Existing Businesses Become Business Incubators for Local Entrepreneurs

When business is good, business owners are not particularly pressed to identify alternative sources of revenue. In difficult times, creative collaboration is not a luxury but a necessity. ["In Tough Times, Interesting Opportunities for Diners", NYTimes, 1/29/10]. The article mentions a few instances of sharing - a local deli becomes a hip once-a-month restaurant run by a budding entrepreneur, a baker lets a cookie maker rent and use his kitchen during slow hours. These are two ways that sharing space allows business owners to reduce costs.

Supporting new businesses is a priority for many of commercial districts. But in many instances, finding space within the commercial district for entreprenuers can be quite challenging. Rents may be too high for untested entreprenuers, or local landlords may only be unwilling to rent to anyone but a credit tenant. The great part about the collaborative approaches mentioned in the NY Times article is that it allows existing businesses to serve as small business incubators by give budding entrepreneurs low-cost ways to test concepts. For example, the once-a-month restaurant in a deli is run by an entrepreneur who also recieves guidance and support from the deli owner on purchasing and menu planning. In the other example, a local cookie maker is able to test her product in a rented kitchen without investing too much capital in the business.

If you have local business owners looking for extra revenue (and who isn't these days?), consider brokering relationships between your business owners and local entrepreneurs looking for space. Find entrepreneurs by reaching out to your local business center, local college or technical school. Educational programs - including culinary schools or business schools - are great places to find entreprenuers. Your efforts could be a win-win for both existing and new businesses.

Avoiding Common Mistakes in Retail Attraction

One of the most common mistakes I see when commercial district managers attempt retail attraction strategies is a real disconnect between the retail they want to see in the district and the availability of space in the district to accommodate those uses appropriately. This often comes from a lack of understanding of what the retailers want and need in order to develop a successful store. Understanding retailer (or restaurateur) site selection criteria is critical not only to successful retail attraction – but to a successful long-term relationship with a retailer. There is nothing worse for your credibility or the reputation of your district than significant store turnover. Turnover communicates to potential other new businesses that an area is not a good investment – and makes your job over the long term that much more difficult.

How do you figure out what retailers need and want? Sometimes they don’t even know!

Many district managers I work with are far more interested in attracting unique specialty stores and restaurants – rather than chains – to their districts. These smaller entrepreneurs are often much less sophisticated in using market and demographic analysis for their site selection decisions, which is fine. But I encourage district managers to take the time to research and understand industry standards and guidelines – yes, even for chains – to get a good sense of what kinds of spaces work or don’t work for different retail categories. This kind of information will only help you develop better talking points for any retailer you approach.

Information about retailer site selection criteria requires some research. Two good resources include:

• ICSC’s Shopping Centers Today

• Retail Traffic

Get to know your district from the perspective of a retailer/restaurateur

What are typical space requirements for these kinds of retailers? What kinds of complimentary uses would help the retailer generate additional customer traffic? Who is the target market, and do you have enough of those people in your trade area to support the business over the long-term? Tucanos grill, for instance, is looking for 7,000 to 7,500 square feet in “middle markets” with good proximity to a movie theater/entertainment. If you were to approach Tucano’s – would you be able to bring them the kind of space that would make a meeting worth their while? (Ref: Retail Traffic, 12/16/09, “Tucanos Grill Starts to Sizzle”)

This kind of information is not always intuitive – so do your homework before reaching out to the retailers you are interested in and determine whether your district fits their needs.

Work with a Local Broker – and If you Don’t Have One, Become the Local Broker

If you don’t know your district vacancies very – develop a working relationship with local brokers. Unfortunately, many districts – the market may be too weak to attract the interest of local brokers, in which case you will need to make sure you develop and maintain a very good building and business inventory (which you should have anyway!). Consider developing an on-line list of vacancies. A simple listing of vacancies like those shown here at Urban Solutions, a great Bay Area non-profit that focuses on retail attraction in difficult urban areas, is a good start.

Even during these difficult times – there are retailers seeking good deals and good spaces. But before embarking on a retail attraction initiative, take the time to figure out if the available spaces in your district are the right ones for the retailers you want!

