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!

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Speaking Schedule Announcements: Fall 2017

It's shaping up to be a busy speaking season for Larisa Ortiz Associates. Here are some places you can find us in the Fall:

IDA Pre-Conference Workshop: The Future of Physical Retail in the Age of Online

LOA Principal, Larisa Ortiz, will be presenting at this ICSC sponsored pre-conference IDA workshop with  Michael Berne, MJB Consulting and Tony Hernandez, Director & Eaton Chair in Retailing, Centre for the Study of Commercial Activity (CSCA).

This timely session will not only get into the nuances of what is in fact happening in the industry, but also introduce various strategies and interventions that district managers might consider in an effort to help mitigate possible impacts and take advantage of the latent opportunities during the current period of transition. Participants will have an opportunity to share specific challenges they face and receive real-time feedback from peers and instructors.

Sept 13, 2017, 8:30-11 am, Delta Hotels Winnipeg
Conference program + registration.

International Economic Development Council (IEDC) Panel: Optimizing Tenant Mix for Downtown Business Districts

Larisa Ortiz, LOA Principal, will be speaking on a panel with Winnipeg West End BIZ's, Joseph Kornelsen, and Build Toronto's Director of Development, Salima Rawji - moderated by ICSC's Director of Community Relations, Cynthia Stewart. 

They will be discussing how to optimize tenant mix for downtown business districts with practical and actionable steps to better understand how to develop a retail attraction strategy, how to engage retail real estate industry professionals and how to customize a retail attraction strategy to fit the unique challenges associated with different traditional downtown retail environments.

Sept 19, 2017, 4-5 pm, Sheraton Centre Toronto Hotel 
Conference program + registration.

International Making Cities Livable Conference: Making Space for Democracy

LOA Associate, Nur Asri, will be presenting at the 54th International Making Cities Livable Conference in Santa Fe, New Mexico during the conference October 2-6. She will be presenting her paper entitled “Making Space for Democracy,” which introduces a new evaluation tool for assessing public spaces based on political and philosophical tenets of democracy. Nur conducted this research as part of her graduate thesis in City and Regional Planning at Pratt Institute. The study aimed to uncover the state of democracy of Singapore’s public spaces – particularly in relation to migrant workers who have become isolated to parts of the island-state. 

Presentation details + conference registration.

Retail Insights: Does the growth in on-line retailing spell doom for downtown? And what can you do about it?

Last year e-commerce sales hit $343 billion - that is triple the figure it was just ten years ago. Upon hearing this, many cities and towns across the country have started scrambling to address the issue. But like most complicated issues, the challenge from e-commerce is more nuanced than that $343 billion dollar figure suggests. For example, Amazon.com, the largest on-line retailer in the market, comprises a mere 1.4% of all retail sales. And according to a report by Mckinsey & Co., only 35% of Amazon's customers transactions are fulfilled by Amazon itself. That means that the balance, or 65% of all Amazon sales are derived from third party sellers. Another issue with the figures is that they reflect sales from BOTH pure-play Internet retailers AND bricks-and-mortar retailers who are selling on-line. When we dig further, pure-play Internet sales likely represent only about 3% of total sales, according to a report by the International Council of Shopping Centers.

This does not mean that our Main Street businesses are out of the woods. Mckinsey estimates that some retailers will see a decline in in-store sales by 5-7% a year. Others in the industry suggest the impact will be as high as 10-15% of sales. For a small business, really for any business, that is the difference between paying rent and shutting down. Businesses will also face pressure from shoppers who can quickly and easily compare prices - often while they are in the store - and elect to spend their dollars elsewhere if they find a better price. But the cards are not all stacked against smaller merchants. High-touch items (like apparel) and experiential activities (like dining), continue to drive customers to physical stores. And a shopper that is in a store is much more likely to purchase something - even at a slightly higher price point - because the inconvenience and time cost associated with going elsewhere may not be worth it.

