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. 

What have we learned from the urban big box parking boondoggles of the past?

I realize that two examples don't suggest a trend, but these two examples of underutilized urban parking lots suggest a real problem - that hopefully we are on a path to overcome - in the world of urban retail.

In Columbia Heights, DC, the 1,000 space parking lot adjacent to DC USA, whose anchors include Target and Bed Bath & Beyond, remained empty enough upon opening in 2008 that "the operator typically blocks off one of its two sprawling levels" ["At Columbia Heights Mall, So Much Parking, So Little Needed", Washington Post, 10/09]. The $40 million dollar parking lot was financed with public monies. In 2010, the developer, likely with approval from their tenants, started renting spaces out for daily and monthly use.

Fortunately, we have come a long way since the days when suburban style big box retailers were squeamish about urban locations that violated their parking requirements. At the time that both of these projects were conceived, there were very few examples of big box stores in urban setting, so offering parking was a way for the public sector to mitigate the perceived risk of an untested product for retailers. But the truth is we can't put all the blame on the retailer or developer. It wasn't just the retailers who wanted parking. In many communities development stokes fear that shoppers will troll the neighborhood for parking, creating a residential parking shortage. To make matters worse, antiquated zoning based on suburban parking requirements sometimes require far more parking than might be truly necessary.

In New York, there was a similar situation with East River Plaza ["East River Plaza Parking Still Really, Really Empty, New Research Shows", Streetsblog NYC, 4/12]. The mall, like DC USA, is anchored by Target, as well as Manhattan's first Costco, and opened for business in 2010. According to the New York Times, the parking garage cost $62.4 million to build.

I did a quick analysis of parking ratios for both sites and found that they both come in, on average 2.10 spots per 1,000 SF of retail.

For those familiar with parking ratios, 2 spaces per 1,000 SF of retail might sound insufficient. These days, major suburban shopping centers offer 4 or more parking spaces per 1,000 SF of retail. But to be fair, it is light years from where we have come.  In 1954, the American Society of Planning Officials, the predecessor to today's American Planning Association (APA) published a report on "Site Design, Parking and Zoning for Shopping Centers" that looked at parking ratios for 49 of the nations shopping centers and on average, the parking ratio was 9.2/1,000 sf.

So while we are still learning about what makes sense in urban areas, what we can say is that transit rich communities like Columbia Heights and East Harlem can support retail with much less parking than they currently have. And the public sector could have gotten away with contributing much less in public funds to underutilized parking. Of course, hind sight is 20/20 and we may not have known that at the time, but it's certainly helpful to know for the future.

Commercial District News Round Up

What is Urban Decay? (And Why the Answer Matters)
Very interesting read regarding urban decay, how to define it, the legal battles over fighting urban decay, and how to resolve it.  This story mainly focuses on California and their development of urban decay laws that deal with environmental analysis for proposed projects, typically big box stores.

Image source: www.wifr.com/

Mall-centric no more: Aging suburb targeted for a sweeping makeover
An area in Fairfax, Virginia called Seven Corners, near Arlington, is being considered by city officials for a major overhaul that would include three new residential villages and roads over the next 40 years. The idea is to make a more livable environment, friendly to pedestrians, and oriented to nearby public transportation. The area used to be occupied by a mall, which is a question of our times, "How to retrofit former malls and surroundings to meet today's needs"?

Image source: Fairfax County Office of Community Revitalization

Are Cities Becoming Less Authentic?
In a quest to understand Millennials, Klaus Philipsen discusses the other most desirable attribute that Millennials seek: authenticity.  This desirable authenticity is also disappearing, as he documents, in many major American cities such as Baltimore and with it taking away important historical artifacts. Philipsen notes that in Baltimore this means that historically significant black sites are being replaced by Starbucks, Chipolte etc without sensitivity to the history and authentic fabric of the neighborhood.

Image source: sustainablecitiescollective.com

Detroit relights neighborhoods at blazing pace
The installation of nearly 40,000 LED streetlights, that are both brighter and more energy efficient than the previous lights, is expected to be completed by the end of July, about six months ahead of schedule.  Lights are going up in streets that have not had street lights for two decades in some cases. Statistics are already showing decreased burglaries, larcenies, vehicle theft and other property offenses - 18% decrease from the same time last year.

Image source: lighting-ledlight.com/

Meet the 606: Chicago's New Elevated Bikeway and Park
A time lapse video takes you through the new 606 in Chicago, an elevated bikeway and park similar to the highly popular High-Line in Manhattan.

