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Downtown Tourism: Boon or Bane?

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By N. David Milder

Introduction

As my years spent in the downtown revitalization field increased, I gradually realized that I unconsciously had been working with the view that bigger and better defined a successful downtown. With time, I also realized –perhaps in an embarrassingly late fashion — that making a downtown better was much more important than making it bigger. Indeed, for many communities, a bigger downtown would essentially change the whole character of the town.

As I came to realize that better was more important than bigger, I also began to think more critically about tourism. Downtowns large and small are often lured into economic growth strategies with large tourist attraction components. NYC’s mayors and economic development agencies, for example,  for decades have targeted tourist growth and lauded how many millions are attracted annually, how much money they spend, and how many jobs they generate. Smaller communities, especially those in rural areas, often see tourism as a major way to overcome the small populations and low consumer spending power in their market areas. It is often seen as a way to strengthen a Main Street’s retail shops. Well regarded organizations that work to support Main Street and downtown revitalization often suggest increasing tourism as a viable component of an economic growth strategy – as do many economic development consultants. Unfortunately, tourism can be a two edged strategic sword, a boon or a bane – or even a boon and  a bane. In my experience, too may downtown andMain Street leaders leap at a tourist growth strategy without properly thinking through its possible drawbacks as well as its advantages

Some Boons and Banes

The Character of the Community. Over the past year, several articles have appeared that indicate that I am far from the only one who is concerned about what is, for me, the worst  possible drawback about tourism: that too many tourists can change the character of a downtown and/or the community in which it is located. For example, the November 18, 2018 edition of the Washington Post had an article headlined:

“DETOURING. Top world destinations are overrun. Take our suggestions for roads not taken.”

Earlier in the year, the German newspaper Der Spiegel noted that European tourism officials were reporting frequent problems of “overtourism,”where too many tourists and/or unacceptable tourist behavior threaten to severely diminish the very attractions that lure the tourists.  In response, local officials:

“…want to redirect the streams of tourists, as officials in Rome are trying to do, or even to limit them, as Dubrovnik is doing. Barcelona is no longer approving new hotels, Paris has strictly regulated Airbnb and other apartment?rental platforms….(1)

Nicole Gelinas, in a very thoughtful article in the City Journal, has argued that:

“While much of this change ( increased global travel) is positive in economic terms, the ongoing invasion of global cities by people who stay for a few days or a few weeks can fundamentally transform the character of places whose unique charms are what attracted tourists in the first place.” (2)

Gelinas goes on to argue that in the West’s central cities, tourist pedestrian behavior has changed their character:

“Central­ city sidewalks designed decades or centuries ago can’t handle today’s foot traffic, particularly when people don’t walk like the local commuters and residents of decades ago did.Today’s pedestrians walk slowly, several abreast, stop frequently to take photos or look at maps on their ever­ available phones, and wheel bulky luggage behind them, ensuring that fast walkers can’t pass. Tourists to a large extent have become the central cities.” (3)

Unhappily, Yogi Berra’s quip that “nobody goes there anymore, it’s too crowded” is increasingly applicable to many of our most attractive city centers, public spaces  and arts venues. Can you really appreciate the Mona Lisa at the Louvre if you are standing 50 feet away in a dense crowd (while few are looking at the marvelous Raphael’s and Titians nearby?) Or appreciate an exhibition at NYC’s MoMA in rooms packed like a sardine can, but with people and no olive oil? Most visitors to both museums are tourists – 75% at MoMA, 70% at the Louvre.

Many NYC residents stay away from Times Square because it is too crowded, filled overwhelmingly with tourists and passé attractions – we no longer feel it is one of “our” places. It is this ability of overtourism to make local residents feel dispossessed that is most troubling.

Sadly, too,  problems being caused by tourism are not confined to large central cities. In smaller towns, it is tourism’s insidious ability to make local residents feel dispossessed that is perhaps even more troubling, because a strong sense of community is what so many residents cherish about living in them.  I have run into small town residents who feel that way in a number of communities such as Montauk, NY, Chatham, MA, and Lambertville, NJ.  Montauk used to be known as the Hampton’s blue collar community, a great, affordable place that middle income folks could go for terrific fishing, attractive beaches,  and some good, if funky, eateries. Today, it is the pricey summer recreational town for affluent hipsters. The whole tone of the town has changed.  