So, are customers changing the way they shop? Absolutely. Will there by casualties among brick and mortar retailers who don't keep up? Without a doubt (see Sports Authority and Aeropostale). But the line between virtual and actual stores will become blurrier over time, not more divided. Experts suggest that E-tailers are outgrowing their digital footprint and seeking space in the real world because they know that giving customers the opportunity to see and touch merchandise is critical to sales. Consider Modcloth, a on-line only retailer who recently opened a store in Pioneer Place in Portland, Oregon. Or Fabletics, Blue Nile, Birchbox, Amazon, Bonobos, Warby Parker, Peleton, etc...all of which have opened physical stores. This doesn't always mean they sign long-term leases for traditional retail space - in some cases kiosks or pop-up stores help bridge the gap between an on-line seller and a brick and mortar presence. Amazon, for instance, has set up 16 pop-up shops around the country that allow people to test products and services and has indicated plan to open as many as 400 brick-and-mortar stores. According to GGP CEO Sandeep Mathrani, 60% of venture capital money being raised today is focused on bricks-and-mortar store.

If we can understand why e-tailers are opening bricks and mortar stores, we can begin to understand the opportunities inherent in a physical location. These include higher conversation rates among customers, i.e. the likelihood that someone who walks into your store will buy something. E-tailers  also recognize the power of brand awareness. "Thousands and thousands of customers have discovered us through Nordstrom" Bonobos CEO Andy Dunn told Bloomberg journalists in February, going on to say, "we view is as a way to reach a much more diverse audience much more quickly."

Here are a few others things to be on the look out for as e-commerce changes the way people shop...

Demand for smaller space will rise
Another opportunity is the potential reduction of physical square footage necessary for traditional big-box retailers. Consider Target's aggressive growth of the "CityTarget" brand. Customers can purchase from Target and arrange for store pickup - effectively making the target a fulfillment center/warehouse right in the middle of the commercial district. Consider Target's new store planned for Central Square in Cambridge, MA. It will consist of a mere 21,000 sf of space on two levels (paltry compared to the average target store of 135,000 sf).

Businesses will need to invest in omni-channel sales 
As e-commerce grows, small businesses will need to get in on the action. Businesses looking to participate in the on-line sales game have a few options. In a previous post, we described a few ways in which businesses can sell through established venues (like Etsy or Amazon) as well as a few tools that allow them to create their own websites. BID's and City's can help support the growth on omni-channel selling by providing training and technical assistance to businesses.

Small businesses will begin to incorporate home delivery
Local businesses are already in the community, and with some investment in delivery, can serve as mini-fulfillment centers as well. The benefit is that if something goes wrong, the customer knows precisely where to go and who to talk to to remedy a situation.

An omni-channel sales effort will cannot end with the launch of a website
Putting a website up cannot be the end all be all. Without clever marketing, especially on on-line platforms and social media sites, efforts to sell on-line can fall flat without the right follow through. This is where many businesses falter - they may not have the staff or resources to maintain and build an on-line presence. Many small business owners are just trying to run their business. We posit that this is where a supportive organization - like a BID or Chamber - can be extremely helpful, but pooling together resources and launching marketing campaigns that draw attention to businesses that are selling on-line. They can also enlist local colleges - a business school marketing class, for instance - can be a great opportunity for businesses to get help they need from savvy young people looking for real world experience and the social media know how necessary to build on-line awareness of the website.

Enhance the experience
As we have written about before, (see How can downtown remain competitive in the face of online shopping?) malls are increasingly looking to round out retail offerings with experiential activities - things that, you guessed it, cannot be accomplished on-line.  The Palisades Mall, a super-regional mall outside of New York City has built a ropes course in what used to be an open atrium.

In this time of rapidly evolving shopping habits, small businesses are being challenged. Those that succeed will be the ones that continue to embrace new ways to meet customer needs through high quality service, on-line purchasing options, and an unrivaled in person experience that allows a shopper to touch and feel the merchandise. The goods news is that these are things that our downtown merchants are poised to offer in spades.

On-Line Selling - an Option for Smaller Businesses?

