Tuesday, January 2, 2018

Here's what to expect in 2018 and beyond! Our recap of the top nine retail trends poised to change downtown business districts for good

If 2018 is anything like 2017, expect major changes when it comes to downtown retail. While no one has a crystal ball, our work in nearly two dozen communities nationwide has led us to a few trends that we expect to see alot more of in 2018...

#1. Embrace social media, or else
The number one story, of course, is the rapid change in how the American consumer is purchasing and consuming information that leads to purchases. According to the consulting firm Accenture, 78% of people “webroom,” or research online before heading to a store to make a purchase. This online research often includes perusing customer review sites such as Yelp or Tripadvisor and Instagram posts by various brands, retailers and ‘influencers’.

However the purchasing journeys in some retail categories are more highly influenced by digital marketing than others. Social media channels such as Instagram, Facebook, and Pinterest continue to introduce new call-to-action features like “Shop Now” buttons for products and “Sign Up” buttons for services. Social media will not only become an important marketing tool but also sales platform for retailers.

While retailers need to build partnerships and creative collaborations with social media ‘influencers’ to achieve greater brand authenticity and trust among consumers, commercial district managers on the other hand need to implement district-wide social media strategies on behalf of the downtown as a whole. Social media accounts owned and managed by BIDs, merchants associations, or chambers of commerce should also aim to highlight various activities taking place downtown in order to further drive visitation to the area.

One of the more recent social media tools that is being adopted by downtowns across the country is a Snapchat geofilter. Snapchat geofilters are special graphic overlays (or digital stickers) for photos taken on the Snapchat app. Downtown Snapchat filters typically feature a downtown logo or graphics of downtown landmarks, and only appear on the Snapchat app when a visitor opens it whilst they are downtown. Snapchat charges $5 per 20,000 square feet of ‘Geofence’ (i.e. geographic area determined as the downtown). Times Square Alliance in New York City, for example, has its own Snapchat filter that has been widely used by local residents and workers, as well as visitors.

#2. It's all about the "experience"
Consumers are starting to spend less on products and more on experiences and service-based retail. A Holiday Shopping Habits 2016 Survey by the Rubicon Project found that experience-related purchases were the top spending category for consumers in the 2016 holiday season.

Service-based or experiential retail involves in-person interactions and thus are best transacted at physical locations versus online. Many traditional retailers in various categories are quickly adapting their existing store formats to offer personalized services and hands-on, memorable activities and we expect to see some more of this across retail categories. 

Downtown organizations can support retailers’ efforts by supporting experiential activities in downtown public space, while also advocating for and marketing in-store events and activities through newsletters and social media. Downtown Morganton, NC, for example, has a robust and widely-subscribed weekly newsletter “D4U” that is populated with activities organized by individual stores downtown.

#3. Next stop for micro-manufacturing? Downtown. 
As cities continue to face rising retail vacancy rates, more ground floor spaces are left underutilized in core downtown areas. Pop-up retail concepts may be a temporary solution but micro manufacturing might just be the longer-term downtown use that can replace these empty storefronts.

Micro-manufacturing, or small-scale manufacturing, is characterized by artisan goods produced in small quantities using small hand tools or light machinery so cities need not worry so much about nuisance such as noise and noxious by-products. Since many of these micro manufacturers don’t require large floor plates to carry out production, they are extremely viable tenants for the many small- to mid-sized vacant storefronts that plague our main streets, provided zoning is made flexible enough to support these uses without having to apply for variances.

In addition to filling vacant ground floor retail spaces, micro manufacturing can increase supply of locally-made goods and services (thereby increasing a city’s ‘Shop Local’ brand), increase sales tax revenues, and provide inclusive and well-paid employment for downtown residents. Therefore, cities and downtown district managers need to show strong support for micro manufacturers by matching them with available ground floor space, providing legal and financial support to acquire such spaces (including maneuvering zoning variances etc.), and collectively marketing the locally-made products.

The Made in Baltimore Campaign was funded by a grant by the US Economic Development Administration and has led to the creation of a seal that is given to all members to use on products, packaging and promotional materials, and also led to the creation of events celebrating the culture of manufacturing in Baltimore, MD.

