The Store-for-Hire Model

Source: Instagram (@thisisstory)

Nur Asri is an Associate at Larisa Ortiz Associates

As preferences shift and consumers continue to demand experiences in retail stores, the store-for-hire concept has become an incredibly popular strategy to keep brick-and-mortar stores exciting and refreshing. These stores change products and experiences constantly so that consumers are able to visit often without getting bored of the store and its offerings. But how do these pop-up-esque stores operate and how can you create one in your downtown? Let’s take a closer look at two of New York City’s most innovative stores- for- hire – Bulletin and Story.

With vacancy in downtown environments rising from the impact of e-commerce and rent speculation, get creative and put in-store spaces up for hire. Stores-for-hire can be a great way to regenerate interest in your downtown, especially among local entrepreneurs and makers who are still digitally-native and who can yet afford leasing an entire storefront all by themselves.

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. 

Will Amazon Prime Restaurant kill the dining industry?

In 2015, Amazon started its slow roll out of Amazon Prime Restaurant in Seattle. Its food delivery service is unlike that of startup giants such as Grubhub and UberEats. The service has since quickly spread across a few markets including Dallas, San Francisco, Los Angeles, Chicago, San Diego, Austin, Atlanta, Miami, Baltimore, Portland, and of course New York City.

If you’re an Amazon Prime member in any one of these markets (and it’s highly likely you are since Consumer Intelligence Research Partners estimated over 63 million Prime members in 2016), then 1-hour food delivery service is available to you with no delivery fee.

Furthermore, Amazon Prime Restaurants boasts only the best, quality local restaurants on its platform and claims to be assisting small businesses that have never entered home delivery services to finally enter the online delivery market. I was surprised myself when I finally opened Amazon Prime Restaurant on my couch last night and found Aita Trattoria on the list of restaurants delivering to my address. Aita’s is a local Italian restaurant in Clinton Hill, Brooklyn widely known for fresh, seasonal ingredients – which makes it quite the neighborhood dinner destination. I’ve lived in Brooklyn for almost four years now and have never been able to get a table without waiting 40 minutes so to find out that I can simply just click a button to order their delicious bucatini and wait in the comforts of my home was simply astounding. Furthermore, once an order has been placed, a nifty little feature on Amazon Restaurants allows you to track your delivery on a real time map so you’re not waiting cluelessly on your couch.

This discovery, while exciting, also led to me to worry around what this latest proliferation of Amazon’s services might do to the foot traffic in commercial corridors, and consequently the dining industry. Especially restaurants in neighborhood commercial corridors that mainly rely on local residents to eat out on weekends and weekday nights. After all, many of today’s commercial districts continue to be anchored by food and drinking places. Amazon, without even accounting for Amazon Restaurants and its sales, has already led to some decline in overall foot traffic. In fact, foot traffic fell by 32 percent among users of the Amazon App according to research firm Sense360, who also claim it’s been two full years since restaurants could report a decent traffic month.

Sure, restaurants still make up 15 percent of all retail sales and the expenditure data shows that U.S. consumers are spending more on dining in restaurants than on buying groceries but how much of these sales are actually made in person at the restaurant versus made online on the couch via Grubhub or Ubereats or Amazon Restaurants? Also, if the National Restaurant Association surveys are right and 8 in 10 consumers are dining out due to perceptions of convenience from not having to cook or clean up, then ordering more food online to be delivered within an hour to our doorstep would certainly fit the convenience criteria – especially if friends and family already live nearby and if the weather is bad outside. (I was certainly not going out to dinner last Saturday while the summer storms were in full swing.)

The proliferation of online delivery services for restaurants also means that the industry’s profit margins are getting smaller and smaller. As it is, real estate, labor and taxes already make up some of the largest share of operating a restaurant. Now, businesses will also have to worry about being charged by Amazon to deliver their food to stay-at-home customers. As Amazon has pledged not to mark up the cost of menu items, it is instead shifting the burden to restaurants in the form of an undisclosed percent charge of each order. Of course we already knew this – Grubhub, Postmates and Seamless all charge restaurants roughly 12-24 percent of checks to use their delivery services, however, Amazon is reportedly taking 27.5 percent of checks from partnered restaurants.

So while Amazon aims to keep the gap between diners’ cost of buying groceries and ‘restaurant dining’ minimal, small restaurants and eateries will bear the brunt of the costs with smaller profit margins and fewer people walking into their establishments and their neighbors’.

