Monday, November 13, 2017

Round Up: Alphabet city, mom-and-pop life cycle, scaffolding makeover, geographic polarization

Google's parent company to build futuristic neighborhood in Toronto

Alphabet, Google's parent company, has now moved on to more urban planning endeavors and with it has ambitious plans to transform a waterside neighborhood, which will house its Canadian headquarters, into an ideal neighborhood that reduces pollution, commute times, and landfill.

And similarly in the US.

A longform Curbed NY article gives another viewpoint to the saga of small retail decline. Closures are hitting suburban malls and desirable shopping neighborhoods alike. High-rent blight continues despite the typically understood invisible hand of capitalism — old businesses closing and new ones quickly replacing them which is broken.

Scaffolding is about to get a lot less ugly

Through a design competition, a new style of scaffolding has emerged. You might start to see it in person but for now it is in the initial stages of rolling out. Features of the scaffolding include transparent overhead and more decorative umbrella-like uppers.

Richard Florida Notes Unexpected Effects of the Creative Class’s Rise

And you thought that just politics was becoming increasingly polarizing. Now, according to Richard Florida, author of The Rise of the Creative Class and his newest The New Urban Crisis, cities have become increasingly concentrated and prosperous at a faster rate than previously assumed, causing unexpected consequences and geographic polarization.

Thursday, October 5, 2017

What does Amazon's search for a new HQ mean for downtown?

Larisa Ortiz is Founder and Principal of Larisa Ortiz Associates

People are talking alot about Amazon today. If Wikipedia is to be believed, at least 118 cities in both Canada and the United States have expressed an interest in being the place where Amazon ends up putting its headquarters. The company's search, and more specifically their search criterion, has broader implications for what the next wave of business growth will require from our cities.

According to Citylab, the Amazon search is creating a "transit reckoning" for our cities. This is because Amazon has mentioned access to "rail, train, subway and bus routes" as among a few key site selection criterion. For many cities with limited mass transit options, this one requirement really puts a damper on their bid to bring Amazon to town. Atlanta, for example, seems to check all the boxes except for the unified transit system. When Atlanta officials took a look at the criterion, there was an call among many stakeholders for "real" solutions to the traffic congestion that plagues the City. Yet those solutions, as we all know, can only involve alternatives to the automobile. More cars and more roads won't help congestion, only transit of the "mass" kind can do that. Furthermore, mass transit without masses don't work - so density will be required. Cities looking to attract the businesses of the future would do well to heed this clarion call. Density and mass transit don't occur by happenstance. We need a few things to make this happen, including:

  • zoning codes that allow for higher densities as-of-right 
  • sufficient SF for the growth of commercial and/or industrial uses
  • meaningful funding for alternative modes of transit that get residents to and from their jobs easily and efficiently
  • investments walkable pedestrian environments and quality open space

In fact, some communities are already ahead of the curve on these issues, including the Brooklyn Tech Triangle, a planning effort led by three major stakeholders in downtown Brooklyn, New York: The Downtown Brooklyn Partnership, the Brooklyn Navy Yard and the DUMBO Improvement District. The plan sought to corral city investment towards improvements that would position downtown Brooklyn as a tech destination and ensure that the district included many of the amenities required by industry businesses. The plan included recommendations with significant emphasis on transportation (which is already the envy of many communities), improved waterfront connections (the City recently invested in an entire fleet of new ferry's and started a frequent and very popular ferry service), enhanced bike share, as well as connections to other growing tech destinations (such as Industry City in Sunset Park). The plan is a great starting point for other communities looking to pursue similar initiatives. In the end, this is all good news for transit connected, dense downtown environments. 