Image source: www.forbes.com/sites/samsungbusiness/2015/02/09/

It wasn't long ago that many predicted the death of the brick-and-mortar store at the hand of the on-line retailer. However, recent research conducted by the International Council of Shopping Centers (ICSC) finds that the relationship between on-line retail and physical stores is becoming more intertwined. In fact, retailers with robust "omni-channel" strategies, i.e. those backed by physical stores in addition to on-line platforms, generated the most on-line sales. As the report points out, physical stores are still central to the whole enterprise, but they are increasingly used in conjunction with other product delivery methods and serve to enhance retailers image in their trade area.

Housingworks, a New York based non-profit that operates a small chain of thrift stores,
has set up a dedicated on-line auction platform. 

Large retailers continue to expand their omni-channel retail presence in a variety of ways including ‘buy online and pick up/return to the store’ features that are increasingly popular. But the ability to omni-channel is no longer limited to deep pocketed big businesses. In this post we explore options available to smaller retailers who want to offer customers multiple ways to buy their goods, including from the comfort of their own homes.

While the decision to sell on-line is one made by the retailer, commercial district practitioners can help their businesses by informing them of their options for selling on-line and helping market and promote those businesses that already have on-line sales platforms.

Option #1: Creating a dedicated website 

While selling on a dedicated website requires a higher investment of time and resources, it can be a worthwhile effort that allows for a greater level of control and branding by the retailer. Below are some of the most popular platforms being used today. 

Wordpress - WordPress is a well-known and very user-friendly platform that allows small businesses to set up a great looking website in a very short time, as well as customize it to suit their needs without detailed programming knowledge. The standard payment option with this is PayPal. Going through PayPal requires a bit of extra effort on the part of the shopper, so those looking to sell quickly could check out plugin options like WooCommerce or Selz at an additional cost.

Wix - is a cloud-based web development platform that allows small businesses to create web sites and mobile sites through the use of online drag and drop tools. Their beautiful templates are customized for a variety of business types (from eating establishment to beauty salons, among many others) which include particular features that are useful for each business type (for example, restaurant templates come with online ordering and reservation options). The platform includes some interesting features such as text and writing help from professional writers for the website content, and the inclusion of video backgrounds in the website.

A nice looking template for a coffee shop website from Wix

Bigcommerce -  is a little different from Wix and Wordpress as it consists of a comprehensive ecommerce solution for small businesses that integrates multiple points of sales (POS). This means that besides creating a website and selling from it, Bigcommerce offers a platform for merchants to also sell through social media (on their Facebook page, on Pinterest, etc.), as well as on their physical stores or in fairs, pop ups or markets. Some interesting features include the analytic reports which give business owners insights of sales trends, and a customer profile section that allows business to learn about their customers and shopping habits.

Square Market -  similarly to Bigcommerce, Square Market consists of a comprehensive ecommerce solution to sell online, which can be through the business own website or with third party e-commerce sites, as well as in physical stores, fairs and markets. The platform is also customized for particular business types and includes beautiful but limited template options. Its analytic reports are a great feature as its ability to integrate inventory control between online and offline sales.

Shopify - is  quickly becoming one of the most popular ecommerce platforms in the market. Similarly to Bigcommerce and Square Market, it consists of a multi-channel commerce platform designed for small and medium-sized businesses. Merchants use the software to design, set up and manage their stores across multiple sales channels, including web, mobile, social media, marketplaces, brick-and-mortar locations and pop-up shops.

Leif is a retail website powered by Shopify

Option #2: Using an Existing Online Platform

On-line marketplaces are popular plug-and-play options with many retailers. Below are some of the most popular options.

Amazon - The most visited on-line marketplace selling products from chain stores and international sellers. Includes bulk-listing and reporting tools and ability to have fulfillment handled by Amazon for an additional cost.

Ebay -  a shopping and online auction that allows businesses to sell a broad variety of goods and services worldwide.  It is the second most visited on-line marketplace after Amazon. In addition to its auction-style sales, the website has expanded to include "Buy It Now" shopping. The website is free to use for buyers, but sellers are charged fees for listing items and again when those items are sold.

Etsy - Another very popular marketplace, Etsy focuses exclusively on handmade products and offers retailers an on-line platform that has significant reach. International sellers allowed. Includes shopping cart and image library.

Etsy's product display offers multiple filters that optimize product search and make navigation extremely easy.

