Tuesday, January 18, 2011

Retail Insights: Mobile Marketing and the Impact of Public Sector Budget Tightening

This season we look ahead to see how retail trends might impact the work of commercial district managers in the coming year...

1. Bulk Text Messaging and 'E-Marketing'
Text messages and mobile marketing in general are quickly emerging as cost effective ways to market commercial districts. When you consider that texts have an open rate of 98 percent – compared to 22 percent for email, and that 90% of test messages are opened within four minutes of being sent, the gravitation towards mobile marketing is a no-brainer.

Bulk-SMS services send text message coupons, discounts and event reminders to customers that opt-in to receive them from businesses. Services like this can range from $24/month to send 300 messages, to $149/month to send 2,000 messages.

Mobile marketing is also a particularly good way to attract younger customers. If younger customers make up a good portion of your district’s customer base, or if you are trying to grow your market to include younger customers, text messaging could be an excellent way for you to focus your efforts.

The Mobile Marketing Association has an interesting set of case studies on their website for those interested in learning more. I particularly like the story of Ace Hardware, a small format hardware store found on a number of commercial corridors, particularly in the Northeast. Ace Hardware utilized mobile marketing to award loyal customers with four promotions over the holiday season. The efforts resulted in an 8% increase in-store traffic.

2. Groupon or Group Off?
This season has been the season of Groupon. For the uninitiated, Groupon is a service that sends a daily email to members about a ‘great deal’ from a local business in the city they are in. The deal is only valid if a minimum number of customers sign up for the discounts. Groupon then charges 30-50% commission on the value of each coupon sold. So is it worth it? The debate rages on. A recent survey of businesses conducted by Rice University suggests that of those who have taken the Groupon leap, 42% would not participate again. The New York Times also examined this issue in a November article entitled “Is Groupon Good for Small Business?” which is worth a quick read. Bobb Phibbs, a retail consultant for small and medium-sized businesses, rails against Groupon in a post “Groupon Review: Worst Marketing For Your Local Business – Case Study”.

Despite the lack of consensus on whether Groupon is good for businesses, the investment sector is jumping on the Group-on bandwagon. Groupon recently turned down a Google offer to purchase the company for $6 billion dollars. And now there are rumors of a public offering. All of this on the backs of small and medium-sized businesses – the target audience for many of Groupon’s offers.

3. Stores Within Stores
From small stores to large stores, retailers are finding ways to decrease costs by sharing spaces. This trend seems to be happening at every price point in the market. From Edwin Watts Golf shop inside a Sears in Houston, to Earnest Sewn and Flower Girl on the Lower East Side, to a bar within a drugstore  in hip Williamsburg, NY. This is an interesting way for retailers to create the kinds of co-tenancies they want and need to keep shoppers returning to their stores.

4. Big Chains go Urban with Smaller Format Stores
In September, Target announced that it would focus less on new store development, and more on remodeling existing stores and testing smaller format stores with a focus on urban settings. With Walmart and Target leading exploring ‘urban strategies’, other chains will inevitably begin giving cities a closer look.

As exciting as this sound, the challenges of urban retail remain, including the challenges finding sites and the costs of development in dense urban areas. Yet as Walmart and Target can attest, if there are enough shoppers in any market, retailers will jump through whatever hoops they have to to open stores. Which is why a bigger challenge is on the horizon...convincing some retailers that there are enough customers to warrant an investment in an urban market. Which leads us to…

5. Growing Concern Over a Census Undercount
The release of the 2010 census will spur a cottage industry of census undercount analysis. Because federal funding is so closely tied to population counts, there is much to lose if a community believes it has been undercounted. Undercounts cost states critical federal dollars – and with state budgets already stretched to the max, many will be taking a closer look to see if they were somehow short changed in the most recent census efforts. In fact, in December, the State of California already claimed a census undercount. Let the second guessing begin!

The impact of an undercount will have a quiet but insidious impact on efforts to attract retail to urban markets. When census projections are off, retailers undervalue market opportunities and overlook locations in urban markets. The job of convincing and selling the reality of these markets then falls to business district management entities and economic development agencies. But unfortunately, their budgets are also being slashed…

6. Shrinking Public Funding for Downtowns and Commercial District Revitalization
The cuts to commercial revitalization efforts are widespread and growing. New York City saw a 33% decrease in funding for their Avenue NYC grant program in Fiscal 2010 as a result of cuts in funding from tax levy dollars. These small grants for everything from planning and market analysis to fa├žade improvements.

The situation is not better 3,000 miles away in California, where recently elected Governor Jerry Brown is proposing to do away with Downtown Redevelopment Authorities. These Authorities have proved critical in revitalizing downtowns – providing funding for critically vital infrastructure investment and incentives that effectively allow downtown to compete with suburban sites. In light of budget challenges, the Governor is calling for the wholesale shut down of these authorities. This is a warning call to economic development agencies across the nation. Preventing deferred maintenance in the form of upgrades to aging infrastructure will increasingly become the responsibility of the property owners and business owners whose investments are at risk. Which leads us to…

7. The Rise of the Improvement District
The fall in State and local funding for commercial revitalization will be a call to action for businesses and property owners who recognize the need to fill the void. With the dwindling public funding, and with aging infrastructure at stake, businesses and property owners will attempt to find ways to help themselves. These efforts will take the form of Improvement Districts (aka Business Improvement Districts, Special Improvement Districts, Neighborhood Improvement Districts, etc.) These districts all follow the same concept. Within a defined area, property owners and business owners contribute to a fund for services or improvements to the district. These assessments are typically based on a formula that includes the property value and/or linear feet of street frontage.

Cities will be putting their limiting funding to advance BID efforts that help local communities develop sustainable funding for operational and program funding of commercial revitalization efforts.

Pittsburgh is one City taking NIDs by the horns. They are developing a Neighborhood Improvement District toolkit website, with valuable guidance on how to start and maintain a NID. This website is still in the works, but it promises to be a great tool for communities in Pittsburgh and beyond.

If Pittsburgh is any indication, the attempts to start Improvement Districts will not be without their critics. As businesses tighten their belts, many will be resistant to anything perceived as additional taxation. BID organizers need to get ahead of the curve and communicate that a BID assessment is not a tax, but rather a fee for services and investment.


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    Dirk Kettlewell