Friday, September 29, 2017

Farmers Market as Downtown Revitalization Tool

Nur Asri is an associate at Larisa Ortiz Associates

Fall is upon us and for LOA that means the work on a second round of New York State Downtown Revitalization Initiatives is set to begin. In the past year, our work has brought us to smaller, more rural towns upstate and around the country and with that, came many visits to local farmers markets. Farmers markets, or “multi-stall markets at which farmer-producers sell agricultural products directly to the general public at a central/ fixed location” are not a new phenomenon. In fact, marketplaces have been a key economic, cultural, and social component of villages, towns, and cities for thousands of years. Today, smaller downtowns, are seeing a resurgence of farmers markets as economic revitalization tools, particularly in areas with existing agricultural assets. In this post, we discuss the potential benefits that can be reaped from a downtown farmers market and actions that can be taken to ensure the most effective implementation of one.

Farmers markets are community porches
Many of the farmers markets we have observed in our work, whether intended or not, have evolved into the “front porch” of the community and function as key gathering places. Residents and visitors from various walks of life convene at the market through a common interest for fresh, local produce resulting in unique social interactions.

Morganton Farmers Market at the retail core. Photo: LOA
In some cases, farmers markets have also been key in activating formerly underutilized spaces downtown and turning these into active public spaces. From old warehouses to underused parking lots and vacant land, farmers markets have the power to activate these spaces by introducing a new public use and attracting new users of the space.

In Morganton, NC, for example, hosts a mini farmers market every Wednesday in the warm months on a field that was simply sitting vacant by the retail core of the downtown. Meanwhile, in Springfield, OR, a year-round farmers market is hosted in a former church property that was purchased and refurbished with a 3,000 SF event space.

Farmers markets promote health and wellness
The seasonal freshness of fruits and vegetables sold at farmers markets, the in-built nutritional value of goods sold, and the direct linkage made between food producers and consumers, makes the markets fitting platforms for health promotion and nutrition education.  In addition, consumers around the world are also gaining a new appreciation for and connection to their food producers, so farmers markets are the much-needed platforms to further grow support for local food systems.

In addition, farmers markets that offer SNAP programs also expand low-income households’ access to healthy foods, ensuring that all local residents are able to reap benefits from the healthy offerings at the markets and raising nutritional levels among low-income households. Additional free programming such as cooking and nutrition classes offered at farmers markets can often expand the accessibility of healthy local produce by educating those households that are unfamiliar with preparing fresh, wholesome meals.

Now, for the economic benefits.

Farmers markets are visitor attractions
Farmers markets are also great downtown anchors that attract hoards of residents and tourists for hours weekly. Naturally, this raises foot traffic that may otherwise be lacking in smaller downtowns. In Springfield, OR, for example, the famers market attracted an estimated 30,000 people and more than 40 regular vendors in its first year of opening alone.

In a smaller, rural downtown, this regular stream of pedestrian traffic to the farmers market translates to foot traffic into neighboring stores and restaurants, especially when the farmers markets are held on weekends and customers dwell times are more flexible.

Farmers markets add to downtown retail mix
With more traditional farmers markets that host fresh produce and specialty food vendors, these markets essentially act as the local grocery store. In more rural parts of the country where the grocery store is typically a big box Walmart or Wegmans or Food Lion that requires driving 15 minutes outside of downtown, the farmers market can be a solution to bridging a hyperlocal retail gap.  Its location, typically in a downtown parking lot, means that it is far more convenient for residents in the area to grab a carton of milk or spare eggs. Not to mention, the freshness of pastries and bread sold at the farmers market compared to the large grocery store.

As consumer preferences shift, even grocery stores are replacing their aisles with even more fresh, local produce and organic goods – goods that are already filling the wooden crates at farmers markets. In 2008, local food sales were estimated to be close to $5 billion and farmers markets are naturally aligned to leverage the growth in this demand (if it's not already being met!).