Image source: www.the606.org

Walmart opening more Neighborhood Markets

February 21, 2014 - Walmart faces sluggish sales and will seek to double the number of smaller new stores planned in the coming year. The retailer has seen sales increase by 5% last quarter at their smaller format stores, called "Neighborhood Markets", compared to falling sales (.4% drop) at their traditional stores. In an announcement, they called this the "next generation of retail". Analysts suggest they are feeling pressure from the success of Family Dollar, which has expanded rapidly in many under served urban markets the past few years. Walmart announced plans to add approximately
270 to 300 small stores this year, double its initial forecast of 120 - 150 stores. They currently operate 346 Neighborhood Markets and 20 Walmart Express stores. The Neighborhood Markets are approximately 38,000 sf (compared to 106,000 sf for traditional Walmart stores). The company is also testing 2,500 sf, college-based convenience retail called "Walmart on Campus".

If you think you have a site for consideration, you must gather and submit the following information:

1. Site Plan
2. Property Boundary Information
3. Aerial Photography (if available)
4. City Map with Property marked on the Map
5. Zoning Information
6. Your contact information

This information can be sent to the appropriate real estate manager for your region.  A territory map of real estate managers can be found by clicking here.

Resource Articles

• "Wal-Mart places big bet on going small, but is it enough?", CNBC
• "Wal-Mart forecast disappoints as grocery business struggles", Reuters

What does kidnapping have to do with retail attraction? Just ask the former Mayor of Pittsburgh

The successful effort to bring Home Depot to East Liberty was a
game changer for Pittsburgh's efforts to revitalize
the then downtrodden neighborhood of East Liberty. 

Last week I served on a two-day ULI/ICSC/HUD roundtable with about 30 of the nation's leading retail developers, retailers, financiers, policy analysts and retail consultants. The goal of the meeting was to develop a set of strategies that ULI and ICSC can act upon to help the commercial real estate industry better address the retail needs of under served markets.

I particularly enjoyed a presentation by the former Mayor of Pittsburgh, Tom Murphy and Mulu Birru, former head of the Pittsburgh Urban Redevelopment Authority (URA). During Mayor Murphy's tenure these two men were at the forefront of an innovative investment strategy that produced outcomes that were nothing short of amazing. Much of Pittsburgh's current Renaissance can be attributed to their work in the late 1990's. My favorite anecdote was a story that Murphy told the group about the City's efforts to turn around the neighborhood of East Liberty.

In 1994, the City of Pittsburgh bought a former Sears site (an abandoned department store on about 7 acres) in East Liberty, a neighborhood that had once been the State of Pennsylvania's third largest retail hub. To that they added an additional 10 to create an 18 acre assemblage. The first question most would ask is, how did a broke City like Pittsburgh get to the money to buy the property? Well, part of what was so innovative about the effort was the creation of a Development Fund, controlled by the URA, of $65 million dollars. The money was raised by siphoning off $6 million in operating funds from the City budget, which was then used to raise bond money for a dedicated acquisition fund. In a City replete with vacant, post-industrial land, this effort was tantamount to turning the City into the prime driver of development. It was a risky maneuver at the time. 

But back to East Liberty. The site the City purchased was strategically positioned and located between two neighborhoods - one the poorest and one the wealthiest in the Pittsburgh region. After some planning and research, the decision was made to pursue Home Depot as an anchor tenant for what was essentially a wholesale strategic repositioning of the district. Like many communities who embark on retail attraction efforts, early outreach to Home Depot was unsuccessful. No one thought the site had potential. Not easily deterred, Murphy called the Mayor of Atlanta where Home Depot is based in search of some intelligence on the owners. The Mayor of Atlanta shared with Murphy that one of the owners, Bernie Marcus, was a philanthropist and very involved in Jewish issues. With that, Murphy hatched a plan. He asked Pittsburgh's Jewish community to invite Marcus to speak. At a reception, Murphy's body guard approached the Home Depot owner and opened his lapel to show his gun, at which point he said, "we're kidnapping you". Murphy then took the owner on a 20-minute tour of East Liberty. Later that night, Marcus committed to building a Home Depot with the City as a partner.Wow. 