New Report by the International Council of Shopping Centers looks at how the Recession Has Affected Consumer Spending

A link to the report outlining the findings from an on-line survey of 2,500 shoppers can be found at http://www.icsc.org/web/RecessionBooklet104.pdf

For commercial district managers, some of the more pertinent information and findings from this survey related to the effectiveness of Loyalty Programs and Special Events in driving consumer traffic. These are two very common programs advanced by commercial district managers and so deserve a more detailed look...

Loyalty Cards – People Like Them, But They Aren’t Widespread Yet
While many consumers participate in loyalty programs offered by specific retailers, only 2% reported that they belong to a mall or shopping center program, the closest corollary to a district loyalty card. This may be due, in part, to the fact that the mall-wide programs are less prevalent and less well marketed. People did remark that they join these programs for the savings – so there does seem to be an untapped opportunity to grow consumer interest in district-wide loyalty programs.

Special Events Do Drive Retail Traffic
Not surprisingly, Special Events were an effective method of enticing shoppers to visit shopping districts. 40% of those surveyed said they attended a special event or activity at a shopping center within the past 12 months – and an additional 25% reported that although they had not attended a special event, they would like to see more special events in the future. The most widely attended events included farmers markets, crafts fairs and music events/concerts – all activities that also lend themselves to more traditional commercial districts as well. Most importantly, 58% of folks who attended these events said they purchased either food or other goods during their visit. This is good news for retailers who stand to benefit from special events put on by the commercial district management entity.

Make Sure the Special Event Actually Helps Businesses
I know, it sound simple, but I have visited many commercial districts where the district manager spends months planning special events that, in the end, do little to help local businesses grow their sales. So before you run out and put on a special event – remember that these events are a good compliment to retail only when they are planned and managed in such a way that retailers are able to benefit. For example, don’t hold special events when most stores are closed. This can sometimes be a challenge - particularly in districts where business owners are used to closing early and sometimes remaining closed over the weekend. Instead, work with retailers to engage them in the event by asking them to stay open, and then make sure that you give attendees a strong reason to go into open stores (raffles and in-store events that get them through a retailers door are two options). Also, make sure the events are held close enough to where the retail action is so that you increase the chances of attendees walking into local stores. I mean, what is the point of a farmers market as a revitalization tool if it’s five blocks from your retail stores? While the park may be a great place for a market – perhaps it makes more sense to close a side street that is closer to retailers – otherwise they will not benefit from the increased traffic you are creating.

Loyalty Cards and Special Events take a tremendous amount of work and effort - so make sure your retailers are benefiting from them before taking the plunge!

For more of the survey findings, be sure to check out the report at: http://www.icsc.org/web/RecessionBooklet104.pdf

Overcoming Challenges to Building Rehablitation

Larisa Ortiz is co-author of “Real Estate Redevelopment & Reuse, An Economic Development Practitioner’s Guide” [2000: out of print]. She has also authored articles and policy briefs on the topic of building rehabilitation, including “The Politics of Rehabilitation” [2004] published by the Rappaport Institute at the Harvard Kennedy School of Government.

Many commercial districts face similar challenges when considering the reuse of historic buildings in their commercial districts. Originally, I got my start in this field because of a deep concern for historic buildings and a deep desire to see historic buildings successfully incorporated into commercial district revitalization strategies.

Zoning

A recent New York Times article entitled “The Use Changes; the Look Stays” articulates the challenges of using historic buildings quite clearly – zoning laws that are often antiquated and do not allow for a mix of uses (mostly residential) on upper-floors.

In the case of Ossining, the New York Times noted that the mixed-use rehabilitation that allowed for the rehab of this beautiful bank building resulted, in part, from Village rezoning efforts that allowed for residential uses above commercial uses within downtown commercial district.