Farmers markets function as business incubators and accelerators
From Farmers Market vendor to.....
Finally, and most importantly, farmers markets cut the middlemen who typically distribute farmers’ and artisans’ goods, therefore raising profit margins for the producers. The markets also act as business incubators by providing the opportunities for producers and makers to first test products directly with consumers and get real time feedback thru product samples – all at a much, much lower cost than either setting up a storefront or selling online. The Fresh Friday Farmers Market in Allentown, PA, for example, has provided increased business opportunities for local farms and food businesses proliferating in the LeHigh Valley.
...Storefront! This is Cedar Rapids Whiskey Sauce Co. in Ely

Upon finessing and growing the demand for their products and services, many farmers market vendors have then grown big enough to be able to set up brick-and-mortar stores downtown. For downtowns that lost retail tenants in the last economic downturn, this business incubation function of farmers markets may be ideal to helping fill those storefront spaces. For example, in Richmond, VA, a vacant storefront that was formerly occupied by a bakery was recently bought over by a pastry chef who sells pastries and baked goods at the local St Stephens Farmers Market. Although the owner will essentially be replacing goods that were already on offer by the previous tenant, the farmers market start has enabled her to refine her merchandise selection based on early consumer feedback.

Other examples of farmers market vendors that have moved on to brick-and-mortar include Blacksauce Kitchen that made its start at the JFX Farmers' Market in Baltimore before recently opening a shop that serves customers one day a week. In Iowa, Cedar Rapids Whiskey Sauce Co last year opened a shop on Dows Street in small downtown Ely after making its start at local farmers' markets and several HyVee grocery store locations.

How to ensure farmers markets really become downtown revitalization tools:
Unfortunately, not all farmers markets have been powerful downtown revitalization tools. There are a number of steps that need to be taken to ensuring that the benefits we discussed above can be achieved.

Site your farmers market in or near your retail core
Geneseo, NY Farmers Market off Main Street by local theater.
Firstly, the location of the farmers market is crucial to driving spillover foot traffic from the market to downtown storefronts. If the market isn’t located in the retail core of downtown, shoppers are unlikely to stop by adjacent storefronts after perusing the market. In Morganton, NC, for instance, before introducing a mini market on Wednesdays on an empty field at the retail core, hosted its weekly farmers market 0.5 mile away, far away enough (given the hotter climate and elevations) that customers passing through the farmers market would have to get in a car before being able to get to downtown. And we all know, once your customer gets in the car, they’re as good as lost. The farmers market wasn’t quite an anchor for downtown businesses until it was introduced right smack in the retail core.

Locating farmers markets in the retail core will be especially crucial for downtowns that have residential uses located at the retail core or within walking distance of downtown. Having direct and easy access to a large residential shopping demand is crucial to the success of vendors, and of course if vendors succeed, they are likely to return to sell goods, maintaining the critical mass of vendors needed to attract customers and ensuring overall sustainability of the farmers markets.

Provide supportive transportation infrastructure
City of Palo Alto installed bike racks on the
street used for weekly farmers market.
If your downtown is dense and walkable and the bulk of your customers are residents who already live in the vicinity, then supportive infrastructure to help customers get to the farmers market might include wide sidewalks, pedestrian crossings, wayfinding signage, bike lanes and bike parking facilities, and bus stops.

On the other hand, if your downtown is small and much more rural with most customers only able to arrive by car, then convenient and well-maintained parking lots should also be made available to support a “park once” downtown for customers and vendors to visit the farmers market and other businesses all at once without having to worry about moving their cars.

Complement the market with programming
Portland, OR Market Music event showcases local acts.
Educational community programs and local music acts are some activities that accompany farmers markets across the country and these are great ways to further engage local residents and visitors that pass through. The best way to find out what types of programs the local community needs is to simply carry out an intercept consumer survey.

At the same time, programs should also be organized to help vendors grow their business and following. The Neighborhood Economic Development Corporation in Springfield, OR, organizer of the downtown farmers market is an owner of properties downtown. Once vendors at the market reach a stage of expansion that requires a larger and more regular storefront, NEDCO is able to rent spaces it owns at lower rates to support these businesses.

