Toward a General Strategy for Small Town Economic Development

Posted on October 7, 2017 by DANTH

The above link will take you to the article I have just completed on this subject. It focuses on smaller and rural communities with populations under 35,000. However, much of the analysis is also applicable to many suburban communities and even some urban neighborhoods.

Since 2010, I’ve been trying to figure out a viable approach to stimulating meaningful economic development in our smaller communities that:
— Considers current realities
— Leverages likely local assets and
— Does not threaten the scale and lifestyles that make these communities attractive to close to 70 million Americans.

This is a major research paper — 32 pages long — that brings together my work on Central Social Districts, quality of life residential and business recruitment, contingent workers, and small business e-commerce capabilities.

It is a very curmudgeonly article. While I hope it genuinely and productively explores new ground, some readers might find it somewhat contentious.

The article has lots of illustrations, but I still felt it was too long for either a newsletter or blog format.

I hope you will find it informative, useful and interesting.

N. David Milder

Let’s Get Real About: The Potential Audiences for Events at Arts Venues in Smaller Downtowns

Posted on August 15, 2017 by DANTH

The Arts As an Important Downtown Revitalization Tool — Redux. Part 3

By N. David Milder

Introduction

This is the third and final article in a series aimed at helping downtown leaders and stakeholders (downtowners) in our smaller communities to more accurately assess just how strong an economic engine the arts can be for their districts. The focus, this time, is on the potential audiences for the events their arts venues might put on. Audience preferences and behaviors are changing and create significant challenges for those programming arts venues. In part, this is due to the electronic consumption of arts products – e.g., books, films, concerts, recorded music, plays, operas, etc. Of course, some performing arts have long had electronic distribution via radio, recordings and some TV, e.g., all forms of popular music, country music, classical music, jazz and opera. (Texaco sponsored radio broadcasts of the Metropolitan Opera for 63 years!) However, Internet streaming and the use of personal electronic devices may have brought about paradigm-level changes in arts consumption, and its full impacts are still unclear.

Perhaps even more important determinants of changing arts consumption preferences are shifting demographics and consumer behaviors such as

The maturing of the huge Millennials age cohort and its arts preferences and spending patterns.
Our growing “minority” populations, especially Hispanics, and their arts/entertainment preferences.
Our long-term wage stagnation and the emergence of much more cautious consumer behaviors.

Together, they have created significant constraints on an arts organization’s ability to penetrate local consumer markets. They’ve strengthened arts venue admissions prices and convenience as determinants of personal decisions about whether or not to attend an arts event. Consequently, more and more arts organizations must choose between:

Charging higher and higher admission fees for high-quality events that only can be afforded by affluent households.
Assuming greater financial jeopardy by either lowering their prices or offering free access to a much broader audience demographically, or
Providing performance and exhibition events that are perhaps less attractive, but can be provided at an affordable cost for the arts organization to produce and at affordable prices for their audiences.

We may well be in the midst of a trend where in person attendance at arts events is becoming overwhelmingly for the wealthy, while the middle and lower income strata consume arts products primarily through electronic media.

Most towns with populations under 25,000 do not have large numbers of wealthy households that can most easily afford arts event admissions fees. Their arts venues must compete with arts/entertainment consumption opportunities available physically nearby as well as through electronic media. To compete effectively, they must provide sufficiently attractive events that are not financially threatening for them to produce, yet affordable for consumers. That can be quite a challenge.

A Closer Look At Arts Consumption Through Electronic Media

Just as the Internet has disrupted our nation’s retail industry, electronic access channels are changing how Americans consume arts/entertainment events and content. For example, in 2012, a large National Endowment for the Arts (NEA) survey on public participation in the arts found that 71% of its respondents had consumed arts through electronic media in the past year:

61% Used TV, radio, or the Internet to access art or arts programming
38% Used a handheld or mobile device to access art
27% Used a DVD or CD player, a record-player, or a tape-player to watch or listen to music or to programs about theater, dance, visual arts, or literature. (1)

Today, most movie watching in the US is not done in movie theaters, but on TVs and personal electronic devices – and by a very wide five-to-one margin (2). The NEA survey also found that 4% of the respondents watched operas electronically (2.1% reported attending in person), while 7% claimed that they watched some form of dance recital, musical or stage play electronically. Since 2012, those numbers probably have increased. A number of theater and opera companies have made much stronger efforts to engage in simulcasts and other forms of electronic distribution to regain audience share and strengthen their finances. The Metropolitan Opera Company in NYC, for example, will simulcast 10 operas in 2,000 theaters located in 70 countries during its 2017-2018 season (3).

Frequently, this electronic distribution has meant that famous plays and operas with celebrated performers became available to audiences in theaters – including many movie houses — in smaller communities in which they otherwise would never have appeared. This enabled these theaters to have a better “arts product” to offer in their local market areas. On the other hand, the big arts organizations’ expansion of their electronic performances may mean more competition for smaller performing arts companies, e.g., regional theaters and opera companies. Or they might be market builders for these smaller performing arts companies as, in years past, Texaco’s opera broadcasts were for smaller opera companies across the nation. Speaking with such uncertainty here is intentional since it demonstrates a key characteristic of the situation most arts organizations now are in when dealing with e-arts.

Museums across the world are rushing to put their holdings on their websites. See, for example, https://www.rijksmuseum.nl/en/rijksstudio where you can browse through 606,474 of its works of art.

Moreover, by 2013, 79% of the sales of music and videos and 44% of books and magazines in the US had moved to the Internet (4).

While it is still too early to tell with any real certainty how e-arts are impacting attendance at events held at most brick and mortar arts venues., movie theaters are an exception. Most observers agree that electronic consumption has reduced attendance at our movie theaters. Certainly, by offering households a cheaper and very convenient way to consume arts/entertainment products, they directly meet consumers’ strongest concerns about attending arts events and probably reduce to some unknown extent the need to go to another geographic location to consume them. Annual movie attendance today is nowhere near the per capita levels it reached in the 1930s and 1940s when weekly attendance was far from abnormal. More recently, aggregate movie attendance has dropped by about 14% between 2003 and 2016, though the US population had grown by about 11% (5). Also, since only about 12% of the movie industry’s annual sales come from US movie theaters, they are seen now by industry leaders primarily as a marketing tool to support electronic revenue streams, not as a major profit center (6). Some movie moguls would like to stop distributing all films to them and rely solely on pure digital distribution channels.

On the other hand, the practices of one theatre in a smaller community suggest that the distribution of arts/entertainment events over the Internet sometimes can be quite advantageous for such venues. This theatre not only offers simulcasts of arts events, but also football playoff games and baseball world series games. The sports events are offered free and the theater recoups costs from its concession stand. This theater is not so much in the arts business as it is in the entertainment business, of which the arts certainly are an important part.

Savvy arts organization leaders may, in the future, find more ways to positively leverage the electronic media.

Patterns in Arts Venue Attendance

There are many kinds of arts events. As common sense indicates and opinion surveys confirm, the content of an arts event is one of the most important determinants of an individual’s decision to attend it or not – more about this later. Knowing the popularity of the various types of arts events is critically important for any arts organization, especially new ones. Such knowledge should help arts venues and organizations shape the events they put on and how they are marketed.

About the Data. The discussion below is based on a secondary analysis of various kinds of data collected by a number of other organizations. There are two ways of looking at admissions. The first is how many times people report attending various types of events in assorted opinion surveys. The second is based on the admissions reported by arts venues or organizations, usually when they are surveyed by related professional organizations such as the League of American Orchestras or Opera America. Each has its methodological problems that cannot be detailed here without making a major diversion. Let’s just say that they should be treated with some caution, but when their findings show consistency and agreement they deserve serious attention. However, that means that the same subjects have to be looked at from two perspectives, even though it may appear repetitive

Attendance Data from Surveyed Individuals. The NEA has conducted three important large surveys on the public’s participation in the arts in 2002, 2008 and 2012. Some of their findings about attendance for a variety of performing arts events are presented in the table below.

