Monday, January 30, 2017

Round Up: Tinder for City Planning, Small Town Mixed Use Funding, Dimensions of a Perfect Block, The Weed Dilemma

The city of Santa Monica, California is trialing new technology aimed at making urban planning more transparent and interactive. Their goal is to innovate the public input process and cut down on bureaucracy.

Funding Small Town Main Street Mixed Use
Influenced by Regional Plan Association’s report, The Unintended Consequences of Housing Finance, the Federal government may alter its financing policies to allow growth of mixed use developments in medium and small town main streets.

Defining the Perfect Block Length for Walkability
A Harvard team took to defining the "perfect" city block dimensions and noted that the New York City grid is near ideal. Too big and too small are both detrimental, so the Goldilocks principle seems to apply.

The Weed Dilemma

If you are in one of the states on the increasing list of states to legalize marijuana - for medical or recreational use - you have to ask yourselves, how will this change the look of commercial corridors?

Friday, January 27, 2017

Retailer Spotlight of the Month: Starbucks Reserve

Starbucks, the Seattle-based coffee giant, will nearly double the numbers of its shops over the next five years and in the process roll out a new higher-end format called Starbucks Reserve.

Starbucks Reserve Roastery in Seattle

The first Starbucks Reserve Roastery and Tasting Room debuted late 2014 in Seattle. This new concept seeks to immerse customers in the craft of roasting and brewing small lot specialty coffees from around the world. A success since its opening, the shop can be seen as a ‘coffee theater’, encouraging customers to interact with Starbucks roasters and baristas in order to deepen their understanding of the art and process behind roasting and brewing rare coffees.

Starbucks Reserve on 250 Vesey Street, New York City

Reserve stores' atmosphere are as curated as its premium coffees, with an attention to high end finishes and a contemporary-chic industrial look. The concept is being rolled out as new single stores but also by adding a Reserve bar experience to existing stores. It is also being adapted to a variety of retail footprints. For example, four Starbucks Reserve stores have recently open in smaller formats throughout New York City while a larger 20,000SF Reserve Roastery is set to open in the heart of the Meatpacking District next year.

Starbucks Reserve on 771 Broadway, New York City

The Meatpacking Reserve Roastery will be housed in a new building designed by Rafael Vinoly and steps from Chelsea Market. The new store will build upon everything Starbucks has learned from its Seattle location in terms of integrating coffee roasting, manufacturing, education and retail to create a unique experience.

Tailored for customers in each market, Starbucks plans to open up to 1,000 Starbucks stores with a Reserve coffee bar experience by the end of 2017. Twelve exist today located in New York, Chicago, Atlanta, Baltimore and Boston.

Price Point: high

Target Market: foodies, millennials, and patrons looking for high-quality coffee and crafted beverages

Site Requirements: Flexible; stores vary from 2,000 to 20,000 SF

Real Estate Contact Info:

David Firestein, Shopping Center Group

Taryn Brandes, Shopping Center Group

Monday, January 23, 2017

Macy's stores are closing. Now what?! Eight strategies for downtown practitioners facing new retail realities

Macy's recent announcement that it will close approximately 100 stores over the next few years came on the heels of announcements that Sears and K Mart will close 150 more stores (they closed 78 stores last year). Other stores like Kohl's posted disappointing holiday results. These general merchandise anchors have struggled in recent years to remain profitable, and the closures are intended to focus their resources on more profitable stores. So what do these trends mean for Main Street? We think the news offers challenges and opportunities for downtown business districts. Here are a few ways we think our downtown communities will be affected in the coming years...

More competitive leasing environment. With more and more SF on the market, malls in lackluster markets will struggle to lease space, and in some cases they will be competing for retailers who might also be considering a downtown retail space. This means that you have to be more aggressive in your leasing efforts, and get better at communicating the value add of a downtown location. You should ask yourself a few questions. Are your downtown vacancies easily found on on-line listing services? If not, are you working actively with your property owners to ensure their properties are listed and available for easy viewing? Do you maintain demographic and market data for retailers who are considering your market? There are a myriad of ways - some that require more investment than others - to ensure your district's vacancies are on a retailers radar. But either way, supporting retail leasing efforts will take some concerted effort and investment. On that note, don't forget to downtown our book, "Improving Tenant Mix: A Guide for Commercial District Practitioners" for free from ICSC's website for ways to take a more hands on approach to your district's leasing efforts. 