Operate the market during accessible hours
Depending on the downtown and the number of major employers in the area, it may be effective to hold farmers markets on weekdays. In such cases, vendors may leverage the existing daytime worker market demand during lunchtime. On the other hand, if the weekday daytime population downtown doesn’t exist, then a weekend market would make more sense. 

Actively brand and market
Strong local campaigns to bring awareness to and promote the farmers market are crucial to establishing a new downtown anchor. In Livingston County, NY, (where we’re about to embark on a Countywide Commercial District Assessment), a Find It In Livingston campaign encourages shoppers to seek local produce and goods by actively announcing where and when downtown farmers markets happen on the county economic development website. The Charles City Downtown Farmers Market similarly participates in the ‘Buy Fresh, Buy Local’ campaign, a comprehensive marketing program for farmers selling directly to consumers, restaurants, grocery stores and other institutions.

Ensure strong administrative capacity
As with all downtown economic revitalization initiatives, administrative capacity and resources are required to sustain farmers markets. In addition to support from the City, buy-in from local residents is essential to carrying out a successful market. While the City is able to support the market in procuring a vacant site or supplying sanitation facilities and power, support from local businesses and individuals will ensure sustained customer traffic and vendor participation.

The non-economic and economic benefits of farmers markets might tempt you to implement one downtown. However, they must not be assumed to be simple revitalization tools. Farmers markets are complex efforts that often require the cooperation of a wide range of stakeholders (existing business owners, residents, community leaders), thoughtful planning, extensive programming and marketing, and of course funding! Who knows what this second round of funding from New York State will bring to the downtowns we’ll be working with this Fall but we will be keeping a look out for those farmers markets and keeping our eyes peeled for what works for them!

If you already have a farmers market downtown and are looking to assess its impact, take a look at this economic impact study of the farmers market in Downtown El Paso:

Tuesday, September 26, 2017

How to encourage walking within your commercial district

Nur Asri is an associate at Larisa Ortiz Associates

Pedestrians in downtown NY. Photo: Kars Alfrink via Flickr
In a recent study by Robert J Schneider, of the Department of Urban Planning at University of Wisconsin-Milwaukee, two distinct design features were identified to significantly impact shoppers’ choice to walk along a main commercial street rather than drive.

Sure, we’ve all heard that curb extensions, street trees and transparent ground floor facades all play an important role in creating walkable environments but no research study has associated urban design features with the choice to walk rather than drive. Therefore, in order to understand the relationship between urban design and the choice between walking and driving, Schneider tested roadway variables such as the convenience of parking, sidewalk and buffer widths, corner curb radius, number of lanes, traffic volume and speeds. 

After controlling for personal travel and socio-economic characteristics, the study by Schneider identifies two significant design features that are associated with shoppers choosing to walk versus drive between activities in a commercial district. Most importantly, given that survey respondents included in the study all drove to the district, the findings serve to reinforce the ‘park once’ downtown strategy.

1. Fewer driveway crossings

Schneider’s study found that respondents were significantly less likely to choose to walk when the main commercial drag had more driveway crossings. These crossings were perceived as barriers to walking as they added to walking travel time. In fact, every 10 additional driveway crossings was perceived as adding another minute to walking travel time. 

Case Study: Morganton, North Carolina
Earlier this year, we worked in Morganton, North Carolina. A beautiful, small downtown with a commercial core with about 1,300 linear feet of ground floor retail and office space. We found, anecdotally, that customers in the district could easily cross shop at the retail core because there were few barriers to walking, including only two driveway crossings, as shown below.

In addition, one of these driveway entrances is slightly elevated, requiring vehicles to slow down before making the turn into the driveway, increasing safety for pedestrian shoppers who are already walking and browsing up and down the commercial drag.

What was also interesting was the moderate correlation between driveway crossings and annual average daily traffic volumes. This begs the question of average daily traffic as a critical retail site selection criteria. Sure, more cars passing through the street increases visibility of the retailer but if this means fewer shoppers on the street willing to walk over to your business (i.e. sidewalk foot traffic), then what’s the point?

