Riding The TrendsDuring Tough TimesFor Downtown Retail

N. David MilderDANTH, Inc.

718-805-9507www.danth.com

danthinc@yahoo.com

Presented at the NJLM Conference, November 18, 2008

© DANTH, Inc. All Rights Reserved

Keeping Things in Perspective There are no easy, “silver bullet” solutions

Many downtown merchants are hurting, others areclosing, but new shops are still opening (e.g. in Cranford,Englewood, Livingston, Teaneck, Washington, Westfield)

Financially strong downtown retailers can be moreaggressive, e.g., going for market share, store improvements

For most downtown retailers and their organizations, the For most downtown retailers and their organizations, therecommended key objectives are:

1. Survival

2. Capably managing/repurposing existing resources

3. Taking full advantage of opportunities

4. Repositioning to grow when the economy rebounds

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Consumers Have Much LessConsumers Have Much LessMoney to Spend

Middle class incomes have not really grown over thepast decade

Fixed expenses have been growing, e.g., medical expenses,college tuitions, childcare and recently energy and food

Americans have less home equity and less ability to leveragethat equity for discretionary spending, mostly retail -- which atone point reached $500 billion/yrone point reached $500 billion/yr

Unemployment is expected to increase significantly (7.5%?)soon, while job recovery is expected to happen slowly

The “Trading Up” retail trend supported the renaissance ofmany downtowns, but this behavior is being significantlydiminished as discretionary incomes are constrained

Consumers now “trading down,” seeking value or low cost.

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Downtown Merchants FaceSevere Problems

Costs of merchandise and operations are rising

Small merchants can’t get bank loans and many are usingcredit cards to finance their operations

Many landlords continue to ask high rents; some even ask forincreases despite the poor economic conditionsincreases despite the poor economic conditions

Value retailers gain market share on both price andfashion/design. Even more affluent consumers are drawn tothese stores as the tightness of discretionary dollars seeps upthe income ladder

Small independent downtown merchants can’t play the valueretailing game

A firm’s financial condition is key to its ability to cope.

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Different Downtowns Will BeImpacted Differently Districts dependent on HHs with income of $150,000+ will

probably best weather the storm –EXCEPT if more than 18% of theirresidents work in FIRE industries

Low income areas

1. Have more expenditure power than thought: the middle 20% offamilies have incomes more than four times the bottom fifth.families have incomes more than four times the bottom fifth.But, their consumption edge is just 2 to 1.

2. Low income shoppers need and like value retailers – and theseretailers are increasingly attracted to dense low income districts

Districts reliant on middle-income HHs ($40k-$149k) that arestrongly impacted by bursting of housing, credit and credit-cardbubbles and rising fixed HH costs will likely be heavily impacted bythe economic storm – especially if FIRE employment is high.

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For Low-Income Areas: To BigBox or Not To Big Box? Rigorous analysis vs. kneejerk

ideological response.

Consumer benefit vs. strongcompetition for somemerchants.

Wal-Mart plans 142 new stores Wal-Mart plans 142 new storesnext year; most smaller, moreintimate

Project design a key issue

Most likely a “yes” in largeurban centers, with very densepopulations – see JamaicaCenter on right.

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Time Pressures and the PotentialConvenience Advantage Americans feel extremely pressed for time

Most time-pressed are working mothers followed by stay athome moms and working parents

Working parents over the past decade have increased hoursspent at both work and with their families!

They reduced their time spent on shopping, cooking, cleaningchores, lawn maintenance, etc.chores, lawn maintenance, etc.

Conveniences such as eating out, take-out, housecleaningand lawn maintenance services made it possible!

Making the downtown shopping experience more convenientcan be an effective response to value retailing

Convenience concerns parking, walking around, crossingstreets, toilets, benches, way-finding, etc., as well as whathappens inside shops!

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Fewer Americans are moving each year, down from 20%in 1970 to 14% in 2004

Telecommuting now at 9 million telecommuters and growing

22 million Americans have home-based businesses

40% of Americans between 20 and 34 are living at least part-time with their families

“Locovores” are having a big impact on food industries “Locovores” are having a big impact on food industries

Suburbanization forces are being reversed, with well-off,empty-nester households lured back to city centers by urbanamenities (restaurants, museums, etc.) and the renewal ofdowntown housing stocks

Walkable suburban communities served by transit todaycommand a 40% to 200% percent price premium overconventional drivable suburban developments.

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Mommy Niches

Women are our nation’s shoppers. Though theycomprise little more than half the population, womenmake over 80% of the consumer purchasing decisions

Mothers with children make up about a third of allhouseholds and they are spending a lot of money

Most are part of mutual helping “mommy networks”

Mothers employed outside the home are the most time- Mothers employed outside the home are the most time-pressured group and most likely to give convenience aheavy weight within their purchasing decisions.