#4. Retailers will need to embrace omni-channel selling
Omni-channel selling is the marriage of the brick-and-mortar storefront with digital channels that include mobile apps, online marketplaces, and a bevy of other tech-assisted resources.

The story of omni-channel retail parallels the meteoric rise of e-commerce that we’ve seen over the last decade.  In that sense, the concept itself is not new. But the degree of sophistication and the improved efficiency in creating that seamless shopping experience have continued to evolve such that it remains at the forefront of any current conversation regarding best practices. The term can feel rather ubiquitous and carry broad application. Indeed, for brick-and-mortars early on, omni-channel selling was as simple as creating a consumer-facing website or electing to also sell your wares via an online marketplace like Ebay or Etsy. However, today we see omni-channel refer to the monitoring of customer internet searches and tracking of purchasing habits to assist in curating a more targeted physical inventory, determining optimal site selection for a store, or spurring the exploration of new innovative store formats that carry no inventory at all, instead functioning solely as high-touch showrooms where shoppers purchase online for later pickup.  
This is important to understand because it demonstrates that this notion of the “retail apocalypse” is a misnomer, in the sense that national retail sales have continued to grow year over year. But e-commerce sales continue to capture a stronger share, up to 9.1% for Q3 of 2017 according to the US Census.[1] More purchases are being made in different channels from where the customer experience started—meaning that whereas the customer may have visited a brick-and-mortar first, they may elect to make the final purchase online later (or vice versa). Omni-channel represents what the customer most often wants, and (increasingly) what yields the best overall financial results.[2] Therein lies the lesson for district managers, as they field questions from concerned retail tenants pointing to the threat of Amazon to their bottom line. As Macy’s and Toys-R-Us shutter stores, Warby Parker and Bonobos are opening more up precisely because they’ve learned the sum of the physical and digital is greater than the parts.    

#5. Are we seeing the beginning or the end of the food hall? 
Food halls are spaces that attempt to marry the traditional food court with the public market. They are heavily-curated culinary spaces that are typically located in urban, mixed-use areas and can be opportunities to offer tenants trying to break into the culinary scene an affordable alternative with smaller, less expensive spaces and flexible leases.

In 2015 there were 70 food halls in the US across 1.9 million sf compared to to over 130 food halls last year across 3.1 million sf. Needless to say, the food hall scene has grown rapidly and New York City alone accounts for more than 25.4% of the total number of US food hall projects. The factors that led to this rise in food halls were the rise in restaurant rents of major cities and the emergence of the ‘foodie’ culture. As long as both factors persist, food halls might continue to proliferate across the country and downtown organizations will need to work strategically with property owners to locate destinations in core retail areas in order to draw even more visitors to the area. Depending on local demand and interest in food entrepreneurship, food halls downtown may vary in size from 10,000 sf – 50,000 sf. Downtown food halls can also be catalytic projects that transform and revitalize historic buildings that have fallen into disrepair. The Pizitz Food Hall in Birmingham, Alabama is the most recent example of this. 
On the other hand, New York City and other major metropolitan areas that have already seen their fair share of food halls, might stand to hit saturation point in 2018. The ‘foodie’ looking for authenticity and unique food offerings will start to notice that Gotham West Market, UrbanSpace Vanderbilt, and Dekalb Market Food Hall all have the same sleek, industrial interior and concrete floors, with more or less the same mix of food offerings – burgers, tacos, Asian noodles, donuts and ice cream. So much for authentic culinary experiences!

#6. Pop-up brokers will make it easier to fill vacant retail spaces
Pop-up brokers are firms that specialize in temporarily filling vacant retail spaces, functioning as the liaison between prospective tenants and landlords, often offering a menu of additional services to aid in the transaction and roll-out. These services can include assistance with brand activation and marketing for the tenant, provision of liability insurance for the landlord, and on-site security during special events. These agreements are typically accomplished through short-term licensing deals which make it easier for the landlord and tenant to do business while keeping terms flexible enough they won’t prevent the landlord from bringing in a long-term tenant should the opportunity present itself.[3]   

Pop-up tenants themselves come in many different forms. They might be an e-commerce retailer looking to transition into a brick-and-mortar concept in order to explore omni-channel strategies, the scrappy young start-up looking to test their product in the market, or even a well-established company looking for a short term venue for an experiential marketing campaign.

