Friday, September 22, 2017

IDA Session Post-Mortem: The Future of Physical Retail in the Age of Online

Larisa Ortiz is a Principal at LOA

Last week I had the pleasure of speaking on a panel at the International Downtown Association Conference entitled The Future of Physical Retail in the Age of Online with colleagues Mike Berne of MJB Consulting and Tony Hernandez, Director of the Ryerson University Centre for the Study of Commercial Activity. I may have been a panelist, but I was as enraptured as the audience by both presentations. Each shared insight into their own research and offered some enlightened perspective on the future of downtown retail for attendees.

Tony Hernandez helped put the changes he has seen in context. Retail is always changing. Consider this - Outlet Centers started making waves in the 1990’s and have only grown in size and scale since then. But if you consider who the major shopping center tenants were in 1996 and now, you will find that the majority of those tenants no longer exist. Hey, no one said retail was an easy business. So when viewed from a historical perspective, today’s concerns about the impact of on-line shopping are part of the normal cycle of “creative destruction” that leads to innovation and improvement, not necessarily the end of the world. And while e-retail may be a small portion of sales at the moment, Tony made the point that on-line influenced sales are what we should really be talking about. Research by the JC Williams group found that 86% of Canadians researched their purchase online before cutting a check.

Mike Berne added that while the news is chock full of an impending “retail apocalypse”, pure play retailers still account for only 4.5% of market share. The future, Mike said, belongs to retailers who pursue omni-channel strategies. He suggested the Amazon’s purchase of Whole Foods was because Amazon needed Whole Foods, not the other way around. As he has written for this blog in the past, the Whole Foods acquisition was a response to the “last mile” challenge. The fact that Amazon has yet to turn a profit on e-commerce and makes nearly all of its profit on cloud computing suggests that e-commerce still has a ways to go before dominating the retail landscape. When you consider that the “last mile” challenge – i.e. the ability to get to and from the last point of distribution to someone’s home – is incredibly expensive and that off-price chains like T.J. Maxx have been doing quite well at getting customers to do that for them – Mike thinks the retail apocalypse concerns might be overblown.

My contribution to the conversation was targeted to the practitioner. How do we turn the data into something actionable? What should Business Improvement Districts and Business Improvement Associations (as they are known in Canada) do in light of this information? I suggested a few policy prescriptions and actionable interventions, much of it based on recent work we completed with the City of Cambridge, MA.

The first is to drive experience. It may sound cliche, but people are searching for things they can’t get on-line, so BIDs will increasingly need to activate streets and public spaces with activities that cannot be replicated on-line. That means making sure public spaces are well designed and maintained, and that those spaces allow for public gathering, activities and events. We simply must make our public spaces work harder for us. In San Francisco, the City has spearheaded an effort to engage local non-profits as formal stewards of public plazas, giving them the ability to generate revenue from activities and events. New York City has a similar program. These programs allow for the formal oversight of a public space by an entity that is best positioned to drive pedestrian traffic to an area.

The second is to build capacity of the organizations upon which all of this activity depends. Without organizations with capable staff and sustainable revenue sources, the ability to activate space, build brand recognition, and promote both activities and businesses is seriously hampered. In Cambridge we shared the example of Coro Neighborhood Leadership Program in New York City that trains 20-30 BID leaders every year and has created a network of well-trained advocates for place management. This highly trained network of practitioners now collaborate and cooperate on a regular basis, sharing information about best practices for everything from fundraising to leadership skills. 

The third intervention involved taking a deep dive look at the regulatory and zoning barriers that are making innovation by retailers and new business concepts much more difficult and challenging. Consider the small business that wants to start making some of their products on-site and triggers a change in use permit. Or a brewpub for whom there is no retail classification (who had heard of brewpubs forty+ years ago when the regulations were written?). Or the business that wants to offer in store educational classes and is now considered an “educational institution” with higher threshold building code and parking requirements. These rules and regulations are particularly vexing for small businesses with limited capital – precisely the kinds of businesses that many communities want to support. Another issue that falls under this heading is the fact that restaurants and eating establishments, one of the healthiest and growing sectors of the retail economy, are particularly hampered - higher parking regulations for eating establishments are not uncommon and can make opening a location in some cities nearly impossible. Add to this things like sidewalk cafes, which are proven profit drivers, yet these too require another layer of permitting that can be overwhelming for the small business owner. Overcoming these issues is critical to enabling new business ventures that will be so critical if downtown is to sustain a competitive advantage.

As my last point, I discussed the need to fill gaps in the pedestrian experience as the inevitable market corrections will result in vacancies. BIDs are well positioned to ensure that vacancies do not undermine the local pedestrian environment by advocating and supporting pop-up retail or pop-up temporary art installations (like those of New York based non-profit No Longer Empty). These are important stop gap measures that will help existing businesses. In the long term, softening demand for retail spaces may require a wholesale rethinking of how we manage downtown tenant mix. As retail spaces get taken up by less dynamic economic activity, including offices and services, how will we maintain a sufficient concentration of retail in close enough proximity to ensure corridor success?

I want to thank my fellow panelists and the fantastic IDA members who participated in our discussion. Clearly that this issue will not be going away anytime soon!

Follow us on twitter @cdadvisor and Facebook (cdadvisor) where we share timely articles and news related to downtown retail. 

Thursday, September 21, 2017

Dockless Bike Shares: Addressing the First and Last Mile

Dan is a research associate at Larisa Ortiz Associates

These days there’s a lot of talk about whom or what the next big disruptor is going to be and what industry it’s going to shake to its very core. I wasn’t expecting it to happen in the bike sharing industry. I say this because bike sharing still feels in some ways very nascent. My neighborhood of Crown Heights just had a rollout of new docking stations this year to meet still growing demand and yet now we have the emergence of these “dockless” companies? What exactly are they and what do they mean for commercial districts? 