Bonanza -  An increasingly popular marketplace, Bonanza sells new and used products mostly from popular brands. Includes photo-editing tools, image library, batch editor, and more. The website and searching tools are less attractive and user-friendly than the more famous online marketplaces.

Storenvy - An on-line marketplace focused on indie brands. Includes inventory and order tracking, visitor stats, mobile friendly component, and image library. Free to open, but extras, like domain support, promo codes, and more will cost various fees. The website is very user-friendly, but its search filter options are quite limited, which makes finding specific products inconvenient for shoppers.

OpenSky - Another online marketplace focused on indie brands. It includes simple management tools, unlimited product listings, and mobile optimization. Extremely user-friendly with several filters that optimize product search and display.

It is worth noting that these options are not mutually exclusive - businesses can have both a dedicated website and offer their products on Esty, Ebay or any other marketplace seller. Selling in multiple places can open business up to consumers that local merchants may have never reached otherwise. Establishing an on-line presence is also a great marketing strategy and may also help boost foot traffic and sales at physical stores (and in your district).

While the time requirements of running a small business may make it difficult for some merchants to consider selling on-line, commercial district practitioners can play an instrumental role in encouraging and providing information for merchants who might be willing to take the next step. 

Patricia Voltolini, PhD is a Senior Associate at Larisa Ortiz Associates. 

Roundup: "Brick & Mortar is Dead," Right Turns on Red, Local Loyalty, Grocers Disappearing Act, Neon Heaven

Brick & Mortar Is Dead

A short, graphic and infographic heavy, article regarding e-commerce's continued dominance over in-store shopping.  It introduces new terms "showrooming" and "webrooming" - I for one am guilty of showrooming. It also spotlights how brick and mortar stores are taking on new on-line connected purposes and highlights the rise of young global digital buyers.

It’s Time for U.S. Cities to Ban Right Turns on Red

Cars making right turns on red lights are becoming increasingly dangerous to pedestrians. NYC already bans RTOR and other cities are catching on to the policy to reduce unnecessary pedestrian deaths.

How Much Loyalty Do I Owe My Local Shops?

Point and counterpoint by CityLab staff regarding whether we should feel guilty for abandoning your local shop for an equivalent new one. They have good points to both sides.

Map: New York City's Disappearing Grocery Stores

Curbed NY gives you an interactive map of the growing number of NYC grocery stores that have shuttered in the last few years. These closures aare leaving some neighborhoods without an affordable option for groceries—or any option. They point out that many factors have led to these closures and a majority are in Brooklyn.

And in other news...
There’s A Neon Warehouse In London And It Is Basically Heaven
If your district could use the soft cool glow of neon, may we suggest this place.

Landlords start rejecting package delivery. What does this mean for city life?

It seems that apartment dwellers are facing down with landlords in the delivery wars. As Laura Kusisto writes in the Wall Street Journal ("Web-Shopping Deluge Boxes in Landlords", WSJ, 10/20/15), one of the nation's largest apartment operators has stopped accepting deliveries to avoid the complications of managing what have become mini-post offices in their buildings. However, not every landlord is scrapping package acceptance, and the article seems to suggest that the failure of a building to accept packages has a number of tenants riled up enough to move when their lease expires. Yet it is notable - and perhaps an inevitable outcome - that concerns of landlords are occurring at precisely the same time as people are buying more and more on-line.

So how might this trend impact our local commercial districts, particularly in urban areas where most of these apartment dwellers reside? Will limited package delivery encourage residents to purchase certain goods and services at brick-and-mortar stores? For certain specialty goods - the saved time, energy and cost might make the additional hassles of delivery worth it for the consumer. I might, for instance, choose to send a special package to my office and tote it home because finding that particular item in a store might take too much time. But for convenience goods, it is likely that the lack of delivery will have an impact. If you are now required to go to your local Fed Ex store (good luck getting there before it closes!) the inconvenience of that extra trip makes local shopping a little more worthwhile. These days time is money, and the availability and ease of on-line shopping has increasingly made it a viable alternative to the brick-and-mortar store. But if landlords start making delivery hard, the pendulum might just start swinging back in the other direction.