Food Glorious Food

Last week, my dad came into town and I managed to grab dinner with him in the Flatiron District. After dinner, however, my dad was craving cappuccino. But by 8:30pm all of my usual coffee spots were closed and I was at a lost. I did a quick search for something other than Starbucks in the area and chanced upon a Toby's Estate Coffee & Espresso on google maps, around the corner from where we were.

When we got to Toby's, we realized the cafe was part of an even larger retail concept which included an outpost of Strand Bookstore and Club Monaco. I can drink coffee, read a book and buy a dress- the full experience! As retailers continue to modify and adapt their store formats (especially in urban areas) to offer more than just products, food and drinks are fast becoming the go-to formula to introduce a unique experience to customers. By outsourcing these types of services to other businesses, as in the case of Toby's, retailers are also sharing rent burdens.

Last week, Fung Global Retail and Technology wrote a cool article summarizing the different types of food services found in many of London's stores. From cafes to sushi bars in Topshop and Selfridges, I decided to look for the New York equivalents and here are a few popular examples of food experiences in traditional store formats:

In the UK, food service has been shown to play an effective role in encouraging shoppers to “stay longer, spend longer”. Brits who eat during a shopping visit dwell on average 27 minutes longer, and spend 18% more per visit, according to property management firm JLL. In London—where many shoppers are more affluent and the choice of casual dining is countless—stores that offer foodservice can see shoppers dwell only 10% longer, but spend 38% more on average, according to Intelligent Business Systems.

If the same effects were to apply here in the US, retailers searching for ways to drive sales might be well off finding a food and beverage concept that aligns closely with the existing brand and products in-store. 

Beauty Store Survival in the E-Commerce Age

The beauty store is proving that, for some retail categories, shopping in-store remains very much a social experience. Around the country, beauty stores are transitioning into places that inform, educate, and entertain, according to founders of Bluemercury, a leading luxury beauty retailer.

Beauty stores are also quickly responding to the changing habits of their consumers who crave convenience and rapid service. Bluemercury, for example, is often located in an urban and dense location, probably next to a Starbucks, so that the busy mom or working professional can easily grab coffee and then grab lipstick in one seamless trip.

Today, overall spending on makeup and beauty supply is being boosted by an influx of new brands and products creating more dollars to go around amongst retailers. In fact, spending on beauty and personal care is growing more quickly globally compared to spending on apparel and footwear, according to market research firm Euromonitor International. This may be attributable to the fact that the beauty industry also has the added benefit of not being a seasonal industry, which keeps prices relatively consistent throughout the year. Although shades of make-up change by season, products remain the same and things like facial wash and shampoo remain the same throughout the year. This is antithetical to the season-dependent clothing and accessories category.

The $80-billion-a-year U.S. beauty industry has been growing 4% annually since 2010—much faster than other areas of retail – and Hispanic and African-American women are making up a large share of this market.

How are beauty retailers reinventing to survive this e-commerce era?

Leverage social media

Fortunately, beauty consumers are also discovering new make-up looks online as they do with clothing and accessories. Many beauty retailers are getting a boost from the rise of the selfie as consumers are referring to looks they see on Instagram, Snapchat or Pinterest as inspiration for product purchases. According to Shelley Haus, vice president of brand marketing at Ulta Beauty, “Social media is shaping consumer behavior… Scrolling through Instagram, the pictures and videos bring things to life in a way that’s super absorbable.”

Sephora has even sponsored Snapchat filters that create instant makeovers to the subject in the photo. This makes the product relatable and appealing to users. Sephora also targets its Snapchat filters at specific locations within proximity of a store so that in can help capture foot traffic. Customers who may not realize they’re near a Sephora store then become aware when they turn the geofilter on.

Maintain brand exclusivity

In an age where everyone assumes they can buy almost anything on Amazon, it seems almost impossible for retailers to keep up with online Amazon sales. Ulta Beauty and Sephora, however, have managed to keep the e-commerce giant Amazon at bay by maintaining brand exclusivity. Many higher-end makeup companies distributing their products through Ulta or Sephora have little product overlap with Amazon ensuring that customers must often make purchases off of the Amazon site, according to the analytics firm L2.

This cooperation/ partnership with higher end brands is also being strengthened across all channels through combined ‘prestige brand boutiques’ whose sales rose 7% last year, according to NPD Group.

