping districts consistently showed that the number of solidly middle income households were either sizeable or even in the majority, and certainly accounted for most of the retail spending power. For example, the 1987 report I co-authored with Bill Shore on Jamaica Center found that the households in its trade area had a 10% higher average income than those in NYC as a whole (12). In 2002, DANTH looked at the trade area of the Jerome Avenue BID in The Bronx and found the median household income in 2019 dollars was about $76,234 and 22.8% of the households had incomes in 2019 dollars above $109,889. What Porter appears to have missed is the fact that while many and probably most of our inner city commercial districts may be drawing from areas that are indeed heavily “ethnic,” with many lower income people, they also can have large numbers of solidly middle income and even upper middle income households that have most of the spending power.
Nonetheless, the retailers in these inner city districts were targeting the trade areas’ lower income residents and less affluent district visitors. In many instances, the low income segment was targeted by the retailers because they lived in or near the downtown and were its most frequent users. The market research of too many of these retailers was limited to observing the types of people they saw walking by their shop or possible location. More importantly, the retailers very often were making very sizeable profits – Porter did see this possibility –and saw no reason to take the risk of trying to attract their market area’s more affluent shoppers.

Jamaica Center. NYC has several outer borough downtowns. Jamaica Center is one of the three in Queens. It is old, dating back to the colonial days. In 1947, when Macy’s opened its second branch store in NYC, it was in Jamaica Center. It was long a true, multifunctional downtown. However, by the late 1960s, it faced a steep decline with white residential and retail flight. In the late 1990s, and especially after Porter’s article received wide national attention, some of the more sought after national chains started to look more closely at dense inner city downtowns, and Jamaica Center was one of them. By 2002, for example, One Jamaica Center, a 450,000SF a mixed-use complex was opened with tenants such as Old Navy, Gap, Bally Total Fitness, Walgreens, Subway, Dunkin’ Donuts, a 15-screen multiplex theater. Marshalls, Home Depot,, Footlocker, Petland also have located there. Just opened are H&M and Burlington Coat Factory. Among those that have come and gone are Payless, Toys R Us, Kids R Us, The Athlete’s Store – retailers troubled at the corporate level. Gap is now in another location and using a factory store format. Jamaica also still has lots of the chains that have long felt comfortable being in inner city commercials districts such as Fabco, CH Martin, Conway, Danice, Rainbow, Shoppers World, Young World, GNC, Game Stop, Jimmy Jazz, Dr Jay’s, and Vim. Target is reportedly may locate in a new mixed use project and it will be very interesting to see if it is a small store or one of its larger formats. The smaller Target stores I’ve seen in urban locations are not in inner city ethnic districts — my experience may be limited – but in very solid upper-middle-income, non-CBD commercial areas such as Austin Street or on East Illinois near the lake in Chicago.

The emergence in Jamaica Center of a cluster of well-known national retailers who appeal to middle income shoppers looking for value in their purchases is a process that started many years ago and continues on today. There has not been any sudden huge gush of retail interest, but a long-term series of stops and starts that is building a herd of retail sheep that hopefully will reach the critical size needed to attract more retail sheep. Notably, this meeting of middle income retail demand is being done by retailers with value formats – even the specialty apparel retailer, Gap, is using one. There was normal churn, but no new large influx of retailers targeting poorer shoppers – those retailers were long there.

Jamaica Center had several existing large commercial spaces that could be converted for use by these big box value operations. Among them were old department stores, an old newspaper building and large former furniture stores. When will the supply of those large spaces run out? What, if anything, will be done then to create new ones?

Very importantly, for the first time since the early 1960s, a very substantial number of new housing units are appearing in Jamaica Center. One might suspect they will intensify retail chain interest. If so, that points to the strong possibility that if other inner city downtowns are now enjoying first time or greatly increased retail chain interest, it may be because they have improved in important ways that made them more attractive to retailers — and less because the retailers have suddenly seen the light and are newly interested in inner cities. Greater interest in downtown Detroit, for example, by retail chains that are now doing well, would not be surprising given the significant revitalization that has occurred there in the recent past.

Lessons to learn From the Retail Growth in The Bronx. There are perhaps no better examples of poor ethnic inner city neighborhoods than those found in The Bronx, NY. It has 1.5 million residents, a population density of 32,903/SqMile, the lowest per capita income among NY’s 62 counties, and only about 10% of its population is white only. For decades, the fact that the entire borough was badly understored was widely acknowledged, and largely ignored by retailers and developers. However, in a slow, start and stop manner, retail has been growing in the borough since the opening of the powerful Bay Plaza Shopping Center in the mid 1987, with another burst in the early 2000s and considerable growth since the Great Recession. The table below lists the major shopping centers in the borough and provides some demographic information about them. Since around 2000, well over 3 million SF of new retail space has opened in The Bronx, with over 2 million SF since 2009.

Fordham Road and The Hub are the two shopping districts with the physical characteristics most like those of a downtown. They are also in the zip codes with the greatest population densities and the lowest and third lowest household incomes. Both have strong subway assets and Fordham Road has an increasingly used Metro North station next to a large bus transfer point. Both have comparatively little off street parking and are not that close to a major highway. However, these two downtown-like districts have attracted a relatively small portion of the new retail. The Hub has seen little to no real growth. The 300+ store Fordham Road district has done better. It remains a beehive of activity well after two major department stores closed: Alexander’s and Sears. It has attracted a significant number of national chains: American Eagle Outlet, Best Buy, Claire’s, Footlocker, GameStop, Gap Outlet, Macy’s Backstage, Marshall’s, Nine West Outlet, Payless, Rainbow, Sleepy’s, Staples, Starbucks, The Children’s Place, TJ Maxx, Walgreens and Zale’s. Many of the larger chain tenants – Marshalls, TJ Maxx, Best Buy, and Macy’s Backstage have gone into the buildings vacated by the department stores. Here, as in Jamaica Center, large value and outlet retailers are important. There are few if any large retail prone spaces of say 25,000+ SF available and that is probably constraining the district’s ability to attract more major retailers.

Most of the new comparison retail in the borough has gone into the other shopping centers listed in the table. The characteristic they all share is that they are car oriented: they sit next to major highways and have lots of off-street parking. They plainly are targeting shoppers who are located well beyond the neighborhoods they are located in. For example, Target is an anchor tenant in three of them and claims addressable trade area populations of 400,000+. The retailers entering into this paradigmatic inner city county are showing by their stores how much they nevertheless still favor self-contained car-oriented shopping centers over downtown-like locations. To some degree, this may be because of the lack of appropriate spaces in The Hub and along Fordham Road.

The Bronx Terminal Market (BTM) is a 913,000 SF retail complex that opened in 2009, despite the Great Recession, is perhaps the strongest example of the retailers continued preference for strong highway access locations. It is owned and operated by the Related Companies, one of the largest real estate developers/owners in the USA. Its presence in the Bronx more than 10 years ago certainly demonstrates that the interest of important retail developers and retail chains in The Bronx is not new. The new Yankee Stadium also opened in 2009. With the new stadium, political leaders and the Yankee organization wanted the surrounding area improved. Metro-North put in a new station, existing subway stations were improved and the BTM was built. Its tenant list included: Babies R Us, Bed, Bath & Beyond, Best Buy, BJ’s, Burlington, GameStop, Home Depot, Marshalls, Michael’s, Raymour & Flannigan, and Target. That’s one powerful retail line up! Those retailers need to draw from a very wide and densely populated trade area, one that probably goes well beyond the South Bronx. The BTM’s location right next to I-87 allows such market penetration. Aside from that asset, the BTM’s location is not a particularly desirable one for retailers. It is located in a relatively low-income zip code that has a population density that is far from the highest. Its strong car orientation indicates that while it certainly might draw some close by lower income shoppers, its primary customer base will be middle income shoppers located along the I-87 driveshed.

The Kingsbridge Broadway Corridor in Zip Code 10463 has attracted three shopping centers that together total 530,000 SF. The first opened in 20004 and the other two in 2014 and 2015. They too sit very near an I-87 exit. Their zip code’s residents are solidly middle oncome and 24% of the households have annual incomes of $100,000. This corridor is very interesting because retailers there can tap the close-in Kingsbridge, Riverdale and Inwood neighborhoods. The three shopping centers have definitely increased the retail choices of local residents. The distances between these three shopping centers are certainly walkable, but the way they are built and the setting along Broadway are not conducive to making such walks. They are not downtown-like and have done little to stimulate the creation of a walkable shopping district along this section of Broadway.

