Another one from the archives: analyzing retail store failure

One of the comments on this City Paper Housing Complex blog entry, "Going Backwards on Benning Road," indirectly and correctly makes the point that I was guilty of the over-generalizations that I often accuse others of employing, it's worth reprinting this piece from September 2007, when I was the program manager for the now defunct Brookland Main Street commercial district revitalization program.

I am particularly proud of the discussion of the four different "mixes" or subsystems of individual businesses, including what I call the store operations mix.

The link for the "Urban Retail Centers" document doesn't work anymore. This is one of the sections that I was referring to, in terms of the typical size and type of retail centers (you can sort commercial districts in cities in a similar fashion) and how many residents (retail trade area) you need to support the centers of various sizes.

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Why ask why? Because.

Slide from the Project for Public Spaces. I need to make a slide like this for individual stores. (See below) about the Retail Mix.

In the last couple months, 3 businesses have closed on the 12th Street NE corridor in Brookland, the commercial district I am charged with assisting. Another one is closing (this one is in large part a succession issue). On the other hand, in the last year, Yes! Grocery opened, and has a greater sales volume and number of employees than all of the stores that closed.

But when a store closes, the point isn't to make a statement "The store closed." The point should be to figure out why. That means asking questions. (I mention this because of one of the questions from someone in the audience at the session about Brookland at Friday's local ULI chapter conference made a statement about the failure of these businesses.)

The thing is that most people don't have any clue as to why the businesses close and don't have much insight into what is going on. In "Main Street at 15," Kennedy Smith wrote in 1995 about how marginal economies in our local commercial districts disconnected knowledge and success from the ability to open a business. She writes:

As retail dollars moved out of Main Street, a host of problems moved in. To begin with, the economics of owning commercial property downtown no longer worked. With fewer business tenants, downtown property owners had to depend on fewer rents. A building which might have once generated three $500 monthly rent checks might now only produce one or two--and building maintenance suffered. Downtown started looking run-down and shabby, in marked contrast to the spanking new shopping malls. Main Street`s retail space was suddenly second-class, at best. The businesses that could afford to pay the highest rents went to the mall; the rest came downtown.

Market demand had once shaped the mixture of businesses downtown. Now, anybody could open a business downtown with a few thousand dollars, regardless of his or her marketing savvy, business skills, or even knowledge of whether or not there was a market for the stuff he or she hoped to sell. Instead of a business district tightly synchronized with market-area consumer demand, Main Street had become a bizarre and eccentric assortment of junkshops, marginal businesses and other occupied vacancies.

After doing my presentation earlier in the week in Takoma Park, I realized I need to add a couple slides on the concept of a "retail trade area." So I was doing some research and reading about this yesterday. One of the best short discussions of some of the issues, and a listing of the size and population required to support various retail shopping places is this piece, Urban Retail Centers from UMN. (Note that you need up to 40,000 people to support 50,000 s.f. of retail. Most of the small neighborhood commercial districts have 50,000 to 100,000 s.f. minimum. H Street, including Hechinger Mall has 1 million square feet.)

One of the articles I dug up is called "Trade Area Mix and Retailing Mix: A Retail Strategy Matrix," from the Journal of Marketing, October 1976. In turn it cites an article from 1961, "The Retailing Mix: Planning and Management," from the Journal of Retailing.

The latter article proposes three components or sub-mixes of the retail mix:

Goods and services mix
• Variety and Assortment
• Parking [I would change this to Accessibility and Transportation]
• Sales Service
• Customer Service
• Credit
• Price Lines
• Guarantees and Exchanges
• Alterations and Adjustments
• Delivery

Communications mix
• Personal Selling
• Advertising
• [I would add Exterior Conditions of the Commercial District]
• Window Display
• Interior Display
• Public Relations
• Store Layout
• Catalogs
• Telephone Sales
• [now we would add online sales as well]

Physical distribution mix.
• Store Location
• Distribution Centers
• Inventory Control
• Transportation [of goods]
• Handling Goods

In terms of thinking more broadly in terms of the success of an individually-owned independent store, you can add another dimension called something like:

Store Operations mix
• Rent
• Quality of space and location
• Proprietor salary
• Personnel acquisition
• Labor costs
• Access to capital

The Rosenbloom article discusses the Trade Area Mix, linking broad market demand to the possibility of store (and commercial district) success:

1. Trade Area Geography: the geographical extent of the trade area
2. Trade Area Demand: the level of consumer demand within the geographically delineated trade area
3. Trade Area Heterogeneity: the mix of consumer market segments within the trade area and the diversity of consumer demand for products and services. The greater the demand, the higer degree of heterogeneity, characterized by more offerings.

When someone says "That store closed, the X commercial district is a terrible place to do business," the reality is a lot more complicated. Was it the owner? The concept? The commercial district? The property? Access to capital?

And it's not either/or, it can be and/and/and... For example, the Brookland commercial district has some significant spatial and access issues. Just like I write about "intra city sprawl," commercial districts need to ensure intensity and critical mass.

Slide © Project for Public Spaces.

And in terms of creating a "Commercial District Retail Strategy Matrix" for the city, the only way it will be possible to create strong retail centers in our neighborhood commercial districts in DC is through differentiation and a focus in part on cultural anchors to assist demand.

There is no way that DC with its current population can possibly fill the demand for all the new retail that is going to be created in the city, let alone the extant retail space, given the difficulty of developing independent retailers in the current environment, and the fact that asking prices for rents even in marginal neighborhood commercial districts are greater than $30/s.f.

Furthermore independent property owners, unlike the management of a shopping center, aren't likely to provide either build out allowances, a period of free rent, and/or rent rebates, which are necessary sweeteners often provided in order to set the stage for retail success.