Zoning and building codes that prevent or discourage rehab projects are actually not all that uncommon. Some states have gone so far as to create a distinct set of codes that apply to building rehabs. See more on New Jersey’s Rehabilitation Subcode which is a national best practice in how zoning can help facilitate rehab, rather than impede rehab. The subcode creates a set of rehabilitation requirements distinct and separate from those for new construction. The reason why this is important is because often times, upgrading an older building to meet building code requirements for new buildings is impossible without starting from scratch. So what typically happens is that building codes are applied and changed on a case by case basis - which can add significant and unknown costs to a project - costs that cannot be defined at the outset of a project. This kind of risk is one that many developers will avoid - choosing instead to work on buildings and new construction where building codes and expectations are more clear cut. By clearly defining buildig code upgrades and expectations for older buildings, the building can be rehabbed in a way that ensures user safety, but that takes the guesswork out of how much these upgrades will cost, thereby removing some of the risk to the developer.

Another issue that frequently comes up is the need, although not always the requirement, for parking. In many communities, the marketability of residential apartments mean meeting the parking needs of prospective residents. Sometimes we forget this, but not every market allows for living without a car – so developers need to incorporate parking in one way, shape or form.

Financing: Not all Funding for Rehabilitation is Created Alike

As valuable as the Historic Tax Credit may be, the credit places a number of restrictions on rehabilitation, and sometimes makes a project financially unfeasible. In the case of a project I worked on in Boston many years ago that involved a former convent, the space as originally configured included a great deal of communal space for the nuns. A historic rehab would have to maintain the integrity of this communal space, i.e. leave it open, thus reducing the net leasable area and subsequently the level of debt service the project can carry.

In the case of the buildings profiled in the Times article, funding came through a variety of sources. Interestingly enough, none included the Historic Tax Credit. Instead, funding came from “$1.2 million from Westchester County, $480,000 from the New York State Affordable Housing Corporation, a traditional $2.6 million mortgage and the firm’s own equity.” I honestly don’t find it particularly surprising that Historic Tax Credits were not used for this project. Adding that layer of oversight might have further complicated the project for the developer – who indicated that it was in fact a more complicated project than they typically tackle.

In my experience, I have found that it is not uncommon for rehab projects to incorporate a mix of federal and state funds for affordable housing. Most common among this is the Low-Income Housing Tax Credit. The renovation of older buildings for the purposes of affordable housing is often the first step towards developing downtown market demand – and I have seen it serve as an effective catalyst for market rate development along commercial districts as well.

Overcoming the challenges associated with building rehab is not easy – and it does take a developer willing and able to tackle challenges and obstacles – but it is not without its rewards. The return of these iconic buildings to the housing and retail stock can be a wonderful stepping stone for overall commercial revitalization.

Retail Insights, Fall 2009: Not all Recoveries are Created Equal

As economic experts begin to suggest that the recession is over, we know that the recovery is not yet an ‘equal opportunity recovery’ for all commercial district retailers. Our commercial districts continue to see higher vacancies and our merchants continue to face challenges. The good news is that some retail sectors are beginning to see a rebound as consumer confidence has increased. As a commercial district manager, you are in a good position to help both merchants who are benefiting from this new found increased demand, as well as those merchants looking for ways to reduce costs as demand for their merchandise continues to fall or remain stagnant.

Necessities are Where It's At
Consumers do seem to be ramping up purchases, but they continue to focus their spending on goods and services that can be justified as ‘necessities’, like shoes. According to this New York Times article, "A Not-So-Guilty Pleasure", people are spending money on moderately priced shoes in part because it is a less conspicuous splurge, and certainly a more affordable one, than other kinds of splurges. And as folks decide to spend more time close to home engaged in low cost activities like hiking, walking, sports – they need more rugged shoes. This trend means that the local shoe store in your district, whether a locally-owned shoe store or a Payless, is likely poised to benefit from increased consumer spending. A targeted marketing campaign to help retailers who sell these moderately priced necessities would be well suited to today’s economic reality.

Still Not Much Good News for Stores Selling Discretionary Goods
Jewelry stores, on the other hand, are suffering, according to this Wall Street Journal article, "Jeweler's Outlook Lackluster". To survive, many stores are changing their product mix to meet demand on the lower end of the spectrum. Instead of costly jewelry, consumers are purchasing less expensive sterling silver, for instance. Jewelry remains for many a luxury or discretionary item that can be cut from the budget. Unfortunately, as the WSJ article points out, jewelry vendors that are making it are, in some cases, succeeding in part because they are closing down their storefront shops and selling entirely over the internet. Not good news for commercial districts. But this move allows them to cut operating costs dramatically, both in terms of occupancy costs and staffing.

