WE NEED TO DO CONTINGENT PLANNING BECAUSE WE CANNOT BE SURE THAT AN ENTREPRENEURIAL RESURGENCE WILL LEAD US OUT OF THE COVID CRISIS

By N. David Milder

We Need More Than Pollyannaish or Wishful Thinking for Our Downtowns to Recover and Thrive  

We are in the midst of what many observers have called the deepest crisis this nation has faced in many decades. It has been especially injurious to our downtowns because it has necessitated massive social distancing that makes it impossible for so many downtown entities, — e.g., shops, eateries, offices, movie theaters – to function properly or profitably. In this situation, it is understandable if downtown leaders and stakeholders look for signs that their future will be considerably better. Hope is perhaps the most underestimated, yet essential ingredient of any downtown revitalization or recovery. Still, if our downtowns are to recover, we must face realities and overcome some exceptionally strong challenges, while taking advantage of any new opportunities that this terrible crisis either creates or reveals.

In recent weeks a number of articles have appeared that have been quite pollyannaish about the recovery of our downtowns based on either wishful thinking or sloppy analysis. These puff pieces may be good for instilling hope, and perhaps are even needed. However, they are no substitutes for the kind of critical thinking and contingent planning that we need to start doing now if we are to robustly recover as quickly as possible.

Will Entrepreneurial Gold Dust Really Fall to Spark Our Economic Recovery? 

The Wishful Trend. One retail expert  has recently written:

“When all the dust settles, the post-lockdown era should provide a boost to downtown areas, in part due to newly unemployed but highly skilled restaurant and retail workers opening new businesses in downtowns where rent prices will trend downward.

The pandemic has left millions of highly skilled workers from the retail and food and beverage industries unemployed and eager to work. Many of these people are highly motivated to start their own businesses, creating an unparalleled pool of talent and potential entrepreneurial interest.

In a recent Forbes article, Bernhard Schroeder wrote: ‘27 million working-age Americans, nearly 14 percent, are starting or running new businesses. And Millennials and Gen-Z are driving higher interest in entrepreneurship as 51 percent of the working population now believes that there are actually good opportunities to start companies.’”1

A Reality Check. However, Schroeder was citing data from the “Global Entrepreneurship Monitor United States Report 2017” published by Babson College in 2018.  It must be noted that:

  • The GEM data are from before the swift and powerful economic decline the Covid19 crisis caused. There is no telling yet of precisely how the crisis has diminished the number of nascent firms  or killed off the young firms under 42 months old that the GEM studies look at. A reliable picture of the situation may not be possible until the CARES subventions time out.
  • Although the 2017 Gem study found that the Wholesale/Retail sector accounted  for the highest proportion of the nascent and young firms in the United States, 21% , it had not grown from the previous year and was “dramatically lower than the average of the 23 innovation-driven economies, 31%.” 2 Just a year later the Gem study found that the finance, real estate and business services accounted for 27% of the new and nascent firms, while retail, at 26%, still considerably trailed the other high income economies at 36% (see chart below from the 2018 Gem study.) 3
  • Retail has long been a downtown storefront space use, but in pre-crisis years many downtown leaders were worried about their ability to attract and maintain retail tenants. The Gem study showed that we were not generating as many retail startups as other innovation driven economies. And that was in relatively good economic times.
  • The fastest growing sectors for entrepreneurship were those that involved technology and knowledge – possibly good for generating office demand , but not exactly the types of firms noted for tenanting lots of downtown storefronts. 
  • The Millennials and Gen-Zers are among the two most economically screwed generations in living memory, so while many of them may have had an interest in entrepreneurship in 2017, even then raising  capital for such a venture was probably a frequent barrier to actual entry. Many of them are so strapped for income that they are still living with their parents, and Covid19 has increased their numbers. Raising capital was probably less of a challenge for those with gig or freelance sole proprietorship, but those “firms” also don’t fill many downtown storefronts.
  • Most importantly, and more precisely, we don’t know how startup rates will be impacted in the sectors that are most likely to produce tenant prospects for downtown storefronts – or which sectors they might be. How the continued growth of online retail sales and their integration into omnichannel operations will play out in terms of the amount, kind and location of physical commercial spaces remains to be seen. While most pamper niche operations have low initial capital costs and relatively low operating costs so they can be reconstituted with comparative ease and speed during a recovery, there is a real question about the availability of the types of consumer discretionary spending dollars they depend on.
  • Nor do we know how the Covid crisis’s economic impacts will influence current and future levels of interest and intent in becoming an entrepreneur. Most importantly, we don’t know how interest and intent will be impacted in the sectors that are most likely to produce tenant prospects for downtown storefronts. The blue line in the above chart from the 2018 GEM study shows the level of people aged 18-64 who intended to become an entrepreneur within a few months. The path is upward, though it shows much fluctuation, a Great Recession climb, and a bumpy 2016-2018 ride. The red line shows the percentage of the 18-64 population who are either a nascent entrepreneur or owner-manager of a new business, e.g., between 3 and 42 months old. It dived through the start of the Great Recession and then had a mostly upward path since. Obviously, these firms benefited from a recovering economy. Unfortunately, GEM does not provide a sector breakdown. Given that the constructive destruction in the retail industry and serious problems in several parts of the restaurant industry had already appeared, there is reason to suspect that nascent and young firms in those industries were not doing as well as those in other industries.  
  • Recent losses of retail jobs have been huge, and industry reports indicate  it will continue to grow through this year, as record numbers of retail stores are closed (perhaps over 20,000), and many chains enter bankruptcy. Are more retail workers, past or present, likely to find appealing startup opportunities in this kind of retail industry than in pre-crisis years? Will other entrepreneurs find the opportunities in the retail sector more potentially rewarding and less risky as those to be found in other sectors?
  • The attempt to see unemployed retail workers as an asset that will convert into an above average level of new retail startups as we recover may carry with it the implication that unemployment creates a high level of job need to which heightened entrepreneurship is a response. The 2018 GEM study presents data on the number of nascent and young firms (the total TEA) that were “necessity driven (see blue line in chart below). The necessity driven firms over all the years studied steadily account for a relatively small portion of all TEA firms. While the Great Recession did increase their number for  some years, overall their number did not change all that much, and never reached levels where they might spearhead startup led downtown recoveries.
  • B&M retail stores are taking on new functions and that may mean the skill sets of former retail employees are increasingly outdated and provide no advantage for starting up new types of retail and restaurant operations. For example, a new type of department store is appearing, — e.g., Neighborhood Goods, Showfields, b8ta – that sells curated collections of merchandise created by online birthed merchants.4 Also, the growing number of “ghost kitchens” can reduce the relevance of kitchen skills in the restaurant industry.  
  • Restaurants, another major source of downtown tenants, also have been clobbered.  Prior to the crisis many parts of this sector, e.g. casual dining, were already showing stress. The current need for social distancing and the apparent current danger of indoor dining, makes it very hard for restaurants to make needed profits. Until models for restaurants operating profitably under these conditions emerge, or the crisis significantly abates, will the sector be able to maintain the interest of entrepreneurs and its skilled workforce?
  • Here again the competitiveness of the opportunities the restaurant industry offers in terms of potential rewards and risks is very relevant. Restaurants have long had a very high failure rate compared to other industries – and Covid19 has certainly not done anything to diminish that fact. Also, external financing for restaurants has long been relatively hard to get, and their startup costs, if a full kitchen is involved, can be high. Self-financing during a recession and in its recovery years is also likely to be difficult.
  • Much is being made about the costs of store space. They typically amount to about 10% of the total sales of restaurants and various studies over the years have found that they are between 8% to 12% for most downtown merchants.5 Rents may indeed be important, but these firms have many other costs such as labor, inventory, insurance., etc., to factor in and be concerned about.
  • The Kauffman Foundation’s  2017 State Report on Early-Stage Entrepreneurship found that “the rate of new entrepreneurs ranged from a low of 0.16 percent in Delaware to a high of 0.47 percent in Wyoming, with a median of 0.30 percent. This considerable geographic variation certainly might also characterize the emergence of new entrepreneurs as we recover economically from the Covid crisis. It certainly suggests that entrepreneurship levels are dependent on a set on conditions, not just the cost of space, and will vary geographically with their strengths and weaknesses.