Murphy and Birru knew that concessions were going to be required - and those concessions were not insignificant. For every $1 of Home Depot investment there was over a $1 of incentive required. For Home Depot, this was an untested market and they were a first mover who wasn't sure if the project would work. The project was a resounding success, and the store become the highest volume Home Depot in the Pittsburgh region. In addition to real estate taxes, nearly 250 jobs were created and according to Murphy, 80% of employees at Home Depot walked to work. This particular point is important because some of the neighborhoods surrounding Home Depot are quite poor. It's also important to note that future development did not receive the same incentives. In fact, the last project, Bakery Square, received $0 in public monies. Now the area includes a Trader Joe's a Whole Foods and a Target. 

Not every community has a visionary leader like Tom Murphy, someone with a clear vision and a forceful personality to make it happen. But what other lessons can we take from this story?

• The importance of eminent domain to pull together an assemblage. We cannot forget that urban sites are often not large enough to support the kind of retail that is competitive in today's economic environment, so the ability to use a mix of traditional property acquisition with eminent domain is an important and not to be overlooked policy tool. 
• The importance of the Development Fund, which gave Birru the legitimacy to enter into conversations with developers. Without the ability to write a check, he would have had significantly less leverage.
• Let us not forget aggressive salesmanship! While I wouldn't suggest trying to kidnap a senior executive, Murphy knew it would take a national brand to change the perception of the area, and he did whatever was necessary to get to a decision maker and get past the traditional site selection gatekeepers. "Go around the brokers" was something we heard a few times during the round table. 
• The acceptance of risk sharing for early catalytic projects is critical. While inducements over time from the City fell to zero, public funding was critical when the market wasn't working.

For those interested in learning more about what happened in East Liberty, here is a good story from the Wall Street Journal, printed in 2012. "A Neighborhood's Comeback: Part of Pittsburgh Finally Recovers From 1950s Planners; Google Sets Up Office"

Larisa Ortiz is Principal of Larisa Ortiz Associates, Commercial District Advisors.

The "Small Box" Trend Requires Some Rethinking

It's exciting to see more and more news covering what I call the "Big Box to Small Box" trend. ["Big-Box Giants Downsize to Drive Productivity with Smaller, Urban Stores"; Retail Traffic, 3/30]. Clearly retailers are getting over what they once considered major obstacles to investing in urban markets. A 2004 survey by the International Council of Shopping Centers and the Business for Social Responsibility found that 88% of retailers cite 'insufficient concentration of your target customer' as a factor influencing the failure to establish stores in underserved markets. Seven years later, the growing interest in urban markets suggests that many retailers are rethinking this long-standing misperception. We can now add Old Navy, going from 25,000 sf to approximately 10,000 sf, and Sports Authority, going to a 12,000 - 15,000 sf model called S.A. Elite, to our growing list of retailers exploring urban formats.

Yet commercial district managers know that challenges remain. Big box retailers exploring "small box" opportunities in urban markets must overcome concerns that still keep them out of urban markets. As one Walgreen's executive shared with me a few weeks ago, their concern is less about product disappearing through the front door with customers, than about product disappearing through the back door, i.e. with employees at checkout or during shipping. Proper surveillance and inventory control can help to address these issues.

Retailers also have to get used to lack of parking. The ICSC survey found that 83% of retailers are concerned about 'inadequate parking'. Yet, the best locations in dense urban markets are not typically known for easy automobile access or ease of parking. Consider Bed-Stuy in Brooklyn -- the subway stop at the intersection of Nostrand Avenue and Fulton Street sees 12,800 boardings a day in a community whose retail leakage is estimated at $785 million a year. Yet amazingly, there is no national drugstore at this busy intersection.

And we all know that crime still scares away some retailers. 93% of retailers cite crime or the perception of crime as a reason for their decision to steer away from urban markets. This suggests that our jobs as commercial district managers will continue to play a significant role in improving the reality and perception of crime within our districts. Bed-Stuy Gateway Business Improvement District is tackling this challenge directly by establishing a Public Safety and Environmental Control program that identifies hotspots of criminal activity and works closely with law enforcement to develop strategic interventions, as Colvin Grannum, President and CEO of the Bedford-Stuyvesant Restoration Corporation notes in his regular Bed-Stuy Patch column.

As the retailing industry considers urban markets, they have got to realize that many issues related to the shopping environment are completely outside of their control, and that commercial district managers can play a role in maintaining the standards that many of these retailers have come to expect in more controlled shopping environments. Whether this includes managing public safety concerns, maintaining clean streets, or addressing the district vacancy rate, the role of commercial district managers will become increasingly critical to ensuring that the shopping experience inside the store is matched by the shopping experience outside of the store. Some industry experts posit that 30% of a shopper's desire to return to a store is based on what happens outside the store. If this is true, then retailers can ill afford to be lax about addressing the needs and participating in the efforts of their local commercial district management entity.