Unlike traditional bike shares, which require picking up and dropping off a bike from designated stations, dockless bike share eschews them altogether so that riders can use their smartphone app to locate, unlock, ride, and drop off the bike in conceivably any public space (think Car2Go). This is important for commercial district practitioners because it deals with the “first-and-last mile” issue. Most people are comfortable walking a ¼ mile to a bus stop, train, or other fixed-route transit system, but the number drops off precipitously as the distance grows. This pushes people into their cars, to other shopping districts, or prompts them to stay home. Traditional bike shares have sought to address this, but their locations have been subject to certain criteria like population density, number of jobs, or the presence of certain anchor institutions. Not so anymore. For that reason we need to think creatively and critically about how dockless bikes might impact our commercial districts. What follows is a breakdown of what I think are the key benefits, issues, and ways to move forward.

What are the benefits? 

1. Cheaper for cities  
Unlike publicly subsidized and corporate-sponsored traditional bike shares, dockless companies are privately owned and operated. The money the city saves on building stations and maintaining the system can hypothetically be diverted towards better infrastructure, like more bicyle racks and lanes for all users.

2. Better access
Whereas bike share stations are put in locations based on a set criteria, dockless bikes can be anywhere. If your neighborhood has missed out on getting a station in the past, this is an equalizer.

3. Cheaper for riders
Private dockless bikeshares cost roughly half the price of traditional bike shares. Washington, DC's recently implemented dockless bikes cost $1USD/half hour compared to $2 for Capital Bikeshare. 

What are the issues?

1. Ineffective rebalancing
Without designated stations and a well-staffed team, bikes may not always be where people need them during daily commutes. This can also result bikes concentrating into disorganized piles, creating eyesores and public nuisance.

2. Socializing private costs 
Maybe the city saves money by not having to build stations, but if it has to expend money and resources to clear sidewalks and streets (and even trees), at what point does the calculus stop making sense?

3. Lack of regulation
Cities lack the regulatory framework to address dockless bikes. Some companies have employed Uber-style tactics to break into markets without municipal consent, creating public backlash. Cities have tried to respond with strict policies that could hamper growth. Until cities establish a regulatory framework with the cooperation of these companies, tension is likely to grow and with unpredictable externalities.  

What are the solutions?

Much of the rhetoric around dockless bike shares treat them as a referendum on how well our communities care for public goods. If bikes are vandalized, abandoned, or lost then it’s somehow a commentary on its citizens. Whether or not you agree with that statement, it doesn’t solve the issue. It makes better sense that these dockless companies would want to address the issues head-on in order to realize a better bottom line. If bicycles are being abandoned, that’s one less bike generating revenue. And it doesn’t help that cities aren’t taking kindly to cleaning up the mess. For cities like Singapore and Melbourne, this has meant impounding bicycles and assessing fines to the operators. In the case of Amsterdam, it was so dissatisfied with its own experience that it put a comprehensive ban on all forms of dockless bikes until further notice.   

Companies are seeking to mitigate concerns and inefficiencies by implementing their own credit and penalty systems. Credits are earned for reporting broken and illegally parked bicycles, posting a ride to Facebook, and otherwise having a successful trip. Penalties are assessed for parking in non-designated areas, forgetting to lock the bike, violating traffic rules, or losing the bike outright. The aggregate effect of these credits and penalties is either an increase or decrease in future prices. Other remedial measure include creating approved parking areas and geo-fencing, where the smartphone app clearly delineates where bikes are allowed to be parked and imposes fines on users who violate the boundaries. For me this presents an argument in favor of information-sharing arrangements between companies and cities. If cities are going to spend money on infrastructure like bicycle racks, lanes, and parking lots, they should know where it makes the most sense to do it. What better way for a company to cultivate goodwill than to share what it has learned through practical experience?

As commercial district practitioners, dockless bikes represent a potential opportunity. Does a shopping district lack the capacity to create a traditional bike share station, but has parking that could be converted into a bicycle lot? Is a high-volume train or bus station just far enough from a commercial corridor as to discourage pedestrian visitation, but could attract cyclists? Are you looking to attract tech-savvy Millennials and consumers who don't own cars?

Maybe dockless bikes are an answer. 

Below is a chart of some of the leading actors in the dockless bike share industry. 

For further information, I strongly recommend the Common Position Paper on Unlicensed Dockless Bike Sharing by the European Cyclists' Federation website. You can find it here.

Technology in Retail

Nur Asri is an Associate at Larisa Ortiz Associates.

As we continue to move forward in this digital age, consumers are expecting simpler and seamless processes at home, at work, and at the retail store. As a result, retailers are making significant investments in technology in- stores to meet these consumer demands for a connected and convenient shopping experience. Here are some ways that retailers and brands are using technology to enhance consumer experience but also personalize marketing, improve logistics and customer service in brick-and-mortar stores.

1. Data Integration: Understanding consumer preferences, personalized marketing

Connecting data from smart appliances, mobile phones and other portable devices to digital systems helps businesses understand how customers actually use products and services, and which ones are preferred. To take advantage of this data and metrics, retailers can begin using devices to facilitate a more seamless retail experience in the store, and at home, to integrate products and services.
Retailers can use “customer genomes” to create highly personalized offers, promotions and experiences.

Source: Let's Talk Payments.Com
Macy’s and Apple are using in-store beacons to provide personalized offers directly to customers via mobile devices. House of Fraser, another department store in the UK, inserted beacons into mannequins for a proximity marketing campaign. When shoppers download an app and browse in- store, they receive information about the clothes on display. In other bigger retail stores, in-store shopper tracking systems have been installed to pinpoint a customer’s location. Retailers can then send targeted messages to customers (via smartphones) about nearby items.

Hugo Boss Heat Sensor in Regent Street store.
Source: Bloomberg
In London UK, Hugo Boss uses heat sensors to track customer traffic in its clothing stores, which helps store managers organize priority merchandise in high-traffic areas.

Monsoon Accessorize uses multichannel data sources from in-store and online customers to deliver unique personalized offers via emailed receipts. Similarly, UK department store John Lewis is partnering with an omnichannel personalization company to customize product recommendations for each individual shopper.

Walmart Media Exchange is using data collected from store sales, social-media platforms and third parties to supplement data from its Savings Catcher loyalty program. From the data, Walmart plans to create customer segments, and eventually individual customer profiles, to make better offers, as well as to improve targeted marketing.