One thing to notice is that fewer than 12% of the respondents in all three NEA surveys attended these kinds of “high culture” performing arts events. They have not captured large market shares. Moreover, other data sources indicate that attendance for these types of performances pales in comparison with that of motion pictures. For example, in 2013, about 68% of the US/Canada population went to the movies at least once in the previous year (7). The relatively small audiences for these performing arts forms suggest that arts venues that try to capture them will do well if they either have a large cluster of these potential audience members living nearby or are able to penetrate a relatively large market area in which sufficient numbers of them are present. These market areas are probably much bigger than the trade areas of the retailers in the towns in which the arts venues are located. Such market penetration will require a very effective marketing program and strong arts products.

The second thing to notice is the pattern of attendance decline that afflicted all types of events save those involving Latin, Spanish and Salsa music. The Great Recession had an obvious hand in this. Any rebounds by 2012 were uneven. The attendance declines were significant: -23%, -25%, -11% -31% and -34%. Operas and ballets, according to these surveys, were hardest hit.

The above table is based on other survey data presented in the National Arts Index, 2016 Report produced by Americans for the Arts. It is based on a collection of surveys that were done by one research firm of people attending arts events. The Index report provides attendance data for each of the types of venues/events listed for the years 2002-2013, with 2003 being set as the base comparison year. In that report, attendance statistics for 2003 are treated as having an index value of 1.0. The table above looks at just three of those years: 2003, the base year; 2010, the year after the Great Recession formally ended, and 2013, the last year for which the Index had complete information. By 2013, economic recovery was well underway, if bumpy and uneven.

Data about population growth has also been inserted in the table, with that of 2003 again having an index value of 1.0. It is there to serve as a kind of benchmark of potential arts attendance growth. If the population grows, one might reasonably expect arts attendance will, too. However, such growth would not be strictly linear. There is probably a lag time before “newcomers” become old enough or sufficiently acculturated to attend arts events. To provide some insight on that contingency, data on population growth for the 1993-2002 time period is also included. Between 1993 and 2013, there was substantial population growth — about 11% between 1993 and 2002 and about 9% between 2003 and 2013. This population growth should have had some significant positive impact on the potential size of arts event audiences, even allowing for a time lag.

The Index’s data confirms the patterns found by the NEA surveys. Compared to 2003, the decreased attendance rates for high culture performing arts events in 2013 were:

Dance and ballet performances, down from 1.0 to 0.87
Live theater shows, down from 1.0 to 0.87
Symphony concerts and operas, down from 1.0 to 0.79.

All had significantly fallen by 2010, probably due in large part to the Great Recession.

The table also shows that those performing arts that might be considered to be more as popular entertainments than vessels of high culture were somewhat more resistant to the recession and showed significant audience growth between 2010 and 2013. Their index scores moved over those four years from:

0.95 to 1.25 for country music concerts
0.93 to 1.34 for r&b/rap/hip-hop concerts
1.02 to 1.17 for rock concerts.

Online visits to a number of theaters and performing arts centers in smaller and medium-sized cities across the nation showed that their schedules were dominated by popular entertainments rather than high culture performing arts events. This is probably the programming path that new performing arts venues in our smaller communities should pursue if they want to have audience appeal and financial stability.

Given our nation’s population growth and the ability of popular entertainment types of performing arts to grow significantly in the post recession years, the public’s reported lower attendance at dance and ballet performances, live theater shows, symphony concerts and operas probably are due to factors other than those associated with the Great Recession. One hypothesis is that they simply became less popular.Another is that their ticket prices are too high.

Culture Track 2014 also looked at arts audiences. It used an online survey with 4,000 + respondents. However, those respondents “were double-confirmed for interest in cultural events and attendance to at least one cultural activity in the past year” (8). The survey consequently only looks at the “culture choir,” so to speak. Doing that can be very useful because the members of this culture choir are the most likely patrons of cultural events and its always good to know your customers and their characteristics. However, less useful for the current analysis, the survey did not differentiate participation done at an arts/cultural venue in person from participation done electronically, e.g., via streaming or the radio or TV. The survey found that among these proven culture consumers, attendance between 2011 and 2014:

Rose for historic attractions, living museums, science museums, art museums and art galleries. Declined for children’s museums. Moreover, overall, the museums attracted the most people.
Rose for musical theater, but declined for dramatic theater.
Rose for classical music and jazz, but declined for opera.
Declined for both modern dance and classical dance. (9)

The attendance patterns of these proven culture consumers differed from those found in surveys of our general population that also included those who did not attend arts events. Their attendance at museums, classical music, and jazz events rose. However, opera and classical dance also showed declines among the culture consumers.

Data from Surveyed Arts Organizations. These surveys have some important built in potentials for significant errors. First, they use samples of orchestras, museums, opera companies, theater companies, etc. The question of how representative each sample is always is an issue. The response rates among smaller venues in each group, for example, has had a substantial variation that has impacted on findings. Second, the surveys are then used to extrapolate to the entire arts sector and this can also bring in errors. For example, the Theatre Communications Group (TCG) represents 1,750 nonprofit theatres. Its annual report for 2015 on aggregate attendance, average capacity utilization, tickets sold, packaging and pricing was based on the responses of 198 theatres. The results of that survey were then extrapolated out to the 1,750 theatres that are assumed to be the entire nonprofit theatre universe. Another issue is which events are being included in an organizations counts. For instance, orchestras and dance companies can have traditional concerts, but also educational and community outreach events. Often just attendance at the traditional concerts is counted.

The table below shows that two types of for-profit performing arts events – Broadway shows and touring Broadway shows – basically came through the Great Recession with larger audiences. However, as noted earlier, attendance at movie theaters — that are also for-profit ventures — declined during this period.

Consistent with surveys of the general public’s (not the culture choir’s) participation in the arts, the surveys of arts organizations found shrinking audiences for art museums and operas in 2010 as compared to 2003, and by 2013 they had not rebounded.

SYMPHONY ORCHESTRAS. Contrary to the surveys of the public, the surveys of organizations that manage symphony orchestras and nonprofit theaters in the Arts Index data show significant attendance rebounds from 2010 in 2013 and growth from 2003. It is useful to take a closer look at them.

The symphony attendance went from an index value of 0.94 in 2010 to 1.15 in 2013, while the nonprofit theatres went from .90 to 1.02. The Arts Index explains that the increase in symphony orchestra attendance counts in 2013 “reflects higher response rates to the League (of American Orchestra’s) survey among small orchestras, which have above-average levels of attendance at community engagement and education events” (10). These events, that often are contrasted with “core events,” are regularly uncounted. As the Arts Index, 2016 Report notes: “Much symphony, theatre, dance, and opera activity is offered in educational and community settings to large audiences. Those audiences, however, are not systematically counted” (11). The Arts Index apparently includes such counts when available.

In 2016, the League issued an important report that recognized a significant decline in its core audience between 2010 and 2014:

“Overall, audiences declined by 10.5% between 2010 and 2014…, broadly in line with other performing arts sectors…. This decline was sharpest within tour audiences, which decreased by almost 50% over the five-year period” (12).

However, it proudly proclaimed in the same report that:

“Over the same time period, the symphony has become more accessible to a wider range of people, with the average ticket prices dropping, free attendance rising, and orchestras engaging large and diverse audiences through a range of education and community engagement programming” (13).

The decline in tour audiences suggests that the orchestras had severely reduced drawing power for smaller concert venues in smaller communities.

That report made a number of other points that also illuminate the position many performing arts companies may find themselves in these days:

Free Activities. “In 2014, free attendance at orchestra performances, activities, and other musical events was at its highest point in the previous five-year period, and the lowest ticket prices offered were at their cheapest and most affordable level.” (14)
“Approximately one in four performances, musical activities, and events offered by League member orchestras was delivered free of charge to audiences and participants, each year from 2010 to 2014.”
“Opportunities for audiences to attend both (community engagement and education programs) and symphony performances for free increased over the five-year period. Indeed, by 2014, 15% of all audience members for “core performances” (a term used to refer to all performances excluding those given on tour or within the orchestra’s community engagement and education programs) were attending without charge.”
Lower Admission Fees. “Over the same time period, the cost of attending paid-for orchestra performances became more accessible to a wider public. Specifically, League member orchestras dropped the price of their most expensive tickets by 30% between 2010 and 2014, and that of their least expensive tickets by 12%, on average.”
Financial Stress Remains. “Despite this drop in ticket prices — but broadly in line with other performing arts sectors — 60% of the 65 League member orchestras reporting data to the OSR reported a drop in overall attendance, between 2010 and 2014….”

