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.