This is not to say that the recovery will not see either new downtown firms appearing or the full reopening of downtown firms that had suspended their operations. The question is how many of these startups and recovering firms can fill downtown storefronts with well activated and magnetic uses? Will they bring downtown vacancies back to acceptable levels? Will they bring customer traffic back to or above prior levels? Or will they just fill a few vacancies with drab uses that attract weak flows of customer traffic? Right now the difficulty of answering those questions is compounded by the fact that we probably won’t know the full extent and dimensions of our downtown vacancy problems until after the CARES subsidies time out, when the downtown operations then have to support themselves from “normal” type operations.

Is There a Real and Strong Startup Trend That Downtowns Can Ride to Recovery? If one goes back to some Kauffman Foundation studies about entrepreneurship in the decade or so prior to Covid19, one sees that there was not any steady trend of growing entrepreneurship. Indeed, there were ups and downs, with some concerns about it stalling or even seriously declining. 6 Covid19 may be sparking a number of startups in industries that help individuals and firms cope with the crisis, but I have not observed, or heard from professional friends,  or seen any published reports that claim it is causing lots of new downtown storefront-filling firms to open. There is no data-proven strong startup trend for downtowns, especially in smaller cities,  to ride to their economic recovery.

In sharp contrast, there are loads of data to show that remote work increased enormously in response to the crisis and lots of surveys that show that significant numbers of both workers and employers now think their remote work arrangements will continue on into the post crisis era. These are signs that remote work is a trend that has a good chance of lasting. There are no comparable data signals for resurgent entrepreneurship in the sectors that might occupy downtown storefronts, such as retail and restaurants.

Do We Just Sit on Our Hands? The settling of the crisis’s dust may or may not occur anytime soon. Whether it happens quickly or slowly can be pivotal. As John Maynard Keyes famously wrote “In the long run we are all dead.” The full impacts of other trend breezes such as remote work, changes in commuting patterns, and e-shopping may well take a decade or more to play out. They in turn may have big impacts on the demand for downtown storefront spaces, space uses, and occupancy rates.

What will happen to our downtowns during those years? Should downtown stakeholders and management organizations then just wait for the dust to settle and hope that new startup merchants will appear? If not, then what should/can they do?

Contingent Planning

Since it is far from certain that entrepreneurial gold dust will fall from heaven as the Covid crisis ebbs, perhaps it is valuable for downtown leaders to do some contingent development planning about what they can and will do to cultivate the types of small businesses that can tenant their district’s storefronts. Here, again, the variation in local conditions will probably mean a corresponding variation in responses. And prudence suggests anticipating a process of trials, errors, learning and adapting.

Community Supported Enterprises. For many years prior to the Covid crisis, in downtowns and Main Streets that were suffering storefront vacancies, severely weakened retail, and even food deserts, some local leaders created successful solution paths to these challenges. In our Covid economic recovery period, many other downtowns of all sizes may find these solution paths worthy of consideration. These solutions were most apt to succeed in situations where profitable operations were possible, but investors considered the rewards of entering these  downtowns or Main Streets lower and riskier than the opportunities they were being offered elsewhere. Some of these solution paths are:

  • Using crowdfunding to help open and/or maintain businesses strongly wanted by the local community
  • Using Community Owned Enterprises to save and operate key commercial operations
  • Using local social assets, such as social clubs, to leverage business development 7
  • Towns buying and operating failing essential retail operations, such as groceries.

Using such business models, and any riffs upon them, may help many downtowns and Main Streets recover their vibrancy over the next few years. They may be essential components of a New Deal program to revive retail. For more information about many of these business models see The Spotlight group of articles in the forthcoming Fall Issue of the American Downtown Revitalization Review at https://theadrr.com/ that will appear in September 2020.