2. Building brand/ product awareness: Educating consumers on what’s available on offer, sharing products through social media

Photo: Fashion Network.Com
Sephora has installed display screens showing latest trends, make-up tutorials, and new Made in Sephora exclusive offerings updated by theme each month. The screen greets customers as they enter the store, much like a mall directory screen. In addition, Sephora also has Beauty Boards. These are physical social media platforms to like a look, tag products used and share with the Sephora beauty community. Finally, Sephora’s snapchat geofilters feature highlighted products in-store and are designed to engage everyone within a mile of a store.

3. Product Testing: Allowing consumers to test products digitally or via augmented reality

Again, at Sephora, the Beauty Hub is a virtual look book which provides a catalog of beauty inspiration while the Virtual Artist service enables customers to test looks on an iPad or connected mirror. Developed with Pantone, the Color Profile application helps choose the right foundation shade with almost scientific precision. Recommendations are then made from all the complexion products available at in-store.  

Marie Claire’s pop-up store in NYC SoHo, called “The Next Big Thing Concept Shop”  has dressing rooms with interactive mirrors from Oak Labs that recommend accessories for outfits being worn. Similarly, Clarins beauty stores now feature Sensor Mirror Pro virtual skincare mirrors developed by MemoMi to educate consumers about their skin types so they are able to select the most suitable skincare products.
Photo: Connected-store.Com

Finally, fashion retailer Uniqlo has also piloted a “Magic Mirror” technology from Sharp that allows customers to virtually change the colors of clothing they’re trying on while standing in front of the mirror.

Photo: Ikea
Even when consumers aren’t physically in stores, they are now able to test products thanks to advanced technology. Ikea will soon enable shoppers to virtually test drive merchandise before making a purchase via an augmented reality app called Ikea Place. The app will allow customers to virtually place any Ikea furniture in any space and share the images with friends. The app will automatically scale furniture with 98% accuracy. This enables customers to experience how light and shadows will render on furniture within the space, and is intended to make buying decisions easier and inspire customers ahead of purchasing products. Other furniture retailers such as Wayfair and Ashley Furniture are similarly preparing to launch such initiatives with their products and brand.

Ashley Furniture will take technology a step further and feature in-store virtual reality tech bars that will combine a guided iPad-based space configuration experience with VR headset visualization, allowing shoppers to design and visualize their own homes.

4. Payment Processing: Easy and seamless payment methods

With a smartphone in every pocket and imaging technologies now available for scanning products, faster alternative checkout methods will continue to grow across the retail industry, predicts Tony Rodriguez, CTO of digital identification solutions provider Digimarc.

Self-service checkouts have gotten more sophisticated in grocery stores and moved into other retail sub-segments, such as home improvement, fashion and electronics stores. Tesco, a grocery store in the UK for example, is testing a high-speed checkout solution that automatically scans products placed on conveyor belts. The system can process up to three customers at a time.

Apple Pay at Whole Foods. Photo: Eric Risberg
Integrated mobile apps and “contactless” mobile payments now also enable visitors to make seamless cashless transactions, supported by MasterCard and Apple Pay, from anywhere within the store, including via fitting room mirrors. The Sephora store at Newbury Street, Boston, for example, has no cash registers because staff associates can process payments digitally, on their phones from anywhere on the floor of the store.

Since Apple’s launch of its Apple Pay solution, retailers including Staples and Whole Foods have announced plans to accept Apple Pay at their retail locations, adding to an impressive list of other major brands such as Bank of America, Disney and McDonald’s.

5. Customer service: Efficient appointment bookings, improve staff efficiency, deliveries

Many stores now enable customers to use an integrated mobile app to book one-on-one appointments with fashion stylists, and sign up for a variety of in-store events and activities. Neiman Marcus, for example, has already piloted this at their pop-up store in SoHo.

To free up store employees’ time, Lowe’s has also begun rolling out customer-helping robots into the aisles of 11 stores in the San Francisco Bay Area. Lowe’s Innovation Labs unit worked with Silicon Valley start-up Fellow Robots on the LoweBot. The robots allow store associates to devote their attention to customers that need more thoughtful advice and personalized service. Likewise, Safeway grocery store helps customers locate stock and obtain product information through its Just for U service app. The app also goes a step further by helping shoppers create and sort their shopping list by store aisles.

Wearables, or ‘smart glasses and other connected devices intended to be worn on the body’, are another productivity booster. Tesco distribution center workers wear armbands that track the goods they are gathering. The band also assigns tasks to the wearer, forecasts task completion time, and quantifies precise movements among the facility’s shelving and loading bays.

The advancement of such technology amongst retailers will serve to deliver a seamless shopping experience for customers. However, even with all of these gadgets, customers still walk into brick-and-mortar stores to get the personable experience of getting expert advice from a staff person who’s tried and tested products for themselves. From 2015 report on Navigating the New Digital Divide, Deloitte noted that “one in three customers still prefer to consult store associates for assistance when selecting and validating products.” Retailers must therefore adapt and learn to balance both the human experience and technological convenience in stores to attract consumers in the digital age. 

Tuesday, September 19, 2017

The Social Media Story

Nur Asri is an Associate at Larisa Ortiz Associates

According to retail strategist and consultant, Steve Dennis, “The most disruptive force in retail is not e-commerce but the fact that most customer journeys start in a digital channel.”

