The ADRR

Michael J. Berne blogs as the Retail Contrarian and N. David Milder blogs as the Downtown Curmudgeon. Both are unafraid of questioning conventional wisdom about downtown revitalization, taking fresh looks at downtown challenges and opportunities, and engaging in friendly debates about these subjects. This column reflects the email give and take they have been engaging in for several years now.

MJB So David, last time we went back and forth on the prospects for retail recovery in the more intensely-developed Downtowns of our larger metros.  How about, this time, we focus more on suburbs and small municipalities?  First, I’d like to give a shout-out to the recently retired Bill Ryan at the University of Wisconsin Extension Center for Community and Economic Development — he and his shop have done such great work over the years on these sorts of Downtowns.  Indeed, I’m eager to see what Bill has to say in response to our conversation.  O.K., so let’s get to it.  Earlier in the pandemic, there was this presumption that many of them would benefit from the rise of hybrid work and the flight from the cities to both suburban as well as second-home communities.  Certainly, there have been some high-profile brands — like Starbucks, Chipotle, Sweetgreen, Parachute Home and Faherty — stating explicitly that they would be skewing more towards such opportunities than they had in the past, but speaking more broadly, have you been seeing much evidence of this benefit on the ground?

 NDM: Mike, I strongly join your shout out to Bill Ryan at UWEX!!  The State should declare him a WI Treasure!

And, of course, I also strongly agree on the small rural and suburban municipalities as our focus in this conversation. As for what I am seeing on the ground, it’s not been much since we have not traveled much outside of NYC since the beginning of the pandemic because of health reasons. That said, I have been looking via the internet into some of these towns I know around the nation and some of their managers and stakeholders, and at the store location functions of the websites of the internet born retailers like Warby Parker and Bonobos, etc. What I am seeing from those sources are that Central Social Functions venues such as food, beverage, entertainment and pamper niche operations – e.g., hair and nail salons, dance and yoga classes –are opening at a faster and larger clip than retail, and that the admittedly small sample of eight or so internet born chains I looked at still are looking at very primo suburban locations, and still not in smaller independent rural cities, in the 25,000 to 75,000 range.

Let me then jump to noting that when we start off by talking about retail chains, we immediately narrow our focus to a much smaller group of downtowns and Main Streets that have any real chance of attracting them. That in turn raises the point that knowing and accepting if your downtown can or cannot attract comparison shopping type retail chains is one of the most important things the leaders in these downtown can do. I know that for me, and I suspect for you, working with these downtown organizations when they have not accepted this reality can be very frustrating. And then even if they can attract chains it will be likely for some kinds and not others.

What I am looking for these days, more than info on the chains, are: 1) if small merchants are really learning how to utilize omnichannel marketing strategies and tools that can enable them to better connect with customers in their traditional trade areas, and to attract e-shoppers from much larger market areas, and 2) the demographic shifts in population, and creatives, to smaller towns and cities, and even some rural areas. While the media and academic focus has been on how the pandemic generates remote workers who may or may not have fled to sparser regions, I think that for retail the far more important trend is that the pandemic really accelerated the adoption and use of omnichannel strategies and tools, and filtered out a great number of operators who were deficient in these skills.

MJB: When I’m presenting on the subject, I always make sure to point out that these expansion-minded DTC’s, along with the still-healthy legacy brands, are only willing to consider a tiny subset of Class A locations.  This includes a few suburban Downtowns, though they’re almost always ones that have long been shopping destinations, and in many cases, anchored by an institutionally-owned lifestyle center, like Bethesda, MD (with Bethesda Row) or Walnut Creek, CA (with Broadway Plaza).  It is a trend with little to no relevance to 99% of the suburbs and small towns out there.

It is, as you say, all about analyzing and understanding what is and is not realistic for your retail mix.  I do think that the Downtowns in these suburban and small municipal settings — which I’ll abbreviate as SSM’s for the purposes of brevity — will be very hard-pressed to support commodity-based businesses which consumers generally patronize on the basis of convenience.  Larger cities, with their much higher population densities within walking distance and their much higher tolerance for hassle, have a greater chance of sustaining storefront grocery and drug stores, but in SSM’s, most such tenants — with the exception of Dollar General or a legacy ACE Hardware — will need their on-site parking along high-traffic arterials. In some cases, they might be able to find such opportunities on the Downtown periphery, but more likely, they’ll look to the strip corridor further out, nearer to the freeway interchanges.

A specialty positioning is even more essential in these SSM’s, then.  I’m less bearish on the potential for boutiques than most — such shops can and do exist even in the absence of fashion co-tenancy, but only when the merchant is well above-average in sophistication, savvy and resourcefulness.  This is also where your comment about omnichannel comes in — it is certainly not a silver bullet but at this point, it is table stakes.

What has struck me — though not entirely surprised me, given how these things generally work — is how so many main streets of smaller towns these days have been adopting the retail forms that originated in and are still primarily associated with the urban core.  Driving through Kansas and Wyoming last summer, I saw a lot of them with say, a third-place coffeehouse, a craft brewpub, a denim boutique,  a co-working space, maybe a parklet or two.  If the community is large enough, there might even be a small-scale food hall.  I’d be curious to know how such concepts are received in these places, as I’m not one to believe that what starts in cities necessarily reflects the preferences and sensibilities of every consumer.  Then again, there is a Central Social District (CSD) component here that seems universal…

NDM: Following up on your mention of Chipotle and Starbucks I did a quick look at their locations in NJ, Westchester and Long Island. Starbucks is often in SSM downtown locations, but Chipotle is not, save in a few instances when there is a downtown shopping center such as Palisade Court in Englewood, NJ. I have not heard about many recent openings or closings of Starbucks through my grapevine in these downtowns. But there is a real question about them being a real third place anymore in many locations, as their seating has been significantly reduced.