Creating Supportive Small Town Entrepreneurial Environments.8 While much attention has been given to the creation of Innovation Districts, this concept is so large scale and complicated that it is only really applicable to big city downtowns and neighborhoods that are present in about 349 of our cities. Our remaining approximately 19,000 incorporated places also need a supportive startup culture and environment, but one that is simpler, less expensive to create and operate, and appropriately aspirant in its growth objectives. That is especially true at a time when many, if not most,  downtowns will probably be striving to cultivate their own startups to occupy their storefronts.  Such a Small Town Entrepreneurial Environment (STEE) might include: social places for new and small business operators to meet and network; access to viable funding sources; effective technical assistance; joint marketing programs, and affordable spaces in reasonable condition. It basically can take many existing downtown assets, such as libraries, bars, coffeeshops, makers places, community colleges, a downtown organization that invests in businesses and has niche marketing programs, etc., to create an informal district-wide business incubator and accelerator, Libraries in particular, are emerging as critically valuable STEE assets. Unfortunately, most downtown organizations do not yet see being actively engaged in small business development and expansion as a proper role for them to play. Nor do they exhibit any comfort or skills in playing that role when they do. A contingent planning effort could focus on how downtown leaders would foster the emergence of STEEs, should the need for it arise. This will likely entail a reappraisal of the roles the downtown organization should and can play.

Small Merchant Training.  The Covid crisis has reinforced the growth of two important nascent merchant trends:

  • Small and micro firms were weaving increased online activities with the operations of their brick and mortar stores. Customers ordering online and then picking their orders at the curb or at the storefront is one example of this.
  • More small merchants were tapping customers in distant market areas via their online storefronts and attending distant trade shows and fairs.

A contingent planning effort also could focus on how downtown leaders could encourage and train more of our smaller downtown merchants to use an omnichannel marketing operation that would help them to capture more sales dollars from both local and seldom before penetrated distant markets.

However, even prior to the Covid19 crisis, small merchant training has long been a challenge. In my experience, merchant training programs are often advocated, but seldom effectively implemented. The vast majority of them underperform because they ignore basic merchant needs and behavior patterns. Far too often, they want to EDUCATE the small merchants, and make them, for example, marketing savvy or bookkeepers. That can take a lot of merchant time and effort while providing them with more information than they have any need for near-term or even probably well into the future. Instead, what the merchants want is not to be taken to school, but actual solutions to their specific immediate problems. They want action steps that are credibly viable, affordable and easy to do. They don’t really want courses, workshops, or seminars. And they prefer not leaving their places of business. 

Also, in my experience, many small merchants are resistant to any suggestion that they are not doing things as well as they could be done, while others find it hard to ask for help even when they badly need it. Small merchants are often small merchants because of their need for independence and a strong sense of their own efficacy.  

Merchant training programs would probably be more effective if they:

  • Consider small merchants behaviors and attitudes as much as they do the information the program’s experts believe the merchants should learn
  • Give merchants access to training that is closely tied to their immediate needs, and less into making them better, more knowledgeable  entrepreneurs. Blasphemously, feed them fish, don’t try to teach them how to fish. Small merchants play too many roles to be experts in all of them, and they lack the dollars to hire others to take on some of them.
  • When possible, facilitate merchants learning from their peers whom they know, like and respect. In turn, that means it’s very productive to identify in a downtown those merchants who can be models and mentors for other merchants, and then to leverage them.
  • Start off by identifying the low lying fruit that can produce the  quick wins that will enable the training program to swiftly show other nearby merchants what it might do for them.

Perhaps some of national organizations such as IDA, IEDC, and National Main Street can develop such improved small merchant programs that can then be easily tailored to local conditions. Leaving their development solely to organizations such as SCORE or the SBDCs is a massive mistake. A strong need for such programs existed well before the Covid19 crisis, and will very likely far out last it.

ENDNOTES

1) Robert Gibbs. “After Lockdown, New Opportunities for Downtown Shopping Districts” at https://dirt.asla.org/2020/05/13/the-pandemic-will-lead-to-a-revitalization-of-main-street-retail/   Matthew Wagner wrote an interesting article on the Main Street Blog that also extolled our penchant to be entrepreneurs as a path to recovery, but most of the piece usefully went into the need for various things that I would associate with creating  what I called above a STEE. See: Matthew Wagner,” Main Street America. Main Spotlight: COVID-19 Likely to Result in Increased Entrepreneurship Rates” June 9, 2020. https://www.mainstreet.org/blogs/national-main-street-center/2020/06/09/covid-19-likely-to-result-in-increased-entrepreneu

2) Julian E. Lange, Abdul Ali, Candida G. Brush, Andrew C. Corbett, Donna J. Kelley, Phillip H. Kim, and Mahdi Majbouri. “Global Entrepreneurship Monitor United States Report 2017” published by Babson College in 2018, p. 27.  https://www.gemconsortium.org/economy-profiles/united-states

3) See: Julian E. Lange, Candida G. Brush, Andrew C. Corbett, Donna J. Kelley, Phillip H. Kim, Mahdi Majbouri, and Siddharth Vedula Global Entrepreneurship Monitor United States Report 2018” published by Babson College in 2019 https://www.gemconsortium.org/economy-profiles/united-states

4) I want to thank Mike Berne for bringing these stores to my attention.

5) See for example: Kate Paape and Bill Ryan, University of Wisconsin-Madison/Extension Division, and Errin Welty, Wisconsin Economic Development Corporation. “A Comparison of Rental Rates Charged for Downtown Commercial Space: A Market Snapshot of Wisconsin Communities”.  August 2019 https://economicdevelopment.extension.wisc.edu/files/2019/10/Downtown-Rent-Study-100119.pdf

6) See: “Victor Hwang Testimony Before U.S. House Committee on Small Business, Subcommittee on Economic Growth, Tax and Capital Access,”  February 15, 2017

https://www.kauffman.org/resources/victor-hwang-testimony-before-us-house-committee-on-small-business/

7) See: Norman Walzer and Jessica Sandoval, “Emergence and Growth of Community Supported Enterprises.” Center for Governmental Studies at NIU. 2016. https://www.cgs.niu.edu/Reports/Emergence-and-Growth-of-Community-Supported-Enterprises.pdf

8) N. David Milder. “Toward an Effective Economic Development Strategy for Smaller Communities (under 35,000).”

https://www.dropbox.com/s/tnwdomfzwrkv5i1/White-Paper-Toward-an-Effective-Economic-Development-Strategy-for-Smaller-Communities-1.pdf?dl=0

Live-Work as a Downtown Population Growth Engine in Independent and Suburban Communities

By William F. Ryan, University of Wisconsin – Madison/Extension and N. David Milder, DANTH, Inc.