This past weekend I started my own journey to finding a perfect, new cardigan for the season online. It started at 9am on Saturday morning when I turned my phone on, checked my emails and opened the daily mail from Madewell – a women’s apparel retailer I’ve grown to trust and love. The email featured a beautiful cardigan for the Fall (just what I was looking for) and after a click, I was led directly to the product page on Madewell’s main site. After 5-10 minutes scrolling through images, checking sizes and comparing products available on the site, I wasn’t quite sold yet on the cardigan so I switched channels and browsed my Instagram feed instead. Lo and behold, one of my targeted ads turned out to be that very cardigan I had been browsing from Madewell. This time, it was being worn by a ‘regular person’ in a beautiful setting – it looked just like any other content on my Instagram feed, I barely even noticed it was an ad until I accidentally single-tapped the photo to reveal tags of the product name and price. The next day, I ventured into Manhattan to purchase said cardigan at the nearest store in SoHo. This omnichannel retail journey of mine wasn’t the first, and probably won’t be the last. In fact, according to a November 2013 survey of US digital shoppers by consulting firm Accenture, I’m not alone. 78% of respondents to the survey reported “webrooming,” or researching online before heading to a store to make a purchase.
Source: Accenture, 2013

Researching online, as demonstrated in my experience, often includes perusing social media posts by various brands and retailers. Today, roughly 2% of all e-commerce traffic in the United States now comes from social networks and continues to grow. Many of us younger consumers who are tapped into various social media channels are hence driving the rapidly growing social media influencer marketing strategy amongst retailers who want to capture as much attention as possible online. In a single year, brands are spending over $1 billion on marketing via Instagram influencers alone (Mediakix, 2017).

The history of influencer marketing can be traced back to a 1940 study entitled “The People’s Choice” by Lazarsfeld & Katz. Although the study analyzed political communication, it found that the majority of people are influenced by secondhand information and by opinion leaders. Fast-forward to 2017, people are increasingly being influenced by ‘regular people’ who have gained celebrity status or built a brand and following on social media channels such as Facebook, Twitter, Instagram and Snapchat. These people are more popularly known as social media influencers.

An influencer is: “A third party who significantly shapes the customer’s purchasing decision” (Brown & Hayes, 2008) and “has a greater than average reach or impact in a relevant marketplace” (Word of Mouth Marketing Association Handbook).” From cardigan to vacation destinations, consumers are turning to influencers and their product reviews and endorsements before committing to making a purchase online or in-store.

These influencers often have credibility in a specific subject area – hiking gear, street fashion, interior design, photography – and have built a brand and following around their personalities, interests and skill sets. Their unique and trusted voices enable them to engage large, targeted audiences – the sweet marketing spot for retailers grappling to adapt to the digital age. Engaging social media influencers, however, doesn’t necessarily result in sales activity. Twitter, for example, only drove 12% of social and email generated e-commerce revenue in the fourth quarter of 2014 and only 30% of Pinterest users made online purchases after browsing Pinterest content. However, this may change as social media channels continue to introduce new call-to-action features and direct-response imperatives like “Shop Now” buttons for products and “Sign Up” buttons for services.

Social media influencers, however, have proven to be most successful at building brand awareness and trust. In fact, 92% of consumers trust an influencer more than an advertisement or traditional celebrity endorsement, according to Musefind, a social media marketing company, and 49% of consumers looked for purchase guidance from social media influencers last year. Many consumers place their trust in these influencers specifically because they are not tied directly to retailers or brands.
Source: Musefind, 2016

Of course, social media influence works differently on consumers by retail category. Some purchasing journeys are more highly influenced by the digital than others and can be more critical at different points within a single journey.

Source: Deloitte, 2015

In a 2015 study by Deloitte, consumers shopping for baby and toddler, electronics, and furniture and home furnishings products turned out to be most heavily influenced by social media during their shopping journey, while grocery customers were least influenced by digital overall. Critical interaction points started from the beginning of a consumer’s journey, during the ‘finding inspiration’ and ‘researching products’ phases, till midpoint when consumers are ready to select products for purchase.
Source: Deloitte, 2015

For the apparel retail category, the critical point for digital interaction appeared to be in the beginning of the consumer’s journey. With such a wide selection of products, over 15 percent of apparel shoppers are unaware of the product until they see a brand or retailer’s digital advertisement or communication that makes them want to buy the item, compared to an average of only nine percent across other categories. (Remember that Madewell email notifying me of the new Fall season cardigan and also the targeted Madewell Instagram ad?)

In a famous example, Lord & Taylor, designer clothing department store, proved the power of social media influencer marketing by getting 50 influencers to put on the same dress, photograph themselves in the dress, and then post the photos on social media. Within three days, Lord & Taylor sold out of the dress but more importantly, the retailer built awareness around the brand’s new collection, which resulted in a halo effect on other products in the same line.

Regardless of the varying magnitudes of impact that social media influencers have on consumers, they continue to be a strong marketing force for brands and retailers. Retailers should seek new ways to influence the influencers through their marketing campaigns or build partnerships and creative collaborations with these influencers, in order to achieve greater brand authenticity and trust amongst consumers. 

Monday, September 18, 2017

How is resale adapting in the age of e-commerce?

Source: S Jones
Dan is a research associate at Larisa Ortiz Associates

In my recent experience I keep observing a recurring theme: industrial neighborhoods with concentrations of second-hand furniture and antiques merchants. Another recurring theme is that these neighborhoods are changing from being predominantly industrial to mixed-use neighborhoods and people are concerned that this will eventually displace these merchants. Is there a way they might they be retained?

I’ve learned that antiques are one of those retail categories very amenable to creating niche districts. As observed in these neighborhoods, when they congregate in the same place it can have a powerful magnet effect. In my opinion, therein lies the opportunity to both retain the unique character of the neighborhood while also cultivating a successful shopping district. But that argument may be hard to make if those merchants are struggling to remain competitive. This prompted me to ask some questions. Are they actually competitive? More broadly, are resale merchants subject to the same competitive pressures as traditional retailers in the face of e-commerce giants like Amazon? If so, what are some recommendations that might be made? In my investigations of these questions I uncovered what I consider some best practices in the second-hand apparel industry that may (potentially) be applied to these antiques merchants.

Why look at second-hand apparel?

Photo credit: Jon Fravel
Because an antiquing excursion and a trip to the thrift store share similar qualities.  Both are high-touch and experiential in their basest senses. They’re high-touch because the customer is able to literally reach out and touch the raw products, free of packaging, feeling the texture of the fabric or the grain of the wood. They’re experiential because of the excitement associated with the hunt, so to speak. You and the other customers are engaged in a tragedy-of-the-commons scenario such that if you buy this particular Tiffany-style accent lamp or this vintage levis denim jacket, I cannot. Nor can the sales associate put in an order for another to be shipped to the store (read: you win, I lose). Maybe the allure is also in the speculation—the possibility that any of these items is worth well over the price on the label. Maybe that Tiffany-style lamp is actually a veritable original. Then the shopping experience is elevated into an exercise of your consumer savviness and treasure-hunting prowess.   