News and Issues Roundup

Greater Greater Washington explores the pro's and con's of diagonal parking in Washington D.C. ["Diagonal parking: Does this quick fix get us what we want?", Greater Greater Washington, 3/28]

What happens to a commercial district after an earthquake and tsunami? Retailers in the Ginza shopping district in Japan find out. ["Less Appetite for Luxury", NY Times, 3/25]

What does it take to survive in downtown St. Louis? Downtown retailers struggling with storefront sales seem to find opportunity by selling on-line. ["Tough 2 or 3 years for downtown retail", St. Louis Dispatch, 3/13]

How many downtown residents does it take to start attracting retail? Harrisonburg, VA is finding out the hard way... ["What's the Downtown Retail 'Tipping Point?"', Harrisonburg News, 2/1]

Who is on "City" Target's radar for a smaller box store? One community explores what it takes to make Target's short list for it's urban format stores. ["Retail envy: Louisville needs downtown retail, but does Target need a new urban market?", Insider Louisville, 2/1]

Retail Insights: Spring 2011

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

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

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

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

On-Line Spending: Opportunity for Business Districts?

We tend to think of on-line shopping as a threat to most retailers, both big and small. But if we view this challenge through another lens, there are clearly potential opportunities for commercial districts in this trend as well. As more and more customers get comfortable shopping on-line, retailers, in particularly big box retailers, are finding that they have much more real estate than they need. In some cases, they are seeking spaces that are more in-line with the real estate offerings along traditional

 commercial districts (see big box to small box below). But perhaps more significant is the fact that shoppers will begin seeking more from their shopping experience than simply the desire to purchase. Going 'out' shopping is becoming more about the service and the experience - it is both an event and a leisure activity. Successful shopping districts are able to capitalize on this trend by creating an attractive ambience, what we sometimes call the 'third place', those informal gathering spaces that meets our very human desire to socialize and interact with our fellow human beings. Whether that third place is a public gathering space, or the local coffee shop, good district managers can sieze the opportunity to create an attractive alternative to the purely functional shopping experience offered by big box stores and strip shopping centers.

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

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

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

Big Box Retailers Test Small Spaces

A 4,000 sf Staples store in Watertown, MA
located right in heart of the traditional business district.

The buzz towards 'small boxes' continues! A recent Wall Street Journal article ["As Big Boxes Shrink, They Also Rethink", Wall Street Journal] covers the trend among big-box retailers who are shifting to smaller stores, including Best Buy, Staples, and Office Depot, among others. For Commercial District Managers, the implications of this trend are significant. First, the trend towards smaller stores suggests that retailers will be looking for spaces that are more compatible with the kinds of spaces available within traditional commercial districts. For example, Staples is testing a 4,000 sf store in downtown Watertown, MA that carries 1,200 of the typical 8,000 items carried in a larger Staples. For smaller downtown districts with a decent office worker population, this model would be a great fit, allowing businesses and office workers the ability to make convenience purchases for the office. As one reviewer of the Watertown store mentions "I needed an ink cartridge and some paper - and I needed them QUICK" and the Staples store fully met her expectations. A small office supply store is the kind of addition to downtown the tenant mix that make traditional business districts more compelling. The article also mentions that Office Depot is testing a 5,000 sf concept. And the "Best Buy Mobile" concept is even smaller, at 1,420 sf (the average Best Buy is almost 40,000 sf).

There is another long-term trend to take note of here. As we all know, shoppers are choosing to spend more and more of there discretionary income on-line. As a new parent with severe limits on my time, I have to admit I am one of those people. And as I become more comfortable shopping on-line, the more I tend to shop on-line. It's a vicious cycle. As more and more shoppers like myself become comfortable purchasing on-line, it will take alot more to get them to visit a shopping district than it did before. Increasingly, the onus is on us to improve the overall shopping experience. That means ensuring that the district is at the very least clean, safe and attractive and that there are reasons to go to the district besides shopping, including interesting events and activities. These are all things that cannot be easily replicated by an on-line shopping experience - and where traditional business districts will always have an advantage.

"CityTarget" makes plans to open in downtown Chicago

In our on-going coverage of big-box entrants into the urban marketplace, we note that Target recently announced the opening of what they are now calling "CityTarget" at the landmark Sullivan Center in downtown Chicago ["Bull's eye for Target, city", Chicago Tribune] at some point in 2012. This marks the fourth urban format store in the U.S. The urban format is a bit smaller than Target's typical format and will include focused merchandise mix, including apartment basics, clothing and fresh food. The store will offer only 54,000 sf of selling space out of a total 125,000 sf of leased space. As a point of reference, the average Target includes 100,000 sf of sales space out of a total of 135,000 sf of leased space.