Introduction

Within the downtown revitalization community a broad consensus has formed around the maxim that the greater the number of people who live in our downtowns, the more likely they are to prosper. These residents help to spark the “activation” of the district, providing the visible evidence of people engaging in a variety of activities, and nurturing the perceived sense of vitality among visitors that makes the area a  magnetic place to be. A number of factors can impact this downtown population growth. The real estate market certainly is one. Job growth, especially of creative class employees, is another. One that has gained notice, of late, is the number of people who live and work in their districts, and the live-work environments that emerge to both support them and reflect their attitudes and behaviors.

Most of the attention paid to the live-work engine has focused on our largest cities. After a brief look at those downtowns, this article will look in greater depth at the numbers, behaviors and impacts of live-workers on suburban and independent cities with populations between 25,000 and 75,000 .1  Suburban cities are located in a metro area in which there is a large center city. They usually serve more as bedroom and leisure communities than employment centers. Independent cities are more geographically isolated and may be the cores of a small metropolitan/micropolitan area. They serve as employment and commercial centers as well as bedroom and leisure communities. They are often also government centers (e.g., county seats). They are more multi-functional than the suburban downtowns.  

Live-work Environments as a Growth Engine in Our Largest Employment Nodes.

Job growth alone often has had mixed impacts on a downtown’s vitality and attractiveness in our larger cities. In the 1980s, for example, office development – with its large numbers of white collar workers — was seen as THE downtown redevelopment strategy, but it produced a large number of disappointing projects in dull and perceived unsafe downtowns. Many of them had to be “redone.”2 In office dominated districts, there were too many fortress-like office towers, and they lacked the multifunctionality and pedestrian activity that are critical for downtown vibrancy. Though somewhat active weekdays from about 11:00 a.m. to about 2:00 p.m., the downtowns were deader than doornails at other times. There were too few people around once the offices closed. 

Since the early 2000s, and especially after a major paper by Eugenie Birch in 2005, observers noted that our larger downtowns in the 1990s had been attracting significantly more residents.3  In the years since, housing development has become increasingly seen as the secret revitalization sauce for a large number of downtowns, including those in numerous suburbs, and almost all of our largest cities.  These new residents help activate their downtowns after 5:00 pm on weekdays and over the entire weekend.

However, not all downtowns experience household growth. For example, Birch found that about 27% of the downtowns she studied had declining numbers of households.

Downtown housing growth and district activation is thought to be strongest when downtowns have attracted large numbers of “live-workers.  They are there after 5:00 p.m. and on weekends. They don’t spend much time in vehicles commuting, but often will walk to and from work, or make short trips on public transit. For example, in several zip codes in Manhattan over 50% of the residents who are in the labor force walk to work.  The live-workers  very often are also creatives with high salaries.

In a seminal monograph published in 2017,  Paul Levy and Lauren Gilchrist researched the percentage of live-workers (those who both live and work in a district) in 231 major employment centers located in the nation’s 150 largest cities and within a one-mile radius that surrounds each of these centers. 4  Their work is important because it:

  • Demonstrates how downtowns are intractably inter-related with their immediately surrounding neighborhoods.
  • Showed that a significant number  of the downtowns in the nation had very significant levels of live-workers of 40.7% to 55.9%, especially those in superstar cities. (See the above table). The authors did not overtly make that claim, but, several of the high performing downtowns they listed are what Aaron Renn has termed as  superstar cities: “These “superstar cities”—New York, Los Angeles, the San Francisco Bay Area, Boston, Washington, and Seattle—are among America’s largest, most productive urban regions. They have well-above-average per-capita GDP and incomes and serve as the home bases of high-value sectors like finance (New York) and high tech (San Francisco)”. 5
  • However, the vast majority of our largest employment nodes had considerably lower levels of live-workers: 60% had fewer than 20% of their workforce being live-workers, with 42% in the 10%-19% range. 6

Live-workers in Independent and Suburban Cities.

The authors utilized a data set compiled by William Ryan, of the University of Wisconsin -Madison/Extension , and Prof. Michael Burayidi, of Ball State University, that covers 259 downtowns in cities with populations between 25,000 and 75,000 in Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio and Wisconsin. The dataset contained valuable information about the sizes of these downtown populations and their growth or decline. Using the Census Bureau’s On-the-Map online database, two variables were added to the original dataset: the number of people who both lived and worked in the city (N Live-workers in City) and the percentage of people participating the nation’s workforce and living in the city who also worked there (% Live-workers in City).  The limitation of these added data is that they are characteristics of the whole city and not just the downtown and its immediately surrounding areas. The reasoning for using these data is that the two live-work variables can be seen as indicators of a proclivity to live-work within a city and the analysis can be framed by looking at the impact of that proclivity on the size of these downtown populations and rates of population growth/decline.

A closer look at downtown live-work situations is also presented below. However, because of resource constraints, it is confined to 10  cities in this population range. Five are independents and five are suburban. Several of these downtowns are not in the Ryan-Burayidi dataset.

Downtown Population Growth and Decline.  These downtowns do not appear to be having the impressive level of population growth that is to be found in our larger cities, and this is especially the case for the independent cities that are not part of a large metro area.

The suburbs averaged downtown populations that were about as large, 3,089, as the independents, 3,294, but had a slightly larger maximum and a lower minimum. The suburban downtowns captured only a slightly lower proportion of their city’s population, with a median of 7.6%, than the independents did, with a median of 9.2%. Their highest proportions were close, too, 28.4% among the suburbs and 27.3% among the independents.