This might prompt us to surmise that brick and mortar thrift stores and antique merchants are immune to the encroachment of e-commerce in our rapidly changing retail landscape. Sure, margins can be low. But Amazon doesn’t have the capacity or willingness to sort through mountains of consigned garments and so they don't pose any real threat to the thrift store business model. 

Then why change?

Because even though Amazon isn't selling used apparel, other e-commerce disruptors have figured out that the hunt for pre-owned treasures is easily reproduced in the digital marketplace. In a Forbes article by Richard Kestenbaum, he details how Millenial spending patterns are partially responsible for unprecedented growth in resale. Traditional brick-and-mortar thrift stores are growing by 8% per year while the online resale market is growing by 35% per year, 17 times faster than the overall market for apparel. In his explanation, he points specifically to the growing popularity of internet clothing consignment stores like thredUP, a company that describes itself as “the world’s largest online marketplace to buy and sell women’s and kids’ secondhand clothes,” thereby tapping into an $18BN apparel resale industry that is expected to grow to $33BN by 2021.

In a report on their website, thredUP claims the “fun factor” of the resale market explains their success against pervasive “retail boredom.” Shoppers can sit on their couch with their dog, drink wine, and scroll through similar offerings that they would find at off-price retailers like Marshalls, TJMaxx, and Nordstrom Rack for a fraction of the price. Millennial shoppers are also highly motivated by the eco-conscious associations of buying resale, assuming second-hand is more sustainable for the environment. It also means discretionary income is not as significant a limitation as some might think. But thredUP states that Millennials are not the only target demographic. A significant share of shoppers come from the 65+ age cohort, suggesting that a recession-era mindset drives them towards value-oriented spending too.

How can brick-and-mortars compete?

One strategy we’ve mentioned in the past is adopting an omni-channel retail strategy that utilizes the best of both the physical and digital worlds. But how does a merchant make sure their constantly changing inventory is seamlessly represented on the website when sales are also happening at the counter? How do they leverage their websites in a way that actually yields more trips to the store? To answer this I point to several different strategies being employed by apparel thrift stores here in Brooklyn.

Beacon's Closet in Williamsburg, BK
Source: Jennifer Yin
1. Beacon’s Closet has 4 different locations across Brooklyn and Manhattan. Each store has a sizable and constantly changing inventory, meaning maintaining an online directory of products is challenging. However, a visit to their website evidences an online marketplace with a carefully curated selection. The listing is not comprehensive, but what is offered is beautifully staged with multiple photographs of the product and informative descriptions. They even give each individual product its own unique nickname in an effort to cultivate a sense of rare exclusivity. Items are also marketed through their Instagram account, contextualizing them in a way the staged photographs do not.     

2. Maeven is a boutique thrift store started in 2012 by Amy Yee, who had spent the 12 years prior buying and selling vintage clothes on eBay and Etsy. This eventually became profitable enough for her to open up a studio-space in Brooklyn in order to “provide a better shopping experience for her customers.” Maeven resembles that class of click-and-mortars like Warby Parker and Bonobos who have managed to leverage physical locations out of digital success. In spite of this, Amy continues to employ a combination of channels that include her studio space, pop-ups, her website, and the initial online marketplaces that brought her success in a multi-pronged approach to customer engagement  

3. Buffalo Exchange is a company with 49 stores across 20 states. I’ve visited locations in both DC and New York, and noticed large constantly-changing physical inventories in each of them. This seems to explain why they haven’t created an option to order their clothes via their website. But something they have implemented is the ability to sell your clothes to them by mail, requesting a mailbag online and having it sent directly to your home. You can then fill the bag at your leisure and return it to them when you’re ready. They then give you the choice of receiving a paper check, PayPal payout, or in-store credit. By making the selling process more seamless, the store is able to create more opportunities to encourage customer visitation.

What does this have to do with antiques?

Admittedly, I still don’t know whether or not brick-and-mortar antiques are losing substantial market share to e-commerce disruptors in the same manner as the apparel industry. My main point here is that resale is inherently high-touch and experiential, yet e-commerce companies are figuring out new ways to emulate these qualities through their websites and apps. Brick-and-mortar antique retailers would do well to take note of how this is being done and act in kind. If not for fear of losing market share at the macro level, then to take advantage of these lessons to be better positioned at the micro. To summarize, here is what actions are being taken by second-hand apparel retailers which I believe can be replied to others in the business of resale:

1. Establish an on-line marketplace for your products if one doesn’t already exist. If maintaining accurate inventories is challenging, prioritize your offerings and highlight what’s special about what you’ve selected. If you’re a consigner, explore ways it can aid in the appraisal and selling process in order to encourage more in-store visitation and robust inventories. 

2Consider other ways your website can further engage your clientele. Utilize social media platforms like Instagram to contextualize your products in ways your website does not. Create a blog discussing interesting trends and rare finds while providing personable anecdotes. Paint a picture for the customer whenever possible that showcases your unique brand to them.

3. Recognize changing trends in consumer demand. Are your customers motivated by eco-conscious spending options? Are they bargain-seeking? Or are they simply in it for that chance to find something rare and exclusive? Have you taken the time to look around your neighborhood? Who lives there? Who is patronizing businesses near yours? Use these clues to inform your approach and the way you present your offerings. There could be untapped demand you haven’t seen yet.

This investigation started because I wanted to think about how a cluster of antique stores might remain in their neighborhood despite development pressures that could feasibly displace them. What it turned into was a larger question of whether resale merchants are threatened by the growth of e-commerce. If that feels at all deceptive, I apologize for that. I mean only to emphasize that in exploring what constitutes a robust shopping district, we should leave no stone unturned in our investigations. Having done that, we can create more effective recommendations for future growth.  

Friday, September 15, 2017

Saving bodegas, saving third spaces!