In a very useful article, Tomoko Tsundoda and Samuel Mendlinger looked at the economic and social impacts of tourism on the small and very attractive town of Peterborough, NH( 4). They showed that there long has been an awareness of  a number  of wide ranging impacts, both good and bad, that tourism can have. On the positive side are:

  • Increased jobs
  • More  business opportunities
  • More interesting shops and entertainments
  • Heightened demand for local housing and commercial properties
  • More tax revenues

On the negative side are:

  • Loss of the community’s character
  • Higher retail and restaurant prices
  • Higher housing prices
  • Businesses favoring tourist patrons over local resident patrons
  • Low-paying or unsustainable new jobs
  • Increased traffic and poorer air quality
  • More quality of life crimes

One of their most concerning findings was that wealthy families and working families may view the benefits of tourism quite differently.

Much can be said about each of the above impacts, but that would take a far longer article than this one. My key point here is that downtown leaders who are thinking about avidly pursing a tourist growth strategy should carefully assess these potential impacts on their communities.

Tourism as a Strategy to Improve a Downtown’s Retail

I do want to do a bit of a deep dive here because in recent years I have so often heard this argument offered by downtown leaders  to explain why a tourist growth strategy should be developed.


I would say that,  in my experience, almost invariably when clients and client prospects have suggested pursing tourist growth, their primary reason for doing so is to improve the downtown’s retail.  To put the potential benefits in some perspective, it is useful to look at how much of tourist spending goes to retail, see the table above. It shows that, for example, tourists in NY spent about $64 billion in 2016, but only about 9.9% of this hefty amount went for retail. Expenditures for recreation and entertainment were slightly larger 10.0%,while expenditures for food and beverages was much higher, 23.7%. All of these expenditures can help the types of merchants that downtown can attract – if there are those types of shops already present or if the tourist spending potential is large enough to spark their development. In many instances, these types of operations do not exist, and the tourist spending potential is not sufficient to stimulate their creation. Retail in MS accounts for a seemingly impressive 26% of tourist expenditures, but this is partially due mathematically to the extremely low expenditures for recreation and entertainment. In NC, on the other hand, tourist spending for retail rivals, in absolute dollars, those expenditures in NY, and surpasses it on a percentage basis, 20.2% to 9.9%. In NC, the percentages of tourist spending that go for both recreation-entertainment and food and beverages are relatively low, but the level of absolute dollars spent does suggest that retail merchants in that state are rather good at capturing tourist dollars.

The above table shows the percentages of tourist spending that went for food services, retail and recreation in 11 multi-county regions in PA in 2016.Retail  accounted for a lower percentage of tourist spending than food services or recreation. The highest percentage for retail expenditures among the 11 regions was 18% and the lowest was 12%.

My observations over many years suggests that towns with strong tourist sales all have strong retail offerings: outlet centers (e.g., Manchester, VT), major urban retail streets like Fifth Ave, Rodeo Drive, Michigan Ave, or ritzy tourist havens where lots of rich people have 2nd, 3rd or 4th homes (e.g.,East Hampton, Bal Harbor, Palm Beach).

Unique offerings in the other towns can indeed sell, but I hear more about how they can sell than I see merchants actually doing it.

In the towns most downtown leaders would want to emulate,  quality merchandise is offered to tourists in attractive and often charming shops.  Unfortunately, there are also towns that are tourist nightmares. I shall refrain from mentioning any of them, but they are usually busy, gaudy, and filled with a lot of shlock merchandise. As with obscenities, you know them when you see them.   