The 300,000 SF Throggs Neck Shopping Center that opened in 2014 is in a similar type of location. It is next to an exit on I-95 and the residents on its zip code are solidly middle income, with about 23% of the households having annual incomes of $100,000. The Targets in this and the River Plaza shopping center both have their main sales areas underground, as does the Costco in Rego Park. This was done to bypass the zoning aimed by city fathers at deterring the opening of large big box stores.

The New Horizons Shopping Center is a supermarket anchored center in a low-income neighborhood. It was created through the hard work of a terrific neighborhood organization, the Mid-Bronx Desperados (MBD), that worked with LISC. Today, it has a Stop & Shop, Auto Zone, TJ Maxx, Footlocker, Petland, Game Stop, Subway, IHOP and Taco Bell. This is a traditional suburban type, car oriented shopping center, with shops located in a sea of parking spaces. It is also very close to the Cross Bronx Expressway. It is not an urban shopping project with a solid wall of shops on the ground floors of buildings that abut and open to sidewalks. On the once infamous Charlotte Street, MBD had previously built ranch style single family residential units. Their occupants have well-tended backyards, some boats sitting in driveways and some above-ground swimming pools. Given their MBD origins, both the housing and the shopping center certainly reflected local aspirations and needs. Residents in many other dense, low-income, ethnic urban areas may also aspire to more suburban type retail projects. Because people are less affluent does not necessarily mean they like downtown or other urban retail environments. That may prove to be another challenge to inner city downtown retail growth.

The Bay Plaza Shopping Center and Mall is an example of a large and growing suburban mall, but one located in the middle one of the most densely populated, highly “minority” and poor counties in the nation. It is isolated in the geographic arm fold of two major highways, I-95 and the Hutchinson River Parkway, and only accessible by car or, with some difficulty, bus. It plainly is targeting middle income shoppers not only in The Bronx, but also in lower Westchester County. Opened in 1987, it has grown to over 2 million SF, adding 780,000 SF in 2014. Its tenants range from traditional department stores (e.g., Macy’s) and specialty retail chains (e.g., Victoria’s Secret) to the value pricing department stores (Marshall’s and Saks Off 5^th) and retail chains (DSW). Also included are several regional chains such as Easy Pickins and Jimmy Jazz. Importantly, they have also attracted retailers who are big hits with teens and young adults, such as H&M, Forever 21, and Hot Topic. The array of national retailers in this mall far outshines what The Bronx’s closest approximation to a downtown, Fordham Road, has to offer.

Back in 2016, I compiled a list of 85 national chains and researched how many had locations in The Bronx (13). See the table above. While the list certainly was not exhaustive, the results are hopefully still informative. I found 75 of the identified chains had Bronx locations and together they had a total of 290 stores.

As might be expected, The Bronx still has not attracted. the likes of Gucci, Prada, Valentino, Tiffany, Duxiana, Ralph Lauren, etc. They are far, far too ritzy and more appropriate for Rodeo Drive in Beverly Hills, Midtown Manhattan or the Americana Shopping Center in Manhasset, NY. Nor is The Bronx attracting, perhaps thankfully, those like Talbots, Chico’s, Ann Taylor or Banana Republic – many of these apparel chains still are fighting for survival. Trader Joe’s and Whole Foods still have stayed away. So have Walmart and its sibling Sam’s Club – due more to strong political opposition in NYC to Walmart than the chain’s lack of interest in NYC locations.

The retail chains that now seem to like the inner city Bronx’s markets the most are those:

Aiming at the lower income and ethic shoppers: e.g., Family Dollar, Dollar Tree, Dr Jays, Jimmy Jazz, Rainbow Shops, Vim and City Jeans. Many of them have been around for decades.
With a neighborhood level store location strategy: e.g., GNC, Walgreens, Payless, GameStop, AutoZone and CVS. These types of retailers have been locating in ethnic inner city districts since the mid 1980s.
Targeting middle-income shoppers in either big box, off-price, or factory outlet formats. Includes Home Depot, BJs, Best Buy, Target, Burlington Coat, Marshall’s, TJ Maxx, DSW, Gap Outlet, American Eagle Outlet, Macy’s Backstage, Nine West Outlet, Aldi, Saks Off 5^th. These are more likely to have arrived after 2002, but some go back to 1987.

The retailers honed in on the middle class now operate in ways that recognize its huge number of deliberate consumers who are:

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

SOME TAKE AWAYS

1. What national retail chains may do is largely irrelevant for a very large number of our downtowns that are small. They either never had any chains or only had a few non-GAFO chains. Their trade areas often are far too sparsely populated – e.g., probably under 15,000 people –to support small GAFO retailers. In these small downtowns, the abilities of local merchants will be a more critical factor than the behaviors of national retail chains.

2. Most needed in these small towns are better merchants, through either recruitment or re-training.

3. That our inner cities are underserved by retailers has been recognized at least since the early 1980s. This is not a new situation, nor is the awareness of it.

4. National retail chains, probably since their inception, have been interested in prime urban locations where lots of wealthy people lived and played, and they have been prepared to pay a lot for them. Their locating today near to large new market rate housing projects, especially if they are expensive, or in a walkable or TOD neighborhood, absolutely comes as no surprise. What would be a surprise, is if they behaved otherwise.

5. For over 20 years, national retailers have been locating in highly ethnic inner city districts and downtowns, but the levels of their interest have been uneven over time and across places. The questions sparked by the Public Square article are: a) will retailers now locate in our inner cities at a higher rate than before, even though their demand for new retail space has significantly decreased, and b) will those stores be located in our inner city downtowns?

6. The retail demand of low income shoppers in these inner city districts were long met by local retailers, who often had lucrative businesses and created chains targeted to low-income shoppers in similar districts.

7. Middle income shoppers were the most underserved and complaining inner city market segment. They were often surprisingly numerous and accounted for a large proportion of an inner city area’s residential retail expenditure potentials.

8. National chains that usually targeted middle income shoppers have over the past 20 years increasingly entered inner city districts, targeting, as might be expected, local middle income shoppers. It is their presence and not the density of the low-income shoppers that attracts these retailers.

9. The retailers best positioned to capture middle income shoppers these days are those that feature strong value pricing in either big box, off-price or factory outlet formats. These are precisely the types of retailers that are entering densely populated inner city areas.

10. Many of them require relatively large spaces and are accustomed to being in very car oriented retail centers. They often are hard to fit into a downtown, especially if it lacks large retail prone spaces and parking capacity. Consequently, these retailers may prefer to locate in non-downtown inner city locations, and downtowns might not benefit so much from any increased retail chain interest in inner city locations.

11. The use of smaller formats theoretically could enable more of these chains to locate in downtowns, but their viability is still being tested and their placement in ethnic inner city districts now is still uncertain.

12. Most importantly, the retail industry remains in the midst of a process of creative destruction that does not promise to end any time soon. As a result, how much retail space will be needed in the future remains unknown, though it now looks like it will be considerably less than it was even a few years ago. Also, still to be clarified, are the uses the retail spaces will be put to, and how that will impact the amount of space needed, their best locations and costs. These factors all have strong possible implications for any downtown retail rebound.

13. Many other factors, besides the interest of the retail chains will determine how a downtown’s retail will rebound. Among them are: the abilities and behaviors of retail chains’ managers and local landlords; political, urban design and environmental issues, the availability of appropriate retail-prone spaces and ample parking, and, most importantly, where and how local consumers like to shop.

14. There are some other interesting types of downtowns that appear to have their own retail development scenarios these days: downtown creative districts; the lifestyle mall suburban downtown; the urbanized suburban downtown; the rural regional commercial center downtowns, and the small rural downtown gems. Unfortunately, I cannot cover them in this already long article, but I want to acknowledge their existence.

ENDNOTES

1. Robert Steuteville SEP. 10, 2019, “Why downtown retail is coming back”. PSQ (/publicsquare). https://www.cnu.org/publicsquare/2019/09/10/new-day-downtown-retail

2. Urban Land Institute, Downtown Retail Development, Washington, DC:1985, pp 90, p.5

3. “The promise of multichannel retailing”, McKinsey Quarterly, October 2009,pp2-4,p2.