2. Lower speed limits

Next, Schneider also found that the posted speed limit had a significantly negative association to walking within the shopping district. The lower the posted speed limit, the more respondents walked within the shopping districts.  In fact, every 5-mile per hour higher speed limit was found to be equivalent to between a minute and 75 seconds of additional walking time – again, increasing walking time for pedestrians.  

In many downtown districts, the 25mph speed limit has become a common traffic calming action to take to increase comfort levels for pedestrian shoppers. Here in Brooklyn, on Atlantic Avenue, the slow zone has a posted speed limit of 25 mph (in addition to retimed traffic signals to a 25mph progression) to help check motorists’ speed.

Of course, Schneider recommends that other complementary changes be made in order to increase walking within shopping districts. Past studies have alluded to compact and diverse developments leading to increased walking. According to many studies, in compact and dense areas, walking distances between different buildings and stores are short and these short distances are a main reason why walking is a more common mode of transportation in traditional urban shopping districts than in newer suburban retail areas where buildings are farther apart.

In support of this, Schneider’s study also found that when travel times for either walking or driving are the same, for short distances, walking is still preferred over driving. However, when travel distances increase and walking times become much longer than driving times, driving has an advantage over walking.

Finally, mixed uses, mixed jobs and mixed population within an area are all things that enhance walkability, and oft-repeated, that can now be further complemented by the proven design features of fewer driveway crossings and lower posted speed limits.  

Read: Schneider, R. J. (2015). Walk or Drive between Stores? Designing Neighbourhood Shopping Districts for Pedestrian Activity. Journal of Urban Design20(2), 212-229.

Prospecting White Elephants: Some Thoughts on Pop-Up Brokers

Dan McCombie is a research associate at Larisa Ortiz Associates

Last week I read an article by Matthew Flamm in Crain’s Business where he talked about the rise of a class of real-estate brokers specializing in pop-ups for vacant spaces. This struck me as an interesting development since we have several entries on the blog discussing how vacant retail storefronts—otherwise known as White Elephants—can have detrimental effects on the health of neighborhood downtowns. My understanding is there are two main reasons for this.

First is that it results in shorter shopping trips. A blank storefront can be an uninviting visual eyesore that discourages foot traffic. Perhaps it’s located in the middle of a corridor in such a way as it feels like it segments it into two unrelated districts.

Second is that it reduces the number of shoppers visiting the district. A hole in the tenant mix reduces retail density, creating one less reason why a shopper might think to make a trip. Maybe a coffee shop closes down next to a bookstore, and this prompts people to patronize the bookstore less.


There are plenty of other reasons too. Vacancies are obviously an issue for landlords because they represent lost revenue with potential snowball effects. Imagine the impact when a large mall anchor like Nordstrom or Macy’s decides to close up shop. Once it’s out, it’s only a matter of time before the smaller in-line stores see their sales diminish and also start disappearing. It’s an extreme example but demonstrates why vacancies are problematic, and also why some landlords might consider subsidizing certain tenants or encouraging pop-ups to retain a healthy tenant mix.

So the presence of pop-up brokers sounds good, right? In effect, they provide a real service to commercial corridors by rounding up all the White Elephants into a directory and curating them to prospective retail tenants. These tenants can be small start-ups looking to test the market, e-commerce retailers looking to transition into brick-and-mortar, or more well-established brands who are looking for an experiential pop-up opportunity to engage their customers in new ways. And whether or not you believe we’re in the middle of “retail Armageddon,” it’s a creative solution for the growing number of vacancies in neighborhoods like SoHo where the perception is this trend will only continue.