Suggested Take Aways

The above leads me to make the following observations:

  • Most downtowns should not expect tourism to be the savior of their retailing. Retail expenditures will probably typically account for only 10% to 20% of local tourist spending. Tourism can provide local retailers with the equivalent of the  whipped cream and cherry on top of a sundae, but not the two scoops of its ice cream.
  • Attractive local hotels and restaurants are likely to capture most local  tourist expenditure dollars.  Is a tourism growth effort worth it if those types of enterprises are by far the primary beneficiaries?   
  • Crappy retail shops selling crappy merchandise will usually not capture many tourist dollars.But the real danger is that, if there is a lot of such shops, they just will attract a lot of crappy tourists. This can create town – tourist problems.
  • The major retail needs in many smaller communities are grocery stores, pharmacies, a hardware store, etc., the types of neighborhood retail that tourist expenditures are unlikely to support. If tourist focused retail is dominant, and these needs are not met, then some hairy town –retailer/tourist problems can emerge.
  • To attract lots of tourists, your town needs to be well-located and accessible. If you do not have significant levels of auto traffic now, or strong nearby scenic magnets, assume that you probably cannot quickly build a base of local tourist attractions that will significantly increase the flow of tourist customers.
  • To succeed you probably need enough local attractions to keep tourists in your downtown for four times the length of time it took them to travel there.  Your downtown needs some real there, there.      
  • If there are significant tourist flows nearby and your downtown is not capturing significant traffic from them, correcting that should be the first order of business of any tourism development program.
  • Tourism that endangers the community’s character is never worth it. Why kill the goose that’s laying golden eggs?
  • Yet, tourism certainly can be beneficial for a downtown. Programs to attract more tourists should be thoughtfully designed, with an eye on possible emerging problems, not just a look at potential financial gains for local businesses and residents.

ENDNOTES

1. Der Spiegel staff. “Paradise Lost: How Tourists Are Destroying the Places They Love.”  Spiegel Online.  http://www.spiegel.de/international/paradise-lost-tourists-are-destroying-the-places-they-love-a-1223502.html . Posted: 08/21/2018 01:20 PM

2. Nicole Gelinas. “Planet Travel. Globalization has created a tourist boom in world cities—but masses of tourists create new challenges.” City Journal. August 31, 2018. https://www.city-journal.org/html/global-tourism-16143.html

3.Ibid.

4.Tomoko Tsundoda and Samuel Mendlinger, “Economic and Social Impact of Tourism on a Small Town: Peterborough New Hampshire.”  J. Service Science & Management, 2009, 2: 61-70
Published Online June 2009 in SciRes (www.SciRP.org/journal/jssm)

The Use of the Muddled Immaculate Retailer Concept in Leakage Analyses

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By N. David Milder

Looking at retail leakage studies, I am reminded of Coleridge’s famous line: “Water, water, every where, Nor any drop to drink”. Retail leakage studies seem to be de rigueur in the downtown economic development field, but a good one, devoid of fatal errors is hard to find. As I have detailed in earlier posts, leakage analyses have serious analytical and data issues. I want to return to one of these analytical problems because I think our field lacks appropriate  awareness of the muddled conceptual thinking  that too often is being used to make a lot of important program, policy and investment decisions. I call this muddle the concept of the immaculate retailer.

This concept runs along these lines:

  • A leakage is said to exist when the retail expenditures of a trade area’s residents exceeds the sales of trade area retailers. Those dollars that are uncaptured by trade area retailers are said to be captured by retailers located outside of the trade area. So far, all this is analytically simple, well and good.
  • A next and troublesome step is to assert that one or more new retail firms can locate downtown, and their sales will be based on capturing these leaked sales. Consequently, they will not take sales away from retailers already established in the downtown. The new retailers somehow can compete immaculately. Local retailers ostensibly have nothing to fear from new merchants entering their downtowns.

My understanding of how retail markets function and how retailers behave suggests that immaculate retailing is simply impossible. I have little doubt that some merchants, large and small, may appreciate locations where the competition is sparse and/or weak, though all but monopolies and oligopolies must fight for market share whether they realize it or not. How such retailers then would parse their sales to only capture those dollars that would go to distant rivals is never specified and frankly has proven to be beyond my analytical abilities to identify. I have no idea how a merchant could feasibly, in the real world, compete against retailers outside their trade area, but not with those already located in their downtown – unless it is on the Internet. I’m willing to learn, so if you know of such a path, please let me know.