Provide satisfying in-store experience

Most importantly, beauty stores are continuing to expand beauty and makeover services provided so that customers continue to shop in-store. First and foremost, beauty stores are providing places to play with special vanity lighting and make up testing stations. This is especially important to customers who are buying a product for the first time and wish to test and sample products. Makeup shades, for example, may appear differently on screen than on the face.

More and more, beauty stores are also providing a wider range of services including full-service salons and in-store brow bars. This allows customers to learn the latest makeup application techniques that may be harder to do/ more time consuming to do online. Ulta, for example, does not charge for makeup consultations while Sephora holds free make-up classes throughout the year.

Here's more on the top three beauty stores expanding throughout the country, read on and find out what they have to offer and what they're looking for!

1.    Ulta

Description: All-inclusive stores carry over 20,000 products from over 500 brands – everything from mass-market brands to high-end cosmetics, all in a format that lets customers try before they buy

In-store services: Beauty services include nails, waxing, blowouts (Ulta launched Drybar in 400 of its stores in 2016) and salon services include facial, hair, make-up

Ulta also maintains loyalty through a successful shopper-rewards program, Ultamate. It is one of the nation’s biggest loyalty programs, with 20.6 million members—and members account for an astounding 80% of its sales.

Growth: Same-store sales rose 14.3 % for the latest period while digital sales grew 71 % in the first quarter of 2017, to $104.3 million from $61 million. Strong online sales are largely incremental to its brick-and-mortar business, with 8.6% of loyalty members now shopping across all channels

E-commerce strategies: Paid search, display advertising, paid social

Current Locations: Ulta is widely- known as the ‘strip mall secret’. Ulta’s preferred neighbors were retailers like T.J. Maxx and Target—because of the middle-class shoppers they attract. In NYC, Ulta Beauty can also be found in regional shopping centers such as Rego Center and The Shops at Atlas Park. However, its fourth store is due to open in the more urban setting of Upper East Side as it changes its co-tenancy strategy toward Trader Joe’s and Whole Foods.

Customers: Millennials, Gen X and particularly, Latinos. Customer dwell time is estimated to be at least 15 minutes per visit.

Expansion Plans: Looking to expand from 1,400 to 1,700 locations across the US, or 100 per year.

Site Requirements: 12,000 SF (10% taken up by salon stations)

2.    Sephora

In-store services: Other than the typical beauty and salon services, Sephora stores also boast high tech features like iPad stations that offer beauty classes and virtual makeup try-ons

Omni-channel game: Launched the ability for customers to purchase Sephora online and pick up their order at a J.C. Penney store the same day, planning to introduce a new online feature that will enable customers to book a makeover with a Sephora beauty consultant.

Customers: Urban,  high-end

Site Requirements: 1,500 -2,600 SF (or up to 5,000SF)

Expansion Plans: Sephora inside J.C. Penney began in 2006 and after this expansion the company's makeup, fragrances, skin and haircare brands will be available in almost 650 J.C. Penney stores in 2017.

3.    Bluemercury

Description: Upscale, neighborhood alternative to department store beauty stands. Its focus lies in offering products with natural ingredients.

In-store service: Spa services include skincare treatments, esthetic treatments, and body care treatments. Bluemercury is also known to invest heavily in knowledgeable service staff. Employees develop expert product knowledge and are offered benefits for longer-term employment.

Current Locations: Dense urban areas, customers live within 5-mile radius/ 15 minute drive in the case of suburbs, co-location with take-out and fast-casual eateries and cafés

Customers: Broad array of customers – “50 percent of customers are coming for a solution to a problem or a product with a specific attribute.” However, product prices vary from mid to high and may appeal more to younger professional woman. Customer is also looking for a more relaxed environment than Ulta or Sephora

Site Requirements: 2,500 SF

Expansion Plans: Currently has 140 stores in the U.S., with 3 new stores opening every week – looking to expand up to 24 more bluemercury stores in 2016 and 18 bluemercury shops within Macy’s stores

The Future of Retail Panel – LOA Takeaways

This morning I had the pleasure to attend a panel of retail and real estate experts organized by the Commercial Observer here in New York City on the future of retail.  Panelists included Gene Spiegelman, Vice Chairman of Retail Services for Cushman and Wakefield, Isaac Chera, Principal of Crown Acquisitions, Susan Fine, Principal of Oases RE and Ryan Engel, Director of Business Development and Real Estate for Peloton. Below are our main takeaways:

How much is e-commerce affecting retail?

