Urban retail reflections

A group of us are having a debate in e-mail about the upscale retail CityCenter development, spurred by a recent Washington Post article ("Luxury shopping arrives downtown, and Friendship Heights braces for departures").  One person sees it as a great (re)development, while I am somewhat skeptical--not because I don't think people like Kate Spade, but because there is only so much demand.

Image of CityCenter from Popville.

As far as the development goes, it's quite impressive.

From an urban design standpoint, they've broken down what would be two full blocks each with a single large superbuilding, by creating smaller buildings with "alleys"/walkways in between to create more viable and active ground floor spaces.

But DC doesn't have a huge population, suburbanites don't come into the city to shop, and the tourists and business visitors to the city don't tend to do the kind of high end shopping common to visitors to NYC, London and Paris--especially by foreign tourists.

-- Global Report on Shopping Tourism, UN World Tourism Organization

Georgetown DC.

So I suspect there isn't enough demand to support higher end retail in four different submarkets within DC as well as two more in Virginia and Maryland: CityCenter; a few blocks away on Connecticut Avenue (Burberry moved from this district to CityCenter) in the Golden Triangle Business District, and in Friendship Heights--the commercial district that straddles DC and Montgomery County, with Bloomingdales, Neiman-Marcus, Saks Fifth Avenue and Lord and Taylor (no longer an upscale anchor, but still a functioning department store chain) as anchors, let alone competitive centers in Tysons (Virginia) and Montgomery Mall, or Georgetown--which is not an upscale shopping district.

2.  I have been reflecting on what I've learned from the past 15 years of my involvement in commercial district revitalization in DC because of a conference being held by LOCUS, an organization of developers committed to the creation and strengthening of "Walkable Urban Places," created by pro urban developer and researcher Chris Leinberger and sponsored by Smart Growth America.

One of the walking tours yesterday was of H Street NE.  I didn't go, because I get tired of listening to the people who talk about it now, people who weren't involved at all during the initial and most difficult years--it's easy to participate in revitalization when it's already happening.

Image from HillNow.

Although I did have a good conversation with one of the (re)developers of a complex of buildings on H Street--he estimates it will be worth about $200 million and he is definitely doing it because of "the streetcar" -- the project that so many call a failure even though it has triggered more than $500 million in development on a few blocks of the corridor before it has even started service.

Interior of a Dunkin Donuts-Baskin Robbins combination store from Inside Fort Lauderdale.

3.  Dunkin Donuts vs. Starbucks as an illustration of issues in urban retail recruitment.  What also brings this to mind is an "argument" I had about 13 years ago with the consultant assigned by the city to assist our nascent H Street Main Street commercial district revitalization program.

-- NOTE that according to Time Magazine, this Friday is "National Donut Day" and Dunkin Donuts will give you a free donut with the purchase of a beverage.  (I do get coffee at the Dunkin at 8th and Pennsylvania Avenue SE sometimes before Eastern Market meetings.)

The interior of a typical Starbucks.

He was telling me that rather than aim for "a Starbucks," what is wrong with a Dunkin Donuts?

Obviously we all know the difference in perceptions, even if Dunkin coffee is probably better--less burnt, and no longer cheaper than Starbucks.  One has a subdued interior while the other is garish, etc., and in trying to "improve" a commercial district, Starbucks sends one signal while Dunkin Donuts sends another.

... then again, the first retail entrant into H Street after all the new plans was Family Dollar.

The Post ("Map: How coffee splits the United States in half"), Boston Globe ("Split country: Dunkin' vs. Starbucks") and Brandchannel ("Coffee Grind: Data Maps Show America Runs on Dunkarbucks") have articles on the competition between Starbucks and Dunkin Donuts with some insights into the meaning of the differences in the footprints of the respective chains.

And recently I wrote about Zillow's take on Starbucks as an initiator of neighborhood change--I disagree, arguing that Starbucks is a follower, not a leader of change.  See "(Not) Understanding how retail chains make property decisions: Baltimore, Starbucks, andSalon Magazine" where I wrote:

* Starbucks follows, it doesn't lead. I make the joke about Starbucks "as the one thing a commercial district" because when you work in the field, that's what residents come up to you and say, repeatedly. It's not that simple. Similarly, Zillow is wrong that Starbucks knows the next hot neighborhood. They are followers, not leaders, and their locations are co-incident with what we might call high-value "amenity districts." 

For example, Starbucks considers the location at 8th and D Streets SE on Eastern Market Square in Capitol Hill a distressed location, even though the number is full of houses costing $800,000 or more. There aren't many examples of Starbucks stores leading neighborhood and commercial district revitalization efforts. In DC, Starbucks followed Xando (which later rebranded as Cosi) which was the first "new coffee shop" in the city by many years.