Even in situations where there is no retailer of that type, e.g., a grocery store, the new entrant will likely have to compete with a really powerful retailer located outside of its trade area. The presence of that strong competitor is probably why, for example, there was no grocery store already there. There is an asymmetry in the trade areas among individual retailers and as well as those among retail centers that reflects their relative strengths. The stronger they are, the farther they can reach. As a result, a proper market analysis cannot just look at the competition within a trade area defined by where a store’s potential residential customers are located. That store’s being located in the trade areas of strong competitors must also be identified and assessed.

There is, however, another perplexing face to the immaculate retailer muddle: that somehow, it will be relatively easy, perhaps because of their greater proximity, for new downtown retailers to win back the leaked sales. There is often an unstated assumption that the competitors located outside the trade area are weak or will not compete, that the leaked funds are like lots of coins fallen on a carpet and just waiting to be picked up.  This shows itself most overtly when the question of how much of the leakage can be recaptured. Far too often the question is not overtly addressed, leaving the implicit false implication that all of it can be recaptured. When the question is addressed, some rule of thumb often is used. Most regularly 10% to 15% of the leakage is suggested as a conservative, reasonable  estimate, though no research supporting that suggestion is cited. The rule’s purported general acceptance is what lends it legitimacy.

To the contrary, I would argue that no general rule can be applied, because two crucial variables are not being properly taken into consideration:

  • The strength of the competitors. Too often the bulk of a leakage analysis’ focus is just on the downtown’s trade area, when its major competitors are located well beyond its borders. That is often because the location of these rivals was not taken into consideration when the trade area was defined. This results in the competitive strength of rival centers being poorly researched, and ill-considered in the analysis. By the way, I think most downtown retail market analyses do not pay sufficient attention to the competition. Indeed, most trade areas are defined by where consumers live, but techniques such as gravity models and considering the distances to competing centers need to be more frequently incorporated.
  • The second and most overlooked factor, is the ability and power of the new retailer(s) that would be brought into the downtown. I’ve seen one suggestion that 40% TO 60% of a retail leakage can be recaptured. Perhaps, by a major retail raptor like Home Depot or a major specialty chain, but in smaller communities, that’s probably unlikely for independents who would be happy as lark with annual sales of about $500,000 each, even if there are more than one of them. This, too, should be considered: by definition, half of all retailers are below average.

Who the downtown can recruit matters more than the size of any leakage. My enquiries to retail site selectors indicated that few, if any, use a leakage analysis to determine where they will locate their physical stores. The retailers you want for your downtown are prepared and able to compete. Among these able retail competitors will be chains and independent operators. In almost every downtown I’ve worked in I’ve found small operators who are very savvy merchants and very able competitors.

The identification of those retailers is what we should be focused on. A proper analysis of the downtown’s  various addressable market segments, that includes psychographics,  should indicate which types of retailers will find their types of customers in a that district and its trade area attractive. Those retailers should be targeted for recruitment.

Major retailers, because they can use their data on their stores’ sales and costs,  current customers and potential customers, can generate more reliable estimates about the potential sales revenues and operating costs at a new location and how much space they can afford to lease. The ability of a leakage analysis to address that question pales in comparison!

Leakage analyses have other analytical issues as well as some very severe data issues. The data issues could be resolved if the data providers would detail how their many needed manipulations of various types of primary data have been validated, demonstrating that they are truly measuring what they say they are measuring. For example,  BLS’s surveys of consumer expenditures are national and the data can be presented at the level of multi-state regions. But when a data firm produces estimates for a downtown’s much smaller radii or drive sheds, how do we know that the necessary manipulations of the data produced the correct results? Given  that such estimates can vary from firm to firm, how do we know which are the correct ones?

A retail leakage report from Esri or Claritas may be relatively easy and inexpensive to purchase. Nonetheless, one should not be misled by that fact — the correct analysis of those data will not be commensurately easy and cheap.