They are looking for shorter shopping trips and are moreinclined to “satisfice” (compromise between price andconvenience) on merchandise available in theirdowntown shops.

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Mommy Merchants

They usually have networks offriends who constitute a close-incustomer base and cadres oflikely store apostles.

They are also more likely to beattuned to local mommy needs,tastes and shopping habits.

They are often friends of other They are often friends of otherdistrict “mommy merchants” andthese connections provide aspine for referrals and informalcross promotions.

But, as “newbie” retailers, theyoften will need technicalassistance to succeed.

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Skein Attraction, Teaneck

Stories in Motion, Maplewood

Immigrant Merchants

Immigrants are 30% more likely to open anew business than non-immigrants

Proven risk-takers

Immigrants usually locate in a communitywhere there are a lot of their compatriots andwhere there are a lot of their compatriots andare usually quickly networked socially

Immigrant entrepreneurs like franchisesbecause they reduce the language problemand take care of a lot of critical managementissues, e.g., marketing.

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How Retail and Food ServicesHow Retail and Food ServicesIndustries Did Over the Past YearSource: the US Bureau of the Census. Highlighted sectors are

discussed below.

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Food at Home Niche HH food budgets are rather inelastic

Average HH in 2005 spent $3,297 on food at home,much more than on apparel, home furnishings orentertainment!

Households average 2.1 supermarket shopping trips aweek, making supermarkets potentially huge generatorsof downtown and Main Street customer traffic

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of downtown and Main Street customer traffic

DANTH’s research in Rutland, VT, showed 62 % ofsupermarket shoppers also shop in other nearby shops

For small and medium-sized downtowns, food at home istheir most important niche!

If your district does not have a strong food at homeniche, improving it should be a high priority objective.

Some Supermarkets Can Havean Adverse Impact…

For many years, downtownrevitalization efforts brought inlarge supermarkets located inself-contained, pedestrianhostile shopping centersoccupying several acres

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A 60,000 sf market will requireabout 105,000 sf for parking,constituting a total landrequirement of roughly fouracres

Cross shopping with shopsoutside of the center was verylow, so the projects’ rippleeffects were negligible

Great Neck Plaza, NY

Downtown FriendlySupermarkets

Kings, aiming at upscaleshoppers, only has small tomedium-sized markets, roughly10,000 sf to 25,000 sf.

Zeytinia and Aldi’s are chains Zeytinia and Aldi’s are chainshaving markets in the 6,000 sfto 12,000 sf range.

Tesco, the British supermarketgiant, has entered the US withmarkets in the 10,000 sf to15,000 sf range.

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Specialty/Gourmet FoodShops Are Very Important, Too The Natural is a small

gourmet market chain(photo on right) that is nowfitting out a 9,000 sf GardenCity, NY store

Fish markets, such as thevery popular Freeman’s in

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very popular Freeman’s inMaplewood Village, can bestrong draws. This shopalso supplies fish to over 40restaurants and manycaterers

Other important specialtyfood shops are delis, winestores, cheese shops,green grocers and bakeries.

Some Specialty Food ShopsBecome Local Icons

Town Meat Market inGarden City, NY, occupiesabout 3,000 sf of street-level and basement space,sells the best quality meats,fish, game and prepared

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fish, game and preparedfoods.

It not only draws manycustomers to the 7th Stshopping node, but isconsidered a “quality of life”asset by many localresidents

Farmers Markets Also Are StrongAssets for Food at Home Niches

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Union Square Market, Manhattan Farmer’s Market/The Grove, L.A.

Restaurants Average U.S. household spent $2,634 on food away

from home before current economic downturn

That equaled about 44% of its total food expenditures

Or, put in another way, about $1.00 was spent ineateries for every $1.25 spent in grocery stores

Big growth areas in restaurants were in take-out anddelivered meals

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delivered meals

Many aspects of a restaurant’s normal activities haveentertainment value – e.g., wine service, flambéedfoods, cheese and dessert carts, open ovens, openkitchens

Restaurants are often important social gathering placesfor the community and help make the downtown theCentral Social District.

Restaurants cont’d

Most new restaurants (60%) fail after 3yrs; 40%fail after one year (not 9 of 10)

Most restaurants need at least two meals to succeed Restaurants can thrive in marginal downtown

locations, if they are well managed – they are often“urban pioneers”

Restaurants are “amenities” that help other niches

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Restaurants are “amenities” that help other nichesgrow; sometimes help attract them

Cost of space is very important Outdoor dining adds vitality to an area’s image In good times or bad, popular restaurants/eateries are

critical to a downtown’s success!