The overall allure of pop-up brokers has been their role as a stop-gap measure to address softening in the market for retail real estate. Whether spaces remain vacant due to online competition or high rents, pop-up brokers effectively capitalize the asset in the interim. For commercial district stewards, this helps avoid issues with “missing teeth” that disrupt the continuity of active street level building frontages—something critical for ensuring that customers shop longer, and cross-shop between stores. For that reason, these brokers may be valuable allies, at least within larger urban markets where they appear to predominate presently. But it’s not unreasonable to theorize that these brokers may have a larger role to play in the future as we continue to see an emphasis on more experiential retail concepts, shrinking retail floor plates, growth in co-retailing, and the overall churn of the market. 

#7. Small is beautiful. Shrinking retail footprints mean more opportunities for downtown
Increasingly retailers like Target and Walmart have been experimenting with smaller building footprints and a narrower selection of products on their shelves. This may not be a bad thing. Many have pointed out that the American market is overbuilt with more than 25 square feet of retail space compared to 2.5 square feet in Europe.[4]

But for other retailers, it’s important to understand the tendency to shrink should be tempered with the additional understanding that brick-and-mortars are necessary to maintain exposure with customers. Steve Dennis, contributing writer at Forbes, is quick to assert that shrinking is not an “automatic gateway to better performance.”[5]  Storefronts are still the place where experiential moments occur. While books, music, and some select apparel may be more conducive to a predominantly on-line sales format, other high-touch categories are going to still need stores to act as showrooms, demo spaces, and advertising opportunities (i.e. billboarding).
The point here is that closing a store is distinctly different from shrinking a store in that the former signals retreat while the latter can serve as a strategy to explore experiential retail, omni-channel selling strategies, and access to growing urban markets. Done correctly, it can convey such advantages as a reduction in the number returns, lower staff turnover, reduced shrinkage, and (of course) lower rents. Pioneers like Target and Nordstrom are testing the waters at present, and it is likely that as they uncover best practices they will prompt emulation from their peers in the years to come.

#8. Expect an aging population to alter downtown investment priorities
As the Baby Boomers age, expect a heightened emphasis on making sure that downtown retailers - and the downtown environment as a whole - meets their needs. This demographic may be slowing down their spending, but they continue to be the most familiar and comfortable with in-store shopping and their sheer size in numbers means that boomer spending will drive retailer decision making for quite some time. Expect downtown managers to be more mindful of the physical environment, advocating for improvements that make downtown more comfortable for an aging demographic. More care will also be taken with the maintenance of sidewalks to keep surfaces even and easy to walk on, as well as larger, more visible signs that are easier to spot and read. This group will continue to spend on leisure-related categories, home improvement and staples, but will start pulling back their spending on apparel, footwear, home furnishing and casual dining.

#9. Goodbye to downtown parking minimums (we hope)
Though by no means a wide scale movement yet, we have been seeing more and more cities embracing changes in their parking requirements, notably the removal of minimum parking requirements. Cities from Buffalo, NY to Hartford, CT to Santa Monica, CA are among the latest cities to bid farewell to parking minimums.  This means that new development is not required to include any parking (though developers in some communities may elect to include parking if they so choose).  The problem with parking requirements is that they are often ill conceived efforts to supply more parking than is necessary – and often undermine the very density and quality pedestrian environment necessary to support viable transit alternatives that make car ownership less appealing. Parking minimums create a self-reinforcing loop, resulting in places where car ownership is required for a comfortable existence. 

When parking minimums have been removed, the impact on downtowns has been shown to be tremendous.  The change in policy often releases a pent up demand for development of housing product that would not have otherwise been built. And where there is housing, there is retail. In Los Angeles, where an adaptive reuse overlay in downtown stripped the parking requirement from older buildings. It unleashed a flood of development that resulted in the adaptive reuse of historic buildings for housing, which in turn has led to growing demand for retail that is being met by businesses new and old. 

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