4. See: https://www.barrons.com/articles/investors-need-to-rethink-retail-amid-a-shakeout-in-stores-51564786976?reflink=article_emailShare

5.Data from Costar, cited in: ICSC, “Expanding Entertainment Tenants Add Experiences to Shopping Centers (Part I)” August 19, 2019. https://www.icsc.com/uploads/t07-subpage/Entertainment_Part_I_Industry_Sector_Series.pdf

6. see: https://www.morganstanley.com/ideas/us-consumer-retail-trends-2019

7. See: https://www.statista.com/statistics/241695/number-of-us-cities-towns-villages-by-population-size/

8. See: https://www.apnews.com/e7179fc8b9dc4399818f2038b75ec423?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosam&stream=top

9. Aaron Smith and Monica Anderson, “Online Shopping and E-Commerce,” Pew Research Center, December 19, 2016. https://www.pewinternet.org/2016/12/19/online-shopping-and-e-commerce/

10. N. David Milder. “quality-of-life based RETAIL RECRUITMENT.” Economic Development Journal 16.3 (2017): 38-45.

11. Michael E. Porter, “The Competitive Advantage of the Inner City.” Harvard Business Review

May–June 1995.

12. Milder, N. David and William B. Shore. Jamaica Center 1987: An Office Enterprise Zone. Regional Plan Association, New York:1987, pp. 53, p5.

13. N. David Milder with Dart Westphal. “The Bronx, NY: Low-Income, High Immigrant, Minority-Majority Urban Areas May Fare Relatively Well Under Retail’s New Normal” Downtown Curmudgeon Blog. December 2016. https://www.ndavidmilder.com/2016/12/the-bronx-ny-low-income-high-immigrant-minority-majority-urban-areas-may-fare-relatively-well-under-retails-new-normal?(opens in a new tab)

Quality of Life (QofL) Retail Recruitment Update

Posted on July 16, 2019 by DANTH

My Article

Back in 2017, I published “Quality-of-Life Based Retail Recruitment” in the IEDC’s Economic Development Journal (1). Among its main arguments were that:

Many of the new retail shops in our smaller and medium-sized downtowns are being opened by new or returning residents (boomerangers).
These new and returning residents are most strongly drawn by the town’s quality of life.
There are a lot of talented people who prefer the lifestyles offered in our small and rural communities, many of whom are now residing in other locations.
Many will not need new jobs, or they can bring their current jobs with them, or they will create their own new jobs.
They represent a substantial market segment that should be targeted by downtown EDOs in our smaller and medium sized communities. Such a program might be the most cost effective way to attract high quality independent retail operators to these downtowns.

New Data

Over the past year, I have had consulting assignments in a number of communities that are relatively rural and have populations under 35,000: Auburn, Cortland, and Oneida in Central NY, and Vinalhaven in ME. In the last few months, I also came across some research done in Minnesota, Nebraska and nationally that, I am embarrassed to admit, I should have found years ago, but that somehow eluded my earlier internet searches. These studies were done back between 2007 and 2015. They and my consulting assignments both provided new data and arguments that support the analysis I presented in my QofL retail recruitment article and expanded my understanding of many of the points I had made.

Rural Areas Have People in Creative Class Occupations, But Fewer of Them. a study published in 2007 of the creative class in the nation’s rural counties by David McGranahan and Timothy Wojan found that: “While in metropolitan counties about 30.9% of the workforce were in creative class occupations, in rural counties it was just 19.4%” (2).

People Being Drawn to Small and Rural Communities by Their QofL Assets Is Not a New Trend. The Buffalo Commons survey of the Panhandle Region of Nebraska as well as research led by Ben Winchester in northwestern Minnesota found that these rural areas had “brain gains” as well as “brain drains,” and that the incoming migrants were overwhelmingly attracted by a town’s QofL assets. For example, the Buffalo Commons survey found that migrants into the Panhandle’ counties were motivated by the desire for:

A simpler life, 53%
A less congested place to live, 50%
Being closer to relatives, 50%
Lower housing costs, 48%
Lower cost of living, 45%
A higher paying job, 39%
Living in a desirable natural environment, 37% (3)

Winchester’s study found that “There were a number of factors that were important in the newcomer decisions to move:

To find a less congested place to live , 77%
A better environment for raising children, 75%
To find better quality local schools, 69%
To find a safer place to live, 69%
To lower the cost of housing, 66%
To find a simpler pace of life, (66%
To find more outdoor recreational activities, 63%
To be closer to relatives, 62%
To live in a desirable natural environment, 60%
To lower the cost of living, 53% (4)

Additionally, the study by McGranahan and Wojan found that:

” The present analysis of recent rural development in rural US counties, which focuses on natural amenities as quality of life indicators, supports the creative class thesis”.
In the rural counties of metropolitan areas, “ The creative class moves into less dense metropolitan counties in search of a higher (more rural) quality of life; the building of a creative class (then) creates an environment for job growth; and this leads to further in-migration” (5).

The In-Migrants Are Often Quite Skilled. Both the Minnesota and Nebraska studies found that these migrants “have significant education, skills, connections, (and) spending power” (6). The Buffalo Commons survey found, for example, 45% of them had skills in the management, business, financial and professional fields. Many of them would be considered members of the “creative class”.

However, findings of the McGranahan and Wojan study suggest that the skill sets of rural and metropolitan creatives might differ in important ways. For example: more metropolitan creatives had college degrees, 56.2% than the rural creatives, 36.8%. while 21.4% of the rural creatives were self-employed compared to 17.1% of the metropolitan creatives (7).

Rural Innovation. A topic one might hypothesize is strongly related to workforce skill sets is innovation. One useful definition of innovation is: the introduction of “new goods, services, or ways of doing business that are valued by consumers” (8). A research report written in 2017 by Tim Wojan and Timothy Parker, of USDA’s Economic Research Service found that:

Urban establishments in nonfarm tradable industries were more likely than rural establishments to be innovators.
Innovation rates in urban and rural manufacturing industries are very similar.
In the service industries, the innovation rates of rural establishments are lower than those of the urban firms in the same service sector.
The manufacturing industries with the highest rate of innovators in rural areas were pharmaceuticals, chemicals, computers, plastics and textile mills.
The only tradable service-providing industries with a high share of substantive innovators in rural areas were telecommunications and wholesale electronic markets.
About 30% of metro establishments could be classified as substantive innovators, while only about 20% of the nonmetro establishments fell into this group. Importantly: “The metro-nonmetro differences in innovation are considerable but less than commonly assumed” (9).

Artists Havens. Another study published in 2007 by Wojan, Lambert, and McGranahan, “The Emergence of Rural Artistic Havens: A First Look” focused squarely on the issue of the ability of rural counties to attract the artist subset of the creative class in 1990 and 2000. Counties meeting some minimum employment levels and with more than 40 people in artistic occupations were deemed to be artistic havens. Functionally, the existence of an artistic haven occurs when “a minimum critical mass of artists or performers” has been established so that “members of the community benefit from substantial interaction among themselves and the group is large enough to affect culture of the wider community” (10).

The authors identified two kinds of artistic havens. “Existing havens” were those identified using 1990 census data, while the “emerging havens” were identified with 2000 census data. Altogether, only about nine percent of our rural counties then had such havens.

However, what was noteworthy in their findings was that the number of havens had doubled over a decade. (See table above).

The table below is based on the pooled responses for the American Community Surveys for the years 2007-2011. It was constructed by USDA researchers. Their results should be viewed as describing the situation during that time period. However, the ACS’s investigation of the number of “artists” is problematical because the average standard error on its estimates of the number of artists in each non-metropolitan county is about 45%. Nevertheless, the data may still be useful if we try to make some adjustments for that strong margin of error and treat the results as ‘directional” rather than definitive. To that end, instead of looking at the number of non-metro counties having more than 40 artists, I bumped the magic number up to 60. There are 668 non- metro counties that the ACS found having more than 60 artists, or about 35% of all non-metro counties. That suggests that there was probably a very substantial increase between 2000 and 2011 from the number of artistic havens, 199, Wojan et al identified in their 2007 paper. Prudence suggests refraining from claiming an exact number, such as 489 (668-199=489), but very substantial growth seems very likely.

Wojan et al explain that the strong relationship they found between the emergence of new artistic havens and the presence of large numbers of 25-44 year olds with college degrees is based on the highly educated workers being viewed as a very powerful proxy for quality of life” (11). They go on to state that: “The implications of these findings are that counties that have been unable to retain highly educated workers are less likely to attract artists in sufficient numbers to constitute an arts community”(12). That all sounds very Floridian, but the unstated implication is that a lot of these highly educated workers is necessary. There are several problems with that. Richard Florida is quite adamant in his argument that it is the type of work people perform, not their education levels, that is the defining factor of creative class members.

More importantly, there are small towns and cities like Auburn in NY where the percentages of college graduates, 20.7% , are quite lower than the nation’s, 30.9%, yet they are attracting between 50 and 100 artists who represent less than 0.5% of their town’s population. Nevertheless, they are able to build a sense of there being a recognizable artistic community, or “haven” in their communities.