However, the suburban downtowns had an average growth rate between 2010 and 2018 estimated at 5% compared to just 0.53% for the independents. Both growth rates were far below the two digit growth rates many of our larger downtowns have been experiencing. Unexpected is the large percentage of these downtowns with negative growth rates, 36%. One might think that we were back in the 1960s or 1970s. In this regard again, the comparative strength of the suburbs stood out: while 31% of the suburban cities were dealing with declines in their downtown’s population, 46% of the independents experienced such decline. The suburbs also showed much more variation in their growth, with a low of -57.2% and a high of 140.2% compared to the -11.6% and 17.9% for the independent cities. 

Many of these downtowns could benefit from a strategy that can increase  their downtown populations.

An important factor in the different downtown population growth rates of the suburban and independent cities is their current economic growth potentials. Recent studies by Brookings and AEI have noted that economic development these days is stronger in communities that are attached, in a metro area, to a large city that has a population above 250,000.7 Many of the suburban cities in the Ryan- Burayidi dataset are attached to such cities (e.g., Chicago, Minneapolis, Columbus). In contrast, the independents, all under 75,000, probably are not, and instead are themselves the core cities of smaller and weaker metro areas.

Levels of Citywide Live-Work. Again, because of their very natures, these two types of cities display quite different levels of live-workers at the city level. In the more geographically and economically isolated independent cities, half of them have over 33% of their residents who also work in the city, with 10%  having between about 54.7% to 67.7% of their residents being live-workers. Those numbers, though at the city level, compare favorably with the percentages of liveworkers in and near our big city downtowns identified by Levy & Gilchrist. In contrast, the suburbs, being integrated into an economic region with lots of jobs, have many fewer live-workers at the city level. Half of the suburban cities have less than about 9.9% of their residents also working in their cities, with the highest percentage being 36%, about half that of the independent cities. 

A Pearson Correlation analysis showed that both live-work variables have very weak relationships with  downtown population size in both independent and suburban communities, with no r exceeding .166 or being statistically significant. These findings support the conclusion that the proclivity for live-working in both types of cities probably has little impact on the downtown’s population size.  People who live close to where they work are not clustered in and near their downtowns in these 259 cities.

However, there was a positive r of .249 significant at the .05 level between the number of live-workers in the independent cities and their downtowns’ rates of growth/decline. This does suggest that the proclivity to live-working can have some positive association with downtown population growth in these communities when they are growing. That may point to the additional availability of new downtown housing units that facilitate live-working.

A Case Study of a Creatives’ Suburb. Looking at the nature of the live-work environment in one of the suburban cities in our dataset, Dublin, OH, provides an interesting case study. Dublin is the nation’s 13th strongest creative class city, according to Richard Florida. 8  For a suburb (of Columbus) , it also has a large number of people who hold jobs in the city, about 42,249 in 2017. (See the above table). Given the propensity for creatives to prefer hip urban areas, one might expect a high number of live-workers in this downtown. However, the number of  live-workers within a half-mile of the downtown’s center point in 2017 is a miniscule five. In 2017 live-workers represented just 0.18% of the downtown’s workforce and 1.2% of its residents who are in the labor force.  They also represented just 0.48% of the downtown’s 1,024 residents (includes those not in the labor force). Those five live-workers accounted for 0.2% of the 3,184 live-workers in the whole city. Live-workers seem, if anything,  to be avoiding the downtown.

The number of people who are in the labor force and live in the 0.5 mile  had dropped slightly, by 19,  from 2007.  Most notably, the absolute numbers of live-workers and their percentages of the relevant area’s workforce and residents increased  with their distance from the downtown. Moreover, the number of live-workers in the city increased by 408, while the increase within the 1-mile ring was just 44, or about 9% of the city’s total increase. This is consistent with the hypothesis that the local residents and workers have little interest in living in urbanized environments, or at least the type offered in downtown Dublin. The downtown might not be seen as hip. It is very small. This should not be surprising in a town that is such a strong exemplar of a successful suburban city.  Here is how Google describes the city:

“Dublin Ohio is a long standing community and is probably best known for being the home of Jack Nicklaus’ Country Club at Muirfield Village”.

“Dublin is in Franklin County and is one of the best places to live in Ohio. Living in Dublin offers residents a sparse suburban feel and most residents own their homes (italics added). In Dublin there are a lot of bars, restaurants, coffee shops, and parks. … The public schools in Dublin are highly rated.” 9   

In 2014, a survey by Trulia found that 53% of the 2,008 respondents lived in a suburb and that about 93% of them preferred living in suburban locations. 10 That suggests a high probability that a strong majority of the  residents in towns like Dublin might not be looking to live in a dense downtown location in a multi-unit structure. The situation in Dublin signals that many creatives may be among them.

Dublin recently undertook a massive new project, the Bridge District to strengthen the downtown. It will be interesting in a few years to see how that changes how many people live in its downtown and how many are live-workers. 11

An In-Depth Look At Working Populations, Jobs and Live-Workers in 10 Selected  Downtowns.

The authors selected 10 downtowns they have visited and researched with populations  in the 25,000 to 75,000 range (with the exception of Morristown, NJ) to look at their live-work rates, if these rates grew or declined between 2007 -2017,  the size of their working populations (residents in the labor force), their number of jobs and how they also may have changed between 2007-2017. The data were downloaded from the Census Bureau’s On-the-Map online database using 0.5mile and 1.0 mile radii centered on the key intersection in each district. The assembled data are displayed in the two tables presented below. The analysis of such a small sample has obvious statistical limitations. In the natural sciences, e.g., astronomy, however, analogs are often treated as outliers that bring an existing theory or paradigm into question or suggests a need for their amendment. Our findings are presented as being directional, not conclusive, and sometimes as signaling that attention should be paid to them because they do not fit with the accepted professional wisdom.

