The long term shake out of local retailers and independent commercial districts

U.S. retail, especially as it relates to neighborhood and regional shopping districts in cities, has changed significantly over the past 65 years, in at least 7 ways.  Only one of the trends favors in-city shopping.  But some of the more interesting articles on the subject are foreign.

"Main streets like Calgary's inner-city Kensington enjoy a renaissance" in the Toronto Globe & Mail discusses the rise of the Kensington district in Calgary Alberta.  Of course, Calgary is a boomtown because of the oil extraction industry, and isn't a good example for weaker real estate markets.  The article also discusses what in Canada they call BIAs or Business Improvement Associations (in the US we call them BIDs, Business Improvement Districts).  The concept started there and was imported to the US.

And for the past couple years the Brits have been incredibly worked up over the decline of traditional commercial districts there, which they call "High Streets."  The Daily Telegraph had a story over the weekend, "Mary Portas visits Greens of Lincolnshire," on the topic, featuring retail consultant Mary Portas, "The Queen of Shops," who has been leading the government's initiatives in this area (The Portas Review: An independent review into the future of our high streets, published by the UK Department for Business, Innovation and Skills).  From the article:

Every day I am asked to predict the future of the British high street. I don’t have all the answers, but one thing I do know is that high streets won’t be only about shops. The way we shop changes fundamentally every half century or so. Market traders were replaced by shopkeepers who were usurped by department stores who were challenged by the supermarkets and retail parks. Today internet retail is seen as the great usurper. While the web still represents only 12 per cent of total sales, that figure is expected to rise sharply over the coming decade.

However, I blame the high street’s problems not on the internet but on out-of-town supermarkets. Lose the purpose of the local high street, and a community loses its heartbeat. We have a social responsibility to find a way to reinvigorate our local hubs. In my travels around the country I’ve seen some inspiring examples of entrepreneurs creating new social, cultural and community stores in empty buildings.

And Christian Science Monitor has a story, "The novel resurgence of independent bookstores: Defying the onslaught of the e-book revolution, many small bookshops see a rise in sales, aided by savvy business practices and the 'buy local' movementThe end of an era," from the Tale of Two Cities blog discusses the closure of a community pharmacy in Howard County, Maryland and how independent pharmacists are losing  business, repeat visits, and revenues as more drug prescription sales move to the online realm.

While I have written about this before, there are many different trends in retailing that have impacted traditional shopping districts--downtowns/central business districts and regional and neighborhood shopping districts in cities and towns.

Retail is a tough business anyway.  But it's maybe tougher than we think.

• From shopping districts to shopping centers

Retail sections of cities and towns that grew out food marketing districts and commerce became  supplanted by suburban shopping centers.

Right: Northland Shopping Center in Southfield, Michigan, just north of Detroit, was one of the (but not the) first suburban shopping centers built in the US, as part of a program by the city's major  department store company, JL Hudson's, in response to the changing demographics and shopping patterns resulting from postwar expansion. 

Shopping centers have a single owner and management, common hours and marketing as opposed to traditional shopping districts, which are comprised of properties owned by many different owner.

In response, commercial district revitalization and management organizations such as Main Street programs and business improvement districts have been created to step in and provide marketing and overall management support.

• From independent retailers to national chains

The process of creating chain stores has been going on for more than 125 years, starting with grocery stores, in particular A&P (the Great Atlantic and Pacific Tea Company).

In fact, the same kinds of arguments we have today about supporting local business versus chains are actually as much as 100 years old, starting when  chain store supermarkets became more prominent around the country.

(Ironically, I remember coming across a 1920s Collier Magazine article that didn't sound much different from the sentiments expressed by a commercial real estate broker in this 2006 Washington Post article about Dupont Circle, "Life Around Dupont Circle Takes a New Turn.")

Through the pre-war period, regional chains, especially department stores, developed.  See The American Department Store Transformed, 1920-1960 and City Center to Regional Mall: Architecture, the Automobile, and Retailing in Los Angeles, 1920-1950 by GWU American Studies Professor Richard Longstreth.  After WWII, chain stores started developing more on a national footprint, culminating in the last decade in the consolidation of most regional department store companies into one national chain (Macy's).

• Refrigeration

Not to be ignored, the creation of refrigerators was one of the factors that led to a reduction in the number of trips to neighborhood shopping districts.

Having a home refrigerator meant that people could grocery shop less frequently--therefore reducing the number of trips they made throughout the week to the local grocery store and commercial district--and could "stock up" on less expensive items bought from larger supermarkets.

Both refrigeration and the rise of supermarkets also contributed to the decline of public market buildings and direct sales by farmers of produce and other food items.