Free admissions and lower ticket prices are apparently needed, yet unable to stabilize attendance. Both, however, are likely to place the arts organizations under increased financial stress and with a greater need for contributed incomes. Yet, the biggest benefits that these symphony, theatre, dance, and opera companies may provide in smaller communities may result from their free admissions and community engagement and education programs.

NONPROFIT THEATRES. These arts organizations were having attendance problems well before the Great Recession. Again using the Arts Index data, with attendance in 2003 equaling an index value of one, the annual index scores for nonprofit theatres between 2004 and 2008 were 0.94, 0.95, 0.89 and 0.90. However, in 2012 attendance had surged to 1.07, though it declined to 1.02 in 2013.

In 2016, the Theatre Communications Group, the industry organization for nonprofit theatres, issued a major report that noted: “Attendance is an ongoing challenge and serious concern for theatres” (15). Between 2011 and 2015, attendance peaked in 2012, but then entered into several years of modest decline. Over these five years, total attendance dropped by -3.6%; -2.7% for resident audiences, and a more significant -14.1% for touring audiences. These declines occurred despite an increased number of performances for both resident and touring audiences (16).

The audience decline for the theatres is an admitted serious concern, but it has not been as severe as it has been for the orchestras, especially for touring performances. It is also interesting to compare them along a few other dimensions:

As with the orchestras, nonprofit theatres have a significant number of free admissions. Three to four percent of all performances are free (compared to 25% for orchestras) and 10% of their resident audiences attended free of charge (compared to 15% for orchestras). (17)
Community outreach and education activities are also important for the theatres, though they charge fees for them that are a significant revenue source. However, much of this outreach and educational activity appears to be related to “training,” for which fees may be expected by participants.
In contrast to the orchestras, nonprofit theaters increased their admission fees between 2011 and 2015: 11.4% for subscriptions, 12.3% for single tickets (18). This might be because theatre ticket prices have been lower or perceived as more affordable by potential audience members than orchestra ticket prices. Or it might be because theatres are less interested in trying to attract less affluent potential audience members.

Some Observations:

Fluctuations in annual attendance are to be expected at performing and visual arts events, much as any business has fluctuations in customer traffic and sales. Additionally, just as businesses were adversely impacted by the Great Recession, so were nonprofit arts organizations.
However, most of the performing and visual arts have had relatively unsteady and slow recoveries in attendance from the recession.
This struggle has continued despite significant population growth over the past two decades. Two possible explanations are: they simply have become less popular generally or they may not be winning over as many young people and immigrants as they did in the past.
Another troubling factor about arts attendance is that there seems to have been a critical and steady decline in the number of people who frequently attend arts events. For example, Culture Track’s surveys found that in 2007, 31% of its culturally engaged respondents reported attending three or more events per month, but in 2011 that number had fallen to 22% and in 2014 it was only 15% (19). The arts’ core consumer base appears to be shrinking.
The degree to which potential audience levels at brick and mortar arts venues have been clipped permanently by electronic consumption channels is still unclear, but such a diversion probably has occurred. For example, Culture Track’s 2014 survey found that about 8% of its respondents reported less frequent attendance at cultural events, because they were “experiencing culture in alternative ways” (20).
Some types of performing arts, however, have demonstrated a significant ability to quickly rebound from the recession and to sustain meaningful audience growth in the post-recession years. These performing arts are conventionally seen as popular entertainments – e.g., salsa music, R&B, rap, hip hop, etc. Those that have struggled most are those often associated with high culture or affluent audiences: e.g., opera, ballets, symphony orchestras.
In this dynamically changing environment, it is important that arts venues and arts organizations in our smaller communities know who their potential audience members are, what types of arts they are likely to consume, and the spending power they likely would bring with them.
To win and maintain broader community support, they also should be prepared to provide a significant amount of community outreach and education activities as well as a significant number of free admissions. Doing this will likely increase their need for contributed incomes significantly.

Arts/Cultural Venues and Organizations, For-Profit or Nonprofit, Are in the Entertainment Business

Unless they have a sufficient base of very rich, very culturally superior and very socially snobby people to comfortably support them, any arts or cultural organization should guard against coming across to the public as having those attributes. Not only is it morally offensive, it’s bad for business and their survival.

People engage in cultural activities for basic reasons of personal enjoyment and social conviviality. For example, Culture Track’s 2014 survey found that the strongest reason its large sample of people who attend cultural events gave for making cultural activities a part of their lives was that they were entertaining and enjoyable, 93%. It was followed by being able to spend time with friends and family, 83% (21).

Also, as was noted above, the performing arts that are conventionally seen as popular entertainments are precisely those that have done best over the past decade. In many small and medium-sized communities, their successful performing arts centers (PACs) or theatres have recognized this fact and structured their programs accordingly.

Event Content and Admission Cost Drive Individual Attendance Decisions

Culture Track’s 2014 survey investigated the positive and negative elements – termed motivators and barriers – that are involved in an individual’s decision-making about attending cultural events. It listed many factors. However, as can be seen in the table below, event content and admission cost stand out because they rank either first or second among both the motivators for and the barriers to attendance. Content is the most important motivator of attendance; event cost is the most important barrier.

The above discussion of arts audience admissions delved into the popularity of different types of arts event content as well as their fluctuations and uncertainties. In the first article in this series, considerable attention was focused on the need for arts venues/organizations to have strong “arts products.” If an arts organization/venue is to succeed, it must certainly provide the types of events that local arts consumers want and enjoy.

The Culture Track survey also shows that the desirable arts product must also be provided at a price that people can afford.

Affordability is a function of the product’s price and the consumers’ incomes. Those with higher incomes obviously can afford more things. The table below shows that households in the top income quintile account for 54.8% of all household expenditures for entertainment fees and admissions — that includes those for arts/cultural events. The top 40% of households by income account for 75.4% of all entertainment fees and admissions expenditures. For smaller communities that want to develop strong arts venues that draw significant audiences, the distributions of household incomes in their market areas should be significant factors in determining their admissions price structures.

The Content – Ticket Price Connection. This is very important: people will be willing to spend more for content they really like. They also are less likely to spend much on tickets for events with content they are unfamiliar with or dislike. This connection is aptly illustrated in this quote from a report from the Wallace Foundation:

“I can see myself paying $100 for a show I’ve wanted to see for a long time, but not more than $50-60 for a normal show, and really more like $20 to 30 if I can.” (22).

Impact of Deliberate Consumers. Americans have suffered from wage stagnation for decades and the Great Recession sparked a wave of more deliberate and conservative consumer behaviors (23). Though this more deliberate consumption has eased somewhat with economic recovery, it still remains very strong among middle-income households and even continues to impact on luxury retail purchases. It also has had its impacts on attendance at arts events. For example, Culture Track’s 2014 survey found that 40% of the respondents reported attending fewer culture events because of economic conditions, and among them:

82% reduced expenses across the board
51% cut back on leisure activities
51% reprioritized their expenditures of leisure time and money
20% experienced culture in alternative ways (24).

Some Ticket Prices. Expectations about ticket prices often are higher than they actually are. In one study, for an actual ticket costing $20:

Millennials estimated it would cost $44.57
Gen Xers estimated it would cost $34.00
Boomers estimated it would cost $29.05. (25)

Generally, smaller communities have arts organizations with smaller audiences and smaller budgets – and lower ticket prices, as demonstrated in the table below that shows ticket prices for 38 opera companies by the sizes of their annual budgets.

A good benchmark for setting ticket prices is the average cost of going to the movies in the local entertainment market area. In 2016, the average ticket price was $8.65 nationally, with significant local variations. Throw in about $ 4.50 for popcorn and another $4.50 for a soda and that brings the total up to about $19.00. The more seats that are available near that price, the larger the potential audience — though admission revenues may well decrease.

Online visits to several museums, theaters and performing arts centers in smaller communities showed:

Museums generally have admission fees of $20 or less, with lower fees for students, children, and seniors. Not much different than $25 at MoMA in NYC or $20 at the Art Institute of Chicago for local residents.
Tickets for performing arts events ranged from $20 for a play done by a local theater company located in a small rural town, to around $40 to $65 for music concerts in larger rural regional centers, and to a range of between $108 and $1,748 for a seat at a Tom Jones concert at a PAC in a large, densely populated and relatively affluent suburban regional area.