Available vacancies clustered in lower Manhattan

And these brokers have managed to turn it into a process as seamless as booking a hotel room or an uberPOOL. In past posts we’ve advocated that commercial district managers take on the task of populating vacant spaces; but now we’re seeing a quintessentially private sector solution which is fast, easy, and done on an app in minutes. And that has given me pause….

…It feels a bit inaccurate to say this is a solution for ailing districts and long-vacant spaces in search of a tenant. Perhaps it’s true that was part of the initial inspiration, but now it sounds like it’s becoming a high growth industry unto itself. I think Matthew Flamm’s use of Airbnb as the residential analog to these new companies is appropriate. My initial understanding of Airbnb is that it was just another component of the growing gig economy and a way for cash-strapped Millennials to make a few extra bucks off their couch, their car, their whatever it may be. But now I understand it can be an agent for speculation too—like when the gap between a rent or mortgage payment and the going rate on Airbnb becomes too great for people to turn down. I’m not taking issue with anybody who might purchase a condo with the express intention of having it listed on Airbnb as an investment, but I am expressing caution about companies that see an advantage in maintaining a steady supply of vacant storefronts, or landlords that believe they can make a better profit through punctuated short-term rentals. It feels like profiteering off the White Elephants.

Downtown revitalization is not in the mission statement of these pop-up brokers. One explicitly states on its website that prospective tenants should be wary of inquiring after un-vetted spaces precisely because they’re probably “situated in low footfall area[s]” or have “zero potential for retail or brand marketing.” The assertion suggests their portfolio doesn’t include spaces that are unattractive, but is rather a professionally curated assortment of opportunities in a pay-to-play scenario. Again, I’m not decrying a company’s attempts to distance itself from the competition, but trying to make the distinction between a company providing a service to an individual client and a district organizer looking out for the health of the larger district. That being said, the potential for dynamic shopping and unexpected retail under this pop-up model sounds fun. And I’ve read many broker success stories about clients who turned a successful short-term rental into a long term lease agreement.   
Most of these pop-up brokers are active in dense urbanized areas. If you’re a commercial district manager in a town of less than 20K, it might be a minute before you see a private pop-up broker looking for vacant spaces, and so this may be all for naught. And if you’re a district manager in a large city or a neighborhood like SoHo, the troubling number of vacancy rates may warrant a larger discussion about rental rates in that district, and whether “retail Armageddon” is a legitimate characterization, or if it’s more likely a self-inflicted wound and one that can be addressed through some creative rejiggering (to which I recommend reading Larisa’s latest post).

To summarize it all up, I think the development of pop-up brokers is an incredibly interesting phenomenon. Are they solving the vacancy problem caused by structural changes happening in retail? Or are they profiting off the presence of White Elephants? No reason why it can’t be both. If Airbnb and the changing state of retail provide any sort of indication, we can be sure they’ll be around a while yet. I believe that's a good thing if at the end of the day it means less vacant storefronts.    

Past blog posts that explore vacancies and pop-ups:

Monday, September 25, 2017

When skyrocketing rents don't always mean the death of a small business

Larisa Ortiz is founder and principal of Larisa Ortiz Associates.
Broadway between Houston and Canal Streets in
New York is one of the highest rent districts in the City. 