Also, McGranahan et al reported that about 63% of rural creatives lack college degrees. Does that mean they lack the magnetism of other creatives? That seems highly unlikely.

If the highly educated workers are a strong proxy for QofL, then it would appear that more precisely investigating what the components of that QofL are is essential. The Buffalo Commons and the northwestern Minnesota studies give some strong indications about what some of them are. My own discussions over the years with creative types living in smaller towns and cities suggests that, while they certainly like having other creatives nearby, and appreciated the beauty of their area, also very important are such factors as being closer to family, a slower pace of life, having a stronger sense of community, affordable housing costs, having active social places such as eateries, bars, public spaces and arts and cultural venues . In other words, they appreciated central social district type venues and the activities associated with them.

Getting back to the table, some of the data in it are presented in ranges determined by + and – 45% of the original estimates. For example, the mean number of artists per non-metro is between 41 and 107. When the error factor was 8% or less, just the estimates are reported in the table. This mostly occurred with the data on creative class occupations. As night be expected, these data show that the non-metro counties will have far fewer creatives and they will represent a lower proportion of those employed than in the metro counties. However, these levels are not negligible.

While Young Adults May Be Leaving, 30-49 Year Olds May Be Returning. In both NE and MN, in-migration appears to have resulted in a surge in the populations of residents in the 30-49 years old age group in some rural locations (13). Of course, their populations in the young adult cohort show a consistent loss. This suggests that a significant amount of boomeranging may be occurring. The youths leave for better job prospects and a more urban life style, and many then return to small and rural towns later in life with more skills and resources that strengthen their new communities. For example, the Buffalo Commons survey found that 38% of the respondents and 32% of their spouses had lived in their current community prior to returning to it. Winchester found, though with a much smaller sample of 53, that 43% of the “new” residents has previously lived in or near their current community.

Boomerangs Are Important. One analyst has argued that boomerangers are not that important because they only account for 30% to 40% of the new migrants. To the contrary, it might more convincingly be argued that they are very important because no other prior residential location has anywhere near those numbers. Additionally, from the perspective of developing a business recruitment program that targets QofL prospects, there are several obvious possible networking opportunities with potential boomerangers that are completely absent with other prospects. Moreover, there have been several successful “Return Home” campaigns launched in communities such as Ann Arbor, MI, Scranton, PA, and Superior, NE from which much can be learned (14).

QofL In-Migrants Can Have Impacts Larger Than Their Numbers Might Indicate. My assignments in the Central NY communities was on a project led by the Lakota Group to assess the feasibility of establishing arts/creative districts in their downtowns. In each community, well-attended focus groups were held for local artists, arts leaders and business people. In each town, a strong majority of the creatives were either not natives of the town or boomerangs. When asked, most explained their reasons for moving to that town In terms of the QofL assets it offered.

Auburn. The situations in Auburn and Oneida are very revealing about the impacts these QofL migrants can have on the local business community. In Auburn, in recent years they have opened a number of shops that are very highly regarded by local leaders and shoppers. They are certainly viewed as much better operators than those who previously occupied their storefronts. Their current number is below 10, but their presence suggests that the downtown is now in a much more upbeat place on its revitalization arc. It can be reasonably argued that their positive impacts on the downtown far exceed what their small number might suggest. Moreover, even If they keep coming at a rate of only one or two a year, in a few years there will be a substantial bolus of them with more than ample customer magnetism and image making power. They are successful because they are bringing in strong skill sets that are even relevant if they do a career reboot, as well as significant financial resources.

It is interesting that when interviewed, these QofL migrant entrepreneurs say that the presence of a significant arts community in the Auburn was an important factor in their decisions to live and work in their new communities. Since the Finger Lakes area is filled with numerous scenic places, outdoor recreational opportunities, vineyards, charming restaurants and inns, and historic sites, Auburn’s arts assets probably helped it compete successfully with other towns in the region to attract these new merchants.

The leader of a local artists organization estimated that there are about 75 to 100 local residents who are artists of one form or another. That means that the city of Auburn, with a population around 26,000, today seems to be an artistic haven: it has besides its resident artists, nine major arts and cultural attractions that have a combined annual attendance of about 199,000 that brings about $6,273,356 in spending power to the city that local merchants can capture (see table above).

Auburn is now on the path of creating an arts/cultural district to help provide a support structure for its arts community and to help it have stronger marketing and promotional capabilities. According the Americans for the Arts, there are now over 300 culture districts in the US (see the map below). They are proliferating, though only a small proportion our 19,000+ villages, towns and cities have them. The number in smaller and rural communities is unknown, but they are not scarce: e.g., Peekskill, NY; Paducah, KY; Ridgeway (900 residents), Salida and Crested Butte in CO. As a point of comparison, BIDs started to appear in serious numbers in the early 1980s and today there are over 1,000 of them across the nation. The culture/arts districts have not yet had 39 years to grow in.

**The 300+ Cultural Districts in the US (Source: Americans for the Arts)**

Oneida. Downtown Oneida is now in the initial stages of its revitalization arc. Consequently, I was happily surprised to find in its struggling downtown a small group of independent merchants who are among the most marketing and internet savvy retailers I encountered in the overall project. While the old downtown retailers were dead or dying, these merchants were internet savvy and knew they had to tap consumers well beyond the town’s borders. One operates a vendor mart that brings a considerable variety of merchandise into town and provides some business incubation functions. Together, this group of operators formed a marketing campaign that targeted the visitors to a gambling casino located about an eight minute drive from the downtown. Two of these operators are boomerangs, and the spouse of one telecommutes on his job with a Fortune 500 corporation. Though the group is now small in number, it is modeling business behaviors for other merchants in the community, be they new or old, while bringing a badly needed perspective into the town’s decision-making about economic policies and programs. They are, consequently, helping to change the business culture in Oneida along several important dimensions as well as the way the downtown business community should be seen within the whole city. Moreover, I’ll bet their presence will attract more businesspeople who are like them.

Vinalhaven. This beautiful island is located about a 75 minute ferry ride off the coast of Maine. It’s roughly the size of Manhattan. It has a year round population of about 1,400 that bulges to about 5,000 in the peak tourist summer months. Lobster fishing and tourism are it major economic engines. Home-owners who are part-time residents and relatively longer stay home rentals are the most important components of its tourism. These renters are often annual visitors. The thing that binds the year round residents, the part-time residents, the long-stay renters and the fisherman is the island’s highly venerated quality of life. They are quite overt in their awareness of this. The community is also united in its concern that any growth in tourism should be balances so as not to endanger their strongly appealing QofL.

The island’s downtown is relatively small, with relatively few storefronts, yet it is still the community’s economic and social hub. On a recent visit, I found that several of its merchants were QofL migrants with impressive previous careers elsewhere in the nation. They opened their shops on Vinalhaven to provide themselves with some income and/or to keep busy. This often meant career reboots. Some of the more recent arrivals wanted to live and work on Vinalhaven so much that, because the of very high costs of flood insurance, they had to pay cash for their new business locations. On Vinalhaven, if you subtract the QofL migrants who opened businesses there, the downtown would be deader than a doornail!

Vinalhaven is also an artists haven. A local gallery reported that about 70 artists are associated with it who spend at least some part of the year in Vinalhaven. These artists have displayed an attraction to Vinalhaven’s QofL. The gallery not only provides the artist with a marketing channel, but also serves as the artists main local social venue. Robert Indiana was a longtime resident. His estate may be opening some kind of museum in the downtown.

BOTTOM LINES

The ability of small and medium sized communities in rural areas to attract talented new and returning residents because of their QofL assets is not a new phenomenon, but it has not been significantly strategically leveraged.
Rural QofL assets have traditionally been mostly as natural amenities. However, more recently, a high quality of life” is seen as being more broadly defined . That means that newcomers being able to perceive the presence of an ample number of people like themselves, strong central social districts humming with some vibrant restaurants and watering holes, and strong public spaces are increasingly the assets smaller communities will need to pull in talented new residents and boomerangs.
“Brain Gain” and “Brain Drain” can happen in the same towns, with the young adults leaving and mid-life adults, many of whom are boomerangers, moving in from larger, more urbanized communities.
Simply stated, the underlying challenge for small and rural communities is to have the brain gain be larger than the brain loss.
Some of these new and returning residents will open downtown businesses. Though early on their absolute numbers may be small, say just two to five, their influence on the downtown’s revitalization can be exponentially greater. The ability to even recruit 1 or 2 of such QofL entrepreneurs annually could have very profound positive impacts on a downtown. Smaller and rural communities do not have win hordes of new residents to see meaningful positive changes.
Potential boomerangers are an obvious market segment that a recruitment program should make a high priority target.
However, anyone visiting the town, especially on a recurring basis, should also be targeted – e.g., visitors to local hotels/motels, restaurants, parks, museums, theaters, etc.
Smaller communities are, well, small, so you do not need to attract hordes of creative class members — or their artist subset — to spark significant economic development.