A very important determinant of an arts venue pricing structure may be the definition of its primary mission. If it is to serve residents of the surrounding community and enhance their quality of life, then it will likely have inherent pressures to have lower prices and more free performances that incentivize greater community attendance. If, on the other hand, the venue/organization is tasked with enhancing the area’s prestige or to draw more affluent visitors into its district, then its targeted audiences and pricing structure would likely be quite different.

The Social Aspects of Attendance

Going to arts events with friends and family is an important motivator for attendance. Culture Track’s 2014 survey found that 83% of their proven culture consumer respondents cited spending time with friends and family as an important reason for their engagement in cultural activities. It also found, as displayed in an above table, that:

83% said they were motivated to attend cultural events because they were invited by family or friends.
73% were motivate because their spouse/partner was interested (26).

A report on building Millennial audiences done for the Wallace Foundation found that socializing and having someone to go with are important factors when they decide whether or not to attend an arts event (27). Culture Track 2014 found that: ” Millennials are far less likely than older generations to go to a cultural activity if it means going alone.”

This behavior pattern explains why arts venues can be such important elements in a downtown’s Central social District and why it will probably become even more important as Millennials age.

The Rising Importance of the Millennial and Minority Market Segments

Our nation is changing demographically. Minority populations are growing rapidly and projections indicate that within about three decades, the white population will be a minority. The largest growth has been among Hispanics. Also, Millennials recently became the largest age group in our population, supplanting the Baby Boomers. The fact that their entry into adulthood has been heavily stamped by effects of the Great Recession means very significant changes are appearing in consumer behaviors – and that includes the consumption of arts products.

Minorities. One of the best windows on the importance of the minority market segments is to look at attendance in movie theaters.

It is amazing how infrequently movie theaters are mentioned when the enhancement of downtown arts offerings is under discussion. Nevertheless, they are often critical cornerstones of many downtown entertainment niches and Central Social Districts. Unfortunately, their future, especially in smaller communities, remains uncertain, even though lots of small cinemas recently successfully dealt with the threatening need to adapt to the digital distribution and projection of films. Besides the presence of a number of Hollywood moguls who want to dump movie theaters as a distribution channel, theater owners are increasingly adopting a strategy that will lead to significantly higher picket prices. It is seen as the best way to cope with declining attendance.

For example, the number of movie tickets sold in 2016 was 86% of the 2003 sales (see above table). On the other hand, gross revenues from ticket sales had increased by 123%, and ticket prices had jumped by 143%, about 12% higher than inflation. To deal with declining attendance, theaters owners have determined that their financial future rests on offering more amenities – big leather reclining seats, terraced seating, restaurant type food and drink, 3D and IMAX screens, etc. – for which they can charge higher fees. The viability of such a strategy is most problematic in smaller market areas from the perspectives of both the theater owner and movie goers. For more on this see: https://www.ndavidmilder.com/2014/05/downtown-formal-entertainment-venues-part-4-movie-theaters

Movie attendance, however, has not been uniform across all ethnic groups. As can bee seen in the table above, between 2012 -2016, the average per capita movie attendance of African Americans, 3.86, Hispanics, 5.46, and Asians, 4.90 were higher than that of Caucasians, 3.36.

This, of course, is also reflected in annual ticket sales:

Although African Americans, Hispanics, and Asians only account for about 38% of the US population, they account for 49% of the movie tickets sold.
Caucasians represent 62% of the population, but account for 51% of the tickets sold.
Hispanics over the five-year period accounted for 21% of the tickets sold, but in 2012 they accounted for over 30%.
The trend is for minority movie attendance to grow and for Caucasian movie attendance to decline.

One might wonder where many movie theater operators would be today without their ethnic minority patrons?

Movies are an art form that can attract minorities with relative ease compared to many other performing arts for three reasons:

It is familiar to them. Even if they are immigrants. They do not have to learn what they are about.
It is relatively very affordable.
It is probably easy for minority patrons to go to a movie with friends and family, because prices are affordable and cinemas are probably relatively easy to get to.

However, as the growth of Salsa and Spanish music, Rap and Hip Hop suggest, the influence of these minority groups will have an increasing impact on our art forms in the future as jazz and rhythm and blues did in the past. Of course, as their population sizes and household incomes increase, so will their impacts on visual and performing arts audiences.

Millennials. In 2015, Millennials (e.g., those aged 20 to 36 in 2017) became the nation’s largest living generation, then numbering 75.4 million people. Baby Boomers (aged 53-71) were the second largest, with 74.9 million (28). While the Boomers have far more purchasing power, they are aging out. The Millennials, many of whom had the early years of their careers and incomes hindered by the Great Recession, the slow growth of our economy over the past decade and/or very burdensome student loans have started to have their major impacts on our economy — and on the arts. Moreover, their run is only in its early stages and it will be a long one.

As was noted above, the affordability of ticket prices is a key factor in individual decisions about attending arts events and in the determination of the sizes of arts audiences. The levels of household incomes and discretionary dollars structure how much individuals can pay for arts admissions. A report issued by the Wallace Foundation found that compared to prior generations at similar ages, Millennials are more financially challenged:

They have lower annual earnings.
They have lower net worth.
Higher percentages of them have student loans and the loan amounts are much higher (29).
It is unlikely that these lags in earning and net worth compared to prior generations will disappear even as their careers mature.

The Wallace Foundation study also looked at attendance by 18 to 34-year-olds in 1992, 2002 and 2012. There were declines in all of the studied performing arts: theatre-musicals, jazz, non-musical plays, classical music, dance (non-ballet), ballet and opera. What is interesting is that save for opera, all the others were already in decline in 2002 when compared to 1992 (30). The performing arts’ problem with attracting young adult audiences apparently is not that new.

Culture Track’s 2014 survey found that Millennials was the generation that attended the most events per month and that had the most folks who frequently attended cultural events, i.e., 3+/mo (31). However, since that survey also found that the number of frequent cultural consumers had declined by half since 2014, it is likely that their number has also declined significantly among Millennials compared to prior generations when they were of the same ages.

Ticket pricing will probably have a big affect on an arts venue’s ability to attract Millennial patrons. These venues also will have to compete with other entertainment events that may be more affordable. Moreover, Millennials – who grew up using the Internet and digital devices – are more likely to consume art products digitally, and those arts products are also likely to have the advantages of lower costs and greater convenience.

The competition for Millennials’ attention, time and money when it comes to entertainment can be pretty fierce. Arts venues and the organizations that mange them in our smaller communities must be ready and able to compete.

Endnotes.

1) National Endowment for the Arts. How A Nation Engages With Art. Highlights From The 2012 Survey Of Public Participation In The Arts. https://www.arts.gov/publications/how-nation-engages-art-highlights-2012-survey-public-participation-arts-sppa . Hereafter referred to as NEA12.

2) N. David Milder. Downtown Movie Theaters Will Be Increasingly In Peril. February 24, 2008. See: https://www.ndavidmilder.com/2008/02/downtown-movie-theaters-will-be-increasingly-in-peril . Hereafter referred to as Movies08

3) Data from the Met’s website.

4) Ali Hortac?su and Chad Syverson. “The Ongoing Evolution Of US Retail: A Format Tug-Of-War,” National Bureau Of Economic Research, Working Paper 21464, http://www.nber.org/papers/w21464, August 2015, pp. 33, p.24

5) Data from http://boxofficemojo.com/yearly/

6) See Movies08

7) Motion Picture Association of America. “Theatrical Market Statistics 2013.” P.2. http://www.mpaa.org/wp-content/uploads/2014/03/MPAA-Theatrical-Market-Statistics-2013_032514-v2.pdf

8) LaPlaca Cohen and Campbell Rinker. Culture Track 14, p.2. http://culturetrack.com/wp-content/uploads/2017/02/Culture_Track_2014_Supporting_Data.pdf Hereafter referred to as CT14

9) ibid. p.7

10) Roland J. Kushner and Randy Cohen, National Arts Index 2016, p. 71. Americans for the Arts. http://www.americansforthearts.org/by-program/reports-and-data/legislation-policy/naappd/national-arts-index-an-annual-measure-of-the-vitality-of-arts-and-culture-in-the-united-states-2016. Hereafter referred to as NAI16.

11) ibid.