Omni-channel retailing will become more and more the norm as mainstream retailers invest in their on-line presence. Main Street retailers will need to find a way to follow suit. Yet asking small retailers to carve out resources for a robust on-line presence is a lot to ask many of them. As a result, communities and BIDs may have to step up their efforts to educate businesses on the strategies the tools they have available to them to ensure survival. Many businesses, particularly those that make their own products, may not be aware that they can sell on platforms like Amazon, Zappo's or Rue La La. We recently met a business owner who gave us the skinny on her on-line selling strategy, telling us she had abandoned Amazon because their requirements were "too much of a pain", but that she has had a great experience with Zappo's. This kind of intelligence will be useful to share with your local business community. And for those interested in selling directly to customers through an on-line platform, there are more and more options for them out there. (Read our recent post "On-Line Selling - An Option for Smaller Businesses" for more info.)
A retail website powered by Shopify, one of a number
of  on-line platforms that makes on-line selling
accessible to small businesses.

Programming and creative usage of public space (i.e "place based strategies") will increase. Commercial districts, like malls, are increasingly trying to offer distinctive experiences that cannot be found so easily on-line. Cooking demos, craft classes, exercise classes, etc. will all become more critical to engaging with customers. In downtown, that means activating and programming public space in a way that will drive downtown visitation. Consider the Meatpacking District's free outdoor yoga program. They teamed up with a local store to offer programs on the street during the summer. This is a great way to highlight a local business while also bringing activity to open spaces. These activities also reinforce a well thought out strategic position for this market based on the segment of the businesses that are there - a place where young, active people congregate. We love it.

The Meatpacking District BID in NYC
sponsors "Downward Dog Yoga Days" in the Summer
in partnership with a local business. 

Food will continue to drive leasing in many downtown environments. When food is in the mix, shoppers increase their dwell time, which increases the amount of money they are likely to spend in the district. A panel on Urban Retailing at last year's ICSC Recon emphasized this trend. Restoration Hardware Executive David Stanchak was on hand to discuss RH's recently opened new store in Downtown Chicago that includes a food operation - The RH Chicago Three Arts Club Cafe. According to Stanchak, "for every dollar we do on food-and-beverage sales, we're generating $2 on increased gallery sales."  The good news is that downtown environments already do food quite well, but will need to begin to find better synergies between food and shopping. In some communities, the hours that retailers are open do not necessarily overlap with the hours that restaurants are open, which diminishes opportunities for cross-patronage. Correcting this misalignment, perhaps through a well-promoted once a month late night effort could help address this issue. That said, care should be taken not to overtax small business owners who often have limited staff capacity to do this on a regular basis. Promoting the event sufficiently, and to the right customer audience, is key to ensuring the success of late night shopping strategies.
The 3 Arts Club Cafe, a food concept within
Restoration Hardware's new downtown Chicago location.

Food kiosks, food trucks, and seasonal food offerings will also continue to grow. Some communities might not be able to support a full time bricks-and-mortar food retailer, but can instead focus on developing a temporary set of offerings that may be associated with an event. We are working in a community in Long Island right now that has a small municipal beach. Last year they started a very successful food truck and movie night. It probably shouldn't come as a surprise that they sold many, many more beach passes over previous years - adding to the town coffers while also building community. These investments clearly also pay dividends.
Downtown Raleigh BID puts on the Food Truck Rodeo
over a weekend in the early Spring with more than 50 food trucks. 

Leasing to specialty businesses will rise. The downtown environment has an element of authenticity and interest that makes is a great place for some of these more interesting retail concepts. In some cases, lower rents and a lower hurdle to entry make downtown storefronts an enticing alternative to malls. Consider Muse Paintbar in Providence, RI, a business that bills itself as "the premier art and wine experience". Located on Main Street in a historic building, Muse Paintbar offers a wide array of classes for adults and families too.