ENDNOTES

1) See: https://www.iedconline.org/clientuploads/directory/docs/EDJ_17_Summer_Milder.pdf

2) David A. McGranahan and Timothy R. Wojan, “Recasting the Creative Class to Examine Growth Processes in Rural and Urban Counties”. https://naldc.nal.usda.gov/download/41989/PDF

3) See: https://unlcms.unl.edu/center-for-applied-rural-innovation/community-marketing/buffalo-commons-survey

4) See: Ben Winchester: https://extension.umn.edu/economic-development/rural-brain-gain-migration

5) See endnote 2

6) See endnote 3

7) See endnote 2

8) Tim Wojan and Timothy Parker. “Innovation in the Rural Nonfarm Economy: Its Effect on Job and Earnings Growth, 2010-2014.” USDA Economic Research Service. Economic Research Report Number 238, September 2017. https://www.ers.usda.gov/webdocs/publications/85191/err-238.pdf?v=0

9) Ibid.

10) Timothy R. Wojan, Dayton M. Lambert, and David A. McGranahan, “The Emergence of Rural Artistic Havens: A First Look.” Agricultural and Resource Economics Review, April 2007. https://pdfs.semanticscholar.org/fe36/86db666b2f5e0890e1898a80c844132aba1a.pdf

11) Ibid.

12) Ibid

13) See: Randy Cantrell, “Nebraska’s Rural Population: Growth and Decline by Age”. Rural Futures Institute at the University of Nebraska https://www.unomaha.edu/college-of-public-affairs-and-community-service/center-for-public-affairs-research/documents/policy-briefs/pb2015-nebraskas-rural-population.pdf and https://extension.umn.edu/economic-development/rural-brain-gain-migration

14) See for example: Dana Crater, “The talent competition, part 2: “Return Home” campaigns”. Posted to IEDC website on July 24, 2014.

SOME MORE THOUGHTS ABOUT DOWNTOWN RETAIL

Posted on July 5, 2019 by DANTH

GAFO E-Sales

In my retail recruitment experience, I’ve found that there are types of retail stores that clients need and those that they want. The need category generally includes groceries, specialty food shops, pharmacies, etc., while the want category overwhelmingly includes GAFO operations — i.e., general merchandise, clothing and footwear, home furnishings, electronics and appliances, sporting goods, book and music stores, and office supply stores. The shops that respond to needs did relatively well through and after the Great Recession, while the GAFO stores have been in consistent decline or weakness since about 2009. Recent research indicates that e-GAFO retailers are now eating the lunch of brick and mortar GAFO merchants.

An Enormous 45% Hit on B&M Retail Sales Potentials!. One of the most significant trends that has helped define the new normals for retailing and our downtowns is the increasingly significant share of the sales of the merchandise sold in GAFO stores that are being captured by online operations. Obviously, the more sales dollars the e-stores win, the less there are for brick and mortar shops (B&Ms) to capture.

A while back, in another blog posting, I presented the above table, taken from a provocative study by Hortacsu and Syverson, that showed e-store market penetration for a range of retail categories in 2013 along with estimates of the years in which they each would reach 25%, 50%, 75% and 90% market shares.

A more recent 2019 report by Morgan Stanley suggests that the Hortacsu and Syverson study was pretty sound. It found that while “…e-commerce penetration reached 11% of total retail sales at the end of 2018” that “e-commerce penetration in the GAFO segment” was now over 45%.(1) That makes it so much harder for B&M GAFO retailers to survive, much less thrive, unless they are executing or part of an omni-channel marketing strategy.

The Morgan Stanley report also found that “the shift to e-commerce has hit the home-furnishings segment the hardest,” while clothing, linens and other “soft” goods have experienced a significant “e-commerce disintermediation” with a 22% e-commerce penetration expected in 2019. (2) It was long thought that these two retail segments would be resistant to e-store penetration because one offers large and heavy merchandise and the other offers merchandise that consumers would want to touch, feel and try on. One weakness of such thinking was the failure to recognize that so many of the soft goods we buy are like commodities and we don’t need to touch them, feel them or try them on. For example, lots of people have long bought shirts, trousers, shoes, dresses, swimsuits, parkas from catalogs. They often are buying more garments like the ones they already have – e.g., I have countless blue, button down collar shirts — or replacements for them. Then, too, lots of home furnishings products are not furniture suites or otherwise prohibitively large, while others have been re-imagined – e.g., Casper Mattresses – so they can be shipped “small.”

How Are the Leakage Analysis Data Providers Dealing With This? Frankly, I do not know the answer to this, but I think the data providers owe their customers a clear explanation of how they are handling this situation. One technique they might be using for estimating consumer demand is to take the sales of retail stores by NAICS code within a certain fairly large geographic area and then divide the sales by the number of households in that study area. That defines demand solely in terms of B&M store sales, ignoring the huge Internet sales and demand. If, instead, they are using extrapolations from BLS consumer expenditure surveys to determine demand, then they must have whopping “leakages” in each of the NAICS codes analyzed unless they also are using data on e-store sales by NAICS code.

The leakages to the Internet for GAFO store merchandise now are probably several magnitudes larger than traditionally defined leakages to B&M shops located beyond the trade area’s boundaries.

Of course, an increasing number of downtown merchants now have both a B&M shop and an e-store. Most of their e-store revenues often come from distant customers and represent “e-surplus” sales. How are these e-sales revenues included in the leakage analysis? How do leakage analysts know which e-sales come from within the B&M store’s traditional trade area from those that come from beyond it?

A growing number of retail sales are “click and collect” transactions that involve ordering online via a retailer’s server that probably is located hundreds of miles away and then picking up the merchandise at the retailer’s local store. Are those transactions to be deemed leaked or “unleaked” sales? The local store’s involvement may be key to the sales transaction, though it may not logically be part of the monetary transaction. Would the sale have occurred if the local store were not there? If the answer is no, then somehow the role of the local shop has to be recognized in the analysis.

Vacancies, Store Closings and Openings, Changing Functions

A Word or Two About Vacancies. I fear that I’m very much an outlier, a contrarian, when it comes to downtown vacancies. While I don’t like vacant storefronts, my jockeys don’t always get in an uproar when I see them. Too often, they are not viewed from the proper perspective. Rule 1 for looking at vacancies should be to ask: where is the downtown on its revitalization arc? If it’s in the initial very troubled stages, then the prospects for recruiting really good retail tenants are not great, especially with today’s upheavals in the retail industry. Moreover, recruiting crappy tenants would be worse for the downtown’s revitalization effort than the empty shops. Also, at these early points in the revitalization process, an EDO’s scarce resources are probably better spent on working for improving the infrastructure and housing and reducing quality life issues such as the fear of crime, than paying for very problematic efforts to recruit good retail tenants.

Rule 2 is don’t be snooty — look at pamper niche tenant prospects such as hair and nail salons, yoga and martial arts studios, etc., especially early in the revitalization process when their relatively low revenue needs and desire for low cost spaces can put them among the downtown’s best tenant prospects.

I take vacancies more seriously when the downtown is much further along on its revitalization arc. In these situations, Rule 3 is the locations of the vacancies are far more important than their number. Those that are in strategic locations such as on or near the district’s “100% corner” or near other strong assets will certainly need attention. A cluster of them is also significant and probably indicates the existence of an important underlying problem.

Rule 4 is that the downtown EDO should identify and address such underlying problems, otherwise any “fill the vacancies” recruitment program undertaken either by it or local commercial brokers will most likely yield paltry results.

In the mid-arc downtowns, Rule 5 is to determine if new downtown projects have raised landlord expectations about:

Their ability to attract national chains, even though they are looking for fewer and smaller spaces and have become much more finicky about their new locations.
Potential rental incomes to the point that their spaces are too pricey for their most likely tenant prospects, small independent merchants.

If either of the above is the case, then there’s a landlord problem, not a tenant prospect problem. This leads into Rule 6: as downtowns revitalize, erroneous landlord estimates of viable rent increases can result in more vacant spaces than diminished consumer retail demand or its associated reduced retailer demand for store spaces.