For the downtowns in the cities in the 25,000 to 75,000 population range, the 0.5 mile ring will cover most or all of their district. It also represents an area that the average pedestrian can cover in about a 10-minute walk from the downtown’s center. It is also often used to define the boundaries of transit-oriented development districts. The 1 mile ring defines and area that is about 4.13 times larger than that of the .5 mile ring, and the average pedestrian would have to walk for about 20 minutes to go from the downtown’s center to the ring’s boundary. Such a walk is still doable for many, but its difficulty is sufficient to probably make others use some form of transportation or simply not make the trip. The .5 mile to 1 mile donut probably represents the nearby neighborhoods that are so crucial to the success of our downtowns. 

Residents in the Labor Force. As can be seen in the above table,  the number of people who live in the 1-mile ring and are in the labor force (labor force pop), for the most part, is far from negligible. (Note, they do not necessarily work in or near the downtown). The most are in two suburbs, Cranford, 8,817,  and Morristown, 8,728,  both in NJ. However, the average for the 5 independent downtowns’ 1 mile rings, 6,566, is about 10%  higher than that of the five suburban cities, 5,977.

A far larger disparity appears when we look at the data for .5 mile rings: the average number of ring residents who are in the labor force is 1,776 for the five suburban city downtowns, but 307% larger at 5,455 for the independent city downtowns. This probably reflects key differences in their basic characteristics: the independents probably are larger and have traditional, more densely developed downtowns, with more housing units and more jobs, while the suburban downtowns are less densely developed and less multi-functional. However, within the suburban group, Cranford, Morristown and Downers Grove all have many more of these residents than the other two downtowns. Notably all three had completed a number of downtown housing projects in the 2007 to 2017 timeframe. Also, Morristown is both a suburb in the NY-NJ-CT Metropolitan Region, and a county seat and regional commercial center. Notably, it and Garden City have more people working in the city than residents. Starting out as bedroom communities has not stopped them from also becoming office employment centers.

The table also provides ring ratio values that are created by dividing  a variable’s value for the 1 mile ring by its value for the .5 mile ring. This sheds light on where the weight of the geographic distribution is between the two rings. Here we are looking at the ring ratio for residents who are in the labor force. A value of 4.1 would indicate an evenly balanced distribution. Values below 4.1 mean the distribution is weighted to the .5 mile ring, and the lower the ratio’s value, the more heavily the distribution is weighted. Conversely, values above 4.1 indicate the degree the distribution is weighted to the 1 mile ring. While the ring ratio for the suburban cities, 3.4, and the independents, 1.2,  indicate the weight of the distribution is toward the downtown, it is much stronger for the independent downtowns.

Live-Workers.  When it comes to live-workers, the differences between the independent and suburban cities are even more striking. In the .5 mile ring the suburbs range between an unimpressive 5 and 216 live-workers, with an average of 80. On average, live-workers account for just 4.5% of the residents in that ring who are in the labor force. If we look at the suburbs’ 1 mile rings, the numbers rise, but they still are relatively small. Their live-workers range between 169 and 1,146,, with an average of 521. The live- workers in that ring, on average,  represent just 8.7% of its residents who are in the labor force. These findings are consistent with the conclusion that the vast majority of the people who live in and near suburban downtowns do not do so because their jobs are also there, though some may be employed elsewhere in their cities. Other factors are leading these residents to select residences in and near their suburban downtowns. Such factors might include the convenience, transportation assets (e.g., commuter rail), and the attractive central social district functions these downtowns offer.

Live-workers have a stronger presence in the independent cities, especially in the 1-mile ring around their downtown’s central location.  The range from 181 to 328 in the .5 mile ring, with and average of 231 and from 959 to 1,459 in the 1 mile ring, with and average of 1,212.  On average the live workers are 7.7% of the residents in the .5 mile ring who are in the labor force , but 19.9% of those residents in the 1 mile ring. Moreover, Laramie and Rutland have much more impressive levels of live workers, 39.5% and 29.3% respectively. These are levels comparable to large numbers of our largest downtowns. One explanatory hypothesis is that live-working is likely to flourish in the core cities of a metro area, be it large or small, but not in suburban cities.

The ring ratio of suburban cities for the live-workers is 6.5, and for the independents it’s 5,2, indicating their distributions are weighted significantly toward the 1 mile ring, in the .5 mile to 1 mile donuts where residents are likely to find walking to the town’s center not really easy and liable to need/use some transport to get there. This also supports the conclusion that while live-workers may be great for downtown activation and success, downtowns often may not be where people who want to live-work will decide to reside. Being near, but not in the downtown may allow them to enjoy both the assets of the downtown and a suburban home and lifestyle. This may be a reflection of the local cultural where single family residences and traveling by car still are highly valued. While this may be more apparent in suburban cities, these cultural preferences can also be found the independent cities that are so often cities in the midst of a rural area. 

Influence of Jobs. Levy and Gilchrist argue that job growth and density are major reasons why live-work levels get very high in our most successful downtowns.

Looking at suburban cities in the bottom half of the above table, one might note that three of them have relatively large numbers of jobs in their 1 mile rings: Garden City 31,309, Morristown 23,431, and Dublin 16,529. They are in the large NY-NJ and Columbus metro areas. Indeed, the five suburban 1-mile rings average 16,890 jobs In contrast, the average job count in the 1-mile rings of the independent cities is just 6,566, with the highest being Rutland’s 7,659.

However, when we look at the percentage of jobs being held by live-workers in both the .5 and 1 mile rings, the averages for the suburban cities are just 1.5% and 3.1% respectively. Despite their high job numbers, the percentages of Garden City, Morristown and Dublin in the 1 mile ring are just 1.5%, 4.9% and 1.0% respectively. The connection between jobs and the emergence of a large number of live-workers seems to be barely existent in these suburban communities, even in those that are prosperous and have lots of jobs.

Live-workers have a more significant presence in the independent cities, especially in their 1-mile rings. The average percentage of jobs held by live-workers in the .5 mile rings is 12.2% and 19.1% in the one mile rings.