• E-commerce has continued to capture a growing share to total retail sales (it has expanded from less than 5% in 2009 to over 10% last year).
• The continuous growth of e-commerce has affected real demand for retail space. Thus, as retail rents were rising in past few years, demand for retail space was decreasing due in part to increasing online sales. Supply and demand for space are not following the typical curve due to new technological disruptions on how people shop.
• Retailers that are in trouble now were already in trouble before; e-commerce is just accelerating that process (e.g. Macys, Sears)
• In this context, an increasing number of retailers are seeing retail space (bricks and mortar) as a showroom and marketing platform where customers can try and interact with the products and brand and then order online.  Strong concepts like Apple Store, Bonobos, Warby Parker and Peloton illustrate the trend.
• Also, in this current retail landscape we tend to see the number of service businesses go up (personal care, food and dining) and leases for retail businesses tend to get shorter

Will retail rents go down?

• There is a lot of space in the market now and since demand for space is not following the typical supply and demand curve, rents will likely go down in a few areas; in NYC this will happen in SoHo, the Meatpacking District and some sections of Madison Avenue. Overall, according to panelists, rents will remain flat for a few years.
• Despite higher vacancy rates panelists are “cautiously optimist”.  According to them, the online trend is not sustainable: “there’s only so much UPS and delivery traffic the City can accommodate”… “Stores are still the best way to distribute to the customer”.

What’s next for retailers? What are the next trends?

• Despite growing of e-commerce, a number of existing retailers are quickly adapting and many interesting retail concepts emerging (as mentioned above, Apple, Bonobos, Warby Parker and Peloton).
• Panelists expect to see more online companies (large and small) opening bricks and mortar locations, especially in short term leases, pop-ups, etc.
• The stores that are (and will continue to) succeed have a strong focus on providing not only strong products, but an incredible service. For example, Starbucks has over 700 stores in Manhattan alone and their service accounts for a large portion of that success.
• Retail experience will be increasingly curated to each individual customer. For example, the new Amazon bookstores resemble a traditional bookstore, but uses online data to suggest additional books based on customers shopping and browsing histories.
• Big data is the next ‘thing’; increasingly retailers are using it to connect to consumers and personalize offerings. Panelists observed the retail industry is doing a better job at capturing and using big data than real estate: “there’s so much data out there and we haven’t figured out how to put it together yet”.

Retail Incubator Models and Downtown Revitalization: Understanding the Options

Many corridors across the country struggle to retain and attract viable retailers. In the same way, establishing a retail business in a downtown corridor is a capital and knowledge intensive endeavor. This post introduces different retail incubator models and explores how they can bridge the gap between empty storefronts and aspiring entrepreneurs.

Retail incubators are a specialized type of business incubator. Just as business incubators nurture the development of new businesses (tech, manufacturing, etc.), retail incubators provide critical assistance to retailers in their early start-up phase. This assistance encompasses multiple aspects of opening and running a business that range from coaching, access to capital and physical space to marketing and networking connections. A key aspect of a retail incubators that many groups excited with the concept fail to grasp is that an incubator is not simply a building with many stores, but it is a program of targeted services. In fact, retail incubators can be of various types and structures, including space-based models and program-based models.

Space-based retail incubators allow retailers to occupy small spaces within a larger facility that shares a number of services (think of the typical flea-market) at reduced rents. In this model vendors benefit from the proximity to other vendors (potential for increased foot traffic) as well as shared cost of typical operating expenses (utilities, etc). Also, the close proximity to other vendors allows the exchange of ideas and lessons among them and thus boosting collective learning and innovation. In this model, however, technical assistance to individual businesses is not the emphasis since space-based incubator facilities tend to house a mix of new and established retailers.

In fact,this type of retail incubator has been often established by property owners and developers to fill vacancies with innovative and creative retailers and generate interest in these properties and even in the neighborhoods they are located. For example, Shops @ MoDiv, a collection of tiny spaces housed in a historical building in downtown Grand Rapids was created Rockford Construction with the intent to incubate businesses that once established in the downtown facility will want to stay in the area and generate additional demand for other retail spaces downtown.