In the past, I argued that a vacancy rate of about 5% was the sweet spot for mid-arc downtowns. Some vacancies are necessary to allow for the tenant churn that can bring in new merchant blood and help keep the district vital. That still strikes me as an ideal goal. Many years ago, my real estate mentors taught me that vacancy rates above 10% indicated the existence of serious downtown problems that needed immediate identification and remediation. Well, these days, under the New Normal, it seems that a 10% vacancy rate is about average for retail spaces (3). Of course, I am not clear whether that statistic refers to all the spaces in shopping centers and malls or just to those allocated for retail tenants. Given that so many malls and shopping centers have saved themselves by bringing in non-retail tenants, I would say it probably is the former. One disturbing implication for downtowns is that, these days, a 10% storefront vacancy rate may not be all that bad, comparatively speaking. Even more unsettling for me have been the reports I’ve seen of downtown vacancy rates in the 10% to 20% range in some of our small and medium sized communities, Another implication is that downtowns must look more to nonretail tenant prospects to fill their vacancies, but ones that are able to stimulate and reinforce pedestrian traffic on nearby sidewalks.

Because of Omni-Channel Marketing, B&M Retail is Not Going Away. One might expect that if the addressable retail markets for B&M chain stores have shrunk substantially, that lots of the stores would be closed. In fact, there have been a huge number that were closed –e.g., 7,000 just in 2017. However, new shops are also opening and an accelerating number of them are by Internet-birthed retailers (4). For example, so far in 2019, there have been 1,674 retail chain store losings, but 1,380 store openings (5).

Today, successful retailers do not see B&M store customers as a different set from their e-store shoppers. Instead, they just see customers who they can individually reach through several channels, e.g., B&M shops, websites, social media, traditional media, etc. They know that while most consumers may still prefer shopping in B&M stores over e-stores: (6)

Convenience is an important driver of which shopping channel the consumer will select
Unless the B&M store provides an attractive shopping experience, it will not attract as many customers as its management might want.

B&M retail shops, under an omni-channel marketing strategy can play a number of functions, besides being a place where sales transactions occur, that can justify their existence:

SONY and Samsung, for example, have had important store locations that are nothing more than showrooms. Many other retailers use their shops as places where customers can experience the use of their merchandise. You can, for example, book a nap at a Casper Mattress Sleep Shop.
More and more large retailers are offering “click and collect” purchasing, e.g., Best Buy, Walmart, Amazon.
Some retailers are developing special store formats, e.g., Nordstrom Local, where they can provide extremely high levels of customer service to shoppers with a proven record of spending large sums in their stores.
Almost universally, the B&M store is seen as the venue where the retailer can best provide experiences that will strengthen their relationships with customers.
B&M stores also can generate website traffic. For retail chains, a new B&M store in a market area sparks “a 37 percent increase in overall traffic to that retailer’s website” by area residents. (7) “For emerging brands, new store openings drive an average 45 percent increase in web traffic following a store opening, according to ICSC research” (8). Of course, web traffic does not mean web sales (see below).

Very importantly, B&M stores outperform e-stores in several very critical ways:

They have a much higher sales conversion rates (visitors who turn into actual buyers), averaging about 22.5% across all retail sectors, than the less that 3% for e-stores (9).
Merchandise return rates for e-stores are three to four times higher than for B&M stores, probably because e-shoppers cannot touch, feel, try on or otherwise experience the merchandise. Returns have become an enormous ball and chain on e-retailer profitability, while bad returns experiences are really ticking off e-shoppers (10).

Bottom Line: B&M retail stores are not going away, but there will be far fewer of them, they will occupy smaller spaces, and perform many new functions that justify their existence besides making sales transactions. How is your downtown planning on dealing with such a scenario?

ENDNOTES

1) https://www.morganstanley.com/ideas/us-consumer-retail-trends-2019

2) ibid.

3) https://www.nreionline.com/retail/how-many-more-store- closures-are-expected-2019

4) Ibid.

5) ibid.

6) https://www.retaildive.com/news/why-most-shoppers-still-choose-brick-and-mortar-stores-over-e-commerce/436068/ . Pew surveys have had similar findings.

7) www.nreionline.com/retail/how-should-retail-leases-account-omni-channel-transactions

8) Ibid.

9) See: http://www.comqi.com/sales_conversion_rates_more_for_physical_stores/

and https://www.invespcro.com/blog/the-average-website-conversion-rate-by-industry/

10) https://www.retaildive.com/news/shoppers-are-judging-retailers-by-their-returns-process/544740/

Some Soul Searching About Why Do We Do Economic Development

Posted on April 1, 2019 by DANTH

By N. David Milder

Jobs, Incentives and Huge New Expensive Projects

In the last few weeks I confronted an intellectual jolt that made me ask some very basic questions about economic development, the field I have been professionally active in for over 40 years. The causes of this jolt were the discussions in the traditional media and on LinkedIn about Amazon’s Long Island City 2HQ project and the opening of the huge $25 billion Hudson Yards project on the West Side of Manhattan’s Midtown CBD. The merits of both projects have been the subjects of significant debate – especially with Amazon reneging on the deal. The key concepts on these debates seemed to be:

JOBS. For the Amazon deal, jobs seemed to be the be all and end all of all of the pro-Amazon arguments.
THE DESIRABILITY OF HUGE NEW EXPENSIVE PROJECTS. For the advocates of both projects, the size and expense of both projects made them worthy, and the fact that they would attract the intellectually and financially blessed added greatly to their luster.
INCENTIVES. Criticisms of both projects were heavily cloaked in attacks of the large financial incentive packages given, both directly and indirectly to Amazon and Related, while proponents seemed to argue that direct incentives had no real cost – after all, no Brinks trucks were being driven up to the City’s treasury to take away billions in cash.

What jolted me was that these discussions about big, important projects seemed to be vapid because they were missing so many really essential points. Indeed, this vapidity suggested that we, in the economic development field, had forgotten how to answer an elemental question and then use that answer in our professional activities. That key question is: Why do we do economic development? What is it supposed to achieve? I have been to countless professional conferences, but I don’t remember too much attention ever being given to that question.

Are Jobs a Means or an End?

Jobs certainly are important. However, there are good jobs and bad jobs. Economic development should seek to maximize good jobs. Economic development should also try to provide good jobs for those who need them. All this would seem to be part of our field’s conventional wisdom. Amen.

Lots of Jobs Can Have Big Impacts That Can Be Good Or Bad, That Can Help Or Hinder Reaching Important Societal and Political Goals. Unfortunately, not all jobs are good ones. The US, today, has an incredibly low unemployment rate. But, how many of those plentiful jobs pay a livable wage? How many people are holding several of those jobs because none of them alone pays enough to support their households?

Good jobs are also the means to many important socio-economic and political ends. They can enable system residents to have a better quality of life, enable a more equitable distribution of incomes, and reduce the extent and depth of socio-economic frictions. Unfortunately, what many people may consider good jobs, may also have bad impacts on such things as the environment, public health, housing demand and prices, commercial space demand and prices, stress on mass transit. It is precisely at this “system” level where the suasion of the arguments of the advocates for gobs of more jobs are most likely to fade or outright fail. It is also why such discussions are not likely to occur or be given import. It is also why questions such as this are almost never asked: how can 25,000 very high paying jobs in one relatively small area be absorbed without huge disruptions in the housing, market, labor market, public transportation, traffic congestion, etc.?

Jobs Are More Important to Some Economic Developers Than Others. The centrality of jobs to economic development practitioners varies. For those who are concerned about downtowns and Main Streets, jobs are not a key concern, save when they need to demonstrate the positive impacts of a new project. Job creation and development are much more salient to economic developers who are concerned about workforce growth and development, and those active in obtaining project approvals and funding from government agencies and foundations.

Jobs Have Become an Important Concern Because We Are Told We Can Accurately Estimate Them. Concern about jobs is also highly embedded in our politics and in our assessments of the economic impacts of large projects such as new buildings, stadiums and arenas, arts and entertainment venues, etc. This is facilitated by the ease with which input-output models can generate estimates about how many jobs such projects can generate.

Alas, the use of these I-O models often reminds me of a story the famous French sociologist Raymond Aron once told a seminar at Cornell about the former president of France, Valery Giscard d’Estaing. When taking a university exam and asked where the Seine was deepest as it courses through Paris, d’Estaing’s reply was something like: “Under which bridge? I am sure I can make a convincing argument for each one.” Similarly, these I-O models seem to have never met a project for which they cannot find huge positive benefits. I would argue that the importance given to new jobs in many project assessments is, to an important degree, a result of the ability of I-O models to churn out positive employment impacts. I have come to treat the indirect and induced estimates of the I-O models with considerable wariness and skepticism. Reviewing them I keep in mind the axiom Garbage In, Garbage Out.