So, keeping a jeweler in your district may mean helping them reduce their footprint and operating costs. One option that might entice some merchants to stick around is figuring out ways for them to rent counter space within other establishments. In my community of Jackson Heights, Queens, a very nice local jeweler/gift shop is located within an art gallery/frame store. The merchandise mix is actually quite complimentary. As customers wait for their order, they can peruse the store for framed art, gifts and antique jewelry. A great way to help two business owners reduce their occupancy costs – while also ensuring your district retains a healthy and balanced retail mix.

Retailers Spill the Beans about Finding Opportunities for Growth in Urban Markets

By Larisa Ortiz Pu-Folkes

Larisa serves on the ICSC Alliance Planning Committee. Larisa Ortiz Associates was also one of the ICSC Alliance event co- sponsors.

This morning was the culmination of New York’s ICSC Alliance Program entitled “Local Chains Strike Gold in Emerging Markets.” The Planning Committee was very excited to have a great keynote and thoughtful panelists who provided real insight into how New York-based chainlets are growing and making site selection decisions in urban markets. The event included keynote speaker Aaron Fleishaker, Vice President of Real Estate for Fairway Foods, and three panelists, including Denine Pappalardo, VP of Sales for Carol’s Daughter, Jack Falack, President of Cookie’s Children's Department Stores and Seth Datz and Jason Richelson, Owners of The Greene Grape.

Each panelist represented a retailer at various stages of growth and maturity. Carol’s Daughter is a high-end cosmetics company serving an African-American clientele (investors include Will Smith, Jada Pinkett-Smith, JZ and Mary J. Blige) with nine retail stores and over 400 points of sale throughout the nation. Cookie’s Department stores is a children’s clothing store that serves an urban clientele in the outer boroughs, and The Greene Grape is an upscale wine and gourmet food chainlet with three outlets in the New York area. The panelists provided attendees, a mix of brokers, developers, and economic development practitioners with thoughtful insight on how they make their site location decisions in urban markets, whether these markets include 125th in Manhattan, Fort Greene in Brooklyn, or Fordham Road in the Bronx.

So, what did we learn today from these retailers with the foresight to establish themselves and focus on growth in urban markets? The lessons were simple and varied…

• Retailers who make money in urban commercial districts understand the value of density. They get that customers, in many cases, are not driving to their stores and are less mobile than suburban customers. These retailers see this as a ‘pro’, rather than a ‘con’. Aaron Fleishaker of Fairway Food says “the urban customer is the most loyal customer.” Another panelist, Jason Richelson of The Greene Grape, a wine and gourmet food chainlet with three locations in Brooklyn and Manhattan, agrees, ‘our customer can’t jump in a car so easily to get to the competition.’ He goes on to add that there is often less high-quality competition in urban commercial districts, which puts his stores at a distinct advantage. Although the dynamic of less competition may be changing as retailers ‘discover’ urban markets, the retailers on this panel know that the urban customer doesn’t have so many options, and as a result is very loyal to businesses that provide a quality product in a convenient location.
• These retailers are often much more intuitive about their site selection decisions. Every retailer on the panel mentioned that great foot traffic is an excellent barometer of a neighborhood’s retail potential, but when asked whether they do research into pedestrian counts before making a decision to open a new store, Falak, the owner’s of Cookies, a regional children’s department store, said flat out “no”, and his colleagues seem to agree. Instead, they seem to get to know a neighborhood first by walking the streets over and over again to see if their target customer is there. When the Greene Grape, for example, considered space in Lower Manhattan’s Financial District, the fact that thousands of pedestrians passed the location every day was less of criteria for the owner than the fact that more and more of the buildings were being converted to residential uses. “We knew that most of the people walking in front of the store were not coming in, they were getting off the train and going straight to work. But we did see families and strollers and that made us believe we could be successful” says Richelson of the Greene Grape.
• Successful urban chainlets are flexible when it comes to space. They eschew formulaic floor plans favored by national chains in favor of finding spaces (any space really) in the RIGHT location. Fleishaker says ‘if you had to wait for the right space, you would be waiting for years and the market would pass you by.’ He mentioned an experience he had while working with Modell Sporting Goods during their period of rapid expansion in the New York and Philadelphia markets. The retailer was looking at spaces in Bay Ridge, Brooklyn, ideally in a location as close as they could get to Century 21, another New York-based chainlet and well-known discount department store. They eventually found an old theatre and negotiated a favorable lease with the landlord that included a second floor balcony that had not been used in years. Modell’s renovated and put in an escalator to the second floor – in the process acquiring additional square footage for a cost significantly below market rent. Basically, they did what they could to make the space work, and in the end, ended up within a block of Century 21 - exactly where they wanted to be. Most national chains would have rejected the space that Fleishman and his team turned into a very profitable store for his company.
• There is no ‘one size fits all’ model for determining how to use precious capital. In the case of Cookies, their business model is one that lends itself to owning buildings outright. “We are our best landlord” says Falak. As a children’s apparel store, his space needs are larger and tenant fit out is less expensive than his fellow panelists, so spending his capital on real estate made sense. In the case of Carol’s Daughter and The Greene Grape, they both have made strategic decisions not to tie up capital in real estate at this time in favor of using capital for tenant improvements. “We are less interested in being a landlord than in finding space and fitting it out to the level that our customers have come to expect” says panelist Denine Pappalardo of Carol’s Daughter.