Nur Asri is an associate at Larisa Ortiz Associates

This week, two ex-Googlers announced their recent innovation, “BODEGA”, a vending machine, or five-foot-wide pantry box, slated to become the next big convenience stop or amenity in cities across the country. A convenience that is in fact already being provided by already existing bodegas (as they are known here in NYC), or corner stores. These stores, typically run by immigrants, are “frills-free symbols of consumer access and gritty mini-embodiments of the city’s diversity and 24/7 ethos”, and have become more than just a convenient neighborhood retailer. They are ‘third spaces’, extensions of many residents’ homes, and locations where ideas are exchanged and relationships are built. Most importantly, bodegas represent the livelihoods of thousands of immigrants in cities across the country.

Needless to say, “BODEGA” was faced with a great amount of backlash the day it was announced. And we won’t sit quietly either so here’s a quick summary of why “BODEGA” won’t be filling a market gap here, or in most other cities, and will never match up as the amenity that a real bodega is.  
1.       Bodegas are already convenient in most neighborhoods, particularly ones that are not well- served by full-service grocery stores

I did a quick search of NAICS-code defined ‘Food and Beverage stores’ (NAICS: 445) that only had 10 or fewer employees and had annual sales of less than $1 million (Admittedly, these are just some of many characteristics that are presumed to be typical of small family-owned bodegas in New York City but it was the quickest way I could get an estimate of where bodegas or corner stores are already located in a locality) to look at just how convenient they are location-wise.

Estimate location of corner stores and bodegas in North Brooklyn, NY (Source: LOA; ESRI Business Analyst Online)
In North Brooklyn, just by eyeballing, there appears to be at least 1 bodega or corner store every 0.2 mile (mostly! – note the bodega deserts by the Gowanus canal and in Prospect Park). Given that most people are only willing to walk 0.25 mile as part of a commute or to access amenities like parks and public spaces, we can safely say that bodegas here are within the realm of  being convenient and of ‘walking distance’.

Likewise in Lower Manhattan, bodegas and corner stores are everywhere, safe for along the East River but remember, this part of Manhattan is better-served by full-service grocery stores anyway.
Estimate location of corner stores and bodegas in Lower Manhattan and Williamsburg, NY (Source: LOA; ESRI Business Analyst Online)
Operation hours-wise, bodegas are typically open between 16-18 hours per day (if not 24/7), making it accessible to almost everyone returning home at all hours of the day. Furthermore, for some people in NYC, where apartments are shoe-box sized, the lack of a full fridge means that the bodega is also the convenient extended freezer. So you know where you’re going to get that tub of ice cream in the middle of the night when you’re craving a treat.

2.       Bodegas are increasingly offering a wide range of products
A wide selection of fresh fruit at a corner store
in Bedford-Stuyvesant Brooklyn, NY

From non-perishables to fresh produce and beers, the bodega has it! Unlike “BODEGA” that can only carry non-perishable goods (because you know, it’s essentially a vending machine), the bodegas we already have in our neighborhoods can carry almost anything and everything and are therefore more useful to households in the long run. I buy cheese, milk and eggs every other Saturday when I’m finally itching to make an omelet for a leisurely breakfast and I doubt “BODEGA” will ever be able to meet this need. Other residents in Brooklyn today are a little more fortunate and have local bodegas that carry really high quality fresh produce.

3.       Many bodegas are already ‘smart’

Both bodegas that I frequent in my neighborhood have ‘feedback boards’ that enable customers to write the names of products that they wish to see in the store. It’s a simple solution that involves a small cork board, Post-Its and Sharpies, yet owners are able to get more information than “BODEGA” will ever get from its cameras. The cameras in “BODEGA” will apparently track what items are being removed from the machine before sending this data back to main offices to restock the item.

Another thing we need to remember – bodegas also have real people manning the counters, the aisles, the sandwich counters. These people constantly chat with customers to find out if there are any products their customers wanted to see in store. “BODEGA” claims it will have motion sensors to track what products are more popular, and for whom, but I think it’s much easier when I can just express this same information to a person who owns/ manages the store in real-time, don’t you?

4.       Bodegas are hyper locally-sensitive and have personalities

To add on to the earlier argument about the humanness of bodegas, as neighborhoods rapidly change in cities, one block may be extremely different than the next one which also means that bodegas are now stocking almost entirely different products on a block-by-block basis. They are often responding to socio- economic demographics at a block-level and “BODEGA” hasn’t indicated the same capability.

As Adam Chandler wrote in the NYTimes, each bodega is “oddly curated” and no algorithm is clever enough to come up with these eccentricities (at least, not yet). From the Polish specialty foods to Colombian snacks, each bodega has its own specialty treats and delicacies.

5.       Bodegas are third spaces

Franklin Deli Bodega in Greenpoint, Brooklyn NY.
 Photo: Shawn Hoke via Flickr
A relationship with your bodega means you could get a sandwich hook up at an odd hour of the day. More importantly, bodegas are your literal neighbors. They are located below your apartment or next to your building or across from you and are operated by the same people day in and day out. You can chat about the English soccer game happening at the moment, or you can chat about the fact that it’s been a little loud on the street this past weekend, and they’re more than likely to share an opinion about the topic. In one instance, I had a full-blown conversation with the guy at my bodega about how much tastier Pepsi Light was compared to regular Pepsi and the kids in line behind me were more than excited to chime in.

Whether these interactions and relationships are forced or not, they are bound to occur in the small spaces of bodegas, making them vital community spaces for residents in cities across the country.

6.       Bodegas are natural surveillance systems for the neighborhood.

As mentioned earlier, bodegas are open 16-18 hours of the day and in some cases open 24/7, which means bodega employees and customers walking in and out thru late hours of the night serve as ‘eyes on the street’ and round-the-clock surveillance.

7.       Bodegas are employment centers for immigrants

Finally, bodegas are a large employer of immigrants. A Fiscal Policy Institute study published in 2011 found that more than 48% of NYC businesses owners are foreign-born, and in particular, they dominate certain lines of businesses such as dry cleaning, taxi services, and grocery stores (of which bodegas and corner stores make up a reasonable share of this category).