12) Zannie Giraud Voss, Glenn B. Voss, Karen Yair with Kristen Lega. “Orchestra Facts: 2006-2014. A Study of Orchestra Finances and Operations, Commissioned by the League of American Orchestras” November 2016, p.1. https://www.arts.gov/sites/default/files/Research-Art-Works-League.pdf

13) ibid. p.7.

14) ibid. All of the points in this series of bullets come from pages 4-7.

15) Zannie Giraud Voss and Glenn B. Voss, with Ilana B. Rose and Laurie Baskin. Theatre Facts 2015: A Report On The Fiscal State Of The U.S. Professional Not-For-Profit Theatre Field. Theatre Communications Group. 2016, pp. 37. P 10.. http://www.tcg.org/pdfs/tools/TCG_TheatreFacts_2015.pdf

16) ibid.

17) ibid.

18) ibid. p.11.

19) CT14, p.9.

20) ibid. p.12

21) ibid p.25

22) “Building Millennial Audiences: Barriers and Opportunities.” The Wallace Foundation, Building Audiences for Sustainability January 2017. Analysis Conducted by Marketing Research Professionals, Inc. Pp.51, p. 21. Hereafter referred to as Wallace.

23) See: https://www.ndavidmilder.com/downtown-revitalization/the-deliberate-consumer

24) CT14, p.13

25) Wallace, p.22

26)CT14, p. 25

27) Wallace, pp.23-25

28) Richard Fry. “Millennials overtake Baby Boomers as America’s largest generation. FACTTANK. Pew Research Center. April 25, 2016. http://www.pewresearch.org/fact-tank/2016/04/25/millennials-overtake-baby-boomers/

29) Wallace p.9

30) ibid., p.14

31) CT14, pp. 10-11.

34TH STREET: A FABLED SHOPPING DISTRICT AND WINDOW ON THE FUTURE OF DOWNTOWN RETAILING

Posted on April 15, 2017 by DANTH

N. David Milder

OVERVIEW

The 34^th Street Shopping District, a 31-block area in Midtown Manhattan, is legendary both in the USA and throughout the world. It is the place where Macy’s, the world’s largest department store, famously battled Gimbel’s, and Hollywood showed that miracles can happen. Since around 1900, with its 2.2 million SF, 12 level mother store that occupies a whole city block, Macy’s has epitomized what a department store is all about. Its national chain has taken that brand and all of its connotations across the nation, helped by national TV coverage of its Thanksgiving Day Parade.

The district has several other famed and strong attractions: e.g., the Empire State Building, Madison Square Garden, Korea Way, Penn Station and the Farley Post Office – and the movies to prove it: e.g., An Affair to Remember, Sleepless in Seattle. It also has scores of mass-market national retail chain stores. Some of them are among the best performing in their chains. About 23 retail and food operations like the district so much that they have more than one location in it. According to the directory on the 34^th Street Partnership’s website Starbucks, Duane Reade and Subway each have six!

Importantly, the district has some retail locational assets that are rivaled by only a few other districts worldwide. They are almost like paradigms. Consequently, the district is an excellent window on the future of brick and mortar mass-market retailing. How it develops in the district over the coming decade also will reveal much about whether or not the old dictum about “location, location, location” is still broadly operative.

For example, the district strongly benefits from access to many subway and commuter rail stations that have incredibly high daily passenger use levels. They help support daytime populations within 10-minute walks of 200,000+ for the district’s many street level retailers. The resulting high pedestrian traffic has become a crucial factor in attracting national retailers. Retailers don’t have to bring customers into the district, just into their stores.

Also, since 1995, when DANTH, Inc. first researched the district, tourism and tourist retail spending have become even more important for district merchants, and Macy’s became a well-established major international tourist destination.

The 34^th Street Partnership’s website does a nice job of describing the district’s dynamic, if sometimes turbulent, history. It has had ups and downs and significant changes in some of its dominant uses, but it always rebounded.

Today, the district seems to again be facing an unsettled environment that offers opportunities for growth as well as for serious bumps in the road. On one hand, the nation’s retail industry, especially the middle-market portion of it, is facing serious challenges. Nationally, 2017 looks like it will be a banner year for store closings. Over the years, department stores such as B. Altman’s, Gimbel’s Stern’s, A&S, Saks and Korvettes have come and gone in the district. The Macy’s and JCPenney chains are now struggling nationally, as are most department store chains. This is also the case for many of the specialty retail chains that might favor a 34^th Street location, though some of those already in the district are reportedly doing very well there. Importantly, 34^th Street is attracting many of today’s most popular and successful fast fashion retailers: e.g., H&M, Zara, Forever 21, Superdry and Uniqlo. Significantly, Target has recently announced the opening of a 43,000 SF store right across 34^th Street from Macy’s. On the other hand, the district so far has not attracted many of today’s successful off-price/discount retailers such as TJ Maxx, Marshall’s, Ross for Less, Nordstrom Rack, Century 21, etc. though it does have a DSW. Also an Amazon bookstore will open soon across from the Empire State Building on 34^th Street.

Additionally, many areas within the district and surrounding it are undergoing substantial and meaningful redevelopment:

The creation of well activated, densely used public spaces at Herald and Greely Squares as well as on a part of W33rd Street by Penn Station
The construction of Moynihan Station and Manhattan West on 8^th and 9^th Avenues
The development of the massive Hudson Yards project to the west of 10^th Avenue
The transition of Chelsea to the south and the Garment District to the north into neighborhoods where large numbers of creatives/knowledge workers live and work. They and nearby Murray Hill are also attracting a lot of venture capital investment. (1)

Furthermore, several properties in the district near Penn Station appear to be poised for major redevelopment.

How the district will traverse this period of uncertainty is now a very interesting, if still unanswerable question. What will its retailing look like ten years from now? Will brick and mortar shops still be important and what roles in the retail consumer purchasing process will they play? Can its strong locational assets keep its retail healthy when it is shrinking significantly in malls and other downtowns? Will traditional department stores still be around? Will the district’s growing central social district functions become even stronger and more important? More certain is that the district will pass through this transitional period with the incredibly strong assets described above as well as with a bevy of strong stakeholders that includes major retailers, heavily invested and deep-pocketed real estate companies, state and federal agencies and a proven and tested district steward, the 34^th Street Partnership.

That the district again faces uncertainty should not be surprising. After all, it sits in one of the world’s largest CBDs, where change and turbulence are everyday expectations.

SOME WORLD CLASS RETAIL LOCATIONAL ASSETS

The incredibly strong locational assets of the 34^th Street District make it a great place to see if such strong assets can still help keep brick and mortar retailing alive and well in our downtowns. Consequently, it is worthwhile detailing what those strengths are and how, in some instances, they are becoming even stronger.

Transportation. Rail travel, both commuter and inter-city, brings into the district a staggering number of people. For example, there are three major city subway stations in the district at 6^th, 7^th and 8^th Avenues that:

Provide access to 13 subway lines
Have a combined total weekday average of 303,730 passengers entering the stations
Rank 3,5, and 6 among NYC’s 421 stations in ridership.

Map 1. Zip codes where 70% of the interviewed 1,186 subway riders at 34th Street stations live. (From a 1995 DANTH, Inc report)

The map above and the interviews on which it is based were done back in 1995, but it is still of strong heuristic value. It shows how the district’s subways allow it to easily tap a vast proportion of NYC’s population: about 4.7 million people then lived in the shaded zip code areas. If anything, today that number is probably somewhat higher. An even larger number of people live in the district’s overall mass transit travel shed which also reaches into NJ, CT, Long Island and parts of upstate NY. The subway is just one part of this travel shed.

The three railroads that use Penn Station – Amtrak, New Jersey Transit and the Long Island Rail Road – bring in passengers from suburban communities and other parts of the nation. They report an average weekday ridership of 487,764.

In addition, the PATH 33^rd Street Station has a reported daily ridership of 36,410. Path’s passengers largely come from NJ.

The district has benefited from Transit Oriented Development for many decades! Macy’s, Manhattan Mall (the old Gimbel’s location), Herald Center, the Penn Plaza office cluster and Madison Square Garden all virtually sit on top of one of these stations and are less than a five minute walk from the others.