For many New Yorkers, Pearl River Mart was Pier 1 Imports before there was a Pier 1 Imports. The family run Asian-goods department store, founded in 1971, grew over many years until it occupied 30,000 sf on Broadway in Soho. When the lease was up in November of 2016, the landlord increased the rent from $1 million/year to $6 million/year and the family decided to close shop. At the time, the news reported that the "44-year-old store is the latest victim of rising rents on Broadway and increased competition from online retailers like Amazon and Alibaba." A simple explanation for what was likely a much more complex problem.
The old Pearl River Mart at 477 Broadway - among
the most sought after retail addresses in Manhattan, NYC.
So it came as a pleasant surprise to see an article in The Wall Street Journal chronicling the retailer's travails since closing their original Broadway location. It seems they have developed a streamlined formula - a store layout with 3,500 sf instead of 30,000 sf - and a new location four blocks south of their previous location where rents are significantly less. Now the WSJ reports they are expanding to Chelsea Market, a "sprawling urban food hall" in the Meathpacking District - and a "must see" stop along the very popular High Line. Clearly a rent hike wasn't enough to put Pearl River Mart out of business. But they did need to reinvent themselves and find a suitable spot to relocate.
The "new" Pearl River Mart at 395 Broadway,
about four blocks south of its previous location. 
Chelsea Market, soon to be
home to a second Pearl River Mart location.
The lessons here for other businesses - and the city planning officials who support them - are worth noting. It reminds me of what fellow panelist Tony Hernandez, Director of the Ryerson University Centre for the Study of Commercial Activity said last week during our pre-conference session at IDA, "change is not new". This seems like a trite point, but it is one we have to recognize as an enduring truth of retail. He pointed out that since the 1940's, retail concepts have come and gone, and retailers have had to reinvent themselves again and again and again. From the climate-controlled shopping centers that dominated during the 1970's to the Entertainment complexes of the 1980's to the Power Centers of the 1990's, fickle customers and their every changing shopping habits have always been a challenge for retailers. Today's online challenges may be scary, but they fit a trend of innovation and disruptive change that is not without precedent.

What comes next is likely to result in painful change for retailers, but the good news is that retailers like Pearl River Mart have found ways to survive and thrive. The rent hike trend that caused Pearl River to close has also affected other retailers. In early 2016 we completed a market study for the Broadway SOHO BID and projected a market correction that was only then just beginning. In 2015 the Commercial Observer quoted a local broker said "Everybody's asking for too much money. Nobody wants to pay. It's a very overrated market." So it should come as no surprise that the softening the brokers were anticipating then is having an effect now. The same WSJ report that announced the expansion of Pearl River Mart also found that vacancy rates of 23% and asking rents that have fallen 14% to $478/sf.

Yet high rent does not mean lack of opportunity for intrepid business owners. As the Pearl River Mart move suggests, not every street commands the same premium as Broadway between Houston and Canal and businesses should generally search for a better deal in up and coming markets. In fact, the ability to both market and sell on-line means that a high rent location may be as necessary as it once was. In fact, our study found that within the BID area, asking rents of $425/sf were more than double neighborhood asking rents of $195/sf. So moving off the main corridor to lower rent space, and perhaps even shrinking a floorplate, might be a good opportunity, rather than a death sentence. In Perhaps the answer for communities is to support small businesses in their efforts to relocate to lower priced alternatives as a way to help them stay in business for the long haul.

Friday, September 22, 2017

IDA Session Post-Mortem: The Future of Physical Retail in the Age of Online

Larisa Ortiz is a Principal at LOA

Last week I had the pleasure of speaking on a panel at the International Downtown Association Conference entitled The Future of Physical Retail in the Age of Online with colleagues Mike Berne of MJB Consulting and Tony Hernandez, Director of the Ryerson University Centre for the Study of Commercial Activity. I may have been a panelist, but I was as enraptured as the audience by both presentations. Each shared insight into their own research and offered some enlightened perspective on the future of downtown retail for attendees.

Tony Hernandez helped put the changes he has seen in context. Retail is always changing. Consider this - Outlet Centers started making waves in the 1990’s and have only grown in size and scale since then. But if you consider who the major shopping center tenants were in 1996 and now, you will find that the majority of those tenants no longer exist. Hey, no one said retail was an easy business. So when viewed from a historical perspective, today’s concerns about the impact of on-line shopping are part of the normal cycle of “creative destruction” that leads to innovation and improvement, not necessarily the end of the world. And while e-retail may be a small portion of sales at the moment, Tony made the point that on-line influenced sales are what we should really be talking about. Research by the JC Williams group found that 86% of Canadians researched their purchase online before cutting a check.