In NYC, retail trade is the broad industry with the largest number of immigrant small business owners. While a full 90 percent of the city’s dry cleaning and taxi service owners are immigrants, a close 84 percent of grocery store owners are also immigrants.

These immigrant business owners already face numerous obstacles in running their businesses, most commonly lack of access to capital (which, apparently “BODEGA” has not been short of) and inability to comply with city business regulations. For now, it seems “BODEGA” will only serve to add problems by becoming a new source of competition for our bodegas, if it does get rolled out in cities like New York, where corner stores and bodegas are already popular.

Like everyone else we'll be paying close attention to where “BODEGA” gets expanded to see if its co-founder, Hunter Walk, keeps his word on “not disrupt[ing] or replace[ing] the urban corner store… the bodega”. 

Thursday, September 14, 2017

Mall to Mixed Use

Nur is an associate at Larisa Ortiz Associates

Over the last year we’ve heard story after story report on the closing of large anchor retailers such as Macy’s, Sears, and J.C. Penney and how the trend might result in another wave of regional mall closures. Analysts from across the board are predicting hundreds more shopping malls in the US to shut down as a result of being unable to find enough retailers to replace ones that have gone, leaving millions of square feet of developed but vacant commercial space.

At the same time, we have also seen story after story emerge of mall owners getting innovative and replacing traditional department stores with a slew of entertainment uses and non-conventional tenants such as offices and urgent healthcare clinics.

It is not surprising then that, now more than ever, shopping mall owners are also going to the extreme of complete overhaul of their properties to create mixed-use neighborhoods as another solution to save themselves. The mall-to-mixed use redevelopment movement started more than two decades ago with the conversion of the Boca Mall in Boca Raton, FL into a mixed-use neighborhood consisting of residential homes, office spaces, shops, and restaurants.  We first wrote about this transformative project in 2015, along with another early project Villa Italia in Lakewood, Colorado which was transformed into the neighborhood of Belmar in 2004. Since then, various other shopping mall owners have taken the same leap in redeveloping their properties into mixed-use communities. Today, we take a closer look at two more recent and still underway projects – City Centre, Houston, Texas and Promenade 2035, San Fernando Valley, California. We look at what it really takes to get a giant mall redevelopment to take off.

City Centre, a mixed use urban development with office buildings, multifamily residential homes, brownstones, hotels, restaurants and retail, and conference spaces, sits atop the former Town & Country mall on the edge of metropolitan Houston area. The regional shopping mall which opened in the early 1980s, closed following the departure of anchor department stores J.C.Penney (a story we’ve heard before).

Like any typical mixed-use development, City Centre is centered on a public square and features a grid-like street network and a pedestrian-friendly environment. Financing it, however, was not so typical. The project was developed by Midway, Cos. a real estate investment and development firm, in partnership with several other companies. Midway Cos had to finance the project by function, identifying separate partners for the various components of the project, seeing as capital partners were not comfortable with such a large and risky undertaking.

Financing and structuring such large mixed use developments continues to be difficult. Rules hindering financing such projects “had their genesis during the Great Depression or early post war era, and are based on the obsolete assumption that mixed-use developments are financially riskier than single-purpose residential developments.”, according to a 2016 Regional Planning Association report. However, with shifting demographics and market preferences leaning towards connectivity and walkability amongst both young Millennials and Baby Boomers, single-use projects may in fact become riskier than ones with higher shares of non-residential uses.

Although not yet expansive and popular yet, the Small Balance Loan program (SBL) by Freddie Mac, launched in 2014, may be a new and viable financing tool for mall owners hoping to transform their portfolio into mixed-use communities like CityCentre. The multifamily housing financial program is a “welcome liberalization in long-term financing” and is designed to provide fast approval of loans for projects with “40 percent of their income—or 40 percent of their space—related to commercial uses”. Thus far, the loans are easiest to get in densely populated metropolitan areas, however, the SBL program is growing fast and may, in the future, become an even more useful tool for forward-thinking mall owners.

With Promenade in San Fernando Valley, the challenges facing the redevelopment of a failed shopping mall were slightly different. Local community scrutiny has been a real impediment to the project still scheduled to be completed in 2035. Given that the 43-year old mall had become a huge “drag on the surrounding neighborhoods” over time, as it became a blighted site subject to “intense speculation over its future”, community support for such a radical transformation was not instantaneous and took a lot of grappling. Even retail tenants were blaming the owner for “allowing the mall to deteriorate to a mere shadow of its former self”.

In order to maintain the mixed use redevelopment project’s transparency, the developers, Westfield Corp, launched a website to seek local residents’ vision for and needs from the mixed use redevelopment, and also to better inform locals of site plans and the sustainability and economics of the project.

Next, to ensure that the mixed-use development remains viable thru 2035, the developers have also ensured that the design of commercial spaces are on trend with what’s occurring across the industry. With the market understanding that the way employees and businesses work will continue to evolve, approximately 150,000 SF of office space will be designed as creative workspaces that include a mix of indoor/outdoor office spaces, co-working spaces, traditional office suites, gallery spaces, and about 60,000SF will consist of work/live studios.

Indeed, mixed use mall transformations as described above may bring several advantages to the local community. From diversifying housing types for existing and future residents to built-in residential market demand for retailers and reduced car trips between work and amenities, the mixed use mall transformation could act as a catalyst for further reinvestment and development in the area. However, mall owners hoping to transform their properties with other partners need to ensure they’re not “dictating supply rather than responding to demand”. As demonstrated by Promenade 2035, market analysis is crucial early on in the planning process to determine what types and how much residential, office and retail space can be viably supported by the local market.

In addition, design experts in commercial spaces need to be engaged to ensure the mall transformations or new developments can accommodate the types of operators determined by a preceding market analysis.

Community engagement throughout the planning process is also key and although many mall developers today are not known for such outreach work, it is important they begin to take on this responsibility with the help of local non-profits because community needs are often nuanced. Conversations with local stakeholders may not only encourage public buy-in but also bring to light different kinds of needs that may not necessarily come up in strict market analyses, including social service, healthcare, public space needs, and architectural preferences. Sometimes, “communities may not be ready to embrace the densities and design standards required to accomplish successful mixed use neighborhoods”, according to Robert Gibbs a retail planning expert, so the open dialogue between mall owner/ developer and the local community can serve to build an understanding around such concerns and guide any concessions that need to be made.