Property owners and merchants will request higher transparency around BID spending. In the mall world, payments by retailers to cover common area maintenance (CAM) are critical to ensuring shared spaces are well maintained. The International Council of Shopping Centers recently posited that 2017 will see a more "widespread effort by retail rein in or set limits on CAM costs." We believe that the same economic forces driving retailers to second guess CAM charges are not limited to businesses that lease storefronts in malls. As many of you know, in a downtown environment, the equivalent of CAM charges are BID assessments, which in a similar manner to CAM charges are obligatory contributions by property owners and/or merchants that support the enhanced maintenance of shared public spaces and help to advance long term district improvements. While getting a BID off the ground may become more challenging as businesses and property owners double down on keeping costs down, we do believe that existing BIDs will have to make sure their members understand the value they are getting for their investment. This means getting much better at bench-marking impact with measurement tools like pedestrian counts. And while BID members may balk at increasing BID budgets, doing away with these additional charges is not an option either. As one analyst indicated, it "costs money to create experience". And given how important experience is going to be to shoppers in the future, downtown's with BIDs are going to be better positioned to weather competition from on-line retailers than those that don't have the resources to program and maintain the downtown environment. 

Retailers, especially at the high end, are open to thinking outside of the box and customizing their stores to unique urban spaces. According to Richard Johnson, a senior real estate specialist who spoke at Recon in May, urban locations are appealing despite the higher costs, "“There is always a lot more cost, and we do more work for urban locations,” he said. “You want to give your best face to your best clients, and urban does that. The goal is to create something unique that has our customers coming back time and time again.” 

Overall, we think downtown is well positioned to compete in the coming years. As people look for authentic experiences, the kind of things that simply cannot be done on-line, we are confident that many downtown's can and will rise to the challenge.

Thursday, January 5, 2017

The Food Hall Revolution

The retail industry has seen its fair share of trends and advancements this past year – ecommerce is up and millennials are driving experiential shopping. However, one that has inescapably stood out has been the development of food hubs and food halls all across the country. In fact, earlier in 2016, UrbanLand predicted that food was to be the ‘anchor of retail developments’ based on the rising proportion of store growth being attributed to restaurants. From Detroit to Irvine, cities and developers are catching onto the culinary-oriented developments in their own unique ways but are these places simply sexier, marketable versions of the traditional food courts? Let’s find out what constitutes food hubs and food halls and what impacts they are having on economic revitalization and food access.

Marketplaces have been a key economic, cultural, and social component of villages, towns, and cities for thousands of years and food, particularly fresh produce, has always been a vital commodity for trading at these markets. A food hub, as defined by the National Food Hub Collaboration and Michigan State University, is a “business or organization that actively manages the aggregation, distribution, and marketing of source- identified food products primarily from local and regional producers”. By doing so, food hubs bridge the gap between food producers and consumers and satisfy wholesale, retail, and institutional demand all under one roof much like traditional marketplaces. Today, many fresh food producers lack the capacity and financial resources to access these markets on their own so food hubs are indeed making it possible for these producers to gain entry into new markets, increase their incomes, and up scale production.

Not only are food hubs profitable to producers, distributors and retailers, they are also vital in improving neighborhood access to local foods by offering complementary programs and resources such as shared community kitchens for healthy cooking classes and food incubators for budding restaurateurs. All of these components that make up a food hub differentiate it from farmers markets that simply provide platforms for producers to sell directly to consumers like you, but what about the difference between food hubs and food halls?  

As it turns out, the term ‘food halls’ is increasingly being used interchangeably with food hubs. However, food halls are more often than not one of the many programs within a food hub (complementary to grocery stores, food education facilities, food distribution centers, and kitchen incubators). When food halls function separately and independently, they are often less community- and agriculturally-based. While they may claim to support locally-owned businesses and chefs, they often do not guarantee as tight a policy of local produce-sourcing as food hubs do given their varying administrative organizations and missions. Often, these food halls simply bring together multiple vendors, carefully curated to meet the targeted consumers’ taste and preference, and provide them space in high traffic areas at potentially lower rental rates.

Regardless of semantics, both food halls and food hubs are cooking up destinations for local food and providing opportunities for local businesses to grow – albeit to different degrees. Given the infancy of these food-based developments, we can only begin to predict their position as catalysts for redevelopment and socio-economic revitalization.