• Discounting 

While price discounting started with the supermarkets, by comparison to locally owned food stores, until the 1950s, stores sold items at the "manufacturers suggested retail price."  Discount department stores like EJ Korvettes (I used to buy my albums there) challenged MSRP, as did other businesses, such as the locally-based Haft family.   Once it became legal for retailers to discount, this changed retail, and greatly favored chains.

•  The decline of the movie theater | the rise of home-based entertainment

Before television, people had fewer diversions, mostly they went to neighborhood-based cinemas, which showed three or four different movies each week.  (See Shared Pleasures: A History Of Movie Presentation In The United States by Douglas Gomery.)  Going to local cinemas meant they were much more inclined to shop at stores in the same shopping district, and some stores stayed open later to serve cinema-going patrons.  But starting in the 1950s, neighborhood cinemas began closing and by the 1970s most had closed across the country, with but a handful of exceptions.

• the decline of variety and departments stores in smaller commercial districts

Local retailing, both in neighborhood commercial districts and in central business districts, was anchored by variety stores like Kresge, Woolworths, SH Kress, and other companies, and department stores.  H Street NE in Washington, DC had a Kresges and a Woolworths.  There was a Kresge on 7th Street NW (now home to the Jaleo Restaurant) and on Pennsylvania Avenue in Capitol Hill.  There was a Woolworths in Columbia Heights until the chain shut down.

And companies like GC Murphy had a presence in downtown and town centers like on F Street NW in Downtown DC and in Alexandria, as well as in neighborhoods such as on Wisconsin Avenue NW across from the Washington Cathedral (this center is being rebuilt as part of a mixed use project including a Giant Supermarket).

There used to be independent department stores in addition to the larger regional chains.  The very small department stores tended to be one-off businesses serving a single commercial district.  I remember a couple as I was growing up.  Ironically, I think they were both called Lion, one on Plymouth Road in Detroit, and one on Telegraph Road in Pontiac, Michigan, even though I don't think they were affiliated.  But there were also small scale companies operating in multiple locations, such as Detroit's Federal Department Stores, which were a scalar level smaller than the bigger regional companies like Hudsons and Crowleys.

Even JC Penney, the national chain, tended to have smaller stores that might have located in smaller town centers while the big regional department stores and Sears and Montgomery Wards did not operate at that scale.

• And eventually, as Downtown shopping districts became less vital, the variety and department stores there failed too

In Downtowns and large regional traditional shopping districts, regional department stores were key anchors also.

Right:  Postcard of the Kresge 5 and 10 store on Woodward Ave, downtown Detroit.  ca. mid-1960s. The DDD banners signify Downtown Detroit Days, created by local retailers to draw shoppers downtown by running various promotions and sales.


But with continued outmigration of residents and business to the suburbs, these stores began to fail as well.  In the 1980s especially, local regional department stores not affiliated with the large "buying group/chains" like Allied and Federated or May Company began failing en masse.  The same went for the national  variety store companies like Kresge (actually the company closed the chain, in favor of their other investments) and Woolworths.

With some exceptions, eventually most of the large retail department stores that survived left the center city.  (This is described nicely in a chapter in Roberta Gratz's Living City, although the chapter is more focused on small towns and micro-chains.)

And over time the larger department store companies, following consolidation trends in the retail sector, came to merge as well. 

Allied, Federated, and May were amalgamated into Macys, and the Macy's brand was applied to all the stores, not just those based in the NYC and San Francisco regions, where the company had been active and well known (albeit well known beyond the strict confines of the areas in which they operated stores).

•  From eating at home to eating out

Over the past 50 years, more people eat out (although this is tied somewhat to income).  This means that there are more restaurants and because people eat every day but don't buy retail items every day, restaurants are growing in retail presence, while traditional retailers are declining.

Similarly, supermarkets are declining in response, and adding prepared food sections to compete with restaurants, and other retail categories are adding food in order to maintain sales and increase shopping frequency--which further hurts supermarkets.  (55% of Walmart's 2012 sales were of food.)  The result is that commercial districts are shifting their mix in favor of restaurants (and convenience retail--hardware, pharmacy, food).

•  Further consolidation from the rise of specialty stores and category killers

Retail consolidation has resulted in the development of focused, specialty store categories, as opposed to the multi-line stores of old.  This means stores like Best Buy for electronics and Bed, Bath and Beyond for housewares, and Staples for office supplies, along with specialty apparel and other stores serving other retail categories.

