Many corridors across the country struggle to retain and
attract viable retailers. In the same way, establishing a retail business in a
downtown corridor is a capital and knowledge intensive endeavor. This post introduces different retail incubator models and explores how they can bridge the gap between empty storefronts and aspiring
entrepreneurs.
Retail incubators are a specialized type of business
incubator. Just as business incubators nurture the development of new
businesses (tech, manufacturing, etc.), retail incubators provide critical assistance
to retailers in their early start-up phase. This assistance encompasses
multiple aspects of opening and running a business that range from coaching,
access to capital and physical space to marketing and networking connections. A
key aspect of a retail incubators that many groups excited with the concept fail
to grasp is that an incubator is not simply a building with many stores, but it
is a program of targeted services. In fact, retail incubators can be of various
types and structures, including space-based models and program-based models.
Space-based retail incubators allow retailers to occupy small
spaces within a larger facility that shares a number of services (think of the
typical flea-market) at reduced rents. In this model vendors benefit from the
proximity to other vendors (potential for increased foot traffic) as well as
shared cost of typical operating expenses (utilities, etc). Also, the close
proximity to other vendors allows the exchange of ideas and lessons among them
and thus boosting collective learning and innovation. In this model, however, technical assistance to individual businesses is not the emphasis since space-based incubator facilities tend to house a mix of new and established retailers.
In fact,this type of retail incubator has been often established by
property owners and developers to fill vacancies with innovative and creative
retailers and generate interest in these properties and even in the neighborhoods
they are located. For example, Shops @ MoDiv, a collection of tiny spaces
housed in a historical building in downtown Grand Rapids was created Rockford
Construction with the intent to incubate businesses that once established in
the downtown facility will want to stay in the area and generate additional
demand for other retail spaces downtown.
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| Shops @ MoDiv, a space-based retail incubator in downtown Grand Rapids, MI |
Rockford Construction decided to experiment with the retail
incubator concept when the developer could not attract tenants to fill the
first floor of a historic downtown building during the 2008 recession. Modeled after successful retail incubators in
Ann Arbor and Portland, the developed created Shops @ MoDiv to be an innovative
and flexible space mixing both start-ups and established retailers in an open
and integrated floor-plan. The incubator contains ten retail spaces ranging
from 100 to 1,000 square feet and leases range from six-months to five years. Tenants
include boutiques, an apothecary that sells remedies and spices, artists
selling their work, a bakery, and even a brewery.
It is important to note that for a real estate developer to
build small spaces that require multiple tenants can be risky and not worth their
investment, especially when compared to building a typical commercial building
for a few tenants. In fact, Shops @ MoDiv were originated due to the lack of
traditional larger tenants to lease the space. This is where a developer can
potentially partner with a reliable public or nonprofit entity to take the
lease and handle the work of filling all the incubator spaces. Such a partnership
can mitigate the risks to the developer and help to activate the streetscape in
the corridor while helping small businesses to get the exposure and experience
needed to get established.
Another type of retail incubator is the program-based model.
In this model, businesses are incubated in their permanent location rather than
in a smaller space in a shared venue where it will outgrow. Thus, a key component
here is that businesses are incubated to be able to stay where they were established. The rationale is that the location of a business is a key component
of its success and that incubating a businesses at its permanent location right
from the start-up phase will give new entrepreneurs
a stronger understanding of the location, its local customer base and
neighborhood dynamics and as a consequence enhance the business ties to the
community and increase its chances of success.
A well-known example the Downtown Kalamazoo Inc. (DKI) Retail
Incubation Program. Established in 2009 when downtown Kalamazoo, MI struggled
to attract retailers, DKI spearheaded its creation enabled by a state
legislation that allowed local Downtown Development Authorities to create,
operate and fund retail businesses incubators. The program is managed by DKI’s
Business Recruitment and Retention Committee and provide the following support
to retail start-ups willing to open downtown:
- Eighteen months of subsidized rent,
incrementally reduced from a maximum of 50% or up to $830 monthly
- Training in Merchandise Managements, Marketing,
Human Resources, Financial Management and Customer Service
- Mentoring from a successful downtown business
In exchange, the program required participants the
following:
- Attend all the training sessions
- Hire a bookkeeper or CPA approved by the program
- Provide sales, inventory and expense information
to allow tracking of success
- Keep the business open for 6 days a week or 50
hours a week
In four years the street-level vacancy rate in Kalamzoo’s
downtown dropped from 20 to 2 percent. As the program filled key locations with
new retail concepts, business attitudes towards downtown changed. In fact,
similar programs followed suit throughout the country and are still active
today, primarily led by downtown organizations focused improving downtowns’
vibrancy and overall business environment.
Regardless of the model, a retail incubator can never
completely eliminate the challenges of operating a business. Many stores open
and many will close. There is not a single blueprint for downtown
revitalization. But for corridors struggling to attract established retailers
like national chains, the retail incubator model might be an option to bring
vibrancy and economic activity to the area while providing opportunity for
local entrepreneurs who already understand the characteristics and demand of the local market. As with any downtown revitalization initiative, having an organization with the capacity and commitment to lead the effort is a priority.
For further information and resources on business and retail incubators, check out the
National Business Incubation Association (NBIA) website.
References:
National Business Incubation Association,
Tips for Developers, www.2.nbia.org/resource_library/tips_dev.index.php
University of North Carolina Community and Economic Development Program Blog,
Retail Incubators and Main Street Revitalization, ced.sog.unc.edu/retail-incubators-and-main-street-revitalization, August 2016
Downtown Idea Exchange,
First store opens under retail incubation program enabled by state legislation, www.DowntownDevelopment.com, 2013