The Eastern Market in Detroit, Michigan, for example, demonstrates the potential for food hubs to be really sustainable and efficient food sources for communities. The food hub is the “largest historic public market in the Unites States” and has been connecting small farms with customers from metro Detroit for over a century. It has done more than just organize farmers markets for locals; the Eastern Market also hosts a massive wholesale market for local restaurants and grocers from midnight to 6am on weekdays. In addition, the market has incubator spaces for food entrepreneurs and provides professional kitchens for entrepreneurs who would otherwise be unable to access such resources. At Eastern Market, entrepreneurs can develop and test-market their products before expanding regionally. Take for example, McClure's Pickles. The firm got its start at the market and has since expanded nationally.

The Eastern Market not only meets the scope of a regional food hub but has certainly met its mission to “build facilities and critical infrastructure that fortifies the food sector as a pillar of regional economic growth while improving access to healthy and affordable food choices in Detroit”. A survey conducted by Michigan State University found that the majority of food hubs in Michigan helped increase access to healthy foods in underserved neighborhoods, thereby supporting a healthier population. More than 95 percent of Michigan's food hubs are experiencing an increase in demand of their products and services with restaurants, small grocery stores, and kindergarten through 12th-grade school food services being their number one customers. Furthermore, among the food hubs surveyed, about half of food hubs were equipped to accept federal Supplemental Nutrition Assistance Program (SNAP) benefits.

Food hubs also have the potential to act as arts and cultural centers for their neighborhoods. The large halls and spaces located in the hubs are conducive to art and design festivals. Eastern Market, for example, is home to the Detroit Design Festival every fall and many other creative pop-up events and programs. Like other food hubs, it is increasingly becoming a mixed-use building and yet food-based hub. Even food halls that simply feature chef-driven vendors and tenants are becoming arts and culture centers hosting a myriad of events throughout the year. In a time where millennial customers seek out unique retail experiences, the merging of the arts and culinary worlds was only an inevitable next step.

On the other side of the coin, when food-based developments do not serve the wider community, however, it stands to run into accusations of causing gentrification and rising property values. In Anaheim, California, where a former fruit packing and distribution center was transformed into a food hall dedicated to local vendors, it has quickly evolved into  a selling feature for new residential developments in the neighborhood. Broookfield Residential for example is hoping to “attract young buyers with units priced between $300,000 and $400,000” in a neighborhood that was once a sleepy town known only for Disneyland. Whether intended or not, the Packing House food hall in Anaheim has led to huge inflow of development into the neighborhood, raising prices of property in the area.
Furthermore, food halls that only serve ready-made meals or chef-made meals are often too upscale for the average customer. While they may help fill gaps in a food desert, prices often prevent lower income bracket groups from accessing these freshly-made and locally-grown foods since most prepared foods are not even eligible for SNAP benefits. So while food hubs and food halls may have a right to celebrate their contributions to the local food system and local communities, there are a few implications to also be wary of.

If that didn’t scare you enough, there are also a set of complex challenges involved in setting up and running food-based developments. Start-up, administrative and operational costs can run up high, especially when run by a nonprofit. Although finding capital through donations, grants, and city funding is a common strategy, these funding sources can easily go away. The many moving parts of food hubs also means that overhead costs can arise at all points on the operational chain.
Further still, site development has proven to be a huge challenge for food hubs. This is due to requirements for cold storage, space for processing food, distribution, and strategic marketing. The non-profit Boston Public Food Market, for example, is already spending close to $14 million to turn a state-owned building into a market.

Indeed, food hubs and food halls can take several years to achieve financial profitability. However, it is food hubs that work with various partners, including local farmers’ associations and school districts, which are able to increase their earnings easily by establishing distribution agreements.  These partners often also help with advertising and marketing efforts – lowering food hub overhead – and provide food hubs with a consistent yet diverse customer base.
On the other hand, food halls that function separately and independently with only chef-driven vendors open with 100 percent occupancy before quickly running into problems of high operation and marketing costs. This often leads to high lease rates for vendors. Since local entrepreneurs are particularly susceptible to rent charges and often are unable to make their businesses work in the long run without continued support from the food hall, these food-based developments hollow out and struggle to find replacement chefs.

As we move into a new year, and the trend of food hubs and food halls catches on rapidly across cities, let’s watch out for the saturation point in food-based developments. More importantly, let’s beware of its real impacts on food access and our local neighborhoods and communities.