Restaurants: Current Status

People are still dining out, but trading down. Saleswere up 3.2% in Q3 2008 from Q3 2007.

Middle-level eateries like Applebee's are hurting, while fastfood operations like MacDonald’s and Burger King haveincreased sales

Consumers are searching for value – eating appetizersinstead of entrees, cutting back on wines, desserts andcoffees

Several eateries have opened during the current “troubles”in the six NJ downtowns we recently canvassed

Savvy restaurant owners are responding with appropriatemenus and price-points. DANTH has observed several ofthem that recently had lines out the door on weekends!

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Restaurants Feed… andEntertain

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Joel Robuchon’s restaurants inParis and NYC place diners close tochefs and servers (see above).Many other restaurants featurechef’s tables, cooking tables, openkitchens and brick ovens.

Outdoor dining on Church St. inBurlington, VT, brings activity andenergy to the district

Dining as Entertainment:Benihana

Restaurants styled after aJapanese farmhouse.

The food is prepared beforethe customers at theirtables in the teppanyakistyle

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style Founder believed

showmanship andentertainment was of greatimportance. Chefs taughtnot only to cook food, but todo so with flair

Emphasis placed on highcustomer contact

Kids are a targeted market!

Drugstores Health and personal care grew

3.2% Q3 2007- Q3 2008

Drugs are non-discretionaryexpenditures

Some drugstore chains mayhave money and be looking forbargain new locations

Project design is CRITICAL. Project design is CRITICAL.See photos on right: top,Walgreens in Bayonne; bottom,Walgreens in Brookline, MA

Cosmetics shops have faredrelatively well in pastrecessions.

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Apparel Niches

Showed 1.1 % Q3 2008 growth from previous year.

But, while the apparel industry has grown over thepast two decades, it was at a pace much slower thanother retail sectors

Major retailers like Ann Taylor, the Gap, Talbot andChico’s – the kind of trophy apparel shop that manyChico’s – the kind of trophy apparel shop that manydowntowns have targeted as their dream tenants – arenot opening new stores as they suffer reduced sales ina difficult economic climate.

Independent apparel shopkeepers have found it toughgoing, especially in the middle market, because it’sbecome much, much harder to source merchandise.

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Apparel “Trophy Stores”

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Downtown Apparel NicheOpportunities

The overwhelming majority of NJ downtowns never hada chance of recruiting the trophy apparel retailers

But, many have more than sufficient unmet demand forapparel within a ten-minute drive shed to support a newstore with $300,000 to $400,000 in annual sales.store with $300,000 to $400,000 in annual sales.

Those sales while not attractive to a chain, can be morethan sufficient to attract small independent operators

New merchants will need a great deal of support fromthe downtown organization in finding affordable space,negotiating leases and perhaps even “sourcing” theirmerchandise.

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What New Independent ApparelMerchants Will Need to Succeed.

Be a local resident – for instance, a local mother – with anetwork of friends and colleagues in the community

Represent and market to a specific and stronglypopulated ethnic group in the community

Or be opening a very high-end shop that provides an Or be opening a very high-end shop that provides anexceptional level of pampering and customer service

Be able to solve the problem of sourcing attractivemerchandise. Research has shown that fresh, attractivemerchandise is critical to the success of an apparelshop. Shoppers want to find something new when theyvisit.

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Home & Hearth Niches Englewood, Red Bank, Ridgewood, Washington Borough

have strong H&H niches

Home and hearth niches are naturals for many downtowns

They contain a very diverse set of business operations --including any that help make a home attractive, comfortable andsafe.

Besides retailers, a H&H niche can include plumbers,electricians, sanitation specialists, roofers, carpenters, architects,

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electricians, sanitation specialists, roofers, carpenters, architects,landscapers and landscape architects, antiques, etc.

Usually, mostly composed of independent operators or smallregional chains. Their success is the key to a vibrant home &hearth niche

They usually do not require “vanilla box” spaces

Critical to their success is “pampering to death” financiallycomfortable, time-starved customers.

Home & Hearth: Current Situation Furniture & home furnishings hit hard: down 9.1% in Q3

2008 from Q3 2007. Electronics and appliances did OK.Tied to housing market and HH discretionary expenditures

Demand for this niche’s products and services will start torebound as consumers put more money and attention intofixing up their current homes instead of buying new ones.Home Depot and Lowe’s are already repositioned for this.

Economic conditions have also sent Americans into more“cocooning” in their homes which is leading to strong sales offlat screen TVs and other home theater accoutrements.