The Incentives Tie-In. Across the nation, scads of financial incentives have been given away for more new jobs, usually at an $XX/job rate . That was, indeed, at the heart of all of Amazon’s 2HQ deals. But, experience, has shown that far too often those jobs don’t show up or quickly disappear or are not the type pf jobs promised. For example, Amazon’s hoopla that 2HQ jobs will have a median salary of $150,000 seems to be very far from true for its new Nashville location.

Deal-Making. In my years in the field I have met an awful lot of people for whom economic development is about making deals. These deals usually involve using public financial incentives to produce projects. A promised primary benefit of most of these projects is lots of more jobs. Too often the content of the deal and its probable impacts are not as important as the making of the deal.

Suggested Take Away. Jobs are undeniably important, but also a means to larger and more important economic development ends. We must not lose sight of those ends. Moreover, jobs, even those considered “good” ones, can have impacts beyond those on the job-holders that are beneficial or harmful. Those impacts are important to know and assess, though too often never looked into.

Jobs are often presented as the means by which the larger community benefits from a major project. Just knowing the number of jobs or even their pay ranges are really insufficient to assess a project’s real impacts on the larger community.

Are “More”, “Bigger” and “More Expensive” Always Better?

Also embedded in the argument for the Amazon and Hudson Yards projects were that they are big or in some way the biggest, or the most expensive. Lots more workers, pedestrians, and residents, were taken as being desirable. BUT in the real world, you have to know a lot more about those jobs, pedestrians and residents. There can be too many of them that produce congested trains, buses, and auto traffic, that make sidewalks almost impossible to walk on comfortably, that provide more but lower paying jobs, that create a housing shortage and huge increases in housing costs. Do we really want every neighborhood to be like Manhattan or San Francisco or Seattle where those who can’t afford $1 million for a condo are hard pressed to find decent housing, where either midget apartments or shared housing – the types of residential experiences the affluent definitely do not seek – are lauded as acceptable alternatives?

Walkability and high levels of pedestrian activity understandably have become almost religious mantras among downtown leaders, but many places in Manhattan have become almost unwalkable because of the density of pedestrians, and many tourist attractions in Europe are being overrun and ruined by attracting too many tourists. Often, as I walk through them, I think that Times Square and parts of Fifth Ave should have olive oil misters to lubricate pedestrian traffic.

If our downtowns are being changed into places that only can be used by people who can afford $1 million apartments, $500 per person meals and $500 theater tickets, will they still be everyone’s neighborhoods?

The fact that the Hudson Yards project is the biggest and most expensive urban project certainly does not in any way make it a “good” project for the community, for the city, for all of those who are neither its developer/landlord nor tenants, but who are paying $ billions for the project to happen. Compared to Rockefeller Center it is an outright gated community failure.

Just because a project might produce huge increases of something, be it jobs, housing units, money invested, etc., are poor reasons by themselves for doing the project. Why do we keep falling for the “more is better” types of arguments?

The Critical Density Issue

For a significant number of economic developers, particularly those with a partiality for urban areas, greater agglomeration and development density have long been seen as desirable community goals. Valid conventional wisdom recognizes that often there can be too much of a good thing, e.g., rain, food, fire, etc. Can there also be too much development density? One might argue that traffic congestion, growing pedestrian congestion, growing air pollution and garbage production might all reach the “too much” stage. A recent study has also shown that once our large cities reach a certain population level, their economic growth slows appreciably.

Today, we can no longer assume that greater density will always be good. It is unfortunate that we are just beginning to look at where those cut off points might be.

Where Are Concerns and Discussions About Community, Equity, Justice and the Common Good?

These are the kind of concerns that I think best justify economic development activities and projects. It is amazing to me how often they are never raised when economic development projects, programs and policies are being discussed or how little attention is paid to them when they are. For example, one would be hard pressed to find them in the discussions about the NYC Amazon 2HQ or the Hudson Yards projects. While housing affordability was raised in the fight against the 2HQ project, incentives and jobs seemed to consume most of the oxygen in that debate.

For decades, downtown revitalization advocates argued that downtowns should be everyone’s neighborhoods. Can that aspiration be achieved when downtowns are increasingly being turned into places that even solid middle income households cannot afford to live or play in?

These concepts are fundamentally about values and often hard to quantify. They are also often very political. Discussions that involve them can be highly emotionally charged, even combative. Consequently, public officials may be inclined to want to avoid them. However, that avoidance does not diminish the importance of these concepts – or the incompetence and turpitude of too many of those public officials.

Who’s in Charge of Development?

Amazon’s 2HQ national effort initially drew a lot of my interest, but I slowly grew uneasy about it. The reason for my unease did not become clear until Amazon reneged on the NYC-LIC deal: Amazon and its needs and plans were driving things, not the needs and well-thought out plans and strategies of the responding communities. Amazon was taking charge of the economic development processes in all of these communities so hungry for more jobs and huge investments in real estate. The cities were responding like giddy, compliant lackeys, anxious to give away anything to get such a prestigious corporation with all its promised jobs and investment dollars.

Amazon early on plainly established by its actions that they had an “our way or the highway” policy, but political leaders — many of whom claim to be powerful politicians — just accepted Amazon’s lead. Amazon reneged in NYC when it became clear it would have to engage in some real negotiations. They were never prepared to be a true development partner. They were/are more of a potential imperial development partner. Cities do not need such imperious corporations –- they care mostly about themselves, little about the communities in which they are located.

Is Your Downtown in an Arts Archipelago? If So, Here’s How to Benefit From It?

Posted on March 8, 2019 by DANTH

By N. David Milder

Introduction

Across the nation over the past decade or so, the idea of using the arts as an engine for downtown and Main Street economic growth has attracted a growing number of adherents. One outcome of this advocacy is that arts districts, a.k.a. creative districts, are appearing across the nation. Colorado, for example has at least 26 of them, all formed under a state statute. These districts either cover a designated part of a downtown district or all of it.

However, very often, arts event venues and/or artisan work spaces in a small town or big city are mostly dispersed beyond the downtown’s borders. The town’s arts/creative assets then are much like an archipelago where the arts islands may have some smaller clusters, but overall there is a good deal of separation among them — as well as from the downtown’s businesses. Some of these arts assets can be 3+ miles from the downtown. In these communities, the downtown district only occupies a portion of the islands in the complete arts archipelago.

The notion of a geographically bounded arts district that only includes the downtown, or just a portion of it, consequently may not appear to make much sense in communities with arts archipelagoes. The objectives of this article are to:1) provide examples of such archipelagoes and 2) try to stretch the arts district concept to fit arts archipelago situations. The keys to achieving the needed conceptual stretch will be the presence of mutual interests and complementary assets among downtown arts and business stakeholders and the arts venues in the rest of the archipelago.

Reasons for the Dispersion

Since about 2010, our field observations in many smaller communities revealed that the dispersion of their economic and arts assets into numerous commercial nodes and individual locations started when they were even smaller and much younger. Consequently, it should not have been surprising that when we started working on a project in some of these archipelago communities, we found a high degree of long standing dispersion of economic and arts assets. In many small towns, for example, the former homes of illustrious people that were located in the residential part of town have been turned into museums. Many art and entertainment venues, such as museums, concert halls, PACs, casinos, stadiums, arenas, etc. did not locate in downtowns because they were so large and required so much parking that they did not easily fit into available downtown development sites. Downtown sites were also often much more expensive to develop because of land acquisition and demolition costs. Sometimes, too, community leaders wanted their prestige arts venues placed in park-like settings that could only be provided away from the downtown.

Individual creatives often find that downtown rents for residential and work spaces are too expensive or soon became so after they have pioneered improvements in the district. As a result, they frequently take cheaper places beyond the district, and in smaller towns, even in rural settings. Often, too, these creatives simply prefer working and living in a rustic rural setting.

Some Examples of Arts Archipelagoes

1. Manhattan, in NYC. Downtowns are one contiguous area, without any separations. For example, the Midtown CBD in Manhattan runs east -west from the East River to the Hudson River, and north south from about 30^th Street to 59^th Street. In contrast, Manhattan’s arts, cultural and entertainment institutions are more like an archipelago running from the Battery at the southern tip of Manhattan to the Cloisters near its northern edge. Yes, Midtown has the theater district, MoMA, the Morgan Museum, Radio City Music Hall, City Center, Town Hall and lots of movie theaters. But:

The large and powerful Lincoln Center is just north of the Midtown CBD
The Museum Mile – the Met, Guggenheim, Neue, Jewish Museum, Museum of the City of NY, Cooper Hewitt, and El Museo Del Barrio — runs along Fifth Avenue from about 82^nd street to 104^th street. The Breuer annex of the Met is on Madison at 75^th St.
Chelsea to the south of the Midtown CBD has tons of art galleries, the Joyce Theater (a favored venue for dance companies), the DIA Museum and the Rubin Museum.
Further south are the new Whitney Museum, the New Museum of Contemporary Art, the Museum of Jewish Heritage, the National Museum of the American Indian. There are several smaller museums in this area, too.
There reportedly are a total of 32 Museums in Manhattan and vying counts of 83 and 100 for all five boroughs.