However, many of these cities have been struggling. As noted above, 46% of the 91 midwestern independent cities in the Ryan-Burayidi database had declining downtown populations. Auburn, Laramie and Rutland had job losses in their .5 mile ring of -25.6%, -17.8% and -17.8% respectively between 2007 and 2017 and declines in the number of live-workers of -25.6%, -24.9% and -24.2% respectively (see table below). Still, in all five independent cities there is total agreement in all 10 rings between the directions of job growth/decline and live-work growth/decline. That certainly signals a meaningful association between the two.

The opposite is the case with the suburban cities.  In seven of their 10 rings there is disagreement in the directions of job growth/ decline and live-working.

Also worthy of note is that between 2007 and 1017 the number of live-workers declined in six of the independent city ring areas and in eight of the suburban ring areas. While live-work may have been growing in our larger cities, these 10 cities suggest that it may have been struggling in our medium sized cities.   

The ring ratios for the suburban cities, 3.2, and the independents, 2.7, both indicate the geographic weighting of jobs is toward the downtown. This is again the opposite direction of the live-worker ring ratios. Jobs may be going to the downtown core, but live workers are going to the close-in neighborhoods  surrounding the downtown or at its periphery.   

Conclusions and Implications

Many of These Downtowns Are Struggling.  This is strongly evidenced by the analysis of the 259 cities in the Midwest with populations between 25,000 to 75,000. Many of their downtown populations are declining, not growing. The problem is 48% greater in the independent cities than in the suburban cities that are often attached to fairly large and more prosperous metro areas. That Laramie and Rutland are also having downtown problems suggests that such weakness is not confined to the Midwest, but probably national in scope.

The success of our superstar cities and downtowns should not cloud our awareness of the challenges many of our other downtowns are still facing.

That Said, Their Downtown Populations Are Not Insignificant. The average downtown populations of the 91 independent cities, 3,294, and the 168 suburban cities, 3,089, are similar. Downtown populations of that size can have over $150 million in total annual consumer spending. If they just make one trip daily outside their homes that totals over 6,000 potential in-out pedestrian trips. Those are not negligible numbers.

Live-Working in These Cities Is Struggling, Too. While live-work may have been growing in our larger cities, in the 10 cities given a close look in this study, the numbers of live-workers declined between 2007 and 2017 in all of them. In the suburban downtowns live-work was not significant to begin with. That suggests live-work may have limited potential in many suburban downtowns and that it is struggling in a large number of our medium-sized independent cities nationally.

The Job Growth/Decline – Live-Work Growth/Decline Connection Does Not Work in Suburban Downtowns. Even when they have tens of thousands of jobs, the suburban .5 and 1 mile rings have very low percentages of live-workers.  Conversely, the independent cities, that are often the core cities of small metro areas and have denser and more multi-functional downtowns than the suburban cities, can have significant levels of live-workers. In them, the connection between jobs and live-workers seems to be meaningful.  However, the data on these five independents indicate that this can be a double-edged sword. When jobs grow, so can the live-workers, but, when jobs decline, so will the number of live-workers, and many of these downtowns are in stressed regional economies.  One explanatory hypothesis is that live-working is likely to flourish in the core cities of a metro area, be it large or small, but not in suburban cities.

Is Job Growth Really the Primary Engine of Downtown Population Growth? The average downtown populations of the 91 independent cities and the 168 suburban cities are similar, but they differ in what attracts these residents.  While proximity to jobs might draw a significant number of residents to locate in independent city downtowns, that is not the case with the suburban downtowns. Indeed, even most of the residents in the independent downtowns probably are not drawn there by the proximity to their jobs. If that holds nationally, then the argument for jobs being a primary engine of downtown population growth needs to be amended. Moreover, the reverse commuters in our superstar cities, such as those riding Google buses from their San Francisco homes to their Mountainview jobs, suggest national applicability.

The question then becomes, what other factors can be attracting downtown residents? Since our data did not cover this question, we can only hypothesize based on the accepted conventional wisdom in the downtown revitalization field the following:

  1. The downtown’s multi-functionality, that there are so many diverse needs and wants that can be met in a downtown.
  2. The attraction of the downtown’s central social district assets: its housing, restaurants, bars, public spaces, cultural and entertainment venues, senior and childcare centers, places of worship, pamper niche venues, etc.
  3. The convenience of being able to walk to all of these venues and engage in all of the activities in a compact and visually attractive and humanly scaled area.
  4. In the suburbs, the housing units proximity to a commuter rail or an express bus station.

If this hold water, then these downtowns should pursue revitalization strategies that reflect those points.

The Signals of Important Cultural Preferences. It’s important to keep in mind that the vast majority of the cities analyzed in this study are either suburban or medium-sized cities in rural areas. Very high proportions of the people who live in these areas prefer living in such communities. Their cultural preferences are for single family homes, high car use, and a selective tolerance of dense clusters of people. Living in multi-unit buildings situated in or near a walkable commercial district may only be valued by a limited number of niche market segments, such as empty nesters, commuter rail users, and young adults who need to share residency costs.

Looking at the 10 cities spotlighted in this study: while the weight of the geographic distributions of the labor force population and jobs tilt toward the .5 mile ring, it tilts strongly to the donut area between the two ring boundaries for the live-workers. This suggests that there may be some important differences between the live- workers residing in the donut and those people who live in the core downtown area. One might conjecture that since it is likely that the housing available in the donut will not be as dense as it is in the downtown core, and also more likely to be single-family dwellings, that this signals an important lifestyle preference. This, in turn, may correlate with higher income households who can afford to buy houses going to the donut.  

Moreover, as we noted about Dublin, OH,  even though the town has a ton load of creatives working there, where its residents have chosen to live suggests a high probability that a strong majority of them are not looking to live in a dense downtown location in a multi-unit structure.

