Wednesday, March 23, 2011

Retail Insights: Spring 2011

This quarter, Retail Insights looks at two interesting trends that seem to be converging. The first is an increase in small business lending, with a focus on how lenders are rethinking their lending criteria. In the long run, this will make it easier for many small businesses to secure loans to relocate and expand within our districts. The other is a growing interest from big box retailers looking to test 'small boxes' as a way to make a dent in urban markets. Both spell opportunity for commercial district managers seeking to attract and expand businesses within their districts.

Small Business Lenders Revisit Character
One of the things that prevented small business expansio
n over the past few years has been the inability to finance growth during the recession. This is because fe

wer banks were making loans as underwriting criteria got much more stringent. As a result, small business often suffered the most - their loans are notoriously among the most difficult to make and underwrite.

In the past, local banks had personal relationships with businesses owners and made lending decisions based on a number of factors – but most important was often the customer relationship. As the banking industry grew and those relationships eroded, small business loans were more frequently made based on the business owner’s personal credit score, with real estate used as collateral for the loan. In the past few years, real estate values have collapsed, which meant that so too did a small business owner’s ability to borrow against their asset. The good news is that there are some indications that banks are beginning to open their purses a bit and loan to small businesses. The Wall Street Journal recently covered the issue [“Banks Get Back to the People Business”, WSJ, 3/7/11] and found that more and more banks are looking beyond a small business owner’s personal credit score during the underwriting process. The American Bankers Association has begun creating educational programs for bankers on how to analyze a borrower’s character and use that analysis in their loan applications. For example, banks have begun to look at how businesses have survived the recession as an indicator of credit worthiness. This is great news because as businesses look to relocate, grow, or expand within your districts, they will have more access to the capital necessary to do so. Another implication of this trend is that district managers can begin thinking about how to helping establish and deepen relationships between local banks and local businesses through networking events and partnerships.

On-Line Spending: Opportunity for Business Districts?
We tend to think of on-line shopping as a threat to most retailers, both big and small. But if we view this challenge through another lens, there are clearly potential opportunities for commercial districts in this trend as well. As more and more customers get comfortable shopping on-line, retailers, in particularly big box retailers, are finding that they have much more real estate than they need. In some cases, they are seeking spaces that are more in-line with the real estate offerings along traditional
 commercial districts (see big box to small box below). But perhaps more significant is the fact that shoppers will begin seeking more from their shopping experience than simply the desire to purchase. Going 'out' shopping is becoming more about the service and the experience - it is both an event and a leisure activity. Successful shopping districts are able to capitalize on this trend by creating an attractive ambience, what we sometimes call the 'third place', those informal gathering spaces that meets our very human desire to socialize and interact with our fellow human beings. Whether that third place is a public gathering space, or the local coffee shop, good district managers can sieze the opportunity to create an attractive alternative to the purely functional shopping experience offered by big box stores and strip shopping centers.

Big Box to Small Box
Increased on-line spending also means that big box retailers are looking at scale down to smaller format stores. Big box retailers are going on diets and shedding square footage they no longer need. As they explore smaller format stores, they are also realizing that these smaller stores allow them to more effectively penetrate urban markets. Traditional big box retailers like Staples and Best Buy, for example, now have store designs that range in size from 1,500 – 4,000 sf, sizes that are much more compatible with traditional business districts. And how could we forget the mother of all big box retailers, Walmart, who is rolling out a 15,000 sf small format store. Walmart executives admit that they have been losing market share to dollar store chains and a maller format store allows them access to markets that were off limits before.

Related Blog Posts:
[Big Box Retailers Test Small Spaces]
[Walmart Seeks Aggressive growth of smaller stores in urban markets]

Growing Resistance to BID Formation?
Business Improvement Districts (BIDs) are the holy grail of the commercial district management profession because they ensure a regular and sustainable source of funding for district services and improvements. When every property owner and/or merchant within a BID district contributes, the costs and benefits are equally shared among all beneficiaries. However, starting a new BID during difficult economic times is not always easy. Community resistance often forms when the BID assessment is perceived as a tax, rather than a fee for much needed services to maintain an area’s overall competitiveness as a shopping destination. While I’m not quite sure if this resistance has risen to the level of a trend, I have noticed more and more articles about BID opposition popping up in the news. What is ironic is that marketing and district improvements are needed now more than ever. As government services are reduced, business districts will have to meet the challenges of sanitation, graffiti removal, and security with fewer public resources.  Keeping a district competitive under these challenging financial circumstances will become increasingly challenging if BID’s are not part of the solution.


  1. Small business loans can be used for a variety of things. The use of the money will be determined by the owner. Most people take out small business loans in order to fund the start up of a company in some way. Other people take out these loans when they need to do some repair or reconstruction work on the company. In the end, it is the owner or borrower that determines what the money will be used for and essentially in can be used on anything that has to do with the business.
    small business loan

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