Shops @ MoDiv, a space-based retail incubator in downtown Grand Rapids, MI

Rockford Construction decided to experiment with the retail incubator concept when the developer could not attract tenants to fill the first floor of a historic downtown building during the 2008 recession.  Modeled after successful retail incubators in Ann Arbor and Portland, the developed created Shops @ MoDiv to be an innovative and flexible space mixing both start-ups and established retailers in an open and integrated floor-plan. The incubator contains ten retail spaces ranging from 100 to 1,000 square feet and leases range from six-months to five years. Tenants include boutiques, an apothecary that sells remedies and spices, artists selling their work, a bakery, and even a brewery.

It is important to note that for a real estate developer to build small spaces that require multiple tenants can be risky and not worth their investment, especially when compared to building a typical commercial building for a few tenants. In fact, Shops @ MoDiv were originated due to the lack of traditional larger tenants to lease the space. This is where a developer can potentially partner with a reliable public or nonprofit entity to take the lease and handle the work of filling all the incubator spaces. Such a partnership can mitigate the risks to the developer and help to activate the streetscape in the corridor while helping small businesses to get the exposure and experience needed to get established.

Another type of retail incubator is the program-based model. In this model, businesses are incubated in their permanent location rather than in a smaller space in a shared venue where it will outgrow. Thus, a key component here is that businesses are incubated to be able to stay where they were established. The rationale is that the location of a business is a key component of its success and that incubating a businesses at its permanent location right from the start-up phase will give new entrepreneurs a stronger understanding of the location, its local customer base and neighborhood dynamics and as a consequence enhance the business ties to the community and increase its chances of success.

A well-known example the Downtown Kalamazoo Inc. (DKI) Retail Incubation Program. Established in 2009 when downtown Kalamazoo, MI struggled to attract retailers, DKI spearheaded its creation enabled by a state legislation that allowed local Downtown Development Authorities to create, operate and fund retail businesses incubators. The program is managed by DKI’s Business Recruitment and Retention Committee and provide the following support to retail start-ups willing to open downtown:

• Eighteen months of subsidized rent, incrementally reduced from a maximum of 50% or up to $830 monthly
• Training in Merchandise Managements, Marketing, Human Resources, Financial Management and Customer Service
•  Mentoring from a successful downtown business

In exchange, the program required participants the following:

•   Attend all the training sessions
•  Hire a bookkeeper or CPA approved by the program
• Provide sales, inventory and expense information to allow tracking of success
•  Keep the business open for 6 days a week or 50 hours a week

In four years the street-level vacancy rate in Kalamzoo’s downtown dropped from 20 to 2 percent. As the program filled key locations with new retail concepts, business attitudes towards downtown changed. In fact, similar programs followed suit throughout the country and are still active today, primarily led by downtown organizations focused improving downtowns’ vibrancy and overall business environment.

Regardless of the model, a retail incubator can never completely eliminate the challenges of operating a business. Many stores open and many will close. There is not a single blueprint for downtown revitalization. But for corridors struggling to attract established retailers like national chains, the retail incubator model might be an option to bring vibrancy and economic activity to the area while providing opportunity for local entrepreneurs who already understand the characteristics and demand of the local market. As with any downtown revitalization initiative, having an organization with the capacity and commitment to lead the effort is a priority.

For further information and resources on business and retail incubators, check out the National Business Incubation Association (NBIA) website.


References:

National Business Incubation Association, Tips for Developers, www.2.nbia.org/resource_library/tips_dev.index.php

University of North Carolina Community and Economic Development Program Blog, Retail Incubators and Main Street Revitalization, ced.sog.unc.edu/retail-incubators-and-main-street-revitalization, August 2016

Downtown Idea Exchange, First store opens under retail incubation program enabled by state legislation, www.DowntownDevelopment.com, 2013

The Food Hall Revolution

The retail industry has seen its fair share of trends and advancements this past year – ecommerce is up and millennials are driving experiential shopping. However, one that has inescapably stood out has been the development of food hubs and food halls all across the country. In fact, earlier in 2016, UrbanLand predicted that food was to be the ‘anchor of retail developments’ based on the rising proportion of store growth being attributed to restaurants. From Detroit to Irvine, cities and developers are catching onto the culinary-oriented developments in their own unique ways but are these places simply sexier, marketable versions of the traditional food courts? Let’s find out what constitutes food hubs and food halls and what impacts they are having on economic revitalization and food access.