There are a number suburban towns across the nation that had done quite well recruiting coveted retail chains in the past, but a whole lot of them were deeply hurt even prior to Covid by the process of creative destruction the whole retail industry was going through. How do you think they will come out of the Covid crisis? On a strong recovery trajectory? or still struggling? I know you have been working in some of these downtowns. My observations suggest a variety of ways. Some, whose trade area populations were not that homogeneously affluent have faced real headwinds, and are trying to tack by attracting newer and smaller chains and/or shifting away from retail to other uses such as more food and beverage, and pamper niche operations. Among those with more solidly affluent TAs, some reputable chains are returning, but their numbers still lag those of “the good old days.” Some problems they seem to face is that landlords still want relatively high rents and trophy-like retail tenants. They and their downtowns would be doing a lot better if rents closer to what the market is now supporting were asked, and quality tenants capable of attracting lots of customers were signed up. One more observation: housing in the downtowns that only added less than about 300 new units did not seem to have as much bang as it did in districts with more than 300 units. I don’t know if that 300 number is solid, but I think that a downtown needs a fair number of new residential units for them to have a meaningful impact. Even a 100 or so won’t do it.

Let me turn to the real meat and potatoes of this discussion:  the downtowns and Main Streets that don’t attract clusters of very desirable retail chains that feature comparison shopping type merchandise. They still can attract F&B chains like Dairy Queen and McD, though they often locate in the town closer to a main highway, than in the downtown. And they also can attract some franchised chain stores. But the heart and soul of the commercial operations in these districts are the independent small businesses. And as Bill Ryan’s research on towns and cities in WI with populations between 1,000 and 50,000 showed, most of them were not in pure retail, but central social function operations like eateries, bars, personal services, and entertainments (e.g., miniature golf, bowling alleys).

Those data and more importantly my personal experiences since around 1958 in small towns in OH, MI, NC, VA,  NY, NJ,  VT, NH, OR, NE, CO, NM, WY have shown me the huge social importance of downtown coffee shops, diners, bars and even fast food franchises in these smaller communities. Yes, the specific expresso coffee shop concept may be new to these towns, but the social functions they host have long been around, and I think they are performed more robustly in these smaller and more rural places than in our big cities. Good F&B venues, I think, are the basic building blocks for a strong downtown in these SSMs. You don’t even need a lot of them, even just one can be a district cornerstone, but they have to serve quality products. They can play both an important local 3rd place role, and be a tourist attraction. The Golden Lamb in Lebanon, OH is one example of this and  Rancho de Chimayó, about a 40 minute drive from Santa Fe NM is another.

So, while most of the storefronts in these towns may not be retail, what kind of retail can they be? Those selling necessities are probably the most needed and wanted. However, as you argue quite correctly,  market forces make it difficult for many of the really  rural ones — aside from the $ stores — to attract groceries, drugstores, etc., and if they do, they will probably lean toward select sites closer to a main highway. However, smaller towns with relatively small populations can attract a supermarket if they are located in the rural part of a fairly large regional metro area. For example, a 20,000 SF supermarket is in Sherwood, WI, pop around 3,000, a suburb of Appleton. Gering, NE, pop around 8,500, also has one. Once a SSM gets above around 15,000 or so in population, the town is much more likely to have a supermarket if it also is the commercial core of its region. For example, Rutland, VT, pop 16k, has several, and a Price Chopper is in its downtown.  Many suburban downtowns have supermarkets such as Englewood, Westfield, Maplewood and Morristown in NJ, Garden City in NY.

The grocery problem appears mostly in the very small towns in economically depressed and low populated regions. Capturing community value strategies are sometimes viable in them when consumer demand is close enough to supporting  a grocery at near a break-even point that a nonprofit can live with, but a for profit would obviously reject. Profound structural changes are needed to alter the hand dealt to these disadvantaged SSTs.

There are a number of trends that might be altering the hands dealt to all SSMs. Recently, an article in a trade publication argued that 2023 would be a gusher year for  retail openings. The Chase Institute says that retail is following the population flight to smaller cities and towns. Decent research has shown that today’s SMBs are far more adept at using the marketing tools associated with the use of omnichannel marketing strategies. There appears to have been a real move to smaller store formats by many retail chains. What say we about them?

As you know, I think omnichannel is the key to stronger indie downtown biz operators. For most, it will enable them to relationship build when the customer is not in their shops, and can facilitate BOPUS transactions. It also can facilitate both electronic and traditional backdoor marketing to businesses in the area. For others, with a really savvy operator, it also provides an opportunity to electronically tap larger consumer markets. Dodd’s Shoes in Laramie comes to mind as an example of this, but another was a women in Teaneck, NJ back in the mid 1990s who really boosted her sales by putting her antiques on the eBay website. I have come across a number of candy-makers, 2nd hand shops, women’s apparel,  and arts and crafts galleries that have similarly benefited from omnichannel.

I found your mention of savvy boutique operators provoking me to ask if finding and cultivating such biz operators isn’t the real name of the game for the vast majority of our SSMs? I then thought along these lines: while we tend to venerate small independent businesses in this country, the law of averages, and assuming a generous bell curve distribution, says half of them must be below average in talent. Maybe the top 20% are the savvy ones we need. How do we find them? How do we nurture them?

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