Brandchannel points out that outside of urban centers, specialty coffee chains like Peets don't do well, but the Starbucks and Dunkin brands work well in all markets.

In any case, these blog entries, now ten years old, reflect insights I had about these issues quite awhile ago, but obviously, based on some of the discussions at the conference yesterday, these are still "new" ideas.

-- "Store siting decisions"
-- "Why the future of urban retail isn't chains"

From the first piece:

[I]n my experience there are four key decision points faced by a business proprietor involved in investing in and opening a store in the center city:

1. Whether to invest-open a store--or not
2. Where to invest--city or suburbs (most retailers are focused on the suburbs)
3. If investing in the city, where to invest within the city--the northwest quadrant which has the most population and the best demographics, or within the other three quadrants of the city
4. Investing in your particular commercial district.

Even in the District of Columbia, many business proprietors only have eyes for the northwest part of the city, which has the city's best overall demographics and density. Getting people to invest in other parts of the city is still a struggle, and the people most likely to do so are those with the least experience, and therefore have a greater likelihood of failure, without the provision of some help--even they are even open to help.

The point I am making is that you need to know where in the decision chain the business proprietor is, and the process can take much longer or much shorter if you have to make a "sale" for each one of these stages.

A business proprietor who has already decided to open a store, and to invest in the District of Columbia is half sold already...

4. FWIW, I am somewhat wrong about "the future of urban retail isn't chains."  Although it's not often what we prefer.  See the 2012 piece "It ain't true: chain retailers are entering the city, but not necessarily on the city's terms."

We have to differentiate between the types of goods sold: convenience, specialty and shopping goods, and price points.

For common goods at lower price points like apparel (think H&M) or electronics (Best Buy, etc.), chains will continue their reign because there aren't practical alternatives.

But other than the supermarket category, where some large independently owned regionally-based firms (e.g., Giant-Eagle, HEB, Publix, Wegman's) remain successful and dominant, most retail categories are dominated by national and international companies.

For specialty artisanal goods and restaurants, independent stores will still be able to break through. But outside of restaurants, the portion of the specialty goods sector held by independents is likely to be small, if not infinitesimal, even if particularly important to and prominent within traditional commercial districts.

But the consolidation of companies within retail categories, for example, Macy's in department stores; Walmart and Target in general discount, Kohls in apparel and housewares; Best Buy and hhgregg in electronics and appliances; Bed, Bath and Beyond in housewares, etc,; makes it very difficult to populate all the various legacy commercial districts and neighborhood centers that people want to activate.

For example, in the department store category, DC once had six mainline stores that were locally owned (Garfinckels, Hechts, Jelleffs, Kanns, Landsburghs, Woodward & Lothrop)--and they each served the city from one Downtown store, although Garfinckels had an outpost in Spring Valley, and Woodies a store just over the city line in Friendship Heights.  Plus, Sears had three stores in DC, and the African-American focused Morton's chain had stores across the city, mostly in neighborhood commercial districts but a downtown store also.  Of all of those stores, only the Downtown Hecht's (now Macy's) is left.

There isn't enough demand, let alone enough different store companies able to fill all the space that currently exists.

5.  One newer development is how in some of the biggest or highest income cities, certain chains are opening a select set of experience-retail focused outposts different from their typical offerings. For example, how REI is opening a signature store in the old Uline Arena (a building I helped save from demolition) or how Urban Outfitters has opened a signature almost "department store" like experience in Manhattan.

This is the next stage of higher end chain retail in urban centers that I discussed some in this piece from 2012, "Another point about urban retail: Whole Foods, Design within Reach, and American Apparel," and this piece from 2010, "Speaking of the Room & Board store and not knowing how the retail industry works."

In any cases, the strong markets will still be able to attract and develop retail while the weak markets will continue to find recruiting and developing retail a slog.

The Room and Board building on 14th Street NW, before renovation.

6.  14th Street NW has arrived.  In 2010, I said it would take awhile before the retail offer on 14th Street between T and Rhode Island Avenue improves.  If we extend that to U, to include the Trader Joes, I think it's fair to say that the improvement has arrived.

See "14th Street NW as a retail district."

The same building after renovation.

Although the district is dominated by restaurants, with only a smattering of retail, it works well enough for residents, because the convenience retail (Whole Foods, Trader Joes) meets real needs, and the specialty retail lends an upscale feel and appeals to a wider trade area, bringing people to the commercial district from across the metropolitan area, rather than just the neighborhood or city.