These retailers are really helping to pave the way for growth in underserved urban markets. Learning how they successfully maneuver these markets and turn a profit is a lesson that will help all of us interested in attracting a greater variety of retail to our commercial districts.

Advisor Insights: Putting on a 'Taste of' Event in your Commercial District

'The other day I had the opportunity to attend the Union Square Partnership's Harvest-in-the-Square Event. Union Square Partnership is a business improvement district in Manhattan well-known for its critical mass of wonderful world-renown eateries. Now in it's 14th year, Harvest-in-the-Square is the Partnership's marquee fundraising event that showcases more than 50 participants who provide ticket holders with small 'tastes' from their restaurants or bars. Proceeds from the event benefit neighborhood programs and the beautification of Union Square Park. With some of the city's most highly regarded food and drink purveyors in participation, event tickets begin at $125 dollars for general admission and $400 for VIP tickets. Not everyone can charge tickets that high...but it does show that people will pay for the privilege of eating great food...


The event not only helps with fund raising, it also helps to further differentiate the district as a foodie destination - and is very much in keeping with a district branding strategy that has served Union Square so well over the past decade.


In my community of Jackson Heights, Queens - also know as a foodie-destination among those seeking authentic ethnic food, we put on the Jackon Heights Film and Food Festival (now it it 4th year and going on this weekend, October 24th! Check out our website at www.jhfff.org for more info.) and so I was particularly excited to see the mechanics of this event in action. Every year our event team learns a thing or two that helps improve the event, a program of the Jackson Heights Community Journal, in a way that better meets the objectives our sponsors and participating restaurants.


Here were a few good ideas that I took away from this event that I'd like us to incorporate next year:

• Each participant chose only one or two select dishes for sampling. This made preparation and serving MUCH easier for the restaurants. The chosen dish, or in some cases drink, was described in mouth-watering detail right on the restaurant signage. The signage also helped ticket holders figure out what they wanted to try more easily than asking the server.
  
• Small single bite plates were prepared for the taking and laid out attractively on serving tables. This meant that tickets holders did not have to wait in line to be served. It was a very efficient method of serving food that also helped to ensure simple rationing.
  
• Each table had very tall attract harvest decorations that lent an nice elegance to the festivities.
  
• There were two sit down eating areas and some standing tables - but for the most part the tastes were only a bite or two - so sitting was not required.
  
• There was a red carpet for the arrival of VIP's...so very New York! That and the roving tv cameras
  
• There was lots of support staff (easily identified by their colored t-shirts) on hand to ensure that people were not walking around with empty plates if they had trouble finding a garbage right away.
  
• And finally, pick only the best...the food vendors at this event were only those known for high quality.

There is obviously so much more needed to put on a great food tasting event...but as always, the devil is in the details...so keeping an eye on quality and planning an event that works for both you and your vendors is critical.