Many, if not most, of Manhattan’s strongest and most important arts and cultural venues are not located in either the Midtown CBD or the Downtown Financial District CBD. Some of them are in clusters that might merit the term arts district being used to describe them (like the theater district).

2. . Cleveland, OH. Downtown Cleveland has some venerable and wonderful cultural institutions. Save for The Rock and Roll Hall of Fame, the most important ones are in two clusters about one-mile from the downtown core (Playhouse Square) and about three miles away (Severance Hall. the Cleveland Museum of Art, and the Cleveland Arboretum) near University Circle.

3. Auburn, NY (population around 26,704). This town in Central New York has an impressive number of arts-cultural-entertainment venues. The table above shows their annual attendance. They are sorted into three groups. At the bottom are those located in the downtown: the 16 restaurants and bars that have live music, the Auburn Public Theater, the new NYS Equal Rights Heritage Center and the Seward House Museum. Together, they have an estimate annual audience of 110,484. Above it is a cluster of venues that are about 0.5 miles from the downtown, containing the Schweinfurth Arts Center, The Pitch Theater and the Cayuga Museum. It has a total annual attendance of around 23,688.

At the top are three venues that are farther away from the downtown. The Harriet Tubman National Historic Park is about 1.3 miles away. On a different road, the Merry-Go-Round Playhouse and the nearby Ward O’Hara Museum are about 3 miles from the downtown. These three venues account for about 47% of the arts-cultural-entrainment audience in Auburn. It’s downtown business operators, especially those in the hospitality and entertainment industries, would be foolish to not try to capture the expenditures of the audiences of those three “distant” arts-cultural venues.

4. Cortland, NY (population 18,698). In Cortland, a relatively small college town, a very interesting, if complicated situation exists. First, the downtown lacks a strong formal arts/cultural/entertainments venue as can be seen in the above table. The Cortland Repertory Theater has a branch there, but only attracts 2,000 to 4,000 patrons annually, mainly in non-summer months. Its main theater is in Preble, a 17 minute drive away, and it attracts 18,000 to 20,000 annually. The venues that draw the largest audience are the cluster of six restaurants/bars that have live music, though the Courthouse Park with events there run through the Youth Bureau may have an unreported significant audience. Other downtown arts entertainment venues report annual attendances of 3,500 or less.

The town’s movie theater has the largest audience and it’s a 5 minute drive from the downtown. The other venues with relatively large audiences are not even in the city – they are in nearby Homer, a 7 minute drive, or a more distant Preble, a 17 minute drive.

The Importance of Nearby Areas

It is critical to recognize that the downtown arts district concept ignores the fact that the people and firms who are most likely to visit and use the downtown and companies who are likely to have business transactions with downtown firms are usually located not only in the downtown, but also nearby. They are the real core of the downtown’s traditional trade area.

How Near is Near? In dense urban areas, “near” usually means within about one mile of a downtown. But in less urbanized areas, where walking is less important, and autos are a necessity, the area within about a five-minute drive can be considered “near” – but what is considered an easy drive varies considerably geographically. In parts of Wyoming and Montana, for example, residents will drive for two hours to get to a major retail center.

Create an Organized Arts/Entertainment Community Instead of a Downtown Arts District

Basically, it is an arts district with flexible geographic boundaries that are defined by local economic, and sometimes political, realities. It is focused on and around a downtown district and combines in a formal organization:

The downtown’s EDO
Major downtown non-arts/entertainment stakeholders.
Representation from the local government.
Major arts/entertainment venues within an area that includes the downtown, but extends beyond it, much as the downtown’s residential trade area does (but the two will not be congruent). That extended territory might be called the Area of Mutual Interest (AMI). The extent of the AMI will vary by community and be determined by the existing and/or potential relationships between the downtown and the arts venues in the AMI. The AMI in most instances probably will extend one to two miles from the downtown, but in other, rarer, instances it could extend five miles, or even more.
Broadly defined creative micro and small businesses within the AMI: e.g., visual artists, crafters, tattoo artists, entertainers, chefs, brewers, makers, etc.

The objectives of the Organized Arts Entertainment Community are:

For the arts and downtown business communities, aware of how each can help the well-being of the other, the prime directive is to formally work together in planned endeavors for their mutual benefits. These benefits for the downtown might include: more downtown residents; more people employed downtown; more people visiting the downtown; higher property values and rents, and higher sales revenues for downtown businesses. For the arts organizations the benefits may be: better marketing; increased revenues, higher attendance; greater availability of technical assistance, and stronger cooperative advocacy programs.
For the creatives, the Community would aim to help increase their incomes by facilitating the more effective marketing of their products and helping their business operation become more productive. It would help these businesses grow to the level of the owners aspirations. The downtown would provide for the creatives physical places where their wares can be marketed or where they can perform, as well as places for social interaction like a White Horse Tavern or Cedar Tavern. It also would be the place where they are connected to technical and financial assistance providers. It also can be the place where their creative supplies are purchased, and their wares are fabricated.

What such an Organized Arts Entertainment Community might do:

Create a very place-centered marketing campaign focused on attracting more visitors to the AMI. It would feature multi-faceted opportunities to have rewarding and entertaining experiences not only in arts and entertainment establishments, but also in dining, drinking and pampering establishments.
For arts organizations, it would, for example, also provide:
- A marketing campaign that “tells the stories” of the arts at the overall AMI area level as well as at the level of the individual art organizations.
- Links for arts organizations to funders and assistance to improve grant proposal development
- Information about best practices, especially re marketing and how to increase earned incomes.
For the creatives, it would, for example, also develop and maintain a downtown entrepreneurial environment that will:
- Enable them to have their products more effectively marketed
- Help their business operations become more efficiently executed
- Provide social spaces that can stimulate social and business networking.

Why Members of an Arts Archipelago May Want to Work Together

Shared Common Interests. All benefit from:

Attracting more people to live and work in the AMI.
Attracting more people to visit the AMI, including trade area residents, day trippers, and overnight tourists.

Complementary Assets. Working together they become stronger attractions:

Every downtown and non-downtown organization that can offer enjoyable experiences adds to making the area of mutual concern more magnetic to residents, workers and visitors.
Non-downtown arts venues often lack nearby hospitality establishments for their audiences who travel significant distances, while the downtown may have a relatively large cluster of hospitality venues. Conversely, the non-downtown arts venues might bring in large audiences from distant places that the downtown hospitality venues could not by themselves attract.

The Downtown Benefits as It Meets Arts Community Needs. By doing the things that downtowns have long done, but with notable focus on the arts, downtown businesses can become more prosperous:

Assets of the community’s entrepreneurial environment that are located in the downtown
- Social meeting places for artists and artisans – e.g., bars, restaurants, libraries, co-working spaces. This can create magnets drawing non-artists.
- Offices and meeting rooms for arts organizations
- Technical assistance providers officed in downtown
- Financial services and assistance providers officed in downtown
- Affordable workspaces for artists and artisans – studios, rehearsal spaces
- Affordable downtown living spaces for artist and artisans
- Retail channels for artists and artisans; retailers have unique ,local products to sell, some new arts businesses may be started.
- Incubation spaces for arts related start-ups and micro businesses.
- Marketing and promotional opportunities
  - Arts presented/exhibited in public spaces such as parks and gov’t office buildings; this helps activate those spaces.
  - Arts presented/exhibited in private sector spaces such as restaurants, retail shops, office building lobbies; this makes them more physically attractive with more magnetic pull on potential users.
  - Arts presented /exhibited at arts shows, crafts shows, festivals; this increases their magnetism

N. David Milder at DANTH, Inc.

Downtown Revitalization Specialist

Category Archives: Downtown Redevelopment

LET’S GET REAL ABOUT DOWNTOWN RETAIL COMING BACK

SOME MORE THOUGHTS ABOUT DOWNTOWN RETAIL

Vacancies, Store Closings and Openings, Changing Functions

ENDNOTES

Some Soul Searching About Why Do We Do Economic Development