Daytime Population. These transportation statistics indicate that the 34^th Street district still draws lots of outer borough and suburban residents into the region’s urban core, but since WWII and the growth of the suburbs, that no longer means that it is the main retail shopping district for these suburbanites and outer borough residents. First the malls, then the big boxes and the Internet, have brought lots of retail purchasing opportunities out to the suburbs. Also, the city’s outer boroughs, once badly “under stored,” have experienced significant retail growth. There is less need among outer borough residents to do their retail shopping in Manhattan than in decades past. Consequently, the critical market area for the 34^th Street District retailers is increasingly the 10-minute walk shed that surrounds each of their stores. The people who live, work and “play” within those walk sheds will most likely be their most frequent customers. They are often grouped together under the daytime population rubric. This population also will account for the vast majority of the district’s pedestrian traffic. The subway and rail passengers passing through the district are part of this daytime population, as are the tourists. Some may be transient members, though their aggregate numbers may be relatively stable and be dependably counted upon. Others, such as those who live within the walk shed and who work or study there are more likely to be regularly in the district and have greater knowledge of its retailers.

The importance of the commuters and tourists to the district’s retail recruitment was recently demonstrated when they were strongly underscored by Target’s Senior Vice President Mark Schindele, as he explained Target’s decision to open a new store in the district (2).

The Daytime Workforce. The map below shows what a roughly 10-minute walkshed centered on the Herald Square entrance of Macy’s looks like. Because of Manhattan’s street grid, it looks mostly like a diamond, not a ring. Because of the way Broadway cuts across the grid, the top and bottom points of the rectangle are snipped off. Retail locations in different parts of the district will have different walk sheds. They may also have slightly different shapes depending on how Broadway cuts through their neighborhood.

Map 2. A roughly 10-minute walkshed centered on Macy’s Herald Square entrance. (Generated in Census Bureau’s On-the-Map)

In 2014, about 239,528 people had primary jobs that were located in this walkshed. About 10% were in the retail trade industry, and about 13.2% were in Wholesale Trade. Another 3.7% were in manufacturing. A sign that important changes have been happening in and near the district are the significant number of knowledge worker type jobs: 15.8% in professional, scientific and technical services; 10.5% in administration & support, waste management and remediation and 10.4% in health care and social assistance. The influx of knowledge workers/creatives is happening not only in Chelsea and the old Garment District but in the 34^th Street district as well. The Empire State Building has attracted some major high-tech firms such as LinkedIn and Shutterstock as well as a number of start-ups. Parsons Brinckerhoff has long been headquartered at 1 Penn Plaza, where Cisco Systems and a number of other high-tech and consulting firms also have offices.

The Manhattan West and Hudson Yards projects may develop about 9.68 million SF of office space in or adjacent to the district. If the office workers averaged occupying 200 SF of space per worker, these new projects would be bringing in a total of about 48,000 workers; at 175 SF per worker, the total would be about 55,000 new workers. Their potential impact on existing retail locations probably would be mostly in the western portion of the 34^th Street District, though filtered by the 750,000 SF retail center (supposedly anchored by a Neiman Marcus) planned for Hudson Yards and at least 100,000 SF of retail space (including a Whole Foods) scheduled for Manhattan West.

Overnight Tourists. According to the 34^th Street Partnership, there are six hotels in the district with 4,006 keys and another 17 hotels adjacent to it that have 2,965 keys. Together, the 23 hotels have 6,971 keys. At Manhattan’s current occupancy rate, around 88%, that translates into about 6,134 rooms or suites being occupied each night. Assuming that there are, on average, 1.4 guests per key then generates an estimate of about 8,587 tourists each day staying in or very near the district.

The district probably draws even more overnight tourists who are staying elsewhere in the city or metropolitan region. They tend to act like day trip visitors to the district who go to Macy’s and/or other retailers, the Garden, the Empire State Building, etc.

Day Trip Visitors. These are people who do not live or work in the district or who do not visit it on a consistent, multiple times a week basis, e.g., a student. They can be shoppers from the district’s extended trade area or other visitors who are in NYC for the day and visit one or more of the 34^th Street district’s attractions.

Macy’s and other district retailers. I have not been able to find any really good data on this subject. However, I think a useful, though certainly not definitive, ballpark answer can be cobbled together about Macy’s which undoubtedly has the strongest draw among the retailers:
An interesting article in New York Magazine back in June of 2007 stated that 40,000 shoppers pass through Macy’s every day – 120,000 during the holidays (3). That’s, at a minimum, about 14.4 million shoppers per year. Most knowledgeable observers I’ve talked to feel that, regardless of the current problems facing the Macy’s chain, customer traffic at its 34^th Street store has not dropped off appreciably (sales are another issue)
A high-levelMacy’s executive told me some years ago that tourists had grown to account for a very substantial portion of the mother store’s shoppers and sales. At the chain level, international tourists have accounted for about 5% of revenues (4). All tourist transactions then probably accounts for about 10% of the chain’s sales. But, most of the chain’s tourist sales occur at a few of its 730 stores, e.g., Herald Square and the former Marshall Fields store in downtown Chicago. On that basis, let’s stipulate that “substantial” means between 25% and 40% of the Herald Square store’s shoppers are tourists
That would then suggest that between 10,000 and 16,000 of Macy’s daily shoppers are probably tourists
Based on data presented in a very interesting article by Mitchell L. Moss and Carson Qing, it seems reasonable to assume that about 51.93% of Manhattan’s tourists are out-of-towners who are staying overnight, while the remaining 40.07% are “day trippers” (5)
In turn, that would suggest that on a normal day between 5,192 and 8,308 of Macy’s shoppers are probably out of town tourists staying overnight. They will spend more on retail than other tourists
Korea Way. Much like Korea Town in LA and Chinatowns and Little Italys all over the nation, this cluster of businesses along 32nd Street between Fifth and Broadway featuring Korean cuisine, shopping and culture can draw people from a very wide area. The subway and Path lines on Greely Square greatly facilitate this. The number of people who visit annually is unknown, but its pedestrian traffic suggests it is substantial
The Empire State Building. Though no longer the tallest building in the USA or the world, its views continue to draw about 3.5 million visitors annually
Madison Square Garden. It holds about 320 events annually including professional basketball and hockey games as well as concerts. Its annual paid attendance is about 4 million.

Residents. According to data provided by the 34^th Street Partnership, the district has 17 residential buildings with 2,813 units. Another nine buildings with 767units are on adjacent streets.

Map 3. Zip Codes Relevant to the 34^th Street District.

The district is embedded almost entirely in Zip Code 10001 that contains a part of Chelsea, Korea Town and the Penn Station area. Most of this zip code is within a 10-minute walk of some part of the district. To the north is Zip Code 10018. It contains the Garment District and parts of the Bryant Park area and the Hell’s Kitchen neighborhood. Most of it is also within a 10-minute walk of some part of the 34^th Street district. (Note: zips 10199 and 10119 shown on the map have just a handful of residents).

To the east is Murray Hill’s Zip Code 10016 that runs along 34^th Street to the East River in a path that goes up to 15 blocks wide north and south. The part of the 34^th Street District east of Fifth Avenue is in this zip code.

Many parts of zip 10016, especially near 1^st, 2^nd and 3^rd Avenues, are not within 10-minute walks of some point in the district. However, New Yorkers tend to walk much longer distances than folks in other cities and a 20-minute walkshed from some point in the district would cover almost all of these three zip code areas.

Within these three zip code areas are 44,741 households with 63,351 residents – the equivalent of a medium-sized city. Most are in Murray Hill, a traditional residential neighborhood. Zips 10001 and 10018 have been dominated by non-residential uses. Notably, the residents of all three zip codes:

Have a high labor force participation rate
Are largely in creative class/knowledge worker occupations
Have median household incomes above $86,000/yr
Have very high rates of walking to work, 39.3% to 41.3%.

As best as can be determined from Internet searches, the Manhattan West and Hudson Yards development projects will produce between 5,900 and 6,700 new residential units and households in and very near the district. That would be a 13% to 15% increase in the number of zip code households. Moreover, given the expected unit costs or rents, their occupants will probably have average household incomes well above $100,000/year.

It is important to note that, as financially comfortable as the households in the 34^th Street’s neighborhoods may be, their average household incomes are about 30% below those found in the zip codes in which the luxury retailing along Madison Avenue is embedded. The latter are also now more densely populated.