Marketplaces have been a key economic, cultural, and social component of villages, towns, and cities for thousands of years and food, particularly fresh produce, has always been a vital commodity for trading at these markets. A food hub, as defined by the National Food Hub Collaboration and Michigan State University, is a “business or organization that actively manages the aggregation, distribution, and marketing of source- identified food products primarily from local and regional producers”. By doing so, food hubs bridge the gap between food producers and consumers and satisfy wholesale, retail, and institutional demand all under one roof much like traditional marketplaces. Today, many fresh food producers lack the capacity and financial resources to access these markets on their own so food hubs are indeed making it possible for these producers to gain entry into new markets, increase their incomes, and up scale production.

Not only are food hubs profitable to producers, distributors and retailers, they are also vital in improving neighborhood access to local foods by offering complementary programs and resources such as shared community kitchens for healthy cooking classes and food incubators for budding restaurateurs. All of these components that make up a food hub differentiate it from farmers markets that simply provide platforms for producers to sell directly to consumers like you, but what about the difference between food hubs and food halls?  

As it turns out, the term ‘food halls’ is increasingly being used interchangeably with food hubs. However, food halls are more often than not one of the many programs within a food hub (complementary to grocery stores, food education facilities, food distribution centers, and kitchen incubators). When food halls function separately and independently, they are often less community- and agriculturally-based. While they may claim to support locally-owned businesses and chefs, they often do not guarantee as tight a policy of local produce-sourcing as food hubs do given their varying administrative organizations and missions. Often, these food halls simply bring together multiple vendors, carefully curated to meet the targeted consumers’ taste and preference, and provide them space in high traffic areas at potentially lower rental rates.

Regardless of semantics, both food halls and food hubs are cooking up destinations for local food and providing opportunities for local businesses to grow – albeit to different degrees. Given the infancy of these food-based developments, we can only begin to predict their position as catalysts for redevelopment and socio-economic revitalization.

The Eastern Market in Detroit, Michigan, for example, demonstrates the potential for food hubs to be really sustainable and efficient food sources for communities. The food hub is the “largest historic public market in the Unites States” and has been connecting small farms with customers from metro Detroit for over a century. It has done more than just organize farmers markets for locals; the Eastern Market also hosts a massive wholesale market for local restaurants and grocers from midnight to 6am on weekdays. In addition, the market has incubator spaces for food entrepreneurs and provides professional kitchens for entrepreneurs who would otherwise be unable to access such resources. At Eastern Market, entrepreneurs can develop and test-market their products before expanding regionally. Take for example, McClure's Pickles. The firm got its start at the market and has since expanded nationally.

The Eastern Market not only meets the scope of a regional food hub but has certainly met its mission to “build facilities and critical infrastructure that fortifies the food sector as a pillar of regional economic growth while improving access to healthy and affordable food choices in Detroit”. A survey conducted by Michigan State University found that the majority of food hubs in Michigan helped increase access to healthy foods in underserved neighborhoods, thereby supporting a healthier population. More than 95 percent of Michigan's food hubs are experiencing an increase in demand of their products and services with restaurants, small grocery stores, and kindergarten through 12th-grade school food services being their number one customers. Furthermore, among the food hubs surveyed, about half of food hubs were equipped to accept federal Supplemental Nutrition Assistance Program (SNAP) benefits.

Food hubs also have the potential to act as arts and cultural centers for their neighborhoods. The large halls and spaces located in the hubs are conducive to art and design festivals. Eastern Market, for example, is home to the Detroit Design Festival every fall and many other creative pop-up events and programs. Like other food hubs, it is increasingly becoming a mixed-use building and yet food-based hub. Even food halls that simply feature chef-driven vendors and tenants are becoming arts and culture centers hosting a myriad of events throughout the year. In a time where millennial customers seek out unique retail experiences, the merging of the arts and culinary worlds was only an inevitable next step.

On the other side of the coin, when food-based developments do not serve the wider community, however, it stands to run into accusations of causing gentrification and rising property values. In Anaheim, California, where a former fruit packing and distribution center was transformed into a food hall dedicated to local vendors, it has quickly evolved into  a selling feature for new residential developments in the neighborhood. Broookfield Residential for example is hoping to “attract young buyers with units priced between $300,000 and $400,000” in a neighborhood that was once a sleepy town known only for Disneyland. Whether intended or not, the Packing House food hall in Anaheim has led to huge inflow of development into the neighborhood, raising prices of property in the area.