Mike Berne added that while the news is chock full of an impending “retail apocalypse”, pure play retailers still account for only 4.5% of market share. The future, Mike said, belongs to retailers who pursue omni-channel strategies. He suggested the Amazon’s purchase of Whole Foods was because Amazon needed Whole Foods, not the other way around. As he has written for this blog in the past, the Whole Foods acquisition was a response to the “last mile” challenge. The fact that Amazon has yet to turn a profit on e-commerce and makes nearly all of its profit on cloud computing suggests that e-commerce still has a ways to go before dominating the retail landscape. When you consider that the “last mile” challenge – i.e. the ability to get to and from the last point of distribution to someone’s home – is incredibly expensive and that off-price chains like T.J. Maxx have been doing quite well at getting customers to do that for them – Mike thinks the retail apocalypse concerns might be overblown.

My contribution to the conversation was targeted to the practitioner. How do we turn the data into something actionable? What should Business Improvement Districts and Business Improvement Associations (as they are known in Canada) do in light of this information? I suggested a few policy prescriptions and actionable interventions, much of it based on recent work we completed with the City of Cambridge, MA.

The first is to drive experience. It may sound cliche, but people are searching for things they can’t get on-line, so BIDs will increasingly need to activate streets and public spaces with activities that cannot be replicated on-line. That means making sure public spaces are well designed and maintained, and that those spaces allow for public gathering, activities and events. We simply must make our public spaces work harder for us. In San Francisco, the City has spearheaded an effort to engage local non-profits as formal stewards of public plazas, giving them the ability to generate revenue from activities and events. New York City has a similar program. These programs allow for the formal oversight of a public space by an entity that is best positioned to drive pedestrian traffic to an area.

The second is to build capacity of the organizations upon which all of this activity depends. Without organizations with capable staff and sustainable revenue sources, the ability to activate space, build brand recognition, and promote both activities and businesses is seriously hampered. In Cambridge we shared the example of Coro Neighborhood Leadership Program in New York City that trains 20-30 BID leaders every year and has created a network of well-trained advocates for place management. This highly trained network of practitioners now collaborate and cooperate on a regular basis, sharing information about best practices for everything from fundraising to leadership skills. 

The third intervention involved taking a deep dive look at the regulatory and zoning barriers that are making innovation by retailers and new business concepts much more difficult and challenging. Consider the small business that wants to start making some of their products on-site and triggers a change in use permit. Or a brewpub for whom there is no retail classification (who had heard of brewpubs forty+ years ago when the regulations were written?). Or the business that wants to offer in store educational classes and is now considered an “educational institution” with higher threshold building code and parking requirements. These rules and regulations are particularly vexing for small businesses with limited capital – precisely the kinds of businesses that many communities want to support. Another issue that falls under this heading is the fact that restaurants and eating establishments, one of the healthiest and growing sectors of the retail economy, are particularly hampered - higher parking regulations for eating establishments are not uncommon and can make opening a location in some cities nearly impossible. Add to this things like sidewalk cafes, which are proven profit drivers, yet these too require another layer of permitting that can be overwhelming for the small business owner. Overcoming these issues is critical to enabling new business ventures that will be so critical if downtown is to sustain a competitive advantage.

As my last point, I discussed the need to fill gaps in the pedestrian experience as the inevitable market corrections will result in vacancies. BIDs are well positioned to ensure that vacancies do not undermine the local pedestrian environment by advocating and supporting pop-up retail or pop-up temporary art installations (like those of New York based non-profit No Longer Empty). These are important stop gap measures that will help existing businesses. In the long term, softening demand for retail spaces may require a wholesale rethinking of how we manage downtown tenant mix. As retail spaces get taken up by less dynamic economic activity, including offices and services, how will we maintain a sufficient concentration of retail in close enough proximity to ensure corridor success?

I want to thank my fellow panelists and the fantastic IDA members who participated in our discussion. Clearly that this issue will not be going away anytime soon!

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