The 34^th Street District’s close-in residential population of roughly 87,000 people is certainly an enviable and growing asset. However, that number is still dwarfed by the roughly 230,000 people who work within the 10-minute walksheds of district locations every weekday.

Pedestrian Traffic Levels. Given this density of major transit hubs, retailers, tourist attractions, employees, tourists and residents, one might expect high levels of pedestrian traffic. In this regard, the 34^th Street District certainly does not disappoint!

The above table is taken from data published by NYCDOT for pedestrian counts it did in 2016 at 55 locations in NYC. The table shows the results for the 10 locations that had the highest counts. The top two – West 34^th Street between Seventh Avenue and Broadway and Seventh Avenue between W32nd St and W33rd St – are in the 34^th Street District. Given that, for some unknown reason, locations in the heart of the Times Square District that probably have extremely high pedestrian counts were not studied by NYCDOT, it is prudent to conclude that pedestrian traffic flows in the 34^th Street District are among the very highest in Manhattan, NYC and the USA.

The 34^th Street counts are by Macy’s and close to several subway stations and an entrance to Penn Station. To put the 4-7pm count of 33,102 in perspective, that is larger than the total populations of Westfield NJ, Monterey, CA, Gloucester, MA or Sandusky OH. My “guesstimate” is that for the 12 hour 7:00 am to 7:00 pm period, at least 75,000 pedestrians passed along this block on 34^th Street.

The 31,856 count on Seventh Avenue is right by Penn Station and reflects a large number of commuters on their way home.

The 34 Street Partnership has long done its own pedestrian counts and at many more locations in the district than NYCDOT. Its data give a much clearer picture of where the pedestrian flows are strongest (see the table above).

How pedestrian counts impact retailer locational decisions is not easy to deduce from the situation in the 34^th Street District. While I have been told by retail site selectors, commercial brokers and BID managers that pedestrian counts are now a critical factor, other considerations such as rents, the character of available spaces, lease timings and landlord behaviors can also strongly shape locational decisions. Here are some aspects of the current situation on the ground in the district that I believe are worthy of attention:

The highest pedestrian counts, in the 10,000 to 12,000 per hour range, are for a north-south flow in front of a Citibank on the NW corner of 34^th Street and Seventh Avenue. They are substantially higher than the counts for east –west flows in front of this bank. While the bank is directly across Seventh Avenue from an important entrance to Macy’s and across 34^th Street from a busy entrance to Penn Station, until very recently this area has not been able to attract a lot of strong retailers. A Swarovski has replaced a Tourneau on the SW corner, an H&M has opened on the SE corner and a DSW opened a few stores west of the bank on 34^th
W34th Street between 5^th Avenue and Broadway/6thAvenue has average pedestrian counts during the pm rush in the 4,000 to 5,000 range, but it has attracted a host of well-regarded retailers, many of which appear to be doing well under the new normal: e.g., Zara, Forever 21, Uniqlo, Superdry, Victoria’s Secret, Banana Republic, Gap and AEO. This cluster of strong national retailers suggests that this is the most desirable block for them in the district. The rents they pay suggest the same conclusion.
W34th Street on the block between Broadway/6^th Avenue and Seventh Avenue directly across from Macy’s has average pedestrian counts that are significantly higher, in the 6,000 to 8,000 per hour range, but the above chains did not locate there. However, this block recently has become extremely hot. It is where the new Target store will locate in a redevelopment that will also include Sephora, Footlocker and Swatch stores. H&M must really want to be in the district and on this block: it has opened two stores on its eastern and western ends. Long leases with relatively cheap rents apparently were, in the past, a barrier to recruiting stronger retail tenants to this block.
Pedestrian counts along 34^th Street west of Seventh Avenue seem to decline appreciably and in the past so has the quality of the retail. However, the properties across from Penn Station seem to be either getting better tenants or awaiting redevelopment. That will probably be impacted by Manhattan West and Hudson Yards.
Major retailers seem to appreciate high pedestrian counts close to Macy’s and other major retailers more than high pedestrian counts close to Penn Station.

The Partnership’s pedestrian counts were also conducted in front of some newly vacated retail spaces. While the sample was admittedly small, comparing their counts with those in front of still active retailers showed no significant differences. Furthermore, when looking at the retailers who left, most were either in chains that were in retreat or that targeted market segments that have had a significantly weakened presence in the district in recent years. There were also some moves within the district, e.g., H&M and Modell’s, where the new locations had higher counts.

There is little doubt in my mind that strong pedestrian traffic is now, and will be in the future, an important factor in the retail recruitment process. However, the situation in the 34^th Street District indicates to me that its impact is not solitary or simple or linear.

Retail Spaces: Sizes, Rents, Vacancies and Who to Attract. All too often on my consulting assignments I have found that a downtown’s revitalization was being impeded by a lack of appropriate office, entertainment or retail spaces. In the course of my research for this article, I was surprised when four observations provoked me to ask if the 34^th Street District has the available store spaces needed to attract the retailers who today are thriving under the new normal and who would probably find locations in the district attractive:

The Manhattan Mall reportedly has twice the sales PSF of the typical mall of its size. However, observers have argued that its large atrium design wastes a lot of potentially leasable retail space and that it cannot accommodate retail tenants with really large space requirements
Is H&M at two locations on a block across from Macy’s on 34^th Street because they thought that would enable them to capture more customers or because they could not find the much larger sized single space on that block that they really wanted?
Observers have argued that from a real estate perspective, the Macy’s store could produce greater revenues if its retail space was reduced and other uses were brought to the property. It was also noted that customer traffic drops appreciably at each floor as you go up in the store.
I recently saw that on Market Street in Center City Philadelphia the old Galleria Mall was being converted by PREIT and Macerich into the Fashion Outlets of Philadelphia. Sitting over a major SEPTA station in a downtown that attracts loads of tourists and has a very large number of office workers, the location reminded me of 34^th While the full tenant list has not been released, the two I was able to identify, Ross for Less and Century 21, suggest the developers are going after the off-price brick and mortar retailers that have been doing very well under the new normal for retailing. Where, I wonder, could a similar project be developed in the 34^th Street District? Or where, I wonder, could retailers such as Nordstrom Rack, Saks Off-Fifth, Century 21, TJ Maxx, Ross for Less, Ann Taylor Factory, and outlets stores of Polo Ralph Lauren, Armani, Lululemon, Orvis, Kate Spade, Coach, Columbia, Theory, etc. locate as a cluster in the district?

The off-price concept already has been introduced by Macy’s. It has created a new off-price chain, Backstage, that has both its own stores (e.g., on Fordham Road in the Bronx) and departments within existing Macy’s stores. Heavily discounted apparel merchandise was certainly evident at the mother store at Christmas time.

Today, the district’s most likely shoppers –the new workforce and residents in the walk sheds as well as its tourist visitors — are substantially more affluent than the shoppers drawn to the district over the prior three decades. As noted above, this affluence probably cannot support another luxury retail corridor like Madison Avenue – even with the addition of Hudson Yards and Manhattan West. However, developing an “upscale off-price” project or cluster would position the district to tap the new affluence in its neighborhoods – especially the surprisingly many deliberate consumers among them –as well the relatively high spending potential of its many tourists. Tourists love getting value bargains and visiting off-price, outlet and factory stores.

Another reason that off-price retailers may not have entered the district in greater numbers is the existence of agreements or behavioral patterns that keep them from being located too close to their existing stores — or Macy’s, JCPenney, Manhattan Mall, Herald Center, etc. If so, the future of the district’s retail may depend on the removal of such barriers to entry.

Also, a number of them – e.g., TJ Maxx and Burlington –already have locations along 6^th Avenue about a mile south of the district.

Macy’s and JCPenney will probably struggle for some time to find a successful operational formula, as will the other traditional department store chains such as Nordstrom and Neiman Marcus. The Hudson’s Bay Company has reportedly been interested in acquiring both Macy’s and Neiman Marcus since both have become weakened and vulnerable to takeovers. Consequently, it seems very doubtful that other traditional department stores will be interested in locating in or near the 34^th Street District anytime soon.