Furthermore, food halls that only serve ready-made meals or chef-made meals are often too upscale for the average customer. While they may help fill gaps in a food desert, prices often prevent lower income bracket groups from accessing these freshly-made and locally-grown foods since most prepared foods are not even eligible for SNAP benefits. So while food hubs and food halls may have a right to celebrate their contributions to the local food system and local communities, there are a few implications to also be wary of.

If that didn’t scare you enough, there are also a set of complex challenges involved in setting up and running food-based developments. Start-up, administrative and operational costs can run up high, especially when run by a nonprofit. Although finding capital through donations, grants, and city funding is a common strategy, these funding sources can easily go away. The many moving parts of food hubs also means that overhead costs can arise at all points on the operational chain.

Further still, site development has proven to be a huge challenge for food hubs. This is due to requirements for cold storage, space for processing food, distribution, and strategic marketing. The non-profit Boston Public Food Market, for example, is already spending close to $14 million to turn a state-owned building into a market.

Indeed, food hubs and food halls can take several years to achieve financial profitability. However, it is food hubs that work with various partners, including local farmers’ associations and school districts, which are able to increase their earnings easily by establishing distribution agreements.  These partners often also help with advertising and marketing efforts – lowering food hub overhead – and provide food hubs with a consistent yet diverse customer base.

On the other hand, food halls that function separately and independently with only chef-driven vendors open with 100 percent occupancy before quickly running into problems of high operation and marketing costs. This often leads to high lease rates for vendors. Since local entrepreneurs are particularly susceptible to rent charges and often are unable to make their businesses work in the long run without continued support from the food hall, these food-based developments hollow out and struggle to find replacement chefs.

As we move into a new year, and the trend of food hubs and food halls catches on rapidly across cities, let’s watch out for the saturation point in food-based developments. More importantly, let’s beware of its real impacts on food access and our local neighborhoods and communities. 

Support Your Local Artists This Holiday Season!

We're all gearing up for the holidays and of course buying gifts has become part and parcel of the season. Although looking for various types of gifts for all the different people in our lives has become less stressful and made easier with department stores and shopping malls offering a wide range of products, artisanal holiday markets have become the new hub to do this same type of cross shopping.


In New York, holiday markets are sprouting up all across the city - indoors and outdoors - and offering customers carefully-curated and unique shopping experiences filled with independent vendors selling an eclectic array of goods. A few weeks back, I stumbled upon Ridgewood Market Holiday Night Bazaar inside a German beer hall in the burgeoning neighborhood. Although the indoor market was discreetly located and inconspicuous, within 45 minutes I was armed with gifts for everyone on my list and not only did I spend much less than I would have at Bloomingdale's, I also got gifts that were handmade and one-of-a-kind.


This community-based artisan market, for example, features over 40 local artists who live or work within the neighborhood and that night all of them were out selling their products in person. There were ceramic pieces carved by hand in a nearby studio, metal jewelry mixed locally, and even honey harvested in local backyards. The truly engaging shopping experience that artists/vendors at such markets are able to offer is also special as many are able to speak eloquently to the process and inspiration of each product being sold.

As more research begins to point to the importance of maintaining physical retail presence and creating compelling shopping experiences to attract millennial shoppers, these holiday markets are certainly doing a great job offering millennials the stories they seek and the opportunities to touch, feel and test products.

Most importantly, this type of local and artisanal market is also fast becoming an outlet for artists, or aspiring small business owners, to test their products on the market and start building a customer base at a particularly crucial time of the year for retail. So for those of you who are still struggling to find the perfect gifts for all the special people in your lives, visit your neighborhood artisanal holiday market in your beer hall, church, or park, and support the local artists and aspiring business owners living amongst you!

Check out amNY and TimeOut New York for their lists of holiday markets in NYC!

Retail Insights: Is the end of the Department Store near?

According to Shopping Centers Today, in-line stores are outperforming department stores - a significant shift in how retail has traditionally functioned ("In-line stores are the new mall anchors at General Growth", SCT, Nov. 2016). As of June 2016, anchor sales in the General Growth Properties (GGP is one of the largest mall owners and managers in the country) portfolio fell by 1.9%. On the flip side, between 2005 and 2015 non-anchor sales grew by 33%. This trend is being felt industry-wide - from 2005 to 2015 department store sales declined by 23%. Analysts suggest that millennials have something to do with it. They enjoy experiences more than things, and spend their money in restaurants, home furnishings, health and personal care.