Would An Infusion of Creatives Alter These Cultural Preferences and Increase Live-Working?  Creatives are often seen as the strategic solution to many downtown challenges. Would and infusion of them counter a culture’s existing preference for a dispersed lifestyle? Research by David A. McGranahan and Timothy R. Wojan found that in metropolitan counties about 30.9% of the workforce were in creative class occupations, while in rural counties it was just 19.4%. 12 One might reasonably deduce that the cities analyzed in this study have  creatives that probably account for between 20% to 30% of their workforces. Creatives are famous for living where they will find the lifestyles they prefer, so the fact that they live in these suburban and rural cities can be taken as a fairly strong sign that they like living in these kinds of communities.  That, in turn, suggest that they may have adopted many of the cultural values of their larger community.  Moreover, whatever impact they might have already is reflected in the current situation in these cities and their downtowns. Also, given their education, income and employment, creatives also can be expected to have had an above average level of influence in the community.

One possible influence for change might be creatives who move into these communities. Will they bring in a more cosmopolitan worldview?  There has been some research on the people who are moving back to small towns and rural areas that shows many are in creative occupations and that they move back to be closer to their families, to enjoy a slower pace of life, and to live in a place where social ties and engagement are more important. 13 They maybe bringing their creative and entrepreneurial  talents into their suburban and rural cities, but they are not there to create a mini Midtown Manhattan or a mini downtown San Francisco.

On the other hand, if the incoming creatives are largely young, not nested adults, then there might well be a demand for apartment units. However, brain gain when it emerges in these cities, to date, has brought in more families than singles.

ENDNOTES

1) These cities were selected based on data from: U.S. Census Bureau, Governments Division, Government Organization, Table 7: Subcounty General-Purpose Governments by Population-Size Group and State. Census of Governments (2007).  

2) Two of the most successful “redos” are Uptown Charlotte  and the Lower Manhattan CBD.

3) Eugenie Birch, “Who lives downtown”, Washington, DC: The Brookings Institution, Metropolitan Policy Program, November 2005, pp 20.

4) Paul R. Levy and Lauren M. Gilchrist, “Downtown Rebirth: Documenting the Live-Work Dynamic in 21st Century U.S. Cities.” Prepared for the International Downtown Association By the Philadelphia Center City District, pp.57

5) Aaron Renn, “SCALING UP: How Superstar Cities Can Grow to New Heights”, Manhattan Institute, Report January 2020, pp. 16, p.1

6) See Levy and Gilchrest in endnote 4 above.

7) See: Nathan Arnosti and Amy Liu.  “Report: Why rural America needs cities.” Brookings Institution. November 30, 2018 . https://www.brookings.edu/research/why-rural-america-needs-cities/#cancel ; and  Mark Muro and Robert Atkinson, “Countering America’s Regional Economic Disparities Is Going to Take More Than Hope, AEI,  2020.  https://www.aei.org/wp-content/uploads/2020/02/Countering-America%E2%80%99s-Regional-Economic-Disparities-Is-Going-to-Take-More-Than-Hope.pdf

8) See: Richard Florida, “America’s Leading Creative Class Cities in 2015.” City Lab.  April 20, 2015  https://www.citylab.com/life/2015/04/americas-leading-creative-class-cities-in-2015/390852/

9) See: http://tinyurl.com/tmxmjvj

10) Trulia survey of 2008 Americans, November 2014, see: https://www.trulia.com/research/cities-vs-suburbs-jan-2015/

11) Thanks to Aaron Renn for bringing this to our attention.

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

13) See the discussion in N David Milder, “Quality of Life (QofL) Retail Recruitment Update ”, The Downtown Curmudgeon Blog, July 2019  https://www.ndavidmilder.com/2019/07/quality-of-life-qofl-retail-recruitment-update

LET’S GET REAL ABOUT DOWNTOWN RETAIL COMING BACK

By N. David Milder

INTRODUCTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

LOOKING AT SOME DIFFERENT TYPES OF DOWNTOWNS

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

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

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

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

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

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

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

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

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

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

Rego Park-Elmhurst Shopping District Map

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

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

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

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

  • Local leaders, landlords and a tranche of middle income trade area residents were dissatisfied with the retail offerings as well as the district’s appearance and fear of crime.
  • Yet, there were numerous shops, fairly normal vacancy rates, and the sidewalks filled with pedestrians during the daytime . After visiting a few of them, one former president of Bloomingdale’s called them “beehives of activity.”
  • Over time, the dissatisfaction increased as the retail shops stopped serving middle income shoppers and focused more on lower income, “ethnic,” and teenage shoppers.
  • In seeming validation of  Michael E. Porter’s famous argument in “The Competitive Advantage of the Inner City,” that dense low income populations in aggregate offered strong market potentials, the inner city  retailers who focused on lower income shoppers very often reported strong sales PSF that rivaled those reported for some of Manhattan’s posh shopping corridors (11). Indeed, some were doing so well that they created their own chains that opened stores in inner city downtowns and large commercial centers across the NY-NJ-CT metropolitan region and even in PA.
  • Trade area analyses of these downtown  and large neighborhood shopping districts consistently showed that the number of solidly middle income households were either sizeable or even in the majority, and certainly accounted for most of the retail spending power. For example, the 1987 report I co-authored with Bill Shore on Jamaica Center found that the households in its trade area had a 10% higher average income than those in NYC as a whole (12). In 2002, DANTH looked at the trade area of the Jerome Avenue BID in The Bronx and found the median household income in 2019 dollars was about $76,234 and 22.8% of the households had incomes in 2019 dollars above $109,889.  What Porter appears to have missed is the fact that while many and probably most of our inner city commercial districts may be drawing from areas that are indeed heavily “ethnic,” with many lower income people, they also can have large numbers of solidly middle income and even upper middle income households that have most of the spending power.
  • Nonetheless, the retailers in these inner city districts were targeting the trade areas’ lower income residents and less affluent district visitors. In many instances, the low income segment was targeted by the retailers because they lived in or near the downtown and were its most frequent users. The market research of too many of these retailers was limited to observing the types of people they saw walking by their shop or possible location. More importantly, the retailers very often were making very sizeable profits – Porter did see this possibility –and saw no reason to take the risk of trying to attract their market area’s more affluent shoppers.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SOME TAKE AWAYS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ENDNOTES

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

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

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

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

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

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

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

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

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

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

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

May–June 1995.

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

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