The ratio of back-of-house to selling space allows Target to place a greater merchandise selection on the sales floor, but will require more frequent restocking. Let's hope they get this right this time. The last time I walked into the Target in downtown Brooklyn, there were way too many empty shelves.

Target goes 'Urban' and Big Box vs. Small Box

This is a follow-up blog to a previous post on Walmart’s emerging ‘urban strategy’. Target has also announced that it will be focusing its efforts on urban areas, including remodeling existing stores and focusing on smaller format stores more appropriate for urban markets.

How small is small?
Target has indicated plans to introduce a smaller store formats in the range of 60,000 to 100,000 square feet. Compared with its typical format of 125,000 to 180,000 square feet, this is small, but for most urban markets, finding that much square footage can still be a challenge, if not downright impossible. They plan to open the first small-format store in Seattle in 2012 – with plans to expand to at least 10 additional cities, including San Francisco and Baltimore, in the coming years. The stores will continue to carry a smaller selection of everything from fashion to home furnishing, but will focus on daily needs. These new Target stores will also include groceries. Target is rolling out a store within a store concept called “P-Fresh” that offers groceries within a 10,000 – 12,000 sf format.

Will this format work for or against traditional business districts?
Not every business district can support, or wants, a Target in their vicinity. The square footage requirements, not to mention the parking requirements, do not make this concept suitable for most traditional business districts. Where smaller format ‘big box’ stores do work are dense urban areas where parking can be reduced because of high mass transit usage. In New York City, Target has successfully development new stores – very profitable ones at that – where parking is limited and in some cases non-existent. In other markets, this is simply not possible.

Big box or small box on our commercial corridors?
A recent "Livability" survey by the Municipal Art Society found that far from shunning chain stores, most people want a healthy mix of retail in their neighborhoods – including chains stores. Not only that, but they actually prefer chain stores to mom-and-pops when shopping for certain goods, including food and apparel.

But not all chains are alike. Smaller chains, like Dunkin Donuts, Subway, Walgreens Drugstores, etc. are more in keeping and appropriate in traditional commercial districts and often help draw more pedestrian traffic to commercial districts – helping mom-and-pops increase sales as well.

Additional research into commercial districts suggests that there is a marked difference between  the impact of ‘big-box’ chains like Target and ‘small-box’ chains like drugstores on traditional commercial districts. A seminal study of all of Philadelphia commercial districts - completed two years ago by Philadelphia-based Econsult - found that while big box stores do increase trips to the district, they do not always help surrounding businesses grow their retail sales [For more on the study, click here for the Executive Summary]. The study also found that “big-box stores…are moderately harmful for real estate values” and “large-scale national chains are associated with lower retail sales in some circumstances.” It seems that people want to shop at big-box stores, but don’t want to live too close to them. Which means that most urban districts might want to take care before putting out the welcome sign for big-box stores.

On the other hand, small-box stores, and pharmacies in particular, were found to play a positive role on commercial corridors. The study found that “chain pharmacies are beneficial by all measures in a corridor, and are most beneficial when they are in, not near, a mixed corridor. Chain pharmacies …should be seen as an amenity to a neighborhood.”

What is your take on the chain store?

Walmart Seeks Aggressive Growth of Smaller Stores in Urban Markets

More and more retailers are seeing sluggish US growth and beginning to tap opportunities in urban markets - markets that have previously gone underserved. Hold your breath...Walmart is now among them. (Wal-Mart to Aggressively Roll Out Smaller Stores). The national retailer seems to "scouring" urban communities looking for spaces of less than 20,000 sf - a far cry from their typical protype of around 150,000 sf. Their recent small prototype is called "Marketside" and includes a focus on fresh food. According to the article, there are now four of these prototypes and they average 15,000 square feet each. It seems Walmart isn't letting "Fresh and Easy" (a 15,000 sf grocery store developed by British-based Tesco, the third largest retailer in world) get away without a run for its money. Another Walmart prototype called "Neighborhood Market" includes a mix of food, pharmacy, beauty, etc. in about 42,000 square feet.

Watch out for more retailers trying to tap underserved urban markets. This Friday Target plans to detail it's own urban strategy...I'll be sure to keep you updated!