Broughton Street in Savannah, GA is an example
of an all "in-line" tenant mix

The good news is that downtown was made to offer an experience. The downtown environment is among the most conducive to offering millennials the mix of retail, services, entertainment, and perhaps most importantly the authenticity they crave. Nothing else comes close.

Another potential impact is that as the anchor plays less of a role in driving in-line tenancy, traditional downtown's without traditional department store anchors become much more appealing alternatives to retailers. Consider a project I just wrote about recently, The Broughton Street Collection in Savannah, GA. The $100 million dollar project began as an assemblage by developer Ben Carter and now includes 37 properties and about 130,000 sf of retail space with nary a traditional anchor in site. Instead the mix includes a variety of national, regional and local retailers and restaurants - a lifestyle center if you will - but without the department store anchor. The key to this strategy is to ensure that the in-line retailers who are there are complimentary and share a similar customer base. Without an anchor, in-line retail must create its own synergy, the kind that will collectively attract visitors who seek a cohesive and complimentary set of offerings. I tend to suggest that downtown's ask themselves this question - is there enough to do downtown to support a visit of an hour? or two or three? In-line retailers will care about the answer to this question because in many ways they need one another a lot of more than in situations where there is no anchor tenant.  Downtown district's that curate their retail mix might just be poised to give the regional mall a run for it's money.

What are "retail microclimates"? And how can knowing help your retail leasing efforts?

We work in lots of downtowns and find that most are not monolithic. Instead they are comprised of many different subdistricts, what we have dubbed here at LOA "retail microclimates". As I wrote about in the ICSC guide for "Improving Tenant Mix" (which can be downloaded from the ICSC website for free here), retail microclimates are driven by a unique set of conditions, namely location, visibility, access, anchors and tenant mix. These elements, when combined, create unique case-by-case opportunities for retailers. In the vicinity of a subway stop, for instance, we might have the conditions that support convenience-oriented retail (i.e. drugstore, bodega, or specialty grocer). Near a theatre, we might find restaurants. By a hospital, medical supply stores, or better yet, injury attorneys! These are simple examples that illustrate the point that synergistic relationships exist and that these kinds of co-tenancies should be baked into your retail leasing efforts.

Yet another example of retail microclimates can be found in malls where tenant mix is often curated by lifestyle segment. So in one corner of the mall a Nordstrom drives the co-tenancy of upscale apparel retailers, while a Bed Bath & Beyond in another area might find itself surrounded by home goods stores. Long streets are particularly susceptible to exhibiting characteristics of multiple retail micro-climates. Simply put, retailers want to be near other retailers who share the same customer base. Ultimately,  the synergies created by these co-tenancies help support all retailers.

A development in Savannah, GA known as The Broughton Street Collection is utilizing a similar strategy in the $100 million redevelopment led by Ben Carter Enterprises. Carson purchased 35 buildings along Broughton Street and has redeveloped the properties into a mixed-use downtown, replete with 225,000 sf of retail, 40,000 sf of restaurants, and 48 loft-style rental apartments and offices over five of the buildings. When you look at the retail leasing plan all elements of a retail microclimates are there. The eight blocks of the district are divided into seven areas with distinct identities including "upscale", "aspirational", "main street", "contemporary", and "bohemian". These districts are designed to accommodate retailers and restaurateurs who fit each of these themes. On the "upscale" block we have Madewell, Tory Burch and Lululemon. On the "aspirational" blocks we have J.Crew, Bonobos and Banana Republic.

Two blocks of the leasing plan for The Broughton Street Collection
http://www.bencarterenterprises.com/wp-content/uploads/2015/08/bruoghton_release_plan.pdf

This detailed block-by-block leasing plan, with microclimates identified, helps retailers self congregate in areas where they share customers. This kind of natural co-tenancy often happens in traditional downtowns, but in areas where major redevelopment is poised to occur, it happens through thoughtful planning and leasing strategies.

In downtowns, these retail microclimates can also be driven by the immediate surrounding neighborhood. In one community where we recently worked, the immediate surroundings were home to a strong Polish immigrant population, but four blocks away and closer to the subway, the environment and shopper was decidedly Latino. The difference in retail could be easily discerned. Polish speciality stores slowly gave way as the street changed to low-cost general merchandise in the form of dollar stores. For a retailer to succeed, they need to know which part of the district gives them the best chance to attract customers. Better yet, they need to know which block of the district already attracts their ideal customer. This is precisely where they will want to locate - and you can help them by letting them know where that is.

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.