The conundrum of commercial district revitalization (semi-reprint) or "why can't we have more retail stores in our neighborhoods?"

On the anc-6a listserv there is a response to neighborhood complaints about opening up "more bars" and why aren't retail shops opening?

Below is an older post from 2007 that explains why. But as I said in response to the email:

• The rise of e-commerce takes away 10-15% of business for bricks and mortar stores. Restaurants and bars can't be displaced by online commerce. That's why commercial districts are shifting to a greater mix of food and drink.

• Other trends affect the "delivery" of retail at the level of the neighborhood commercial district. Mostly, you will have convenience retail (supermarket, hardware, pharmacy--and in DC, pharmacies function like health and beauty convenience stores with food) at the neighborhood level and a broader array of retail at regional shopping districts. In the context of the city, a "regional" city shopping district like Columbia Heights, Rhode Island Place, or Silver Spring (which serves Upper NW neighborhoods) serves multiple neighborhoods.

• Last week, I wrote a long blog entry about how CM Wells' testimony to the tax revision commission about tax discounts for "long time independent retailers" was very well intended but missed the main point somewhat, because the real issue is that neighborhood commercial district retail properties tend to be overvalued tax wise compared to what they generate in revenue. This is an issue for new businesses, not just old businesses.

Tax overvaluation of small properties suitable for retail leads to higher rents and is another reason that retail concepts have a difficult time succeeding in neighborhood commercial districts.

• But despite people's claims they want to shop local, mostly they don't in many categories because of price points, selection, opportunity, etc. The Reilly Law of Retail Gravitation is relevant--I summarize it pretty simply as:

with transportation costs being relatively equal, people choose to shop in the retail district with the  greatest variety of stores and the most appealing choices.

Retail shopping districts that are successful have many stores in the categories they specialize in, not just one store.

• Another issue concerns the size of spaces available for retail concepts.  In DC, most neighborhood commercial districts don't have very large spaces available either, which hinders the creation of interesting stores.

But here is the old entry:

1. People don't buy all that they consume solely within their neighborhoods.*

* This is why market studies showing the household-by-household consumer expenditures within a neighborhood don't fully matter, because you need a certain level of store availability (cluster, agglomeration) to attract spending in a particular retail category. And stores need a basic level of customers and transactions to be able to thrive, without losing business each time a new store (or restaurant) opens in the commercial district.

2. For most goods, shoppers want to compare types of goods, prices, and options, before buying, so you need more than a single store--in a particular retail category--as an option.

3. Most neighborhoods (even in New York City), don't have enough population to support a complete array of stores representing all retail categories. (For example, in Lower Manhattan, the Union Square area is the "regional destination" serving many neighborhoods with offerings such as furniture and books, while most of the neighborhoods have grocery and related, restaurants and diners, and services.)

4. Most neighborhoods don't have enough population to support the amount of retail space that is extant. For example, to support about 50,000 square feet of retail space, you need 30,000 regular customers.
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This was written in 2007 and based on work from the 1990s.  Now, with the rise of e-commerce, and the loss of 10-15% of store-based sales, that number rises, probably to 40,000.
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5. If you want "higher quality" retail offerings, you need higher household income levels, and regular purchasing behavior in that category. (I can't tell you how many times people have said X or Y neighborhood could support a fine dining restaurant--say like Kinkeads--in their neighborhood.)

So, to repopulate the retail space available in a typical neighborhood-based commercial district you need to have destination businesses (and attractions) that appeal to and attract customers from outside of the immediate neighborhood. Together, non-neighborhood market segments and within-neighborhood segments may be able to provide the consumer demand necessary to support the retail mix that people say that they want.

But this creates tensions because too often, the retail that is offered, especially at early stages in the process of revitalization, is accused of not targeting the residents of the immediate neighborhood.

That's true. Otherwise, how do you support revitalization when there isn't enough market demand within a neighborhood?