•  The Internet and web-based commerce

Beginning with Amazon.com's sale of books, web-based commerce has taken category killing to a new dimension (and has had further negative impact on local communities in terms of diverting sales to transactions that don't result in earning retail sales taxes), destroying "bricks and mortar" retailers in so many categories including books, CDs/music, electronics, video rental, drug prescriptions, and travel sales.

A significant amount of retail sales are shifting to the web, and this shifting of sales away from local businesses could be enough to lead to more store closures of independents, but is also impacting national chains as well, as more categories become susceptible to online commerce.  For example, since 2007, Circuit City, an electronics retailer, Borders, a bookstore chain, and Linen and Things, a housewares retailer, have all ceased business operations.

From "Supermarkets sense that size may no longer be key to conquering universe" in the London Observer:

According to retail analyst Philip Dorgan at Panmure, more than 30% of retail sales will eventually be transacted online – 20% of food sales and 40% of non-food. The changes in shopping habits will mean a seismic shift in the world of retail and changes in behaviour that Dorgan reckons will have "cataclysmic implications".

• Multi-channel revenue streams are necessary even for small, "independent" retailers

But web-based commerce is probably the nail in the coffin for most retailers--unless they make their business models more robust.

I have been meaning to write about the program in Oakland, California called Popuphood, which was one of the presenters at last month's Next City urban revitalization conference.  It's a vacant storefront-retail entrepreneurship development program.

What makes their approach a scalar change in urban revitalization practice is how they require the participating businesses to be engaged in online commerce, and not fully reliant on the physical store.

• and restaurants ... as more restaurants go into the food truck business

Similarly, some brick and mortar restaurants are getting into the food truck business (see "Established restaurants, too, hitting streets with food trucks" from Seattle Times).  And the local Soupergirl store ("Soupergirl ladles from Takoma Park restaurant" from the Washington Post), which started off by selling soups at other locations and farmers markets before they built the business to the point where they could open a physical location, continues to sell at those other locations.

This applies the Popuphood requirement of taking up e-commerce to the restaurant sector--it's the same basic principle of developing and maintaining multiple revenue streams in order to make for more robust business models.

• Other examples of business model extensions

Whole Foods Supermarket is looking into developing more focused health and wellness and spa initiatives as part of its business model ("Whole Foods may open health and wellness resort" from the New York Daily News) and Ikea is joining with Marriott to open hotels ("Ikea teams up with Marriott to launch chain of budget hotels" from the Guardian) and is developing residential subdivisions ("IKEA breaks ground on its Utopian village within London" from the Gizmag blog).

• Smaller store footprints

Another response to the rise of e-commerce is reduction in store sizes, even by the big chains. See "Luxury Retail and Smaller Store Footprints on the Rise" from Tompkins International. 

• Integrating e-commerce functions into the physical store

Also chains are making stores part of the "front door" for e-commerce, adding kiosks and mobile commerce functions in the store, making stores part of the return process (if desired), etc

Conclusion

Most of these developments in retail made it that much harder to compete for either  independent shopping districts or retailers. Independent districts can still compete, but they will be strongest in economically sound real estate submarkets, the mix of stores is going to shift towards restaurants, and some categories like pharmacy, if they continue to exist, are going to chain up.

In weak real estate markets, ground up retail (clothes, resale items) will be an option, because the rents are low, but low rents make it hard to reinvest in and maintain commercial properties.

As the TGM article points out:

One of the more pressing challenges facing main streets is how to create a mix of retail, services and other businesses that will keep people coming back on a regular basis, says John Kiru, executive director of the Toronto Association of Business Improvement Areas. Toronto has 74 BIAs representing 35,000 businesses and property owners.

“There’s been a significant shift to gastronomy – more coffee shops and restaurants – and many vacancies are being filled by professionals, such as doctors, lawyers and dentists.” It’s a mix, Mr. Kiru explains, that doesn’t necessarily attract ongoing daily or weekly visitors.

While some districts, like Toronto’s Chinatown or Liberty Village, are able to capitalize on their unique cultural or heritage aspects, others struggle to achieve the right mix, Mr. Kiru says, because the many independent landlords on any given main street are usually unable or unwilling to leave a space vacant in hopes of finding a perfect tenant to complement the overall neighbourhood business mix.

It’s a similar situation in Halifax, says Paul MacKinnon, executive director of the Downtown Halifax Business Commission (DHBC), and chair of the IDA’s Canadian Issues Task Force. Putting together the right mix is a huge challenge, and “there are very few BIAs that know how, or are able, to do it well,” he says.

And it's tough to work in the field, especially in Main Street type districts as opposed to BIDs, because it doesn't pay very well and requires a wide variety of skills in order to make it work.