The home and hearth sector has grown at a greater rate thanGAFO in eight of the last ten years for which data areavailable. As the housing crisis abates, sales in home andhearth stores will follow suit. Now is the time for downtownorganizations to strengthen their home & hearth niches.

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Home &Hearth: Forest Hills, NY

Home Depot opened 7 yearsago 500 ft away

A flourishing 24 store "homeand hearth" niche thatincludes: an 80 yr oldhardware store; a paint andwallpaper store; two appliancestores; two plumbing and

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stores; two plumbing andplumbing supply stores; twofurniture shops; one kitchencabinet store, etc.

Consumer expenditures:157,459 households within a7-minute drive and they spend$321 million+/yr on homefurnishings and equipment.

Home & Hearth: WashingtonBorough, NJ

Population in 2000: 6,712

9 H&H retail shops includinga paint store, appliancestores, carpet shop,upholsterer, antiques shop,

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upholsterer, antiques shop,stained glass maker

$23 million spent annuallyon furniture and homefurnishings by trade arearesidents.

Home & Hearth: Englewood,NJ 1997 (pop:26,000)

30+ shops in the areas of30+ shops in the areas ofhome remodeling, homehome remodeling, homefurnishings and decorativefurnishings and decorativedesign.design.

Most of these shops areMost of these shops arestrong independents such asstrong independents such asEagle Paints, Mitchell SimonEagle Paints, Mitchell Simon

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Eagle Paints, Mitchell SimonEagle Paints, Mitchell SimonHardware, EnglewoodHardware, EnglewoodHardware,Hardware, Wohner'sWohner's DoorsDoorsand Mantels,and Mantels, Michealangelo'sMichealangelo'sWorld of MarbleWorld of Marble

An analysis of the marketAn analysis of the marketarea's lifestyles showed thatarea's lifestyles showed thatthere were overthere were over 12,50012,500upscale householdsupscale households avidlyavidlyengaged in home furnishingengaged in home furnishingand decorating activities.and decorating activities.

What Can SIDs and LocalGovernments Do to Have aStrong Downtown Retail Base?

Make the downtown shopping experiencemuch more convenient

Make it easier for small independent retailers Make it easier for small independent retailersto succeed in your downtown

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A Convenient DowntownShopping Experience Is:

QUICK

EASY and EASY and

ENJOYABLE

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An Example: Making DowntownParking More Convenient…1 From an economic perspective,

the convenience of parking ismore important than the amountof capacity

Our surveys showed not findingspaces quickly and easilycreates negative feelings abouta district

Women hate upper floors ofgarages, enclosed stairwells,elevators

The Grove in LA shows somesuggestive solutions.

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Making Downtown ParkingMore Convenient…2 An awful lot of downtown visits

do not entail the walking,strolling and window-shoppingtrips venerated in ourdowntown lore

They are very task-oriented, They are very task-oriented,quick-in, quick-out trips

Yet few NJ downtowns havededicated pick-up spaces orshort-term parking spaces. But,WalMart Plaza (right top) inClinton, NJ does. So doesRodeo Drive (right bottom).

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Independent Retailers Will Need Helpin the Following Areas…

Coping with the very tight credit market:1. Finding capital to open new businesses

2. Access to short-term loans to buy new inventory

3. Finding funds for physical improvements – fitting out new shops,façade renovations, etc.

4. Many existing relevant government programs are toocomplicated, time-consuming, have too much red-tape

Finding commercial spaces in acceptable condition, withaffordable rents

Learning new ways to market their businesses… theconventional media are no longer effective

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Some Local Programs to ModelAlready Exist…

Some SIDs provide financial assistance to newmerchants for fitting-out their new stores (e.g. Haddonfield,Washington Borough)

Some SIDs have developed good working relationshipswith local UEZs to provide financial assistance to new firmsand for façade improvements (e.g., Bayonne)and for façade improvements (e.g., Bayonne)

Some SIDs have convinced local banks to provide smallbusinesses loans for façade improvements (Morristown)

Teaneck is linking with FDU to provide management andmarketing technical assistance to local small businesses

Some SIDS are using Farmers Markets as de factobusiness incubators.

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SIDs Will Need to Play Two Roles,Which May Be New to Many:

Retail Gardener:

Helping to “till, plant, water, fertilize, etc.,” downtownretail establishments. This puts an emphasis onbusiness development for new and existing retailersrather than business recruitment.rather than business recruitment.

Change Agent:

Facilitating business innovation through providinginformation, networking, financial incentives andpleasant “nagging.

Local government support will often be required if SIDs areto perform these roles effectively.

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