Although the mall to mixed use trend is becoming popular amongst commercial real estate developers, it certainly is no mean feat. But it is one of the solutions that may help us transform the failed suburban landscape across the country and with stronger partnerships, such projects may be easier to accomplish in many more places. 

Tuesday, September 12, 2017

Retail and Waterfront Access in the South Bronx

Dan McCombie is a research associate at Larisa Ortiz Associates

Besides working as a research associate here at LOA, I’m also a graduate student in urban planning at the Pratt Institute. This semester I’m taking a studio class set in the Mott Haven neighborhood of the South Bronx, with a nonprofit client that has expressed growing concern over the type and rate of new waterfront development. Industrial uses pose a threat to the community insofar as they prevent valuable public access to the waterfront while also promoting air pollution through increased traffic with diesel trucks. This exacerbates an already prevalent issue due to the presence of multiple high-volume bridges and expressways segmenting the neighborhood. In my first blog post I discussed how industrial areas can be problematic for retailers because of some of their associations and externalities. As I engage with this studio project, I ask myself in what ways a robust retail environment can perhaps provide an opportunity to meet the needs of the client (i.e. public space and waterfront access) in an otherwise industrial setting. As this studio is taking place in real time, I hope to update it with some of my findings and conclusions as they occur.  

Existing Retail 

Old industrial meets new residential on Bruckner Blvd 
I’ll start by providing some background. The Mott Haven neighborhood has a very distinct and bustling commercial corridor running the length of 138th St between Alexander and St. Ann’s Avenues. My first impression is that it is a convenience-oriented community center: eminently accessible and with a bent towards local and affordable eateries. But this is not where I will be focusing my attention (at least not initially). What is less obvious further south—in what is technically considered Port Morris—is a smaller commercial corridor of about five blocks, bordering Bruckner Blvd between the Third and Willis Avenue bridges. Unlike the walkable and densely populated 138th St, Bruckner is bisected by 4-5 lanes of busy roadway terminating into on-ramps serving the greater Bronx, Harlem, and Randall’s Island. It is physically and mentally isolated from the rest of Mott Haven by these roadways and the Harlem River.

Streetscaping provides respite from the adjacent traffic 
As a waterfront neighborhood, Port Morris has historically been industrial in character with some sparse residential and commercial uses. In the 1900s it was most famous for being the epicenter of American piano production. However, these days the tenants are a little different. The westernmost block of this corridor houses a specialty coffee shop, a CrossFit gym, and a boutique florist nuzzled amongst a handful of garages and auto-repair businesses. On the corner of Bruckner and Alexander, the former Estey Piano Factory has been converted into residential apartments and an upscale restaurant serving ribeye steaks and truffle-infused macaroni and cheese. Further east along Bruckner, more mixed-use buildings with ground-floor retail and renovated apartments predominate on one side of the road while new high-density luxury apartments and office lofts covered in scaffolding occupy the other.  

Murals engage the senses and create the feel of an arts district 
What prompted this change appears to be events that first transpired near the turn of this past century. In 1997, in coordination with the South Bronx Overall Economic Development Corp (SoBro), the City rezoned five blocks between Third Avenue and Brown Place on the north side of Bruckner Blvd, allowing residential and light manufacturing uses in what was at that time underutilized industrial space. This was the City’s first official mixed-use zoning district and it created roughly 185 new residential units and a few loft conversions (including the Estey factory). This also coincided with an investment of $875K for commercial street revitalization, creating new concrete sidewalks and driveways, street lights, trees, planters, and benches. The growth in residential uses coupled with the streetscaping improvements prompted a proliferation in retail shops—many which specialized in antiques. During this period the corridor became known as the South Bronx’s Antiques Row, attracting curious customers from far out of state on their single day sojourns to Manhattan.

One of the remaining antiques retailers in Port Morris
Today many of the antiques retailers have disappeared from the neighborhood. A few still remain and are (in my opinion) a source of immense character. This feels like an important observation because even though Bruckner Blvd is not the same niche retail district it was in the past, it has the feel of an arts/design district of which antiques are still very much a component.

Thinking Forward

Is this underpass a potential opportunity?    
After walking the neighborhood and chatting with the client, several ideas have started gestating in my mind. Is there a way to build a linkage between Bruckner Blvd and 138th Street? One reason for wanting to do so is obvious--creating a singular cohesive retail environment could have strong anchor effects, pulling customers from a larger trade area and prompting longer visitation. Whereas 138th St is a district with many affordable and hyperlocal dining options, Bruckner Blvd feels more like an emerging arts/entertainment district, such that patrons might start with a bite on the former and finish with a gallery visit and a tipple on the latter. Maybe that's ambitious. Its about a ten minute walk between the corridors and virtually absent of any other retail. But that part also feels as though it might speak to one of the concerns of the client. In the middle of the corridors are several public housing residences. Is there a way to build off the initial streetscaping investments on Bruckner years ago to create an attractive walkway that directly serves the local community? If greenscaped well, could it effectively mitigate some of the impacts of traffic and auto exhaust? What about an improved pedestrian pathway under the Major Deegan Expressway? It would provide the link to 138th St while also providing that desirable waterfront access. It may also represent a symbolic entrance into a Port Morris arts district.

There are a lot of questions. There are also a lot of challenges. Most of the land on the immediate waterfront is privately owned and will require at the least some ongoing dialogue with landowners and developers. But it’s a place to start. My immediate next steps will be conducting further investigation. What can existing retailers tell me through focus groups or surveys? Do they think they reside in an arts district? What is a realistic trade area for Bruckner Blvd? Where do customers come from? Are there any BIDs or merchants associations who can assist with future capacity building and the pursuit of streetscaping? 

As this studio progresses, I look forward to having some of my assumptions challenged, finding answers to these many questions, and exploring the ongoing role of retail in Mott Haven and Port Morris.