Ironically, the specialty retail chains may still be very good tenant prospects for the district:

While the entire GAP chain has been searching for a new winning formula for many years now, the GAP store on 34^th St is reportedly the highest grossing in the chain. In recent years, I also have heard reports that several other specialty retailers are doing very well in the district. It may be that the district’s locational assets are so strong that these retailers can thrive in the district, though they are struggling today in many other locations.
Significantly, many of these chains are converting their existing stores into “outlet” or “factory” stores. Ann Taylor, Banana Republic, Gap, American Eagle and Nine West are among those that have followed this path.

The opening of an Amazon Bookstore on 34^th Street suggests other e-retail companies that are opening brick and mortar stores also may find locations in the 34^th Street District very attractive: e.g., Athleta (another Gap brand), Bonobos, Dyson, Duluth Trading Co., Shinola, Nasty Girl and Warby Parker. Soho has attracted many “one-off” versions of such stores that should be watched for growth and expansion.

Vacancies and Rents. A Marketbeat report for Manhattan for Q4 2016 by Cushman & Wakefield noted that:

“Rising annual availability rates in every major Manhattan retail submarket continues to generate uncertainty, as new stores come to market daily. Further compounding this trend is a slowdown in leasing, as tenants taper demand due to overall margins constricted by pressure from e-commerce retailers. Asking rents continue to decline, and it may take some time before activity increases and available retail space is leased faster than it comes to market.” (6)

The report found that the Herald Square West 34^th Street submarket followed this pattern.

A vacancy survey of locations on 34^th Street between Park and 10^th Avenues done in late January 2017 by the 34^th Street Partnership showed that of 122 storefronts there were 13 vacancies, 9.84% of the total. The highest vacancy rate was for the blocks between Park and Fifth Avenues, where 30.8% of the 13 stores were vacant. However, these two blocks have little of the GAFO type retailing that is so vulnerable to Internet sales losses. Only one of the four tenants that left was in this category. Also, the block face on the north side of 34^th between Madison and Fifth has a large non-retail use that is a huge pedestrian discontinuity.

Surprisingly, the lowest vacancy rate was between 7^th and 10^th Avenues where just 2% of the 51 stores were vacant. Other stores in this area were vacant, but they reportedly were being held off the market for potential redevelopment reasons. In the core area between 5^th and 7^th Avenues, 13.8% of the stores were vacant. Of the six tenants that left from the block between 5^th and 6^th/Bway, four were GAFO stores and one of them, H&M, moved into a new location elsewhere in the district. Two of the other GAFO retailers were in chains that were generally in retreat. Again on this block, the influence of the Internet was confined to possibly affecting three of the six departing tenants. On the block between 6^th Ave/Bway and 7^th Avenue, only one of the two departing tenants may have done so because of e-commerce competition, and it was a relatively weak chain, to begin with.

While the Cushman & Wakefield report is probably right that vacancies in retail-prone spaces have risen in all of Manhattan’s major retail submarkets, they may have overstated the impact of the Internet in some of them where non-GAFO tenants were vacating many spaces. This seems to have been the case in the 34^th Street District. In turn, if this is a trend in the district, and if its GAFO retailers are doing better than the district’s fast food and convenience operations and their GAFO peers elsewhere in Manhattan, that would be a very important finding. It would support the hypothesis that, even in the face of growing e-retail sales, the district’s exceptionally strong locational assets still make it a great place for GAFO retailers to do business.

According to the Cushman & Wakefield report, asking rents in the Herald Square 34^th Street submarket averaged $783 PSF in Q4 of 2016 and had decreased by 4.3% since the prior year. Data published by REBNY showed that in 2016 dollars, back in the Fall of 2008, on West 34^th Street from 5^th to 7^th Avenues, the average asking rent was $720 PSF and that during the Great Recession it fell to $472. By Fall 2016 it was $745, about 3% above pre-recession levels.

While the rents along 34^th Street are certainly hefty, they are well behind other Manhattan submarkets along Fifth Avenue, in Times Square and along Madison Avenue. Also, within the district, there is considerable variation: asking rents east of 5^th Avenue and west of 7^th Avenue are about half of those from 5^th to 7^th. It will be interesting to see how the completions of Hudson Yards and Manhattan West influence both rent levels west of 7^th Avenue and the redevelopment of more properties in that area.

Small retailers, even the really good ones, will likely find these rents unaffordable – even the lower ones in the “shoulder” areas. Within the district, they may find more affordable locations on the quieter side streets. As for the retail chains, unless they are opening “billboard” stores, their location in the district will have to bring in comparatively large sales to justify the costs of the space they are leasing. The district’s strong locational assets promise that such strong sales numbers can be achieved. However, they still have to be damned good merchants to realize their location’s sales potentials.

LOOKING TO THE FUTURE

I certainly do not know how retail will develop in the 34^th Street District over the coming decade. However, I do feel certain that it will be very thought provoking and have important implications for retail development in downtowns elsewhere in the nation.

That said, I hope that in the above analysis I have developed some plausible hypotheses relevant to its future. Retail, nationally, has been hurt by two major factors: Internet commerce and deliberate consumers. It seems to me that my analysis supports the conjectures that:

The 34^th Street District’s strong locational assets might make it significantly less vulnerable to Internet sales, though some retail formats will continue to fail
Its increasingly more affluent and large potential walk-in customer base makes it significantly less susceptible to deliberate consumer constraints, especially if the district can attract more upscale off-price/outlet retailers.

Other factors, notably the district’s central social district functions, will also probably have a strong influence on how many people it attracts and how “sticky” it will be keeping them there. I have not been able to properly research these functions, though my suspicion is that, in particular, how the district’s existing and new public spaces perform will have important impacts on nearby retail.

I certainly will continue to keep an eye on this fabled retail district to see how the next chapter in its story unfolds.

ACKNOWLEDGEMENT

Special thanks to Dan Pisark, Vice President, Retail Services at the 34th Street Partnership for providing some very essential data.

ENDNOTES

1-Richard Florida and Charlotta Mellander. “Rise of the Startup City: The Changing Geography of the Venture Capital Financed Innovation.” California Management Review. January 27, 2017. http://journals.sagepub.com/doi/abs/10.1177/0008125616683952?journalCode=cmra

2-Lois Weiss, “Massive Target Store Coming to Midtown,” New York Post, March 19, 2017.

3-Arianne Cohen. “A Department store: Macy’s Herald Square. New York Magazine. June 3, 2007. http://nymag.com/news/features/2007/profit/32899/

4-Anne D’innocenzio. “Lower Spending From International Tourists Hurts Macy’s 1Q Sales And Profit.” US News. May 13, 2015. https://www.usnews.com/news/business/articles/2015/05/13/macys-misses-street-1q-forecasts

5-Mitchell L. Moss and Carson Qing. “The Dynamic Population of Manhattan.” Rudin Center for Transportation Policy and Management . New York University. March, 2012

6-Cushman & Wakefield. Marketbeat Manhattan: Retail Q4 2016. http://www.cushmanwakefield.com/en/research-and-insight/unitedstates/manhattan-retail-snapshot/

The New Normal For Our Downtowns Cheat Sheet

Posted on February 1, 2017 by DANTH

By N. David Milder

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

Downtowns Are Now Expected To Succeed

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

Downtowns Are The Place To Be

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

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

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

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

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

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

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

Downtown Housing

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

Mixed use housing in downtown Cranford, NJ

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

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

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

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

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

Deliberate Consumers

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

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

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

E-commerce

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

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

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

Retailing In Various Types Of Downtowns

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

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

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

Office Functions and Development

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

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

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

Central Social Districts

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted on October 31, 2016 by DANTH

By N. David Milder

Introduction

This article is a follow up to:

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

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

The emergence of the deliberate consumer
Reduced demand for retail spaces
The growing strength of e-commerce
The continued growth of a broadly defined “value” category of retailers
The decline of traditional department stores and traditional specialty retailers
The uneven opportunities for small merchants

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

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

I suggest that many of the conclusions and observations I make below should be treated as hypotheses, since I cannot claim that they are based on a rigorous, wide reaching, systematic research effort. However, I hope that the discussion below convinces readers that I have done enough number crunching, field visits, personal interviews and analytical thinking to warrant my observations and conclusions being deemed worthy of serious attention and consideration.

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

Some Background on These Communities

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Entrance to Palisade Court in downtown Englewood

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Papyrus is in all three of the downtowns under discussion.

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

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

What Happened

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

N. David Milder at DANTH, Inc.

Downtown Revitalization Specialist

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